In re CBS Corporation Stockholder Class Action and Derivative Litigation

• Court: Court of Chancery of Delaware
• Decided: January 27, 2021
• Docket: Consol. C.A. No. 2020-0111-JRS
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE CBS CORPORATION ) CONSOLIDATED STOCKHOLDER CLASS ACTION ) C.A. No. 2020-0111-JRS AND DERIVATIVE LITIGATION )

MEMORANDUM OPINION

Date Submitted: September 17, 2020 Date Decided: January 27, 2021

Michael Hanrahan, Esquire, Corinne Elise Amato, Esquire, Eric J. Juray, Esquire and Xi (Elizabeth) Wang, Esquire of Prickett, Jones & Elliott, P.A., Wilmington, Delaware; Michael J. Barry, Esquire, Christine M. Mackintosh, Esquire, John C. Kairis, Esquire and Rebecca A. Musarra, Esquire of Grant & Eisenhofer, P.A., Wilmington, Delaware; and Eric L. Zagar, Esquire and Grant D. Goodhart, III, Esquire, of Kessler Topaz Meltzer & Check, LLC, Radnor, Pennsylvania, Attorneys for Plaintiffs.

Jeremy D. Anderson, Esquire of Fish & Richardson P.C., Wilmington, Delaware; and Gustavo F. Bruckner, Esquire and Samuel J. Adams, Esquire of Pomerantz LLP, New York, New York, Attorneys for Executive Committee of Additional Counsel for Plaintiffs.

Matthew E. Fischer, Esquire, Michael A. Pittenger, Esquire, Christopher N. Kelly, Esquire, J. Matthew Belger, Esquire, Jacqueline A. Rogers, Esquire and Callan R. Jackson, Esquire of Potter Anderson & Corroon LLP, Wilmington, Delaware and Victor L. Hou, Esquire, Rahul Mukhi, Esquire and Mark E. McDonald, Esquire of Cleary Gottlieb Steen & Hamilton LLP, New York, New York, Attorneys for Defendants National Amusements, Inc., Sumner M. Redstone National Amusements Trust, and Shari E. Redstone, also Attorneys for Defendant Robert N. Klieger. Daniel A. Mason, Esquire of Paul, Weiss, Rifkind, Wharton & Garrison LLP, Wilmington, Delaware and Brad S. Karp, Esquire, Bruce Birenboim, Esquire, Jaren Janghorbani, Esquire and Alexia D. Korberg, Esquire of Paul, Weiss, Rifkind, Wharton & Garrison LLP, New York, New York, Attorneys for Defendants Candace K. Beinecke, Barbara M. Byrne, Gary L. Countryman, Brian Goldner, Linda M. Griego, Martha L. Minow, Susan Schuman, Frederick O. Terrell and Strauss Zelnick.

Robert A. Penza, Esquire and Christina B. Vavala, Esquire of Polsinelli PC, Wilmington, Delaware and Kevin T. Abikoff, Esquire, Benjamin Britz, Esquire, Stephen R. Halpin III, Esquire and Robby S. Naoufal, Esquire of Hughes Hubbard & Reed LLP, Washington, DC, Attorneys for Defendant Joseph Ianniello.

Elena C. Norman, Esquire and Daniel M. Kirshenbaum, Esquire of Young Conaway Stargatt & Taylor, LLP, Wilmington, Delaware and Jonathan K. Youngwood, Esquire, Linton Mann III, Esquire and Sarah L. Eichenberger, Esquire of Simpson Thacher & Bartlett LLP, New York, New York, Attorneys for Nominal Defendant ViacomCBS Inc.

SLIGHTS, Vice Chancellor The Beach Boys, in their original form, were quintessentially an “American

Band.”1 Their profound and lasting impact on American culture was recognized yet

again in the fall of 2020, when Rolling Stone magazine named their seminal album,

Pet Sounds, the second Greatest Album of All Time (of any genre). 2 Almost exactly

four years earlier, in the fall of 2016, Rolling Stone contributing editor, Rob

Sheffield, wrote a review of two memoirs, released weeks apart, from Brian Wilson

and Mike Love, either or both of whom (depending upon who you ask) are regarded

as the creative force(s) that drove the band to its iconic status. 3 In his review,

Sheffield observed that while Wilson and Love were in the same band, and

presumably shared the same band experiences, their recounting of those experiences,

colored by vastly different and, in some respects, antagonistic perspectives, was

remarkably different. According to Sheffield, this dynamic resulted in “very

different takes on the Beach Boys story.” 4

This Court recently considered the story of the well-publicized merger of

Viacom, Inc. and CBS Corporation, two quintessentially American companies, as

1 The Beach Boys: An American Band (High Ridge Productions, 1985). 2 The 500 Greatest Albums of All Time, Rolling Stone (Issue 1344, Oct. 2020). 3 Rob Sheffield, Heroes and Villains, Rolling Stone (Issue 1271, Oct. 2016). 4 Id. 1 told from the perspective of displeased Viacom stockholders. 5 The story was

presented in a putative class action complaint where Viacom stockholders alleged

the Viacom/CBS merger was the product of actionable breaches of fiduciary duty

by Viacom fiduciaries and patently unfair. The Court found the allegations were

well-pled and denied motions to dismiss the complaint.6

In a rare, but not unheard of twist, the Court must consider the same story, the

story of the Viacom/CBS merger, but this time as told from the perspective of

displeased CBS stockholders who allege the merger was unfair to them and the

product of actionable breaches of fiduciary duty by CBS fiduciaries. Like Wilson

and Love, the CBS and Viacom stockholders offer very different takes on the same

sensational story.

As pled in a complaint comprising 267 paragraphs, Plaintiffs’ take is this:

After Shari Redstone (“Ms. Redstone”) consolidated control of both CBS and

Viacom under her holding companies, defined collectively below as the NAI Parties,

she thrice attempted to merge Viacom and CBS and twice was turned back by the

5 See In re Viacom, Inc. S’holders Litig., 2020 WL 7711128 (Del. Ch. Dec. 29, 2020, revised Dec. 30, 2020). 6 Id. 2 CBS board of directors (the “CBS Board”). The third try proved to be the charm,

resulting in a merger (the “Merger”) that spawned nominal Defendant, ViacomCBS.

From Plaintiffs’ perspective, it is necessary to understand the history of

Ms. Redstone’s failed efforts to cause Viacom and CBS to merge in order fully to

appreciate the breaches of fiduciary duties within CBS that led to the consummated

Merger. By the time Ms. Redstone first attempted to cause a Viacom/CBS merger

in September 2016, she had already packed the Viacom board of directors

(“Viacom Board”) with loyalists. The CBS Board, still independent at the time,

opposed the merger for several reasons, including that the NAI Parties would not

agree to allow CBS’s minority stockholders to approve the merger, would not

consider any merger partner other than Viacom and would not agree to allow a

combined Viacom/CBS to be managed free of the NAI Parties’ control. Most

troubling to the CBS Board, however, was that the NAI Parties were attempting to

thrust a floundering Viacom upon a thriving CBS in hopes that the combination

would enhance the value of the NAI Parties as controlling stockholders of both

companies. With the CBS Board unwilling to negotiate, Ms. Redstone’s first

attempt to cause a merger failed.

