Conan Versus NBC Fiasco Illustrates Contract Law at Work in "Real Life"
The recent late night television mess with Jay Leno and Conan O’Brien is a great object lesson as to what contract law really is and does AND what it actually isn’t and doesn’t do. In my last post, I highlighted some of the various legal arguments being made by Conan, NBC, and to a lesser extent Leno. (Visit "Leno gives his side of 'Tonght Show' intrigue" for Leno's take on the events, including his guranteed payments under his contract.) However, now that it’s over, let's look at some important points about contract disputes as they happen in "real life" well illustrated by the series of recent events.
FIRST - Contract disputes frequently come down to the “letter of the contract” versus “spirit of the agreement” sort of dispute the Conan/NBC situation illustrates. NBC’s initial saber rattling focused on the fact that Conan’s contract as host of The Tonight Show apparently did not specify an exact time slot. (This is the nightmare every transactional lawyer dreads – the one thing you didn’t think of turns out to be the really crucial provision that should have been in there.) From NBC’s perspective, this gave them the right to move The Tonight Show back a mere half hour without breaching their obligations under Conan’s contract. Here, the LETTER OF THE CONTRACT.
Conan’s camp for their part pointed out that The Tonight Show has aired at 11:35 P.M. immediately after the local news for 60 years and essentially contended that the time slot was an “implied” term of the contract. Here the SPIRIT OF THE AGREEMENT. And that close cousin to “spirit” of the agreement”, namely, the “GOOD FAITH” requirement imposed in every contractual relationship.
Now, this is good stuff because it pits those careful enough (or perhaps lucky enough) to have said what they meant against those urging what might be considered a “fair” outcome built on what may well have been shared assumptions at the time the contract was made. In a way, both sides are right, but only one’s perspective can be enforced.
Should Conan have specified a time if that mattered so much? Yeah, probably….. but seriously, who would think anyone would even propose moving The Tonight Show to a different slot? Often, how a court decides to resolve this issue will do much to affect its determination of whether any breach of contract in fact occurred, and if so, what sort of damages should be awarded. Which brings us to the second point of understanding>>>>>>
SECOND – Resolving contract disputes OUTSIDE the court room is generally better for everyone. This three-way conflict had the potential to get really ugly really fast. Conan might have gone to Court to require NBC to keep him on at 11:35 PM until there could be a full hearing of how his contract with NBC should be interpreted. If instead Conan chose to walk away, well then there was a noncompete to deal with and the possibility of being held liable for a breach of contract by failing to continue to perform at the later time slot. The details of how Leno agreed to pass the torch to Conan in the first place (i.e. Conan’s contract was expiring and NBC needed a way to keep him at NBC) almost certainly would have been examined in graphic detail unlikely to be flattering to either NBC or Conan. Things could very well have gotten “personal” between Leno and Conan as they were already beginning to do, something which in the end was probably not going to enhance the image of either in the public eye.
In short, long divisive publicity of this dispute was in no one’s interests. NBC decided that Leno was more valuable than Conan to it (or perhaps even more expensive proposition to jettison) and agreed to pay Conan and his crew enough to make the case go away. And Conan got a nice severance package for himself and his staffers and, perhaps more importantly, the ability to host another show as early as September without having to deal with lawyers and lawsuits. NBC was able to make amends to its affiliates whose unhappiness started the avalanche in the first place. And Leno got back what he apparently never wanted to give up in the first place.
It's relatively unlikely that these three parties would all have wound up where a relatively brief period of intense negotiating got them. And it would certainly have cost all of them A LOT more had this gone the litigation route. Sometimes, it really isn't possible to resolve things among the parties themselves. However,as a practical matter, it is almost always better for the parties themselves - who know and understand the situation better than any outsider could- to find their own resolution.
THIRD - Leverage always matters. In this case, it was the network affiliates -who were contractually obligated to run Jay Leno's 10 PM show - who really got the ball rolling. And ultimately got exactly what they wanted... They were losing money and they were not happy. So even though - contractually - they didn't have a leg to stand on, none of the rest of this sordid affair would have tumbled out, but for NBC's desire to placate this important customer. Then there's Jay who was rumored to have an ironclad contract guaranteeing a hefty payment whether his show aired or not, thus perhaps presenting the economic decision for NBC that it would cost less to keep Jay than to get rid of Conan. And Conan - well he had the ability to make the whole situation a truly horrendous mess both legally and perhaps more importantly from a PR standpoint, thus giving the impetus to NBC to pay him some money instead of insisting that he continue to perform.
In many contract disputes, there may be a well-written contract on which one party can rely from a legal perspective to enforce their position. But that doesn't always mean that's the smart thing to do - never mind about what the "right' thing to do would be. The point is: the law can preserve your options, but the decision must still be made in the context of the surrounding business world.
So, does all this mean lawyers and their contracts are an unnecessary evil to be dispensed with? No - a well written contract helps set the parameters for what is open for discussion and can in some cases influence the amount of leverage one has or doesn't have. it's simply important to understand that neither they, nor their breach, exist in a vacuum.
