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National Amusements Pushes for More CBS Disclosures as Lawsuit’s ‘Trench Warfare’ Grinds On

ViacomCBS
Alexei Vella for Variety

National Amusements Inc. has asked a judge to force CBS to divulge more documents in connection with the discovery phase of the bitter lawsuit that CBS is waging against its controlling shareholder.

In a motion made public on Thursday, NAI urged Delaware Chancery Court judge Andre Bouchard to compel CBS to hand over more documents and information related to the governance of CBS during the past two years and other considerations. NAI argues that CBS is improperly designating certain documents as privileged because they involved legal advice that some CBS board members received in 2016 and earlier this year as a special committee of CBS board members considered the possibility of merging with Viacom, which is also controlled by NAI.

NAI, headed by Sumner Redstone and Shari Redstone, asserts that CBS has designated privileged documents that were produced after the 2016 special committee effort was abandoned on Dec. 12, 2016, and before another special committee was established for a second round of merger considerations from Feb. 1 through May 14 of this year.

NAI blasts CBS for delivering documents as part of the discovery phase that are heavily redacted. NAI maintains that many of those communications are not related to advice from in-house or outside counsel on the merger process, and thus are not privileged under the definition of such documents established by Bouchard in a ruling last month.

NAI argues that many of the documents sought are internal communications regarding the strategy for the legal effort CBS launched on May 14 to strip NAI of its right to control a majority of voting stock in CBS. NAI said the material in question involves issues of corporate governance, executive compensation, legal proceedings involving Sumner Redstone, the composition of CBS’ board of directors, and “concerns raised about the fitness of CBS board member Chad Gifford.” NAI and Shari Redstone have previously said Gifford acted inappropriately toward Shari Redstone in board meetings, something CBS and Gifford have strongly denied. CBS chairman-CEO Leslie Moonves and CBS Corp. COO Joseph Ianniello are named in the motion.

The materials sought by NAI do not “have any bearing on the special committees’ work and certainly does not show that the documents reflect legal advice ‘in aid of’ the committees’ work,” NAI wrote in its motion. “Further demonstrating how divorced these communications apparently are from the special committee process, most only include members of management or management and in-house counsel, and do not involve committee members, committee counsel, or even outside CBS counsel. In fact, many log entries include personal counsel for Messrs. Moonves and Iannellio.”

The motion once again accuses CBS executives of improperly destroying potential evidence through the use of the TigerText app that allows users to send text messages that are automatically deleted and untraceable. CBS has said it implemented limited use of TigerText in the wake of the devastating cyber-attack on Sony Pictures Entertainment in November 2015. Those TigerTexts that have been produced in connection with the lawsuit have been heavily redacted, per NAI.

“Those messages show that CBS management and in-house counsel used the ephemeral messaging application to scheme, plot, and speculate. Thus, the TigerText communications provide crucial, real-time insight into the actions and motivations of CBS management, who were the driving force pushing for the dilutive dividend,” NAI wrote. “Testimony by the CBS witnesses deposed to date underscores the need for review and production of the full unredacted TigerTexts. It is both troubling and telling that each of the three CBS management members who have testified so far have given testimony that is flatly contradicted by the few TigerTexts that have been produced.”

Last week, Variety reported details of some of the redacted communications between Moonves and Ianniello, which were obtained because of a glitch in the redacting process on the documents submitted to the court. NAI argues that Bouchard should at least be allowed to review the unredacted material even if they are not made available to NAI or the public.

CBS and NAI are heading toward an Oct. 3 start date for the trial over CBS’ plan to issue a special dividend to shareholders that would have the effect of reducing NAI’s voting shares from about 80% at present to about 20%, while leaving NAI’s economic stake in the company intact at about 10%. There’s been much speculation that the sides would reach a settlement rather than battle it out in open court. But multiple sources close to the situation say there are no signs of detente on the horizon while an army of attorneys on both side wag war with motions, depositions, subpoenas and new allegations. One lawyer at a prominent law firm working on the case opined: “This is trench warfare.”