Ms. Redstone was distressed but not deterred. Behind the scenes, she shared

with confidantes her concern that Viacom might not make it as a going concern

without a Viacom/CBS combination. In a more public display of frustration, she 3 threatened the CBS Board with retribution and pledged “the merger would get done

‘even if [she had] to use a different process.’”7 She then emailed a trusted Viacom

director seeking recommendations for CBS board nominees “whose loyalty to [NAI]

I can trust.” 8

In January 2018, advisors warned Ms. Redstone that, absent a Viacom/CBS

merger, the NAI Parties may be left with a portfolio of assets burdened by Viacom’s

underperformance and unattractive to suitors. Less than one month later, in February

2018, Ms. Redstone returned to the boards of the two companies she controlled with

directions that they again form special committees to consider a merger. And, once

again, Ms. Redstone made clear that the NAI Parties would not agree to consider

alternative transactions or to subject a Viacom/CBS merger to a majority-of-the-

minority vote condition.

This time the CBS Board, through its special committee, determined that

Ms. Redstone was likely to force a merger over the CBS Board’s objection and that

the NAI Parties “presented a significant threat of irreparable and irreversible harm

to the Company and its stockholders” because they were seeking “to combine CBS

7 Verified Consol. Class Action and Deriv. Compl. (“Compl.”) ¶ 53 (Docket Item (“D.I.”) 38). The Complaint integrates facts from documents produced by CBS to Plaintiffs under 8 Del. C. § 220 (“Section 220 Documents”); citations to those documents are to “CBS ___.” 8 Compl. ¶ 31 (quoting CBS 00004214). 4 and Viacom regardless of the strategic and economic merits of the transaction.”9

To protect CBS stockholders, the independent members of the CBS Board took

measures this Court has previously described as “extraordinary”; they devised a

special dividend that would dilute the NAI Parties’ voting control of CBS from 80%

to 17%, 10 and then filed preemptive litigation against the NAI Parties in this Court

where they sought a declaration that the dividend was valid and asserted breach of

fiduciary duty claims against the NAI Parties. CBS executives, including then-Chief

Operating Officer Joseph Ianniello, supported the independent board’s effort to oust

their controller.

In riposte, the NAI Parties countersued alleging the special dividend was

unlawful as a matter of statute and the product of breaches of fiduciary duty by

members of the CBS Board who were acting for the sake of entrenchment. The

litigation that followed was expedited and intense.

That litigation ultimately settled in September 2018 (the “2018 Settlement”),

resulting in the resignation of seven CBS directors and the addition of six new

directors hand-picked by Ms. Redstone. Key governance committees were

9 Compl. ¶ 67. 10 CBS Corp. v. Nat’l Amusements, Inc., 2018 WL 2263385, at *2 (Del. Ch. May 17, 2018).

5 restructured to include Redstone-backed candidates. Ianniello was named interim

CEO and President after he assured Ms. Redstone that he now understood the

wisdom of a Viacom/CBS combination. But there was a problem: to achieve a

settlement and cement her control over the CBS Board, Ms. Redstone had to agree

that, in the two years following the settlement, the NAI Parties would not “directly

or indirectly” propose a Viacom/CBS merger “unless at least two-thirds (2/3) of the

directors who were not affiliated with [the NAI Parties] proposed one or asked for a

proposal.”11

Notwithstanding this contractual commitment, just four months after the 2018

Settlement, Ms. Redstone was back at it again attempting to promote a Viacom/CBS

merger with the boards of both companies. At CBS, she cajoled the newly

constituted CBS Board to form a special committee to evaluate the merger while

sidelining carry-over directors who formerly opposed her. She attended meetings of

CBS Board committees that, per the 2018 Settlement, should have met free of her

influence. And she worked to impose her preferred terms on the deal with the aid of

her new ally, Ianniello, whom she incentivized to do her bidding with a rich pre- and

post-merger compensation package.

11 Compl. ¶ 82. 6 The newly installed CBS directors acceded to Ms. Redstone’s will at every

turn. At her direction, they approved Ianniello’s amended employment agreement,

increasing his guaranteed compensation despite knowing CBS would receive

nothing by way of services in return. They did nothing to seek protection for CBS’s

minority stockholders, such pushing for a majority-of-the-minority vote condition

or insisting upon a CBS-led management team for the combined company, even

though past CBS boards had deemed such protections to be sine qua non for a

Viacom/CBS combination. The result—multiple breaches of fiduciary duty that

facilitated a merger that was beneficial to the NAI Parties, as Viacom and CBS’s

controlling stockholders, but demonstrably unfair to the CBS minority

stockholders.12

With the benefit of documents secured after prevailing in expedited

Section 220 litigation against CBS prior to the Merger,13 Plaintiffs bring breach of

fiduciary duty claims against the NAI Parties, members of the CBS Board and

Ianniello (collectively, “Defendants”) for their role in consummating the Merger,

12 The stories of the Viacom/CBS merger, as told by both Viacom and CBS stockholders in their respective complaints, read like something out of a George R.R. Martin novel. Their competing claims of unfairness call to mind the author’s reference to the adage: “A fair bargain leaves both sides unhappy.” GEORGE R.R. MARTIN, A DANCE WITH DRAGONS (HarperCollins 2011). Whether the adage proves true here remains to be seen. 13 Bucks Cty. Emps. Ret. Fund v. CBS Corp., 2019 WL 6311106 (Del. Ch. Nov. 25, 2019) (the “220 Op.”).

7 disseminating a misleading proxy statement and approving Ianniello’s compensation

agreement.

Each defendant has moved to dismiss the complaint, arguing Plaintiffs have

asserted derivative claims belonging to CBS and yet have failed to plead that demand

on the CBS Board would have been futile. As for the viability of the claims,

Defendants maintain that Plaintiffs’ breach of fiduciary duty claims related to the

Merger must be evaluated under the deferential business judgment rule because

Plaintiffs have failed to well plead that the NAI Parties, as controller, derived any

benefit from the Merger not shared with CBS’s other stockholders and have failed

to well plead that the CBS Board was otherwise conflicted. Even if entire fairness

review applies, however, Defendants argue that Plaintiffs fail to state a claim that

the Merger was unfair or, as to members of the CBS Board, to plead non-exculpated

claims upon which relief can be granted.

For reasons explained below, in large measure, Defendants’ motions to

dismiss must be denied. At the threshold, I dismiss Plaintiffs’ disclosure claim,

where they allege that the CBS Board’s misleading disclosures caused CBS

stockholders to hold rather than sell their stock in advance of the Merger, because

so-called “holder” claims cannot be brought as class claims as a matter of Delaware

law. As to the individual holder claim stated by Plaintiffs, even if I assume (without

8 deciding) that Delaware recognizes such claims, Plaintiffs have not adequately pled

the elements of the claim here.

Beyond the holder claim, however, Defendants’ motions to dismiss must be

denied. Even assuming Plaintiffs have pled derivative rather than direct claims, a

point they dispute, Plaintiffs have adequately pled demand futility because a

majority of the members of the CBS Board that would have considered a demand

face a substantial likelihood of liability for the non-exculpated breach of their

fiduciary duty of loyalty in negotiating the Merger and facilitating Ms. Redstone’s

quid pro quo with Ianniello. Because the pleading standard under Chancery

Rule 23.1 is more demanding than the standard imposed by Chancery Rule 12(b)(6),

it follows that the motion to dismiss the claims against these same CBS Board

members for failure to state viable claims must also be denied. As for the claims

relating to Ianniello’s Merger-related compensation package, Plaintiffs have well

pled that the then-extant CBS Board and Iannielo breached their fiduciary duties by

approving and accepting, respectively, the compensation for the purpose of

furthering the controller’s interests to the detriment of CBS and its minority

stockholders.

