It was just a month or so ago that a decision was reached on the settlement agreement in the Blessing lawsuit against Sirius XM, and only a few weeks since Sirius XM (a nominal defendant in the case) lost their motion to dismiss the Shenk case. Now, both cases are heating up, and despite a settlement agreement, the Blessing matter is not quite done yet.

Sirius XM recently filed an answer to the amended complaint in the Shenk matter. In that filing the company used the Blessing settlement as part of their defense. The interesting thing here is that specific piece of defense virtually guarantees that we will see an appeal of the Blessing suit by at least one of the objectors to the proposed settlement. I have on good authority that at least one objection to the Blessing settlement is already prepared, and now that Sirius XM has prepared an answer in the Shenk matter will be filed soon.

One key in the objector appeal of the Blessing matter was that the releases associated with the settlement were overly broad and that Sirius XM may use the Blessing settlement to strip away shareholder rights in other matters, such as the Shenk case. It now appears that this is exactly what Sirius XM is doing, and here is where it gets interesting.

Prior to settling the Blessing matter there were a handful of plaintiffs that dropped out of the case. As it turns out, not a single one of the remaining plaintiffs that remained a part of the Blessing suit were shareholders. This made the Blessing suit a “pure” consumer/subscriber matter. The argument can and will be made that the Judge in the Blessing matter did not have the authority to strip away shareholder rights, especially with a shareholder suit pending (the Shenk case), in a case brought on by subscribers.

Sirius XM brings up 12 Affirmative defense arguments many of which are boilerplate in nature. In the Sixth Affirmative Defense the company states;

SIXTH AFFIRMATIVE DEFENSE
The claims asserted in the Complaint are barred, in whole or part, because
Plaintiff lacks standing to bring this suit.

As a shareholder Shenk does not lack standing. The only way it can be argued that he lacks standing is if the company is arguing that he lacks standing because of the proposed settlement in the Blessing matter.

We see this come to a head in the 11th Affirmative Defense:

“ELEVENTH AFFIRMATIVE DEFENSE
The claims asserted in the Complaint are barred, in whole or part, by the releases
in the Court-approved Settlement Agreement in Blessing v. Sirius XM Radio, Inc., No. 09-cv-
10035(HB) (S.D.N.Y.).”

Clearly Sirius XM is using, as part of their defense, the settlement of a subscriber suit to make efforts to gain victory in a shareholder suit. This is one of the exact reasons why the settlement in the Blessing matter is not quite over.

Bear in mind that Sirius XM has already moved forward on the settlement conditions of the Blessing suit. They are not raising prices until January 1st, 2012. An interesting dynamic is that the theoretical value of the Blessing settlement has already been cut in half. During the settlement of the Blessing matter Sirius XM argued that they were going to raise prices by $3.00 per month effective July 29th of 2011. That figure was used to calculate a value that subscribers would get as part of the suit because the company pledged to forgo price increases until 2012. During an appeal hearing this may become another argument of the objectors. Of course the company could always say that due to further market analysis they determined that a $3.00 price hike would be detrimental to the business and thus they changed their mind.

The last way this could get interesting is something that many investors have not yet considered. As we all know Liberty Media has a substantial stake in Sirius XM, and could in theory gain a controlling interest in Sirius XM at any time. There is however a couple of legal matters that Liberty’s Malone may want addressed first. The Shenk, Blessing , and Stern matters are all still on the table and could be used as a negotiating tool for Liberty. It is something to consider.

In the end, we could see settlement in all three matters, but as of now they are still pending items for investors to think about. One side note is that most of these matters are dealing with issues in the past. Sirius XM in the present and future seems to have the business well under control and is reporting good metrics, guidance, and cash flow on a regular basis.

Position – Long Sirius XM Radio