[Update, November 20, 2007]: Howie Carr has returned to WRKO[Update, October 30,2007]: Today’s Boston Globe reports that Howie Carr’s appeal was denied.
Litigation over noncompete agreements rarely gets this interesting.
The Contestants. In one corner you have Howie Carr, one of the most popular talk show hosts in the country. In next corner (there are players in all four corners of this ring) stands Entercom Boston, owned by Entercom Communications, one of the largest radio broadcasters in the U.S. and owner of Boston radio station WRKO-AM, which hosts the popular Howie Carr Show. Opposite WRKO stands Greater Media, owner of numerous media assets, including WTKK-FM in Boston, and would-be employer of Carr. Finally, in the corner directly opposite Mr. Carr is Massachusetts Superior Court Judge Allan Van Gestel.
The Contest, In Brief. Howie Carr wants to leave WRKO and work for WTKK. However, his contract with WRKO gave WRKO the right to match the offer made by WTKK, and WRKO did match WTKK’s five year, $7 million offer. Carr filed suit, claiming that this provision of the contract is unenforceable under Massachusetts law. Judge Van Gestel ruled that under the circumstances present here WRKO had the right to match WTKK’s offer, requiring Carr to honor his contract with WRKO. Carr has appealed this ruling, but at the moment Carr is off the air, refusing to broadcast for WRKO (which wants him back), and unable to work for WTKK, which (smartly) made its offer contingent on Carr being legally unencumbered. Due to Carr’s absence from the air, WRKO is suffering economic losses (advertising revenues that are tied to Carr’s popularity and which disappear in his absence), and WRKO is threatening Carr with a claim for damages based on those losses. Carr has appealed.
The Judge. A word about Judge Van Gestel: Judge Van Gestel has been the mainstay of the Business Litigation Session in Suffolk Country since its inception in 2000. He is retiring at the end of this year, at the age of 71 (he has been on recall since reaching mandatory retirement at age 70). It’s a safe bet to suggest that no other judge in the history of the Superior Court has had the impact on business law that Judge Van Gestel has had. Because of his seat in the Business Session he has decided more “business” cases in eight years than many Superior Court judges with a much longer tenure. And, because he is a prolific writer (and Superior Court opinions are now published in a reporter and by the online legal services, giving judges a much broader audience), he has left behind an important legacy: a large body of Superior Court case law that has attained the status of “persuasive” precedent in Massachusetts (trial court decisions are not considered “binding” precedent). And nowhere has Judge Van Gestel been more active than in the area of noncompete agreements. Underpaid, understaffed and working in poor conditions (as he has often publicly stated, drawing a humorous comparison between his situation and the lawyers who appear before him), he is (through year-end) one of the most powerful men in Boston.
Well, Judge Van Gestel was presented with a whopper of a noncompete dispute to wrap up his career in the Business Session when the Howie Carr/Entercom case arrived in his courtroom. Most noncompete cases involve no-name companies and no-name employees. These cases get no attention outside of the legal communiity (and very little there). The Carr case, every step of which has been reported in the major Boston news media and beyond, has attracted public attention unlike any noncompete case I can recall. The details of Carr’s relationship with the two stations, and the moderately titillating economics of Carr’s contracts (warning: we’re not talking Dice-K level salaries here) are discussed in detail in this Boston Globe article. The strategic decisions made by the parties in this case, and how Judge Van Gestel chose to interpret Carr’s contract with WRKO in light of an unusual and never-before applied state statute, make the case particularly interesting.
The Facts. There are two legal documents that bear on Carr’s legal ability to walk away from his contract with WTKK. The first is Carr’s contract with WRKO, which states that if he receives an offer from another station during the term of the contract, or within 180 days following expiration of the contract on September 19, 2007, WRKO will have a “right of first refusal.” Under the right of first refusal WRKO has the option to continue Carr’s employment for the same term and compensation as the new offer.
The second document is Chapter 149, Section 186, of the Massachusetts General Laws. This law, enacted in 1998 but never before applied in court, makes void and illegal any contract that restricts the right of an employee in the broadcasting industry to obtain employment in a specific geographic area “after termination of employment” or following “termination of the employment relationship.”