The Complaint also well pleads a breach of fiduciary duty by the NAI Parties.

While Delaware law provides controllers a pathway to attain deferential pleading-

stage business judgment review of a transaction through the MFW framework, the 9 NAI Parties expressly declined to condition the Merger on a majority-of-the-

minority vote.14 And Plaintiffs have well pled the NAI Parties were conflicted

controllers by virtue of standing on both sides of the Merger and extracting from the

Merger a benefit not shared ratably by CBS Class B stockholders (the enhancement

of value within the NAI Parties by saving the failing Viacom through the Merger).

Because Plaintiffs have pled facts that allow a reasonable inference the Merger was

not entirely fair to CBS’s minority stockholders, the motion to dismiss the claims

against the NAI Parties must also be denied.

I. BACKGROUND

I have drawn the facts from well-pled allegations in the Verified Amended

Complaint and documents properly incorporated by reference or integral to that

14 See Kahn v. M&F Worldwide Corp., 88 A.3d 635 (Del. 2014) (“MFW”) (holding that breach of fiduciary duty claims arising out of a squeeze-out merger conditioned from the outset upon both the negotiation and approval of a fully empowered independent special committee of the board and the uncoerced, fully informed vote of a majority of the minority stockholders in support of the transaction will be reviewed under the business judgment rule), overruled in part, Flood v. Synutra Int’l, Inc., 195 A.3d 754 (Del. 2018); Flood, 195 A.3d at 770 (affirming trial court dismissal of a complaint under Chancery Rule 12(b)(6) where defendants had clearly complied with the MFW dual protections); In re Martha Stewart Living Omnimedia, Inc., S’holder Litig., 2017 WL 3568089, at *18 (Del. Ch. Aug. 18, 2017) (describing the dual-protections laid out in MFW as a “road map” for fiduciaries to earn pleading-stage business judgment review of their conduct in approving transactions with conflicted controllers).

10 pleading.15 For purposes of the motion only, I accept as true the Complaint’s well-

pled factual allegations and draw all reasonable inferences in Plaintiffs’ favor.16

A. The Parties and Relevant Non-Parties

Nominal Defendant, ViacomCBS, is a publicly traded Delaware corporation

with its principal place of business in New York, New York. 17 ViacomCBS is the

entity formed as a result of the Merger of Viacom and CBS in 2019. 18 Its common

stock is divided into two classes: Class A voting stock, which has one vote per share,

and Class B non-voting stock, which has economic rights but no voting rights.19

Both classes of stock trade on the NASDAQ. 20

15 See Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 860 A.2d 312, 320 (Del. 2004) (noting that on a motion to dismiss, the Court may consider documents that are “incorporated by reference” or “integral” to the complaint); In re Clovis Oncology, Inc. Deriv. Litig., 2019 WL 4850188, at *14 n.216 (Del. Ch. 2019) (discussing the limitations of the “incorporation by reference” and “integral to the complaint” doctrines). I address the limitations of these pleading doctrines in more detail below. 16 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002). 17 Compl. ¶ 11. 18 Id. 19 Id. 20 Id. 11 Defendant, Ms. Redstone, is a director and Chair of ViacomCBS. 21 Prior to

the Merger, she was Vice Chair of the CBS Board and Vice Chair of the Viacom

Board. 22 Ms. Redstone controls ViacomCBS through National Amusements, Inc.

(“NAI”).23

Defendant, NAI, is a closely held Maryland corporation headquartered in

Massachusetts.24 NAI currently owns 79.8% of ViacomCBS’s one-vote Class A

common stock. 25 NAI’s ViacomCBS stock is held and beneficially owned through

NAI and NAI Entertainment Holdings, LLC (“Holdings”),26 and NAI owns all of

the membership interests in Holdings. 27 NAI has been effectively controlled by

Ms. Redstone, through the Sumner M. Redstone National Amusements Trust

(“SMR Trust”) and the Shari E. Redstone Trust, since her father, Sumner Redstone,

experienced declining health in 2014 and subsequently passed. 28

21 Compl. ¶ 12. 22 Id. 23 Compl. ¶¶ 12–14. 24 Compl. ¶ 13. 25 Id. 26 Id. 27 Id. 28 Compl. ¶¶ 13, 41. 12 Defendant, SMR Trust, is a Massachusetts-based trust that holds

approximately 80% of the common stock of NAI.29 Ms. Redstone became a trustee

of the SMR Trust upon Sumner Redstone’s death.30 Thus, Ms. Redstone now

effectively controls the SMR Trust, NAI and Holdings (together with Ms. Redstone,

the “NAI Parties”). 31

The “Director Defendants,” named below, consist of ten individuals

(excluding Ms. Redstone) who served as CBS Board members at the time of the

Merger. 32 They are Candice K. Beinecke, Barbara M. Byrne, Gary L. Countryman,

Brian Goldner, Linda M. Griego, Robert Klieger, Martha L. Minow, Susan

Schuman, Frederick O. Terrell and Strauss Zelnick. 33 Defendants, Beinecke, Byrne,

Countryman, Goldner, Griego, Minow, Schuman and Terrell served as members of

the special committee of the CBS Board that negotiated and approved the Merger

29 Compl. ¶ 14. Ms. Redstone owns the remaining 20% voting interest in NAI not controlled by the SMR Trust through her own trust. Compl. ¶ 13. 30 Compl. ¶ 14. 31 Id. 32 Compl. ¶¶ 15–25. 33 Compl. ¶¶ 15–24. 13 (the “CBS Committee”). 34 Ms. Redstone, Klieger and Zelnick abstained from the

CBS Board’s vote to approve the Merger.35

Defendant, Joseph Ianniello, served as President and Acting CEO of CBS

from September 2018 until the ViacomCBS merger, having previously served as

CBS’s Chief Operating Officer and Chief Financial Officer since 2009.36 In April

2019, Ianniello’s employment agreement was amended, resulting in an increase of

base salary from $2.5 million to $3 million, a guaranteed cash bonus for 2019 of

$15 million (up from a potential of $12 million) and an immediate, lump sum

payment of $5 million. 37 After the Merger closed in December 2019, Ianniello left

ViacomCBS the following month, at which time he was owed approximately

$79 million in cash compensation. 38

Co-Lead Plaintiffs, Bucks County Employees Retirement Fund and

International Union of Operating Engineers of Eastern Pennsylvania and Delaware

34 Compl. ¶ 25. 35 Id. 36 Compl. ¶ 26. 37 Id. 38 Id. 14 (collectively “Plaintiffs”), were, at all relevant times, beneficial owners of CBS

Class B Common Stock. 39

Relevant non-parties who currently sit on the ViacomCBS board, and did so

at the time the Complaint was filed (the “Demand Board”), include: Judith A.

