Viacom Moves to Dismiss Shareholder Lawsuit Over Sumner Redstone Battles

Sumner Redstone -Friendly House Los Angeles Annual Awards Luncheon-Getty-H 2016
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The summer drama over Sumner — Sumner Redstone, that is — was covered extensively by the media, but did any of the disputes over the 93-year-old media mogul's mental capacity cause any harm to Viacom shareholders?

On Monday, Viacom responded to shareholder lawsuits filed in July and August and then consolidated. The lawsuits seek to hold Viacom and some of its departing executives like Philippe Dauman and Thomas Dooley legally responsible for failing to protect the company's shareholders from Redstone's incapacity and inevitable demise.

In a bid to dismiss, Viacom argues that plaintiffs are mischaracterizing what should be derivative claims, or ones asserting that the company was damaged by actions of its officers and directors. In such a lawsuit, Viacom would be the beneficiary of any recovery of damages. The shareholders are instead raising direct claims of being harmed, and Viacom is attacking the premise.

"In fact, time and again, the Complaint makes clear that Plaintiffs are unable to distinguish the theoretical harms allegedly suffered by Viacom and the harms supposedly suffered by Viacom stockholders," states the motion.

After addressing this supposed primary defect, Viacom also tackles the specific claims.

For example, the shareholders are alleging various breaches of fiduciary duty.

Viacom says through its motion (read here) the proposition that it was obligated to dispossess Redstone of his indirect voting control is "unprecedented under Delaware law" and that it had no authority to transfer voting control nor dilute voting from Redstone's National Amusements Inc.

Viacom attacks the "equally unprecedented" allegation that directors breached fiduciary duties by nominating Redstone to serve as a director. "No authority under Delaware law has held directors liable for having nominated a founder and controlling stockholder to serve as a director," states the motion.

Did fiduciary duties necessitate officers facilitating a negotiation between competing parties to prevent a succession battle? Viacom answers that's not only beyond Delaware law, but also "common sense," noting that "personal disagreements are not uncommon in boardrooms."

The business judgment rule applies to all of the objectionable conduct and counterfactual what-ifs, continues Viacom.

Perhaps the shareholder lawsuit is further evidence of dissatisfaction with a dual-class share structure that allows Redstone to maintain a 80 percent vote but only a 10 percent economic interest in the company. Such structures at other companies has engendered criticism. Battles over Redstone's health showcase how controversies can grow quite heated and disruptive under such a dynamic. 

Viacom maintains, though, "The directors had no duty to do any such things [related to anticipating succession issues with respect to Redstone's potential incapacity] and dealt appropriately and reasonably with the reality (known to everyone who purchases Class B stock) that Viacom has a controlling shareholder."