Delaware Judge Clears Way For Sumner Redstone Exam In Challenge To Viacom Board

Delaware Chancery Court Judge Andre Bouchard has cleared the way for a medical examination of Viacom controlling shareholder Sumner Redstone in a case involving the company’s governance that could go to trial the week of October 17.

In a hearing today, the judge asked lawyers to confer on a “coordinated plan” to proceed and report back to him in a week. Their conversation should include “in the first instance” the possibility of a medical exam. A trial in October could last up to three days.

Bouchard says he wants the discovery process to proceed “in a dignified way … we are dealing with issues of human dignity.” He told Viacom lawyers not to pursue this as “an attack dog.” Regarding an examination of the 93-year-old Redstone, he said, “We’re not doing this three times for three different cases,” referring to similar disputes in Massachusetts and California.

At issue in Delaware is Viacom’s challenge to a June 16 move by Redstone-controlled National Amusements (NAI) to replace five Viacom directors — including CEO Philippe Dauman. NAI controls 80% of the voting shares of Viacom and of CBS.

Viacom says that Redstone has lost the capacity to make such weighty decisions and is being manipulated by his daughter, Shari, who’s the company’s Vice Chair.

Bouchard rejected NAI’s arguments for dismissal that the court did not have jurisdiction, that Redstone is still calling the shots, and that the NAI board ratified Redstone’s decision which makes any question about his competence moot.

The judge agreed with Viacom that Redstone’s competence is “directly relevant” to decisions affecting Viacom.

Today’s ruling follows a decision in a Massachusetts court yesterday to hear a case Dauman brought challenging Redstone’s effort to oust him and Viacom director George Abrams from the family trust and the NAI board. The seven member trust will control Redstone’s 80% stake in NAI when he’s unable to do so.

Viacom says it’s “pleased the [Delaware] court has recognized the need to swiftly proceed to determine the serious issues of undue influence and Mr. Redstone’s capacity. 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.”

But NAI says the ruling “does not constitute a judgment on the merits of this case. National Amusements exercised its indisputable rights as Viacom’s majority shareholder to make changes to Viacom’s board. 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.”

NAI told the court that Viacom does not have standing to challenge how the theater company is run, including how it votes its stake in Viacom. NAI shareholders would have standing, but “these people don’t,” the company lawyer said today referring to Viacom’s board.

He also said that the NAI board ratified Redstone’s decision to change Viacom’s leadership. A majority supported the move even if one excludes Redstone, and includes Dauman and Abrams. Since the outcome would be the same whether Redstone is or isn’t competent, arguments against him are just “an academic exercise.”

“Let’s convene a meeting now with what they contend is the proper board,” Redstone’s lawyer said. “Absolutely, we’d be willing to live with that.”

Lawyers declined to take Brouchard up on an offer to buttress their faith in their argument by stipulating that Redstone is incompetent.

Viacom lawyers contend that NAI doesn’t function apart from Redstone.

“They’ve got something to hide,” the entertainment company’s lawyer says. If Redstone is incompetent then “it means someone pretended” he voted to oust the Viacom directors. “There’s a word for that. It’s fraud.”

He urged the court to move quickly to resolve the governance dispute. It is hampering the company’s ability to do business and casts “a cloud” over Dauman’s effort to sell a 49% stake in Paramount. The Redstones oppose any such deal.