Delaware judge to rule on Sumner Redstone's capacity to make governance decisions

By Peg Brickley and Joe Flint 

The mental capacity of 93-year-old mogul Sumner Redstone will be scrutinized at trials in two states in October, drawing out the high-stakes battle over governance of Viacom Inc. and the rest of his media empire.

A Delaware judge is seeking to determine whether Mr. Redstone, who controls Viacom through his holding company National Amusements Inc., had the competency to make the decision to r eplace five board members at the media company last month.

At a Friday hearing, Judge Andre Bouchard indicated he is taking seriously arguments from Viacom's current board and management that Mr. Redstone is being unduly influenced by his daughter Shari Redstone, vice chair of Viacom and a member of National Amusements' board. She has denied the assertion.

"What's at stake here, of course, is nothing less than the governance of a multibillion-dollar company," Judge Bouchard said. "My focus will be on whether a 93-year- old man who apparently is in declining health had the capacity...to make the decisions that are attributed to him."

A trial has been set for October, Judge Bouchard said, adding that it will most likely be in the middle of the month and last about two days.

Lawyers for Mr. Redstone have argued the decision to remove Viacom Chairman and Chief Executive Philippe Dauman from the board, along with four other directors, was the act of a person of sound mind.

"You know what? I get that and if you prove that up, game over," Judge Bouchard said.

The decision to allow the board dispute to proceed comes a day after a judge in Massachusetts also set an October trial date in a related legal battle between Mr. Dauman and the Redstones. In that case, Mr. Dauman and fellow Viacom board member George Abrams are fighting their removal from the board of National Amusements and the trust that will oversee Mr. Redstone's $40 billion media empire of Viacom and CBS Corp. after he dies or is determined to lack capacity.

Both cases heading to trial were viewed as wins by Viacom, which has argued that Mr. Redstone's deteriorating health has left him susceptible to manipulation by Ms. Redstone, with whom he's long had a rocky relationship.

As was the case in Massachusetts, Judge Bouchard was dismissive of National Amusements' arguments that Mr. Redstone's mental state is irrelevant. Even if Mr. Redstone was found incompetent, his lawyers argue there were enough votes at National Amusements to make the changes to Viacom's board.

"There could be total exploitation of somebody who had no desire to do this, and it would be totally unreviewable," Judge Bouchard said. Earlier, after National Amusements' lawyer Donald Wolfe pointed out that Delaware law allows shareholders to "vote whimsically, fancifully," Judge Bouchard responded: "Not incompetently."

A spokesman for National Amusements said the "ruling does not constitute a judgment on the merits of the case," adding that National Amusements "exercised its indisputable rights" as the majority shareholder in changing Viacom's board.

A Viacom spokesman said, "We look forward to revealing the truth as we prepare for trial in both Massachusetts and Delaware in October."

Unlike Massachusetts, where Judge George Phelan didn't order an immediate medical exam of Mr. Redstone and instead has asked for his medical records dating back to the start of 2015, the Delaware court hasn't ruled out such an exam.

Edward Micheletti, a lawyer for Frederic Salerno, Viacom's lead independent director who brought the Delaware suit, said National Amusements is desperate to keep the court from "learning the truth about Mr. Redstone." If he was in fact a "vibrant person making these sophisticated business decisions," access to him would be granted, Mr. Micheletti said.

The uncertainty around Viacom's board and management is causing disruption inside the company, Mr. Micheletti added, noting that employees are leaving and the issue is stalling a potential sale of a stake in the company's Paramount Pictures movie studio.

While the Delaware legal battle plays out, Viacom will operate with its current board in place. The company has to give notice to the court and the Redstone camp regarding any significant corporate events, including acquisitions or sales.

Write to Peg Brickley at peg.brickley@wsj.com and Joe Flint at joe.flint@wsj.com

 

(END) Dow Jones Newswires

July 30, 2016 02:47 ET (06:47 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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