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Feuer v. Dauman

Court of Chancery of Delaware

October 25, 2017

R.A. Feuer
Philippe P. Dauman, et al.

          Date Submitted: August 1, 2017

          P. Bradford deLeeuw, Esquire Rosenthal, Monhait & Goddess, P.A., Anne C. Foster, Esquire Richards, Layton & Finger, P.A., David A. Seal, Esquire Abrams & Bayliss LLP.

          Jon E. Abramczyk, Esquire Morris, Nichols, Arsht & Tunnell LLP, Edward B. Micheletti, Esquire Skadden, Arps, Slate, Meagher & Flom LLP.

         Dear Counsel:

         This letter constitutes the Court's decision on defendants' motion to dismiss claims for breach of fiduciary duty, waste, and unjust enrichment. Plaintiff brought these claims derivatively on behalf of Viacom Inc. challenging the company's payment of approximately $13 million of compensation to its founder and then-Chairman Sumner Redstone from July 2014 to May 2016, when Viacom's directors allegedly knew that he was incapacitated and incapable of doing his job. For the reasons explained below, the motion is granted and the complaint will be dismissed with prejudice as to the named plaintiff because the claims asserted in the complaint were released as part of a settlement agreement Viacom entered in August 2016.

         I. Background

         The facts recited below are drawn from the Verified Derivative Complaint filed on July 20, 2016, and certain facts of which I may take judicial notice because they are not subject to reasonable dispute.[1] For the purpose of deciding this motion, I assume the truth of all well-pled facts and draw all reasonable inferences in favor of plaintiff.[2]

         A. The Parties

         Nominal defendant Viacom, Inc. is a Delaware corporation headquartered in New York that owns various global media brands. Plaintiff alleges he has been a stockholder of Viacom at all relevant times.

         Defendant Sumner Redstone served as Viacom's Executive Chairman from January 1, 2006 until February 4, 2016, when he became Chairman Emeritus. Sumner founded Viacom and has been its controlling stockholder since 1986. He is the settlor of the Sumner M. Redstone National Amusements Trust, which owns 80% of National Amusements, Inc. ("NAI"), which in turns owns (directly and indirectly through certain subsidiaries) 79.5% of Viacom's Class A voting shares. Defendant Shari Redstone is a Viacom director and Sumner's daughter. She controls the remaining 20% of NAI.[3]

         The complaint names as defendants nine other individuals in addition to Sumner and Shari who were members of the Viacom board at the times relevant to the allegations in the complaint: George S. Abrams, Philippe P. Dauman, Thomas E. Dooley, Blythe J. McGarvie, Deborah Norville, Charles E. Phillips, Jr., Frederic V. Salerno, William Schwartz, and Christiana Falcone Sorrell. Dauman had been Viacom's President and Chief Executive Officer since September 2006. He and Abrams also were directors of NAI until May 20, 2016.

         B. Compensation Paid to Sumner from 2014 to 2016

         During the times relevant to this action, Sumner was party to an employment agreement with Viacom dated December 29, 2005, which was amended on September 26, 2006.[4] As amended, the employment agreement set his base salary at $1 million per year and entitled him to receive bonus compensation. The employment agreement could be terminated at will by either party.[5] Effective January 1, 2014, Sumner's base salary was increased to $2 million.

         In May 2014, Sumner turned 91. He was hospitalized several times that year for pneumonia and, according to a lawsuit filed against him by a former caretaker, suffered brain damage that "severely compromised Sumner's ability to swallow and to articulate speech."[6] Beginning in July 2014, Sumner allegedly ceased providing any services of value to Viacom. Sumner was physically absent from a series of board meetings through the summer and fall of 2014, by which point the directors allegedly knew about his incapacitation. Viacom paid Sumner $13.2 million in total compensation for the 2014 fiscal year, which ended on September 30, 2014, including approximately $2 million in salary and a $10 million bonus.[7]

         In 2015, Sumner did not participate in any conference calls with analysts and did not physically attend any Viacom board meetings or the annual stockholder meeting. According to sources quoted in a May 31, 2015 Vanity Fair article entitled Who Controls Sumner Redstone?, "Sumner (a) cannot speak and (b) hasn't had a meal since Labor Day other than tubes."[8] The article quoted an individual who allegedly told one of Sumner's closest friends that Sumner "looks like he's dead, " to which the friend replied: "Well, you should see him in person-he looks even worse."[9] Viacom paid Sumner $2 million in salary for the 2015 fiscal year but eliminated his cash bonus.

         In February 2016, with rumors circulating regarding his condition, Sumner resigned as Viacom's Chairman and was designated Chairman Emeritus. Nevertheless, on March 14, 2016, Sumner was reelected as a director after the rest of the board recommended his reelection to the stockholders. Sumner continued to receive a salary until May 2016, when payments to him were stopped without public explanation. According to Viacom's public filings, Sumner received $1.3 million in salary during the 2016 fiscal year.[10]

         C. Turmoil in the Viacom Boardroom Leads to a Settlement

         On May 20, 2016, Dauman and Abrams were notified that Sumner purportedly had removed them as trustees of his trust, as directors of NAI, and as managers of NAI's subsidiaries. These actions prompted Dauman and Abrams to file a lawsuit in Massachusetts seeking to be reinstated to their positions, and prompted Sumner to file a lawsuit in California affirming their removals. In their Massachusetts complaint, Dauman and Abrams alleged that Sumner "suffers from profound physical and mental illness" and that he is afflicted with a "subcortical neurological disorder."[11]

         On June 16, 2016, NAI issued a written consent purporting to amend Viacom's by-laws to permit vacancies on its board to be filled by Viacom's stockholders, to remove five of the defendants (Dauman, Abrams, McGarvie, Schwartz, and Salerno) from the Viacom board, and to fill the resulting vacancies with new directors. That same day, two lawsuits were filed in this Court under 8 Del. C. § 225 seeking to determine the proper composition of Viacom's board in light of the written consent submitted by NAI. In one action (C.A. No. 12472-CB), NAI sought a declaration that the consent was valid. In the other action (C.A. No. 12473-CB), Salerno accused Shari of exercising undue influence over Sumner and sought to invalidate the consent. On June 24, 2016, these two actions were consolidated (hereafter, the "225 Action").

         On August 18, 2016, the 225 Action, the Massachusetts action, and the California action were settled pursuant to a Confidential Settlement and Release Agreement (the "Settlement Agreement") that was signed by each of the individual defendants in this action individually and in their capacity as directors of Viacom.[12] The Settlement Agreement contains a general release of Viacom's claims against its directors (the "Release") up to its Effective Date, which is defined in the agreement's preamble as August 18, 2016:

Each of Viacom, its subsidiaries, affiliates under its control, predecessors, successors and assigns, and the current and former directors, officers, employees, agents, attorneys and representatives of each of them (collectively the "Viacom Parties"), hereby releases and forever discharges from all liability . . . [Sumner and Sheri Redstone], . . . Dauman, Abrams, Salerno, McGarvie, Schwartz, Phillips, Sorrell, Norville, Dooley, and the agents, attorneys, representatives, heirs, executors and assigns of each of them . . . from any and all Claims (defined below) which such Viacom Party ever had, now has or hereafter can, shall or may have, for, upon or by reason of any matter, cause or thing whatsoever from the beginning of the world to the Effective Date of this Settlement, including, but not limited to, any and ...

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