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Viacom, CBS Sued Over ‘Loyalty’ to Sumner Redstone

Viacom, CBS and their board members have been sued for apparently placing loyalty to Viacom chairman Sumner Redstone above their duty to shareholders.

The shareholder lawsuit, filed by E.F. Greenberg on Tuesday in Delaware Chancery Court, alleges that the company’s top executives — including Viacom CEO Philippe Dauman, CBS CEO Leslie Moonves and board members — have violated their legal duties since Oct. 1, 2013.

Viacom issued a statement that the “suit is without merit.”

Sumner Redstone, 92, is controlling shareholder of both media companies. His daughter Shari Redstone is the vice chairman of both companies.

The action alleges the defendants “put their personal loyalty to Mr. Redstone (in particular, and secondarily to [Shari] Redstone) well ahead of their loyalty and respective fiduciary duties they owe and owed to Viacom and/or CBS and their respective shareholders.”

The litigation comes a week after attorneys for Manuela Herzer — Redstone’s ex-companion and caregiver — filed an appeal of a judge’s denial of their effort to gain an interview with Redstone in order to determine his mental capacity. Herzer’s attorneys went to court in November to contend that those around the billionaire have misrepresented the severity of his decline and forged his signature on one document as they improperly took control of his life.

The new lawsuit is a derivative suit on behalf of other shareholders. Citing issues raised in the Herzer suit, the new suit alleges that millions of dollars in bonuses have been paid to Redstone “while he was physically and mentally incapacitated,” unable to manage his own health care and “certainly unable to fulfill the responsibilities for which he was paid.”

The shareholder lawsuit also alleged that compensation decisions could “not represent the product of bona fide business decisions.”

Redstone was paid $22 million from CBS and $24 million from Viacom over a two year period, according to the suit.

The causes of action listed in the suit are breach of fiduciary duty, unjust enrichment and breach of the duty of loyalty. It seeks repayment of the tens of millions, an order that the board must acknowledge Redstone’s alleged incapacity and termination of compensation to Redstone.

Pierce O’Donnell, attorney for Herzer, issued a statement said in response Tuesday:

“This shareholder derivative lawsuit is the inevitable result of the unlawful, orchestrated campaign to cover up Mr. Redstone’s lack of mental capacity and failing health. Like the CBS and Viacom shareholder’s, my client Manuela Herzer is an innocent victim of this shameful conduct. She will continue with all her might to press her lawsuit to be restored as Mr. Redstone’s legitimate health care guardian.”

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