McHale, who was a member of the Viacom special committees in 2016, 2018 and

2019, and voted in favor of the Merger as a Viacom director; Ronald L. Nelson, who

was appointed to the Viacom Board by NAI through written consent in 2016 and

voted in favor of the Merger as a Viacom director; Charles E. Phillips, who joined

the Viacom Board in 2006 and voted in favor of the Merger as a Viacom director;

Nicole Seligman, who was appointed to the Viacom Board by NAI through written

consent in 2016 and voted in favor of the Merger as a Viacom director; and Robert

Bakish, who has worked for Viacom in various roles since 1997 and is now a director

and CEO of ViacomCBS. 40

39 Compl. ¶ 13. 40 Compl. ¶¶ 27–32. 15 B. The Redstones Take Control of Viacom and CBS

In 1987, Sumner Redstone (“Mr. Redstone”) acquired, through NAI, a

controlling interest in Viacom. 41 Under his control, Viacom acquired CBS in 1999.42

After operating CBS under the Viacom umbrella for six years, the Viacom Board

approved a plan that spun CBS off as an independent operating company.43 When

CBS and Viacom separated, each company maintained dual-class structures of

Class A voting stock and Class B non-voting stock: NAI owned approximately 80%

of the Class A stock (and voting control) of both Viacom and CBS, while holding

only ⁓10% of the economic interest (i.e. economic risk) in both companies.44

Mr. Redstone practiced good corporate governance throughout his tenure as

controller and Chairman of both CBS and Viacom. 45 He publicly declared that the

CBS Board would remain independent from NAI’s control, installing protections in

CBS’s constitutive documents that required the CBS Board to be comprised of a

41 Compl. ¶ 34. 42 Id. 43 Id. 44 Compl ¶ 35. 45 Compl. ¶ 36. 16 majority of independent directors and ensured that only independent directors could

serve on CBS’s compensation and governance committees.46

While Mr. Redstone allowed his daughter, Ms. Redstone, to hold positions in

NAI and Viacom as early as 1993, he always considered Philippe Dauman to be his

natural successor and the future Viacom CEO.47 But Ms. Redstone saw things

differently. As she stated in a May, 2004 article in the New York Times: “It was

always my intention that when the kids were grown, I would spend more time and

play a more significant role at Viacom.” 48 Given her father’s preference for

Dauman, Ms. Redstone acknowledged that she likely “would have to one day sue

Dauman to protect her family’s empire.”49

In 2014, Mr. Redstone’s health began to decline, and his daughter sought to

become his healthcare agent.50 In December 2015, Ms. Redstone executed

documents that allowed her to participate in Mr. Redstone’s healthcare decisions.51

By early 2016, Mr. Redstone’s ill health forced him to relinquish his chairmanship

46 Compl. ¶ 37. 47 Compl. ¶ 39. 48 Id. 49 Id. 50 Compl. ¶ 41. 51 Id. 17 of CBS and Viacom. 52 Each board filled the position with its respective CEO. 53 For

Viacom, that meant Dauman, and Ms. Redstone was the only Viacom Board member

to vote against the appointment. 54

Around the same time, Ms. Redstone began to alter the composition of the

trustees for the SMR Trust and the Viacom Board. 55 She replaced two long-time

SMR trustees with NAI’s general counsel and a “close friend.” 56 She then removed

Dauman and another director from the NAI Board, replacing them with her

children. 57 Ms. Redstone’s aggressive governance restructuring secured her

majority control of the NAI Board and thus voting control of CBS and Viacom.58

With NAI under Ms. Redstone’s control, she turned her attention to Viacom

and Mr. Redstone’s heir apparent, Dauman. She began by halting Dauman’s plan to

sell Viacom’s minority stake in its film studio subsidiary, Paramount, 59 threatening

52 Compl. ¶ 42. 53 Id. 54 Id. 55 Compl. ¶ 43. 56 Id. 57 Compl. ¶ 44. 58 Compl. ¶ 43. 59 Compl. ¶ 44. 18 to remove Viacom directors who did not support her vision for the company.60

In June 2016, Ms. Redstone, through NAI, caused an amendment to Viacom’s

bylaws that granted NAI veto authority over key business decisions and the authority

unilaterally to replace board members.61 Ten days later, NAI delivered written

consents removing five members of the Viacom Board and replacing them with

Seligman, Nelson, McHale, Thomas May and Kenneth Lerer.62 Together with Shari

and Sumner Redstone, NAI’s newly appointed directors comprised a majority of

Viacom’s eleven-member Board.63

The ousted Viacom Board members sued NAI and Ms. Redstone, accusing

Ms. Redstone of “playing puppet master behind [an] invalid removal attempt.”64

In August 2016, the litigation was settled, Dauman agreed to step down for “good

reason,” and Viacom agreed to pay him $72 million. 65 The NAI-controlled Viacom

60 Id. 61 Compl. ¶ 45. 62 Id. 63 Id. 64 Compl. ¶ 46 (quoting Salerno v. Nat’l Amusements, Inc., C.A. No. 12473-CB (Del. Ch. June 16, 2016), Verified Compl. Pursuant to 8 Del. C. § 225(a) (D.I. 1) ¶ 77). 65 Compl. ¶ 47. 19 Board appointed Bakish as Viacom’s President and CEO.66 The bylaw amendments

adopted through NAI’s written consents were upheld, and NAI’s newly appointed

directors remained in their positions.67 The August 2016 settlement secured

Ms. Redstone’s majority control of the NAI Board, operational and voting control

of Viacom and voting control of CBS.68

C. The First Merger Attempt

With Ms. Redstone in charge, in September 2016, the NAI Parties proposed a

Viacom/CBS merger to the Viacom Board. 69 In response, the Viacom Board formed

a special committee comprised mostly of directors recently installed by

Ms. Redstone.70 The CBS Board, at this point still independent of NAI, formed its

own special committee. 71 Ms. Redstone informed the CBS special committee that

the NAI Parties would not consider any alternative to a Viacom/CBS combination

66 Compl. ¶¶ 44–46. 67 Id. 68 Compl. ¶ 49. 69 Compl. ¶¶ 46, 50. 70 Compl. ¶ 50. 71 Id. 20 and would not allow any alternative to be put to a vote of public stockholders.72 She

also refused to accede to CBS’s demand that a combined Viacom/CBS be managed

as a non-controlled company for at least five years. 73

The first merger proposal came at a time when, as NAI conceded, Viacom

was “tremendously underperforming”74 and was “(correctly) viewed as a troubled

company.”75 The CBS special committee advised NAI’s counsel that the transaction

would not go forward “unless [the independent directors of CBS] are satisfied that

the [CBS] CEO and management team . . . would have complete operating and

strategic authority going forward.”76 In this regard, the CBS Board members

believed it was their “fiduciary duty to ensure, as a threshold matter, that the

management and structure that have produced the great [CBS] success would not be

diluted or lost in a potential combination with Viacom.”77 When it became clear that

NAI was not prepared to negotiate on these governance terms, the CBS special

72 Compl. ¶ 51. True to her word, Ms. Redstone unilaterally turned away AT&T’s chief executive after he expressed interest in acquiring CBS. Id. 73 Compl. ¶ 52. 74 CBS Corp. v. Nat’l Amusements, Inc., C.A. No. 2018-0342-AGB, at 58 (Del. Ch. May 16, 2018) (TRANSCRIPT) (D.I. 49) (the “May 16, 2018 Tr.”). 75 Compl. ¶ 54 (quoting CBS 000005827). 76 Id. (quoting CBS 00005248–49). 77 Id. (quoting CBS 000005249). 21 committee broke off discussions in December 2016, just two months after the merger

was first proposed. 78

D. Ms. Redstone Expresses Concern for Viacom

Ms. Redstone was not pleased. She declared that “the failure to get the deal

done had caused Viacom to suffer,” and threatened that “the merger would get done

