Bouchard Tosses Derivative Suit Over $13M in Viacom Payments to Ailing Redstone
The Delaware Court of Chancery on Wednesday dismissed a derivative suit accusing the Viacom Inc. board of waste and breach of fiduciary duty for paying Sumner Redstone $13 million over the course of three years, even as the former chairman's declining health prevented him from providing valuable services to the company.
October 25, 2017 at 05:19 PM
4 minute read
![Sumner Redstone.](http://images.law.com/contrib/content/uploads/sites/394/2017/10/redstone-Article-201710261919.jpg)
The Delaware Court of Chancery on Wednesday dismissed a derivative suit accusing the Viacom Inc. board of waste and breach of fiduciary duty for paying Sumner Redstone $13 million over the course of three years, even as the former chairman's declining health prevented him from providing valuable services to the company.
In a 14-page letter opinion, Chancellor Andre G. Bouchard said a prior settlement in separate litigation barred claims made by R.A. Feuer, a Viacom stockholder who filed the derivative suit on behalf of the company. Under the broad terms of that agreement, Bouchard found, Viacom had released its board members from “any and all” claims arising before the settlement was reached in August 2016.
“The settlement agreement defines 'claims' to include 'any claim based on . . . breach of fiduciary duty, . . . incapacity, . . . unjust enrichment or other legal duty,'” Bouchard said. “Thus, the literal terms of the release plainly encompass and bar litigation of the fiduciary duty and unjust enrichment claims asserted in the complaint here, since those claims both arise entirely from compensation decisions that directors of Viacom allegedly made before Aug 18, 2016.”
The derivative suit, filed in July 2016, focused on $10 million in bonuses and about $3.3 million in salary Redstone, now 94, received between 2014 and 2016, when he was largely absent from the company and suffering from illnesses.
The lawsuit also came amid a series of pitched legal battles over Redstone's supposed ouster of two directors from his company National Amusements Inc. and its subsidiaries, which owned a nearly 80 percent stake in Viacom. The directors, George Abrams and Philippe Dauman, sued in Massachusetts to be reinstated to their positions, arguing that Redstone was suffering from “profound physical and mental illness.”
Redstone responded with his own lawsuit in California, seeking to affirm the removals.
One month later, in June 2016, the Network Advertising Initiative issued a written consent that allowed Abrams, Dauman and three other directors to be removed and replaced, sparking two lawsuits to be filed in the Chancery Court. In one case, Frederic Salerno, one of the ousted board members, sought to invalidate the consent and accused Redstone's daughter, Shari Redstone, of manipulating her ailing father.
The parties settled the cases that August, agreeing to mutual releases and allowing the directors to keep their posts in exchange for expanding the board by five seats.
The Viacom directors moved to dismiss Feuer's derivative suit last October, arguing that the complaint failed to state a claim because Viacom had released all directors from liability in the settlement agreement. Feuer countered, saying that the release was ineffective and a self-interested transaction.
Bouchard said Feuer failed to challenge the validity of the settlement agreement or the enforceability of the release.
“Given plaintiff's failure to provide a factual basis for the court to set aside the terms of the release in the settlement agreement, the plain terms of which bar litigation of the derivative claims asserted in this case, the court has no basis upon which to ignore the terms of a presumptively valid release of claims and thus must dismiss the complaint,” he wrote.
Attorneys from both sides did not immediately respond to calls Wednesday seeking comment on the rulings.
Feuer was represented by Norman M. Monhait and P. Bradford deLeeuw of Rosenthal, Monhait & Goddess.
The Viacom directors were represented by Jon E. Abramczyk, D. McKinley Measley and Ryan D. Stottmann of Morris, Nichols, Arsht & Tunnell and Edward B. Micheletti, Bonnie W. David and Keenan D. Lynch of Skadden, Arps, Slate, Meagher & Flom.
Sumner Redstone was represented by Michael Tu and William Molinski of Orrick, Herrington & Sutcliffe and A. Thompson Bayliss and David A. Seal of Abrams & Bayliss. Shari Redstone was represented by Anne C. Foster, Lisa A. Schmidt, Kevin M. Gallagher and Nicholas R. Rodriguez of Richards, Layton & Finger.
The case was captioned Feuer v. Dauman.
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