CBS' Denial of Moonves' $120M Severance Could Tamp Down Shareholder Litigation
There remains the possibility that Moonves, who has been accused of forcing himself on women and retaliating against those who rebuffed his advances, could sue CBS to recover his "golden parachute."
December 18, 2018 at 05:33 PM
6 minute read
CBS' announcement that it would deny Les Moonves $120 million in severance pay tamped down the prospects for shareholder litigation stemming from the company's handling of sexual harassment allegations against its ousted CEO, but the media giant may not be out of the woods just yet, attorneys said Tuesday.
There remains the possibility that Moonves, who has been accused of forcing himself on women and retaliating against those who rebuffed his advances, could sue CBS to recover his “golden parachute.” And the company also faces the potential for shareholder suits targeting the board over its supposed failure to prevent a crisis that has dominated headlines for months.
However, attorneys agreed that CBS has positioned itself well to fight any legal challenges that may be on the way, hiring outside law firms to conduct an investigation into the allegations against Moonves. On Monday night, the company announced that it had reason to fire Moonves for cause, saying that he had failed to fully cooperate with the law firms heading the probe.
“CBS has gone about this exactly the way I would advise a client to go about this,” said Barry H. Genkin, a partner at Blank Rome in Philadelphia. “From a governance perspective, the company did what it had to do, and now its following through on that.”
In August, the company tapped Covington & Burling and Debevoise & Plimpton to investigate Moonves' conduct after The New Yorker reported that he had engaged in a pattern of abusive behavior for decades and used his position to threaten women who rejected him. Moonves said that he regretted making women feel uncomfortable, but he has denied allegations of abuse and retaliation.
CBS Corp. announced in September that it had reached a settlement with controlling shareholder National Amusements Inc. to have Moonves leave the company. Moonves and CBS agreed to donate $20 million to organizations that support the #MeToo movement, but the company made Moonves' $120 million severance package dependent on a determination of whether there was reason to fire him with cause.
Prior to this week's announcement, The New York Times reported leaked findings from the internal report, which detailed Moonves' attempts to mislead investigators and quiet an accuser. CBS said in a statement Monday the report found that harassment and retaliation were not pervasive at the company, though it had “begun to take robust steps to improve the working environment for all employees.”
A CBS investor has already filed a securities class action suit in New York, alleging that the company failed to enforce its own sexual harassment policies in dealing with Moonves. However, more litigation could still be filed.
Genkin said plaintiffs could try to argue that CBS board members failed to disclose material information about Moonves to investors or that the directors had breached their fiduciary duties to protect the company and its business. Both avenues, he said, would involve factual inquiries into what the board members knew regarding Moonves' behavior and when it they knew it.
Lawrence Hamermesh, a corporate law professor at Widener University Delaware Law School, said a derivative lawsuit on behalf of the company would take the form of a Caremark claim for deliberate disregard of duty by CBS' directors. That type of claim—the most difficult for a corporate plaintiff to succeed on—would depend on the directors' independence from Moonves and their own personal exposure to potential litigation.
Prospective plaintiffs, lawyers said, could look to the internal report as ammunition for a possible lawsuit. However, a provision in Moonves' separation agreement states that CBS “shall seek to preserve the confidentiality of all written and oral reports by the investigators.” And the company has given no indication that it plans to make the report public.
A spokeswoman for the company declined to comment Monday night.
A likely first step would be for an investor to sue CBS to obtain a copy of the report under Section 220 of Delaware's corporate code, which allows shareholder to petition companies for access to books and records. Under Section 220, plaintiffs would face the initial hurdle of showing a proper purpose for investigating possible mismanagement by the board.
However, the confidentiality clause in Moonves' separation agreement, as well as other sensitive details concerning victims and employee statements to investigators could caution against making the report public.
“My gut reaction is that won't be easy,” said Francis G.X. Pileggi, vice chair of Eckert Seamans Cherin & Mellott's commercial litigation practice.
The attorneys agreed that a case against CBS or its directors would be much stronger had Moonves been allowed to walk away with his severance package.
“They're be a much greater risk of shareholder litigation if the company paid him,” Pileggi said.
For his part, Moonves hasn't ruled out taking legal action to recover his severance payments. His attorney, Andrew J. Levander, told media outlets Monday that his client “vehemently denies any non-consensual sexual relations and cooperated extensively and fully with investigators,” and attacked the board's decisions as ”foreordained” and “without merit.”
Levander did not return a call Tuesday seeking comment for this story.
A major concern for Moonves, Hamermesh said, would be whether to risk exposure to lawsuits from victims if he were to pursue litigation in the public realm.
“Are you prepared to wade through the entire swamp of your history? Because believe me, the defense in that case would be blistering,” Hamermesh said.
But Genkin noted that Moonves' employment agreement includes a arbitration provision that could a potential dispute to be adjudicated out of the public view—a move that could benefit both Moonves and the company.
“Typically, when parties explain their views toward dispute resolution and do it in the form of arbitration, that's usually pretty binding on the parties,” he said.
CBS, Genkin added, likely wants to shift the public narrative away from Moonves and avoid the negative headlines that have vexed the company for the last four months. The company, he said, would also face outside pressure not to reach any kind of financial settlement with Moonves that would allow him to walk with any severance money.
“The company put a line in the sand,” he said. “I guess what it really comes down to is does Moonves basically want to let this die a quiet death, or does he want to continue to be in the headlines of the #MeToo movement?”
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