‘even if [she had] to use a different process.’”79 She lamented to Klieger (who was

then a CBS director) that “Viacom is tanking” 80 and worried that “time ha[d] run

out” for Viacom and that NAI may not be able to “get out from [u]nder it.” 81

In January 2017, Ms. Redstone e-mailed Seligman—then a director at

Viacom—to seek her help in finding a new CBS director, stating: “I need another

you” and “someone whose loyalty to [NAI] I can trust.” 82 She asked Seligman to

meet for coffee the following Friday, signing off “Xoxox.” 83 Seligman was co-chair

78 Compl. ¶ 53. 79 Id. 80 Compl. ¶ 56 (quoting CBS 00004135). 81 Id. (quoting CBS 00004205). 82 Compl. ¶ 31 (quoting CBS 00004214). 83 Id. 22 of the Viacom special committee in 2016, and would later retain that same role in

2018 and 2019.84

In late 2017, Verizon floated its interest in acquiring CBS with NAI’s

financial advisor, Evercore Partners.85 The deal withered before its first breath when

NAI insisted that “any approach would also have to include Viacom.”86 Evercore

told Verizon’s advisors that Ms. Redstone’s focus was to “put [the] companies

[Viacom and CBS] back together again.”87

Meanwhile, the performance delta between Viacom and CBS continued to

expand over the ensuing months. In January 2018, the NAI Parties were advised by

Evercore and their legal advisors that CBS had outperformed the market over the

previous ten years while Viacom’s performance lagged, and the trading multiples of

the two companies reflected this reality.88 The NAI Parties were also informed that

“[t]here was further significant downside risk at Viacom if organic growth did not

84 Id. 85 Compl. ¶ 59. 86 Id. (quoting CBS 00004207). 87 Id. (quoting CBS 00004209) (Shari Redstone noting, “my focus” is to combine CBS and Viacom). 88 Compl. ¶ 57. 23 accelerate.”89 Because there was a “risk” that no buyers would be interested in

acquiring Viacom if NAI were to put both companies up for sale, Evercore advised

that “a sale of [NAI]” was preferable to a sale of either or both of CBS and Viacom,

and concluded that “[t]he ideal scenario for [NAI] may be a combination of [CBS]

and [Viacom] as a first step, followed by a sale of [NAI].”90 According to NAI’s

advisors, if Viacom and CBS were to combine, then NAI could expect a sale

premium as high as 50%.91

E. The Second Merger Attempt

In the same month the NAI Parties received this advice, Ms. Redstone again

proposed that CBS and Viacom merge.92 On February 1, 2018, CBS’s N&G

Committee met to discuss, inter alia, the formation of a special committee.93

Ms. Redstone attended part of that meeting and, later that day, the full CBS Board

89 Id. 90 Compl. ¶ 58 (quoting CBS 00004219). 91 Compl. ¶ 159. 92 Compl. ¶ 61. 93 Compl. ¶ 62. Viacom, for its part, formed its own special committee that was again comprised of the directors appointed by Redstone in 2016. Compl. ¶ 64.

24 resolved to create a special committee to consider a possible merger with Viacom.94

The Viacom Board followed suit soon after. 95

Again, governance and management was a central concern for CBS’s special

committee and, again, CBS’s special committee ultimately concluded the merger

was “not in the best interest of all the Company’s stockholders,” in part because the

NAI Parties again refused to agree to a majority-of-the-minority condition.96 In a

dramatic turn, the CBS special committee further determined that Ms. Redstone and

NAI “presented a significant threat of irreparable and irreversible harm to the

Company and its stockholders” because they were seeking “to combine CBS and

Viacom regardless of the strategic and economic merits of the transaction.”97

Concerned that Ms. Redstone would not accept rejection a second time,98 the

CBS special committee recommended a dividend of CBS Class A stock to all of

CBS’s stockholders in an effort to dilute NAI’s voting control from approximately

94 Compl. ¶ 58. 95 Compl. ¶ 59. 96 Compl. ¶¶ 66–67. 97 Compl. ¶ 67. 98 Compl. ¶ 66. More specifically, the CBS special committee worried Ms. Redstone would apply private pressure on directors, eliminate CBS management, continue private discussions about forcing CBS to bail out Viacom and make it difficult for CBS’s management to execute on its strategic plan. Id.; see also CBS 00005723.

25 80% to 17%.99 On May 14, 2018, CBS’s special committee filed preemptive

litigation against the NAI Parties in this court seeking a declaration that the dividend

was valid and asserting breach of fiduciary duty claims against Ms. Redstone and

NAI. 100 The CBS special committee also sought a temporary restraining order to

prevent Ms. Redstone from interfering with (1) the CBS Board’s composition,

(2) the scheduled May 17 CBS Board meeting to approve the dividend, and (3) the

dividend. 101 As this Court then observed, “[b]y any reckoning, the Dividend

Proposal [was] an extraordinary measure, presumably reflective of the depth of

concern the independent members of the Special Committee [had] about

Ms. Redstone’s intentions.” 102

On May 16, just before the TRO hearing, Ms. Redstone’s counsel informed

the Court that Ms. Redstone and NAI had executed and delivered written consents

to amend CBS’s bylaws to allow her veto control over the dividend. 103 The Court

then derided that “act of self-help” as a tactic that resembled the “dropping [of]

99 Compl. ¶ 67. 100 Compl. ¶¶ 68–69. 101 Compl. ¶ 69. 102 CBS Corp., 2018 WL 2263385, at *2. 103 Compl. ¶ 70. 26 consents [to remove directors] in the dark of the night in the [2016] Viacom

matter.”104

The NAI Parties countersued CBS, its non-NAI directors and certain officers,

alleging breaches of fiduciary duty. 105 NAI alleged, inter alia, that Ianniello, CBS’s

COO at the time, “knowingly breached his own fiduciary duties and knowingly and

actively assisted the Director Defendants in breaching their fiduciary duties,

including through his participation in and encouragement of the [d]irector

[d]efendants’ decision to declare the extraordinary dilutive dividend . . . .”106

NAI also alleged that Ianniello’s compensation package was excessive and improper

because he was entitled to a payout of more than $60 million if he resigned for “good

reason” and this “was not approved, or even discussed, by the full Board prior to the

agreement being signed.”107

After CBS Board Chairman and CEO, Leslie Moonves, was ousted due to

allegations of misconduct, the litigation between NAI and the CBS Board abruptly

104 Id. (quoting May 16, 2018 Tr. at 58, 76). 105 Compl. ¶ 72. 106 Compl. ¶ 73 (quoting CBS 00004073). 107 Compl. ¶ 74 (quoting CBS 00004024). 27 settled in September 2018.108 In relevant part, the 2018 Settlement addressed several

issues related to Ms. Redstone and NAI, the CBS Board’s composition and structure,

as well as CBS’s management.

First, as to Ms. Redstone and NAI, both were prohibited from proposing for a

period of two years “directly or indirectly” that CBS merge with Viacom, “unless at

least two-thirds (2/3) of the CBS directors not affiliated with NAI proposed one or

asked for a proposal.” 109

Second, several members of the CBS Board resigned to make way for six new

directors: Beinecke, Byrne, Goldner, Parsons, Schuman and Zelnick.110

Ms. Redstone, Klieger, Countryman, Gordon, Minow, Griego and Cohen would

remain on the Board, and Gordon was named CBS’s lead independent director.

