(CN) – The Delaware Chancery Court dismissed a shareholder derivative lawsuit that challenged Viacom’s payment of $13 million in bonus money and salary to founder and longtime chairman Sumner Redstone.
In a letter opinion, Chancellor Andre Bouchard found the shareholder’s claims were barred by a broad 2016 settlement in separate litigation involving Viacom, Redstone and several ousted board members.
After the settlement was made public, the plaintiff shareholder “made no effort to amend his complaint to assert a claim challenging [the settlement’s] enforceability,” the chancellor wrote.
The shareholder, suing derivatively on behalf of Viacom, had alleged that between 2014 and 2016, the media conglomerate’s board breached its fiduciary duties and wasted corporate assets by paying Redstone millions of dollars despite knowing he was incapacitated and unable to perform his work as chairman.
Redstone, 94, was paid roughly $13 million including a $10 million bonus during that time. He received his $2 million salary for fiscal year 2015 even though he neither attended board meetings nor participated in conference calls, the lawsuit alleged.
His bonus compensation was terminated in 2015, but he continued to receive salary for fiscal year 2016, with Viacom paying him $1.3 million. He resigned as chairman in February 2016 amid reports of declining health.
Among other arguments, the defendants contended that Redstone’s retention as chairman was “deemed appropriate in light of his historical role as Viacom’s founder” and “his many years of prior service.” With respect to the $10 million bonus, they argued that the lawsuit lacked specific allegations that Redstone did not perform his duties for much of the relevant time period.
The defense also argued, and the court agreed, that the derivative lawsuit on its face was barred by the 2016 settlement.
The settlement resolved a messy string of litigation in which Viacom’s then-CEO Philippe Dauman and other corporate managers fought Redstone’s putative decision to remove them from the helm of Viacom and the Redstone family’s company National Amusements, which held the majority of Viacom voting shares. The agreement purports to release the settling parties from liability for “any and all claims” against them by Viacom, its agents and employees, “from the beginning of the world until the effective date of this settlement.”
Arguing that “corporate fiduciaries cannot contract away or limit their fiduciary duties,” the derivative lawsuit denied that the settlement shielded the defendants from claims that they granted Redstone undue compensation.
Chancellor Bouchard disagreed.
“The release does not purport to limit prospectively any exercise of fiduciary duty owed by Viacom’s directors,” he wrote. “Rather, by its terms, the release extinguishes potential liability arising from prior acts.”
In response to claims the settlement was “clearly a self-interested transaction,” Bouchard said that, while “this may well be true,” the plaintiff failed to amend his complaint to expressly challenge the settlement terms.
Counts for breach of fiduciary duty against nine current and former Viacom board members were dismissed, along with an unjust enrichment count against Redstone.