CBS Investors Can Press Lawsuit Over Redstone's Pay

(Bloomberg) -- CBS Corp. directors must face investors’ claims they improperly granted network owner Sumner Redstone millions in compensation after he became incapacitated in 2014.

Shareholders can press forward with claims Redstone was unjustly enriched through compensation the board gave him after his health issues made it difficult to function and that pay was a waste of corporate assets, Delaware Chancery Court Judge Andre Bouchard concluded Thursday. Bouchard also dismissed investors’ challenges to some of Redstone’s compensation that reduces the amount at issue in the case to about $4 million from $13.5 million.

The decision comes as CBS executives are weighing whether to merge with Viacom Inc., the media conglomerate that owns MTV and Comedy Central. Billionaire Redstone, 94, controls both CBS and Viacom with his family.

“While we believe the case should have been dismissed in its entirety, this was just a procedural ruling that allows a small part of the case to proceed past the preliminary stages,’’ Dana McClintock, a CBS spokesman, said in an emailed statement.

P. Bradford deLeeuw, a Wilmington, Delaware-based lawyer for shareholders, didn’t return a call or email seeking comment.

Redstone’s mental health was at the center of a more than yearlong fight over Viacom. The dispute pitted the billionaire against his granddaughter, ex-Viacom allies and old friends. The settlement of the dispute cleared the way for Shari Redstone, the founder’s daughter, to take a more prominent role on Viacom’s board after the company’s CEO was ousted.

CBS investors contend Redstone’s mental competence was called into question after reports surfaced in 2014 that he wasn’t attending the network’s board meetings and was having trouble speaking. He was awarded pay and bonuses after he could no longer provide “meaningful services to CBS,’’ shareholders’ lawyers argued in court filings.

CBS’s lawyers countered decisions on Redstone’s bonuses and pay fell under the board’s business-judgment purview. Some of the compensation was awarded under a contract the billionaire had with the network, his attorneys added.

Shareholders raised legitimate questions whether CBS’s board agreed to pay Redstone in exchange for “services it allegedly knew that he could not render,’’ the judge said. Bouchard also expressed doubts directors could impartially investigate claims “against themselves concerning the salary payments made to Redstone’’ after May 2014, according to the ruling.

Bouchard threw out claims that directors didn’t impartially weigh the amounts of Redstone’s bonuses and reduced the amount in dispute by more than $9 million, according to the ruling.

The case is R.A. Feuer v. Sumner Redstone, 12575, Delaware Chancery Court (Wilmington)

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