Countryman, Gordon, Minow, Griego and Cohen were designated as the

“Continuing Independent Directors.”111 Gordon and Cohen departed the CBS Board

soon after, leaving the CBS Board with eleven directors.112

108 Compl. ¶ 75 (citing CBS 00006097). 109 Compl. ¶ 82. 110 Compl. ¶ 76. 111 Id. 112 Compl. ¶¶ 78–80. Gordon had chaired the 2018 CBS special committee, had been a key negotiator with Viacom’s special committee and had taken the lead on presenting the dividend proposal at the May 2018 CBS Board meetings. Compl. ¶ 79. Plaintiffs allege 28 Third, the CBS Board reconstituted its Compensation, N&G and Audit

Committees to include directors “not affiliated with any of the NAI Entities or their

respective affiliates.”113 These committees were tasked with identifying CBS Board

nominees, overseeing all aspects of good corporate governance and reviewing

related-party transactions, including those with NAI.114 The Compensation

Committee comprised Zelnick (Chair), Cohen and Griego. 115 The N&G Committee

comprised Beinecke (Chair), Gordon, Minow and Parsons.116 Parsons was named

interim Chairman and the CBS Corporate Governance Guidelines were amended to

require the Chairman to preside “at meetings of non-management directors and

independent directors.” 117 Parsons resigned from the CBS Board shortly thereafter

and was replaced by Terrell. 118 Ultimately, Zelnick, a close friend of Ms. Redstone’s

both directors (Gordon and Cohen) were “effectively kicked out” by Ms. Redstone and NAI. Compl. ¶ 80. 113 Compl. ¶ 77. 114 Id. 115 Id. 116 Id. 117 Compl. ¶ 81. 118 Id. 29 and one of CBS’s newly appointed directors, was named Interim Chairman.119

When the CBS Board’s “independent” directors would later meet to consider a

merger with Viacom for the third time, Zelnick presided. 120

Finally, with respect to management, Ianniello was appointed as CBS’s

President and Acting CEO. 121 His employment agreement was amended, allowing

him to resign for good reason (triggering designated payments) if CBS did not name

a permanent CEO by a certain date or if it hired someone else; his base salary

remained unchanged (the “First Ianniello Amendment”).122 While Ms. Redstone

previously objected to Iannielo’s $60 million golden parachute provision, she did

not seek to alter it substantively in the First Ianniello Amendment. 123 And, although

CBS purportedly embarked on a CEO search and formed a “Search Committee” in

connection with the 2018 Settlement, with Ms. Redstone as a member,124 it does not

119 Compl. ¶¶ 24, 81. 120 Id. 121 Compl. ¶ 83. 122 Id. 123 Id. 124 Compl. ¶ 84 (citing CBS 00006214). 30 appear that the Search Committee ever worked to locate a permanent CEO for CBS

prior to the Merger.125

F. The Third and Final Merger Attempt

In September 2018, Ianniello met Ms. Redstone for lunch at the Pierre Hotel

in New York to inform her that he had a change of heart regarding the merits of a

Viacom/CBS merger.126 Though he had opposed the merger less than four months

earlier, after the 2018 Settlement had altered the composition of the CBS Board,

Ianniello confided in Ms. Redstone that he now believed “there were benefits to a

potential business combination of CBS and Viacom.”127 With Ianniello now

“willing to play ball,” and the CBS Board now stacked with her designees,

Ms. Redstone set her sights on a third attempt to cause a Viacom/CBS merger. 128

125 Id. Plaintiffs allege, on information and belief, that Ms. Redstone foreclosed any meaningful CEO recruitment, as a new CEO would stand as a potential impediment to a merger. With Ianniello well-incentivized to support (or at least not oppose) the merger she wanted, Ms. Redstone had no reason to hire a permanent CEO. Id. 126 Compl. ¶ 85. 127 Id. (quoting CBS Am. Form S-4, dated Oct. 24, 2019 (“Proxy”) at 81). 128 Id. 31 The Seeds of the Merger Are Sown

It was understood after the 2018 Settlement that CBS’s N&G and

Compensation Committees were to operate free of NAI’s influence. 129 Nevertheless,

four months after the 2018 Settlement, on January 30, 2019, Ms. Redstone attended

a joint meeting of the Compensation and N&G Committees solely focused on an

evaluation of Ianniello’s performance and then a separate Compensation Committee

meeting that same day to discuss Ianniello’s 2018 bonus plan awards.130 The next

day, the CBS Board heard from management regarding the Company’s long-range

business plans and from representatives of Centerview Partners and Lazard Fréres

& Co. LLC regarding “their views on strategic alternatives available to the

Company.”131 A week later, Zelnick (whose son works for Viacom) put

Ms. Redstone in contact with Robert Pruzan, co-founder of Centerview, who

attended the January 31, 2019 CBS Board meeting.132 On February 16, 2019,

Bakish, as Viacom’s CEO, asked Ms. Redstone at a Viacom virtual town hall about

129 Compl. ¶ 86. 130 Compl. ¶¶ 86–87. 131 Compl. ¶ 87 (quoting CBS 00001749). 132 Compl. ¶ 88. 32 a Viacom/CBS merger, and she responded: “I do believe scale matters and we

probably will look for transactions to accelerate our strategy.”133

On February 21, 2019, a group of purportedly independent CBS directors,

with Zelnick presiding, met to hear from Centerview (with Pruzan in attendance)

and Lazard about “strategic acquisition opportunities,” with a focus on Viacom.134

The advisors presented the CBS directors with various financial metrics revealing

Viacom’s revenue declined from $10.2 billion in 2014 to a projected $9.9 billion in

2019, while its operating income before depreciation and amortization fell from

$4.4 billion to an expected $3.2 billion in the same period. 135 The meeting

concluded with a discussion of “next steps in the process for considering strategic

alternatives,” but without a decision on whether to pursue a Viacom transaction or

to invite a proposal.136

On that same day, Ms. Redstone attended another Compensation Committee

meeting in which Ianniello’s compensation was discussed. 137 Ms. Redstone then

133 Compl. ¶ 89. 134 Compl. ¶ 90 (quoting CBS 00001743). 135 Id. 136 Id. 137 Compl. ¶ 91. 33 met with the committee in executive session to “continue[] discussions.”138 The

minutes of the meeting omit all details of that discussion.139

On February 22, Ms. Redstone attended a N&G Committee meeting.140 While

the chair of that committee (Beinecke) was required to “determine in advance of

each meeting whether any non-Committee members may attend the meeting,”

it does not appear that any such determination was made to allow Ms. Redstone to

attend. 141 During the N&G Committee’s “executive session,” Ms. Redstone

discussed the return of Centerview and Lazard “to continue more detailed

discussions with the independent directors regarding strategic possibilities for the