As an aside, it’s worth noting that in addition to giving WRKO the “right of first refusal” to match another broadcaster’s offer during its contract with Carr and for 180 days after expiration, the WRKO contract also prohibited Carr from providing broadcasting services in WRKO’s market for 90 days after the contract expired.
Apart from the contract and the statute, the “facts” in this case were straightforward and undisputed. In fact, all of the events occurred in a single day, suggesting that there was a lot of behind-the-scenes activity preceding what became “D-Day” for Howie Carr. WTKK gave Carr a five year, $7 million (including incentives) written offer on July 9, 2007, about two months before Carr’s agreement with WRKO was due to expire. WTKK was careful to steer clear of any claim that it interefered with Carr’s contract with WRKO – the offer was contingent on Carr not being bound by that contract. The same day Carr presented the offer to WRKO, WRKO immediately exercised its right of first refusal, informing Carr that it would match the five year term, and the $7 million compensation. The next day Howie Carr filed suit.
The speed with which these events unfolded suggests that the dominos were lined up and ready to fall – Carr must have warned WRKO that he was going to receive an offer from WTKK, and WTKK’s same-day acceptance suggests they may have known the financial terms of that offer, and were prepared to match them. Carr’s filing of his lawsuit, the very next day, suggests that Carr knew that WRKO was going to match WTKK’s offer, and that a suit would be necessary to attempt to break free of WRKO’s contract rights.
Howie Carr’s plea to Judge Van Gestel was simple: relieve me of this post-employment restriction. My contract with WRKO, Carr stated, restrains my legal right to pursue a new employment opportunity after my contract with WRKO expires in September.
The Decision. Not so fast, responded Judge Van Gestel in a written decision issued on September 12, 2007. The Massachusetts law that Howie Carr invoked prohibits restrictions on employment “after termination of employment of the employee by the employer or by termination of the employment relationship by mutual agreement of the employer and the employee or by termination of the employment relationship by the expiration of the contract or agreement.” MGL c. 149, Section 186. None of these things had occurred – Howie Carr had not been terminated involuntarily, there had been no mutual agreement to terminate, nor had the contract expired. All of the events before the court had occurred before the contract expired. Once WRKO exercised its right of first refusal, the judge reasoned, the employment contract was simply continued. Reading the contract literally, there was no post-employment restriction on Carr’s employment.
Timing is Everything. After delivering this news to Howie Carr, Judge Van Gestel turned the knife in the wound – he suggested that Carr could have avoided this outcome had he met with WTKK, even secretly, and discussed potential employment following expiration of the contract with WRKO. The mistake he made, in Judge Van Gestel’s eyes, was receiving an offer and presenting it to WRKO while the contract with WRKO was still in effect.
Will Judge Van Gestel’s reasoning hold up on appeal? I do think Howie Carr has a decent chance of getting Judge Van Gestel’s decision reversed. Judge Van Gestel sliced the baloney very thinly in basing his decision on the technicality of a pre-expiration offer from WTKK versus a post-expiration offer, and the Appeals Court may not endorse Judge Van Gestel’s literalist approach. On the other hand, the Appeals Court may not have much sympathy for Howie Carr on these facts – after all, he can earn the lucrative salary he was offered by WTKK simply by going back to WRKO. And, while Carr can’t be forced to work for WRKO, the pressure on him must be enormous – he may be liable for breaching his contract and could be forced to pay damages based on WRKO’s reduced advertising revenues resulting from his absence from his show. Carr may decide this isn’t worth the trouble and risk, throw in the towel, and return to work for WRKO.
One final note: when I first heard about this case one of my first thoughts was that Carr might be using WTKK as a stalking horse – that is, another player that he could use to force a higher salary from WRKO than it would be willing to pay without another station bidding for his services. However, Carr’s continued absence from work at WRKO, along with his appeal, suggests that this is not the case.
Judge Van Gestel has issued two decisions in this case: