Charlie Sheen, The Morals Clause, And Legal Indeterminacy

[UPDATE II: As I wrote below,  Sheen "held up his end of the bargain." The Hollywood Reporter says that case is settled and he's walking away with $25 million and a reinstatement of his revenue stream from Two And A Half Men.]

[UPDATE: Above the Law parses the termination letter sent to Charlie Sheen. The reasons given for his termination are surprisingly weak; fact is, Sheen's lawyers got the better of Warner Bros. in negotiating such a favorable contract for him.]

I’m litigator and trial lawyer, and so do not normally get involved in contracts until after everything has fallen apart and the parties to the contract are now at war. I tell my clients not to dwell on the past, but I often can’t help wondering how they got into this mess and how they could have protected themselves.

That’s what came to mind when I read this:

“Based on the totality of Charlie Sheen’s statements, conduct and condition, CBS and Warner Bros. Television have decided to discontinue production of ‘Two and a Half Men’ for the remainder of the season,” the companies said in a joint statement.

 

In the long-term, Warner Bros. faces a larger impact from lost opportunities to sell syndication rights for the show, which Evercore Partners analyst Alan Gould values at roughly $3 million per episode. Mr. Gould said the eight lost episodes from the show’s current season could result in $24 million in lost revenue to the company over a period of years.

Mr. Sheen has said he is sober after tabloids in January reported he’d had a 36-hour bender involving alcohol, drugs and prostitution. Until now, under financial pressure, the two media companies behind “Two and a Half Men” stuck by him as he continued to deliver his trademark performances and high ratings despite the string of embarrassing headlines.

That’s a lot of money thrown away due to a rant that was indistinguishable from Qaddafi’s latest speech.

Really, though, was it all so unexpected? My knowledge of Charlie Sheen is fairly limited — I know he has a father Martin and a brother Emilio — but even I know that he likes to party, and that he has a penchant for trouble.

So why didn’t Warner Bros. and CBS protect themselves? It’s not like Charlie Sheen is an upstart actor without a penny to his name; if he breaches a contract and causes millions of dollars in damage, there’s a significant chance that he would be able to pay for at least some, potentially all, of the damage. I haven’t the interest to verify it, but this website says he’s worth $85 million.

Several of Tiger Woods’ endorsements bailed on him as soon as he found himself on the wrong end of the golf club. Michael Phelps was kicked off the Wheaties box for doing the same thing the last three presidents all admitted doing. But apparently “morals clauses” just aren’t nearly as common among entertainers as they are among athletes:

“I haven’t read it,” the wayward star of CBS’ hit sitcom “Two and a Half Men” told radio host Dan Patrick last week, but “I don’t think it covers, ‘Let me totally dominate and interfere with your personal life.’ “

Sheen was referring to a morals clause, the contractual provision that since the early days of Hollywood has governed any conduct by a performer that might pose problems for the studio.

But lawyers and studio insiders say that while morals clauses remain a fixture in the popular imagination, they are seldom used anymore in deals for entertainment talent.
“In terms of my own practice, I haven’t seen a lot of them,” said Doug Mirell, a partner and entertainment litigator at Century City law firm Loeb & Loeb.

“A lot of those moral clauses are unenforceable because they constitute discrimination,” said USC professor and cultural historian Leo Braudy.

I’m not so sure why the professor believes these clauses would be unenforceable. The biggest companies in the world routinely find ways to invade their employee’s personal lives, including snooping on their email and demanding their Facebook passwords. Such treatment isn’t limited to service jobs, either: a fair number of doctors, lawyers, and other professionals with “adjunct” or “associate” professional relationships to a university have to sign away all copyright and patent rights they have for anything they create — even if entirely in their spare time with their own money — during their tenure at the university.

I don’t think that Warner Bros. could have had, or should have had, the right to tell Charlie Sheen what to do with his life, but it did have the right to set minimum levels of negative publicity arising from his own conduct in order to perform under the contract. Once he went on his “bender,” he would’ve been in breach of the contract.

But there’s more to the story. As the Legal Theory Blog coincidentally discussed yesterday, there is a legal theory known as “indeterminacy” which argues, in essence, that the law doesn’t necessarily provide a clear answer in every case, and so the end result is often a product more of the lawyers, the courts, and the jury that a product of the law as applied to the parties’ conduct.

“Indeterminacy” is a big part of every litigator and trial lawyer’s practice. “A judge or jury could do anything” is the common refrain told to clients, many of whom have been deeply wronged but whose cases present a number of legal hurdles.

As pertinent here, a mere breach of the contract is not enough to sustain a lawsuit claiming large damages. Every plaintiff in a breach of contract case has a duty to mitigate their damages, which in this case might limit Warner Bros.’ ability to simply cancel the show. As part of their “duty to mitigate,” they might have had to keep Charlie Sheen on the air, post-bender, while they watched ratings decline, so they could sue him later. I doubt CBS would stand for that, but if CBS canceled the show, that might give Charlie Sheen away out of the contract, by arguing impossibility or frustration of purpose.

All of which might indicate why entertainers don’t have the same morals clauses in their contracts as athletes do for product endorsements. If, in the midst of an endorsement, an athlete embarrasses himself or herself, then there is utility in the morals clause, since it allows the endorsing company to pull out and potentially recoup the money they paid. In contrast, if an entertainer trashes their own reputation, there’s not much benefit in a contractual arrangement which effectively requires their producer to prop the entertainer up through the bad publicity.

But we’re not done yet. According to this morning’s news, Charlie Sheen might sue Warner Bros. and CBS for canceling the show. And that’s where it gets interesting; he might have a better claim than they do. After all, he held up his end of the bargain — a bargain which Warner Bros. and CBS could have asked include no “benders.”

We’ll just have to wait for Sheen’s court filings to see if there’s any merit to it, and Warner Bros. and CBS can argue that Sheen’s conduct rendered it commercially impracticable (a word no one but lawyers use) to continue with the case. Then they’ll countersue him for causing the problem.

Like I said, even I know the man has a penchant for trouble.

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