Rosie O’Donnell’s Contract

April 1, 2004


Neil J. Rosini

The Hazards of Deferring Issues of Control

The recent and well-publicized dispute between Rosie O’Donnell and the publisher of Rosie magazine, Gruner + Jahr, ended in a tie after a rancorous trial. The judge who presided without a jury decided that the magazine was a sinking ship and neither party proved itself damaged by the other. It took a long and bitter litigation, however, to reach that tame result and lessons can be learned – particularly with respect to the parties’ contract. That document failed to address some critical issues of control and gave rise to many of the troubles that followed.

Lawyers often are criticized for writing long contracts. When clients dryly ask “Are you paid by the word?” lawyers have a typical answer: they try to anticipate potential areas of disagreement and resolve them in advance by giving one side or the other a superior position on each point. Instead of litigating a disagreement, the parties can simply look to the contract. But even if parties were always willing to abide by the terms of their deal (which is not the case), this strategy of “peace through anticipation” has its limits. No matter how many pages long, a contract cannot anticipate and resolve everything; there may still lurk a set of circumstances that leaves room for dispute.

And even when there exists a critical issue of control – which everyone recognizes as a potential flashpoint (so there is no failure to see the potential disagreement) – it may be very difficult to settle the point contractually in advance. This circumstance will arise more often when the parties have relatively equal bargaining power and neither can preempt the other at the negotiating stage. The likelihood is even greater when subjective, creative choices will be made under the contract and both negotiating equals want to make them. Which negotiating equal will cede the right to make critical creative decisions even before signing the contract? Probably neither.

Faced with a negotiating impasse, the parties can either give up or try something creative in itself. In the contract between Rosie O’Donnell and Gruner + Jahr, a key issue was editorial control. This is a subjective area indeed. Ms. O’Donnell, a television celebrity, had built a public image and reputation over the course of years based on “energy and empathy,” according to a letter to the magazine’s advertisers. The value of her first name alone was documented by its selection as the magazine’s title. To her, control of the magazine’s quality and “personality” were critically important to maintain the value of those assets and her “dignity.” From the publisher’s point of view, Ms. O’Donnell’s core competence was not in publishing and the publisher’s first priority was to turn out a monthly magazine in a profitable way. The parties anticipated that their respective views of editorial direction could easily differ on aesthetic and business grounds.

In the contract, they tried for a “checks and balances’ approach:

  • They agreed that Ms. O’Donnell “shall hold the position of Editorial Director of the Magazine with control over the editorial process and editorial staff.”
  • But they further decided that Ms. O’Donnell’s editorial control would be subject “to the veto of the chief Executive Office of G+J (the “CEO”).”
  • Moreover, Ms. O’Donnell agreed to “relinquish editorial control of each issue of the Magazine during the period one week prior to the editorial close of such issue and resume such control immediately thereafter each editorial close.” (Her court pleading said G+J requested this provision “to avoid expensive last minute changes to the text or layout.”)
  • The CEO was authorized to do all things “reasonably necessary for the performance of the [Magazine’s] day to day operations.”
  • With regard to staffing, the CEO had the power to hire and terminate “company personnel,” except the parties would “jointly agree on hiring of the Magazine’s editor and senior staff.”

    This approach worked as long as Ms. O’Donnell and the publisher shared an editorial vision but in the summer of 2002 each vision began pointing in a different direction. According to Ms. O’Donnell’s pleadings, the publisher became wary of her “vision and persona,” she believed, and caused a new editor in chief to report directly to the CEO instead of to her. Ms. O’Donnell claimed her choices of senior personnel were ignored, and the publisher began interpreting its veto power and exclusive control during the “one week prior” in ways that sidestepped her editorial input entirely. G+J argued in its pleadings that Ms. O’Donnell was not supposed to have “hands on responsibility or authority for managing all aspects of the Magazine,” or “final or unfettered control over …operations or editorial content.” The publisher complained that she countermanded “numerous assignments” made by the new editor in chief .and also attempted to make changes to an issue during that “one week prior.” G+J further alleged that Ms. O’Donnell became increasingly abusive, irrational and impossible to work with as she “sought to exercise total control over the production, content and employees” of the magazine. Eventually, Ms. O’Donnell terminated the agreement alleging a material breach and the parties sued each other.

    The editorial control clause did not contribute to a quick resolution of the dispute because it left some key questions unanswered:

    (1) To whom was the editor in chief supposed to report given the publisher’s control of “day to day operations’ and Ms. O’Donnell’s control of “the editorial process and editorial staff”?

    (2) Does the position of “Editorial Director” contemplate a generalized role “with regard to tone and content” (as the publisher argued) or “hands-on responsibility” (as Ms. O’Donnell claimed)?

    (3) Particularly if you assume the latter:

    (a) What should he sufficient cause for the exercise by G+J of veto rights?

    (b) How was Ms. O’Donnell’s duty to relinquish control just before each magazine was finalized to he reconciled with her “control over the editorial process and editorial staff”?

    (c) What line divides the publisher’s territory of “day to day operations’ and Ms. O’Donnell’s domain over “editorial process”? and

    (d) Once senior staff was hired, if only the publisher could terminate employment, how would that he reconciled with Ms. O’Donnell’s “control over the editorial process and editorial staff”?

    These may have been difficult questions to resolve during the parties’ negotiations when both sides were eager to trust in good faith and plunge ahead. But there are risks in deferring key questions of authority especially with tens of millions of dollars at stake. Hammering out an agreement on each of these points could have soured the parties’ working relationship or blown the deal entirely, but consider the alternative: not only a failed enterprise but also nine-figure cross-claims.

    As noted above, those cross-claims ended with an impasse of a different kind: Judge Gammerman awarded no recovery to either party despite their costly and bitterly-fought litigation.