Viacom, CBS Hit With Shareholder Lawsuit Over Loyalty to Sumner Redstone

Boston Beginnings
Christopher Patey

Redstone was born in a Boston tenement to a father who changed the family name from Rothstein to Redstone and built a regional movie-theater chain. After a short career as an attorney (he graduated from Harvard and Harvard Law), Redstone joined his father's company, National Amusements, in 1954. He became CEO in 1967 and steadily grew the company with profitable investments in studios.

Viacom, CBS and its respective board members were sued on Tuesday in Delaware Chancery Court for decisions related to their 92-year-old executive chairman and controlling stockholder Sumner Redstone.

The lawsuit states that since Oct. 1, 2013, the company's top executives including Viacom CEO Philippe Dauman and CBS CEO Leslie Moonves and board members "put their personal loyalty to Mr. Redstone (in particular, and secondarily to [Shari] Redstone) well ahead of their loyalty and respective fiduciary duties they owe and owed to Viacom and/or CBS and their respective shareholders."

The litigation follows a storm of court action by Manuela Herzer, one of Redstone's ex-companions, over his health condition.

The plaintiff, E.F. Greenberg, suing derivatively on behalf of other shareholders, is objecting to millions of dollars in bonuses paid to Redstone "while he was physically and mentally incapacitated and, according to his principal caregiver ... was 'unable to communicate reliably or competently manage his own health care,' and certainly unable to fulfill the responsibilities for which he was paid."

The shareholder lawsuit finds the "independence" of the board members to be dubious and states that compensation decisions could "not represent the product of bona fide business decisions."

According to the complaint, Redstone was paid $22 million from CBS and $24 million from Viacom over a two-year period.

A statement from Viacom says the "suit is without merit."

Asserting causes of action of breach of fiduciary duty, unjust enrichment and breach of the duty of loyalty, the plaintiff demands repayment of the tens of millions, an order that the board must acknowledge Redstone's alleged incapacity, and termination of compensation to Redstone. The plaintiff is represented by attorney Timothy Dillon.

Read the full lawsuit here.

In another Redstone legal development, Dauman is looking to avoid a deposition by Herzer in her probate action seeking to be reappointed Redstone's health care agent. He has filed a motion to quash a subpoena in New York Supreme Court.

A memorandum in support of quashing the subpoena doubts that the deposition has a legitimate purpose — "it is in no way 'material and necessary' to the prosecution" — and argues it is only designed for publicity purposes. Raising jurisdictional questions, Dauman says that if a deposition does occur, it should be limited and that the transcript should be sealed.

Dauman "is not a medical professional and his testimony is legally irrelevant to the issues in the California case," says attorney Les Fagen, representing Dauman in the matter. "We believe Ms. Herzer is more interested in litigating this very personal matter in the media than in the courtroom, and her attempt to draw in Mr. Dauman and Viacom is a continuation of her legally irrelevant harassment campaign."

Herzer's team says it will fight.

"Mr. Dauman filed a declaration claiming that his boss continued to be active in managing Viacom and Mr. Redstone ‘spoke’ about complex business issues," says Herzer attorney Pierce O'Donnell. "His deposition will reveal the falsity of these claims."