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Judge Outlines Issues in Sumner Redstone Case Amid Furor Over Use of Corporate Funds

Questions of jurisdiction, undue influence and mental capacity have come to the fore, as the Massachusetts judge initially overseeing the dispute over control of Viacom has framed the case in an inquiry Friday to lawyers in the case.

Judge George F. Phelan outlined 11 questions for lawyers fighting over whether Sumner Redstone had the mental wherewithal to legally remove Viacom CEO Philippe Dauman and Viacom board member George Abrams from a trust that will oversee the controlling shares in the company, when Redstone can no longer do so.

Many of the questions center on whether Phelan, sitting in a family and probate court in a Boston suburb, should have authority over the case or whether the matter should be decided by a Los Angeles judge. The 93-year-old Redstone incorporated National Amusements Inc. — which controls a chain of theaters, along with Viacom and CBS Corp. — in Massachusetts. But the billionaire’s lawyers have argued the fight over control of the holding company should be heard in California, where Redstone now lives.

Besides questions about jurisdiction, Phelan asked the lawyers for basic arguments about what findings would be necessary for him to determine that undue influence had caused Redstone to oust his two long-time confidants from National Amusements. Phelan’s first question: “Does a court have to find Sumner mentally incapacitated as a predicate to a finding of undue influence by Shari?”

The judge also asked, in advance of a June 30 hearing on the matter, whether Redstone had the power to remove the two men from the National Amusements trust “for no reason” — even if if was found that he was of sound mind and not subjected to undue influence.

Attorneys representing the magnate say he booted Dauman and Abrams because he no longer trusted their judgment. Statements issued on behalf of Redstone said he no longer trusted Dauman and felt that the CEO has done a poor job of running Viacom. The statements mark a major reversal, as Redstone has long endorsed his CEO, even as analysts and other critics have accused him of not doing enough to stem the entertainment conglomerate’s sliding value.

Dauman has accused Redstone’s daughter, Shari, of isolating her father and secretly directing the remaking of his corporate empire — including Thursday’s move to oust five members of the corporate board deemed loyal to Dauman. Representatives for Shari Redstone — a lawyer and Viacom board member — denied that she has directed any of the changes, saying only that she has been supportive of her father.

The judge’s inquiry came on a day when National Amusements also issued a statement, slamming Dauman for using corporate funds in his legal challenges. The statement from the firm accuses the CEO of “diverting valuable corporate resources to mount a legal and PR campaign against Sumner Redstone, despite the fact that Redstone is Viacom’s Founder, Chairman Emeritus and controlling shareholder.” It adds: “There is no justification for Viacom to use company dollars to fund Dauman’s and George Abrams’ unfounded attack on Redstone’s lawful decision to remove them as trustees from Redstone’s trust, especially in light of Viacom’s announcement that its fiscal third-quarter earnings will fall short of estimates. The need for strong, independent oversight of Viacom could not be more apparent.”

Viacom, where Dauman remains in charge, responded with a statement of its own, again blaming the mess on Shari Redstone. “It is clear that Shari Redstone’s actions are impeding Viacom. On the very day that Shari and her representatives acted to remove Mr. Dauman and Mr. Abrams, they made it obvious the issue is control of Viacom.  It is certainly in the interests of all of Viacom’s stockholders that the Massachusetts actions be pursued in order to preserve the independence of Viacom’s board.”

Besides the Massachusetts and California courts that have been asked to intervene in the National Amusements furor, new legal actions this week ask a Delaware court to intervene — to either confirm or reject — the overhaul of Viacom’s 11-member board. None of the courts have clarified which will take precedence in deciding control over Redstone’s empire.

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