Redstone Cases Going to Court in October

Courts in three states will be weighing in on the battle for control for Viacom and the rest of Sumner Redstone’s media empire in October.

On Friday, Delaware Chancery Court denied a motion by Redstone and his daughter, Shari Redstone, to have an attempt to remove five Viacom directors, including CEO Philippe Dauman, declared valid.

“What’s at stake here, of course, is nothing less than the governance of a multibillion-dollar company, and the parties’ views of Mr. Redstone’s wises in that regard could not be more different,” said Chancellor Andre Bouchard.

In Massachusetts last week, a judge similarly denied a motion to dismiss a suit by Dauman over his dismissal from the board of Redstone’s holding company, National Amusements, and as a trustee of the trust that will control Redstone’s assets when he is dead or incompetent to make decisions.

Related: Analyst Drops Viacom Stock to ‘Underperform’

The 93-year-old mogul is in failing health, which makes it difficult for him to communicate. Dauman in Massachusetts and Viacom director Fred Salerno in Delaware, claim that Redstone’s recent actions are invalid because Redstone is incompetent and under the undue influence of Shari Redstone.

Redstone has also brought an action to validate his decisions in California, where last year he won a ruling to have his former live-in companion removed as his health-care agent over similar charges that Redstone is incompetent and being influenced by Shari Redstone.

In the Massachusetts court, the judge ruled against Dauman’s request to have his doctors conduct a mental examination of Sumner Redstone immediately.

Related: Herzer Loses Bid for New Redstone Trial

The judge in Delaware said he wanted the cases to be coordinated in discovery in order to minimize discomfort to Redstone. At the same time, he seemed to think determining Redstone’s mental competence was a key issue and that it would be hard for Redstone’s lawyers to prevent one through procedural maneuvers.

Claims by Redstone’s lawyer that Salerno wasn’t eligible to challenge Redstone’s decision to remove them weren’t accepted by the court.

The arguments by the Redstone camp were “overly narrow” and the law allows the court to determine any legal or factual issue that could affect the outcome of a shareholder vote, Bouchard said.

"I find that there are factual issues regarding Mr. Redstone’s mental capacity and possible undue influence when he authorized the consents that are in dispute and that are relevant,” Bouchard said.

The judge ruled those issues could include mental competence and possible undue influence over a controlling stockholder, and that those issues “appear to be directly relevant” in this case.

The judge said he wouldn’t be concerned with the merits of the decision to remove the directors. Instead, “my focus will be on whether a 93-year-old man who apparently is in a rapidly declining state of health had the mental competence and was free from undue influence at the relevant times to make the decisions that are being attributed to him,” the judge said.

Delaware corporate law allows chancery court to “determine the validity of any election, appointment, removal or resignation of any director of officer or any corporation,” he said.

Bouchard set aside the week of Oct. 17 for a trial, estimating that it would take two or three days.

Viacom has been performing poorly, with low ratings at its cable networks translating into lower advertising revenues. The company is due to report earnings for the June quarter this week. In June, the company said earnings would be down substantially because of the poor performance of the latest Teenage Mutant Ninja Turtles movie and because a licensing deal with an SVOD distributor hadn’t been concluded.

Redstone, through National Amusements, also controls CBS.

Jon Lafayette

Jon has been business editor of Broadcasting+Cable since 2010. He focuses on revenue-generating activities, including advertising and distribution, as well as executive intrigue and merger and acquisition activity. Just about any story is fair game, if a dollar sign can make its way into the article. Before B+C, Jon covered the industry for TVWeek, Cable World, Electronic Media, Advertising Age and The New York Post. A native New Yorker, Jon is hiding in plain sight in the suburbs of Chicago.