Checking in on Keith Olbermann and Materiality: Can Disclosing Your Salary Cost You Your Salary?

A few weeks ago, I sketched out the high-profile breach of contract dispute between Keith Olbermann and former Vice President Al Gore’s cable TV network, Current TV.

Since then, Current TV has added a new talk show to be hosted by Joy Behar, and on-air host Cenk Uygur has obliquely responded to some of Olbermann’s criticisms that were made public by the filing of Olbermann’s lawsuit.  (Q: “Have you talked to Keith Olbermann since he left the network?”  A:  “Did I talk to Keith Olbermann before he left the network?  The answer to your question is no.”)  Oh, and Olbermann’s Countdown blog continues to be hosted on Current TV's website, although it (obviously) has not been updated since March 29, 2012 – Olbermann’s last day on the air.

Last time, I highlighted the six breaches of contract alleged by Current that, if material and uncured, might justify Current’s decision to terminate Olbermann without paying him the nearly $40 million left on his contract.

Current first alleges that Olbermann materially breached his contract by disclosing, to the press, the amount of his salary, which was to be kept confidential.  Cross-Complaint at p.8, paragraph 22.  According to Current, Olbermann asked for permission to waive the confidentiality provision and disclose his salary in interviews with the Wall Street Journal and the Hollywood Reporter in order to (as Current claims) “silence critics” of Olbermann’s decision to leave MSNBC.  Current claims that it denied Olbermann’s requests and Olbermann went ahead and revealed his salary anyway.

You might be asking yourself:  ‘what’s the big deal?’  After all, all we’re talking about is disclosing a single number – albeit a rather large one – to the press.  Could such disclosure really outweigh all of the other obligations both sides have in a five-year, multi-million-dollar contract to broadcast a political news and commentary program?

To be a “material” breach, the party’s breach must go directly to the heart of the contract such that one party’s material breach effectively deprives the other party of the substantial benefit of the bargain.  Perhaps the pithiest explanation of materiality comes from Judge Posner of the Seventh Circuit, who explains that “[i]f you commit a material breach of contract, the other party can walk away from the contract without liability, and can do so as soon as you announce your intentions even if the time for the performance that you have repudiated hasn't arrived.”  American Hosp. Supply Corp. v. Hospital Products Ltd., 80 F.2d 589, 599 (7^th Cir. 1985).

To determine materiality, a court will ordinarily have to undertake a fact-specific inquiry that is “necessarily imprecise and flexible,” Restatement of Contracts (Second), sec. 241, cmt. a.  Typically, this inquiry looks to five specific circumstances set out in section 241 of the Restatement.

However, the most important touchstone guiding the court’s analysis is to “further the purpose of securing for each party his expectation of an exchange of performances.”  Id., cmt. a.  This means that courts often consider dispositive the fact that the parties have agreed in the contract itself that certain breaches would be considered material.

Here, both Olbermann and Current TV have stated their agreement that Section 16(a)(i) reflects the intent of the parties to memorialize that any disclosure of the economic terms of the contract would be deemed a material breach.

As a result, Olbermann argues that it was actually Current TV who initially disclosed the amount of his compensation in the press, and that in any event, Current agreed via subsequent letter to waive any possible breach by Olbermann in disclosing his compensation.   See Complaint at 18, 33.  The one thing Olbermann does not argue is that even if he leaked the amount of his salary, such a leak was no big deal – which is, of course, exactly the sort of argument you might otherwise expect in a dispute like this.  Olbermann can’t make that argument because he’s already agreed it is a big deal.

How the factual considerations play out is yet to be seen, but the lesson for those drafting contracts is clear:  be careful what you agree constitutes a “material” breach of your agreement.  You’re putting both sides’ expectations down in writing, and agreeing that the “material” breach would excuse all future performance by the other side.  If you’re not the one drafting the contract, take a keen eye – and a red pen! – and be on the lookout for the word “material” before you sign anything.

• Breach of Contract