Company.”142 Ms. Redstone also discussed “the retention of outside counsel for the

independent directors.” 143 After Ms. Redstone left the meeting, “discussion

continued” between Beinecke and Minow, and they determined to recommend that

the CBS Board form a special committee.144

138 Compl. ¶ 92 (quoting CBS 00005149). 139 Id. (citing CBS 00005153). 140 Compl. ¶ 94. 141 Compl. ¶ 95. 142 Id. (quoting CBS 00002036). 143 Id. 144 Id.; Compl. ¶¶ 102–04. 34 The N&G Committee Charter requires the committee to “report regularly to

the entire Board and . . . submit to the Board the minutes of its meetings.” 145 But it

does not appear that the N&G Committee relayed Ms. Redstone’s participation and

input at their meeting, or the minutes of the meeting, to the full CBS Board. 146 And

the meeting is not mentioned in the Proxy related to the Merger.147

CBS’s then-Chief Legal Officer, Lawrence Tu, attended the February 22

N&G Committee meeting and then resigned abruptly the same day for

“Good Reason,” as defined in his employment agreement. That agreement

permitted his resignation if, inter alia, he was assigned “duties or

responsibilities . . . materially inconsistent with his position, titles, offices, or

reporting relationships as they existed on the Effective Date or that materially impair

[his] ability to function as Senior Executive Vice President and Chief Legal Officer

of CBS.”148 Tu’s “Good Reason” resignation resulted in CBS paying him more than

$9 million in severance. 149

145 Compl. ¶ 97. 146 Compl. ¶ 98. 147 Compl. ¶ 97. 148 Compl. ¶ 98. 149 Id. 35 The Special Committee Is Formed and Ianniello Is Further Incentivized to Facilitate the Merger

The “CBS Independent Directors” met again on March 9, 2019, with Lazard

and Centerview in attendance, to “focus on a potential combination with Viacom.”150

This focus was not surprising since Ms. Redstone had previously advised

Centerview’s co-founder that, “if [the bankers] wanted to be paid, their sole focus

needed to be [on] Viacom.”151 During the meeting, Ianniello “presented

management’s recommendation that the Company take next steps in exploring a

possible combination with Viacom.” 152 Neither Beinecke nor Minow advised their

fellow “independent directors” that Ms. Redstone had attended the February 22

N&G Committee meeting or that the committee had discussed, at her urging,

“strategic alternatives” and the formation of a special committee.153 At the

conclusion of the meeting, it was determined that legal counsel should be retained

to advise “the independent directors in connection with their continued evaluation

of a potential business combination of CBA [sic] and Viacom.”154

150 Compl. ¶ 100 (quoting CBS 00001741). 151 Id. 152 Id. (quoting CBS 00001742). 153 Id. 154 Compl. ¶ 102 (quoting the March 9 meeting minutes). 36 During its next meeting on March 22, the “CBS Independent Directors”

determined that their group should not have a chair.155 While this left the

“ship without a real captain,” the lack of a skipper did not matter since the ship was

sailing on auto-pilot toward “a pre-ordained destination.”156 Consistent with

directions given by the controller, the bankers and the ad hoc committee they

advised, comprised mostly of short-time CBS directors “hand selected by

[Ms.] Redstone,” focused all energies on a deal with Viacom.157 Beinecke was put

in charge of interfacing with legal counsel while Byrne and Terrell would interface

Centerview and Lazard.158 It does not appear that the holdover directors,

Countryman, Minow and Griego, each of whom were on the 2018 CBS special

committee that sued NAI in 2018, played any substantive role in the process.159

On April 4, the “CBS Independent Directors” met again, with Zelnick presiding, and

directed Ianniello to “negotiate and complete” the Viacom transaction. 160

155 Compl. ¶ 104. 156 Id. 157 Id. 158 Id. 159 Id. 160 Compl. ¶ 105 (quoting CBS 00000269). 37 On April 9, 2019, the CBS Board formally established a special committee.161

Consistent with the singular focus of its predecessors, the CBS Committee’s

charter—signed by Ms. Redstone, Klieger and Zelnick—authorized the special

committee to evaluate and negotiate only a “combination of the Company with

Viacom” and not any other strategic alternatives. 162 It also specifically withheld

from the committee the authority to alter the “hiring, selection, compensation or

termination of any senior executive of the company, amendment of the bylaw . . . or

the declaration or payment of any dividends.” 163 Neither the 2016 nor the 2018 CBS

special committee charters contained similar limitations.164

On April 12, 2019, the Compensation Committee met to discuss a potential

extension of Ianniello’s employment agreement.165 Again, apparently without

invitation, Ms. Redstone attended. 166 The committee discussed “various approaches

to a possible extension, which would, among other things, consider scenarios in

161 Compl. ¶ 106. 162 Id. (quoting CBS 00001794). 163 Id. 164 Id. (citing CBS 00004761–62; CBS 00004752–53). 165 Compl. ¶ 107 (citing CBS 00004779). 166 Id. 38 which Mr. Ianniello is not determined to be the permanent Chief Executive

Officer.”167

On April 23, 2019, Ianniello and CBS amended Ianniello’s employment

agreement for a second time (the “Second Ianniello Amendment”), increasing his

base salary from $2.5 million to $3 million, guaranteeing a cash bonus for 2019 of

$15 million (up from a potential of $12 million), and providing him with an

immediate, lump sum payment of $5 million. 168 The Second Ianniello Amendment

also modified Ianniello’s “Good Reason” trigger to include additional language that

allowed him to receive his entire compensation package with “the appointment of a

permanent” CEO, and then to stay on for a compensated “consulting period.”169

According to reporting from Bloomberg, Ianniello agreed to this “hefty payout” in

return “for supporting the deal [with Viacom] without having a shot at the top

job.”170

167 Id. (quoting CBS 00004779). 168 Compl. ¶ 108. 169 Compl. ¶¶ 108–09. 170 Compl. ¶ 108 (citing ViacomCBS Name Cheeks as CBS President, Replacing Ianniello, BLOOMBERG NEWS (Jan. 31, 2020)).

39 The CBS Committee Negotiates in Ms. Redstone’s Shadow

NAI communicated with the CBS and Viacom special committees

“throughout the process,” so much so that NAI requested that CBS and Viacom

reimburse it for its transaction-related expenses.171 NAI’s legal counsel emphasized

to the CBS Committee that NAI had been unwilling to commit to a majority of the

minority vote condition in the 2016 and 2018 merger discussions, signaling that

Ms. Redstone would not agree to that condition this time either. 172 The signal was

received loud and clear; the CBS Committee never asked that the Merger be

conditioned on a majority-of-the-minority stockholder vote. 173

Prior to engaging with Viacom for the third time, CBS’s advisors identified

several “key” issues the CBS Committee should press for during negotiations.174

“Board composition” and “[c]ommittee representation” were flagged as key

governance issues. 175 “Management at C-suite level” and “[k]ey operational roles”

were flagged as critical management objectives.176 “Other” key tactical issues

171 Compl. ¶ 110 (quoting Proxy at 88). 172 Compl. ¶ 111 (citing Proxy at 82). 173 Id. 174 Compl. ¶ 112. 175 Id. (quoting CBS 00000068). 176 Id. 40 identified were the combined company’s “name / HQ / listing,” and “[p]otential NAI

commitments with respect to the transaction.” 177

With these objectives identified, on June 14, 2019, the CBS Committee began

negotiations, and Byrne was tasked with updating NAI, and by extension

Ms. Redstone, on the committee’s progress. 178 Notwithstanding its pre-negotiation

playbook, the CBS Committee did not push to have Ianniello as CEO, expressing

instead a “desire to appoint Mr. Ianniello to a position in which he would have an

important role at the combined company.” 179 As it turns out, Ms. Redstone had

already provided Byrne with her “views” regarding the leadership and management

of the combined company, prompting the CBS Committee to:

