Will the Battle Over CBS Turn on Sumner Redstone's Wishes?

The latest hearing in the legal war between Shari Redstone and Leslie Moonves hints at arguments coming at an October trial.
Christopher Patey
Sumner Redstone

Sumner Redstone, the 95-year-old media titan, understands the legal war that is currently happening in Delaware Chancery Court that will determine the fate of CBS. He's participated in board meetings and signed off on allowing his daughter Shari more authority. He has trouble communicating and can't type, but he's been read legal papers and uses his iPad to indicate "yes" or "no" to express his wishes.

Or so lawyers for Redstone's National Amusements (NAI) say in their bid to keep their controlling stake over CBS from being diluted. Top executives and most of the directors at CBS have strong doubts. The question is: Does Redstone's wishes ultimately matter?

On Wednesday, at the latest hearing resulting from CBS' surprise lawsuit aimed at freeing itself from interference from Shari, Judge Andre Bouchard said he too had "great skepticism" that Redstone was acting in an informed, deliberate way and granted CBS' motion to keep certain material that had allegedly come from Redstone expressing his intent from being used in the case. The judge also allowed CBS access to materials from the 2016 war over control of Viacom, plus he declined to strike a video of Redstone that was surreptitiously taken earlier this year by a CBS director. On the other hand, Bouchard wouldn't permit CBS to depose Redstone and wouldn't immediately preclude NAI from presenting witnesses at trial to testify regarding Redstone's intent. (The judge did express concern about hearsay, though.)

But again: Does it matter? It's one thing for the judge to be permissive when it comes to discovery. It's quite another to say Redstone's competency and intent will be a turning-point issue in the battle to control CBS. 

At the hearing, CBS signaled that it will indeed be addressing the elder Redstone at a trial scheduled for October.

"We think it matters a lot under Delaware law as to who the controller is," said Joseph Allerhand, the attorney who appeared for the company's directors. "Why do we think it matters? Well, as we understand Delaware law, the issue of who is the ultimate controller is really the appropriate inquiry... You can't get to hide behind a corporation and say it's the corporate acts [that matter] when there is an ultimate human controller."

Allerhand explained that the Sumner Redstone Trust owns 80 percent of NAI with the Shari Redstone Trust owning the rest. While there may have been a bylaw change for NAI allowing greater authority for Shari and the NAI board to act unilaterally following the so-called "Viacom coup de d'etat" — where former Viacom CEO Philippe Dauman directly challenged Redstone's mental state in a bid to keep his own authority — Allerhand said "assuming [Redstone] is competent, he can change the bylaws at a blink of an eye. The controller can remove directors of NAI at a blink of an eye."

And how does that tie into the CBS case?

"It would be our position after talking with trust and estate experts who are prepared to testify that there is no way that that bylaw read the way it's written can be made consistent with the wishes of the settlor [Mr. Redstone], assuming he's alive and competent, under the terms of the trust," continued Allerhand. "The notion that Ms. Redstone could wake up tomorrow morning and actually sell the CBS stocks under the bylaw, given the provisions of the trust that Your Honor has, which set forth the settlor's intent with respect to the stock, is completely at odds with one another."

In referencing the Sumner Redstone Trust here, Allerhand was apparently referring to what he called a "bombshell" provision, as reported by The Wall Street Journal, that prohibits the trustees from entering into any merger that would leave NAI shareholders with less than 30 percent of the voting control of the resulting company. That could restrict sale options for CBS or Viacom, though as NAI attorney Meredith Kotler countered, "If they think that that provision would preclude the trustees after Mr. Redstone's lifetime from doing something, they're wrong about that, because the trustees can amend it."

But back to Redstone's wishes.

NAI asserts that Redstone is competent, but it doesn't really matter because the legal authority to vote CBS and Viacom shares resides with the NAI board. Moreover, NAI basically says this isn't analogous to the Viacom case at all.

"Why isn't it relevant to know who really called the shots when the consents were executed in 2016?" asked Bouchard.

Kotler responded, "Because, respectfully, Your Honor, it has nothing to do with the question of the dilutive dividend and the actions that were taken. By the way, there is no claim in their complaint that their justification for taking that action [to dilute the Redstones' control of CBS] had anything whatsoever to do with the trust or Mr. Redstone or who is really in control of NAI... There were essentially two rationales for passing the dilutive dividend: threats that the board was going to be fired and interference."

The case continues. The relevancy of Redstone's capacity and wishes may not be fully settled until the judge issues his full opinion after the conclusion of the trial.