WILMINGTON, Del. — A legal battle to overturn a reconstitution of the board of entertainment conglomerate Viacom Inc. will proceed to trial after a Delaware Chancery Court judge rejected a motion to dismiss the case on Friday. The decision is a victory for embattled Viacom CEO Philippe Dauman, who is one of the Viacom board members that controlling shareholder Sumner Redstone moved to oust last month.
In his ruling, Judge Andre Bouchard suggested that he is open to having an independent medical examination of Redstone to determine if the 93-year-old Viacom founder had the mental capacity to make the decision to overhaul the company’s leadership.
He also advised that the court needed clarity as to whether Redstone is being manipulated, possibly by his daughter Shari Redstone, or is making his own decisions.
“What’s at stake here is nothing less than the governance of a multi-billion dollar company,” said Bouchard.
The move comes as Viacom and the Redstone family are engulfed in a fierce legal fight taking place in three different legal proceedings in as many states. Because of that, Bouchard said, any medical examination of Redstone must be coordinated with the other cases being heard in California and Masdachusetts. One stems from questions over Redstone’s medical guardianship, while the other is related to a move by National Amusements, the movie-exhibition chain through which Redstone and his family control Viacom, to oust Dauman and longtime board member George Abrams.
“Discovery is going to proceed in a dignified way,” said Bouchard. “We are dealing with a real human being. This is not going to be the attack-dog-unrestrained way.”
The judge also expressed frustration about the fractured nature of the proceedings.
“One court has a piece of the picture, another court has a different piece of the picture,” said Bouchard. “I need the whole picture.”
The standoff over the future of Viacom has pitted Dauman against Shari Redstone, who has been sharply critical of the CEO’s handling of the company behind Paramount, Comedy Central, and MTV. In the Delaware case, however, the legal proceedings have been initiated by Frederic Salerno, one of five board members that Redstone is trying to oust. The conflict has become internecine in nature, pitting attorneys for Viacom in opposition to representatives of National Amusements.
Attorneys for the Redstone family and National Amusements argued Friday that Sumner Redstone’s mental capacity is immaterial to the board shakeup. They noted that his written consent was endorsed by a majority of the National Amusements’ board. It is through National Amusements, a theater company, that the Redstone family maintains its 80% controlling stake in Viacom and CBS.
Attorneys for the Redstone clan and National Amusements argued that Dauman and Salerno are not owed an explanation for their ouster and that raising issues of competency could be a “slippery slope” when it comes to issues of corporate governance.
“It’s a matter of adjectives,” said Donald Wolfe, an attorney for National Amusements. “If we’re going to say he’s incompetent, are we going to say he’s stupid?”
However, the Viacom and Salerno legal teams argued that Shari Redstone’s lawyers and those of National Amusements were playing hide the ball. They said that the aging mogul has cut off contact with friends and colleagues, and implied that Shari Redstone was afraid to have her father subjected to an independent medical review because his health has deteriorated so dramatically.
“They are desperate,” said Edward Micheletti, an attorney for Salerno. “They’ve thrown up every possible roadblock that they can throw up.”
He went on to argue that while the decision to reformat the board awaits a resolution, the company is struggling to maintain business as usual. It is losing personnel and there is now a “shadow” over a potential deal to sell a minority stake in Paramount Pictures.
This is the second Redstone-related case to move to trial. On Thursday, a Massachusetts judge ruled that Dauman could move forward with his challenge to his removal from the Redstone family trust. He will also grant Dauman’s legal team access to Redstone’s medical records, extending back to 2015, and set a trial date for the fall. The Delaware trial is also expected to take place in October.
“We are pleased the court has recognized the need to swiftly proceed to determine the serious issues of undue influence and Mr. Redstone’s capacity,” said a Viacom spokesman in a statement. “This is the second court in two days that has refused to dismiss the matter and ruled that discovery will go forward. We look forward to revealing the truth as we prepare for trial in both Massachusetts and Delaware in October.”
National Amusements hit back with its own statement, arguing that the Delaware ruling does not constitute a judgment on the case’s merits.
“National Amusements exercised its indisputable rights as Viacom’s majority shareholder to make changes to Viacom’s board,” the statement reads. “We look forward to demonstrating the integrity of these changes, which were ratified unanimously by National Amusements’ board and would be approved again by a majority regardless of the outcome of this case.”