“Acknowledge[] that, in light of Mr. Ianniello’s relationship with Ms. Redstone, it was unlikely that the Special Committee would be able to successfully make progress in evaluating or negotiating a Potential Transaction unless the Special Committee acknowledged to Viacom that it was willing to enter into a Potential Transaction in which Mr. Bakish (and not Mr. Ianniello) would be appointed the Chief Executive Officer of the combined company . . . . ” 180

177 Id. 178 Compl. ¶ 113 (citing CBS 00000068). 179 Id. (quoting CBS 00000068) 180 Compl. ¶ 114 (quoting CBS 00000076). 41 The rather abrupt decision to defer to Bakish’s leadership stood in stark contrast to

CBS’s insistence in 2018 that Bakish must have no role in the combined company.181

And, as noted, it ran counter to the key management objectives set out by CBS’s

advisors at the start of the negotiations.182

On June 24, 2019, Byrne updated Ms. Redstone on the progress of

negotiations and, again, Ms. Redstone made clear her imperatives regarding

governance of the combined company. 183 Ms. Redstone instructed Beinecke that

Viacom’s CFO and general counsel should remain in those roles post-merger,

Ianniello should only have a short-term role post-merger and that CBS senior

management could not stay on post-merger because their presence would

inappropriately “isolate” the now-presumptive CEO, Bakish. 184 Given these pre-

Merger directions, it is not surprising that ViacomCBS is now managed primarily

by Viacom executives. 185

181 Compl. ¶ 115 (citing CBS 00005652). 182 Compl. ¶ 112 (citing CBS 00000068). 183 Compl. ¶ 118 (citing CBS 00000136). Beinecke is also alleged to have leaked to Ms. Redstone confidential discussions of the CBS Committee, despite the fact that Byrne was the chosen arms-length conduit between the committee and NAI. See Compl. ¶ 119. 184 Compl. ¶ 119 (citing CBS 00000073). 185 Id. 42 On July 15, 2019, the CBS Committee made the first offer, and proposed to

Viacom that Bakish serve as CEO. 186 Even though it was purportedly the buyer,

CBS also allowed that its designees would comprise only half of the board of the

combined company.187 Days later, Viacom made a counter proposal. 188 In it,

Viacom/NAI: (i) agreed to Bakish as CEO, (ii) rejected CBS’s request that a change

in the number of total directors require approval by a majority of non-NAI directors,

(iii) provided no protection from removal for any CBS executives other than

Ianniello, (iv) pressed for D’Alimonte, Viacom’s General Counsel, to remain in that

position, (v) proposed that Ms. Redstone’s close friend and Viacom confidant,

Seligman, serve as chair of the all-important N&G Committee, (vi) proposed that

CBS be renamed “Viacom” and (vii) proposed a 15-member board, the majority of

which would be comprised of NAI and Viacom designees. 189

The CBS Committee countered with a revised proposal on July 25, 2019,

asking that the combined company’s board be comprised of twelve directors, with

six chosen by CBS, four by Viacom and two by NAI, one of whom would be the

186 Compl. ¶ 121 (citing CBS 00000334; Proxy at 94). 187 Id. 188 Compl. ¶ 122 (citing CBS 00000062; CBS 00000332 (indicating the proposal came from NAI)). 189 Id. (citing CBS 00000331–33). 43 CEO. 190 Viacom responded days later with a counterproposal that had Bakish and

D’Alimonte serving as CEO and General Counsel, respectively, of the combined

company, and a board comprising thirteen directors: six chosen by CBS, four by

Viacom and two by NAI, with the CEO (i.e., Bakish) serving as the final director.191

The CBS Committee informed Ms. Redstone that it was “holding firm on its

previous proposal that the board of directors of the combined company initially be

comprised of 12 members.”192 Ms. Redstone also held firm—the board of the

combined company would have thirteen members, seven of whom were affiliated

with either NAI or Viacom. The CBS Committee quickly acquiesced.193 NAI also

got the final say on the name of the post-merger company, which, in an unusual turn,

placed the target’s name in front of the acquirer’s—“ViacomCBS.” 194

After settling on management and board composition, the negotiations shifted

to the exchange ratio in what was to be a stock-for-stock transaction.195

190 Compl. ¶ 123. 191 Compl. ¶ 124. 192 Compl. ¶ 125 (citing CBS 00000060). 193 Id. 194 Id. (citing Proxy at 99). 195 Compl. ¶ 126. Again, Plaintiffs point out the contrast between the negotiating approach taken by the CBS Committee in 2019 and the approach taken one year earlier, when the then-extant committee agreed to discuss the exchange ratio only after achieving 44 On August 1, 2019, CBS learned that Viacom was likely to lower its financial

guidance to the market. 196 Yet the CBS Committee did not use this information to

negotiate a better deal. 197 Instead, it agreed two weeks later to an exchange ratio of

0.59625 shares of CBS Class A or B stock for each Viacom Class A or B share,

respectively.198 This represented “effectively an at-the-market exchange.” 199

On August 13, 2019, CBS and Viacom announced the Merger.200 The

announced terms reveal that Ms. Redstone won on nearly every key deal point she

sponsored:

• CBS’s minority stockholders had no vote, allowing NAI to approve the merger by written consent;201

• Bakish was named CEO of ViacomCBS; and D’Alimonte was named General Counsel of ViacomCBS; 202

management and other governance victories for CBS, including board composition and minority stockholder protections. Id. (citing CBS 00004915; CBS 00004918–19). 196 Compl. ¶ 127 (citing CBS 00000111). 197 Id. The 220 Documents provide no indication that CBS ever asked Viacom about its lowered financial outlook, much less attempt to use the information as a lever in negotiations. Compl. ¶ 142. 198 Compl. ¶ 127. 199 Id. 200 Compl. ¶ 129. 201 Id. 202 Id. 45 • Ms. Redstone chairs the board of ViacomCBS;203

• Seligman chairs the N&G Committee; 204

• Ianniello would only stay on for a short transition period before being let go and cashed out; 205

• Directors and an officer (Bakish) aligned with Viacom’s and the NAI Parties’ interests control the ViacomCBS board; 206

• In the event of any stockholder litigation against CBS or any of its directors or officers in which any NAI party was also named (including Ms. Redstone herself), CBS could not settle such litigation without prior written consent of NAI unless the settlement (i) did not include any equitable remedies materially adverse to any NAI party and (ii) did not require CBS to make any disclosures about, inter alia, negotiations, financial analyses performed and the interests and relationships among the parties that are materially adverse to the NAI Parties; 207 and

• Ms. Redstone and NAI retain 79.4% control of ViacomCBS. 208

203 Id. 204 Id. 205 Id. In connection with the Merger, Ianniello’s employment agreement was amended for a third time to clarify that he was entitled to the “Good Reason” termination payments (in excess of $70 million), but also a new contract that paid an additional $3 million per year, a minimum annual target bonus of $15 million, and 450,000 restricted stock units. Compl. ¶ 132 (citing CBS 00001117). 206 Compl. ¶ 129. 207 Compl. ¶ 151 (citing CBS 00000110; CBS 00001374). The only carve out to romanette (ii) is if such disclosures are materially adverse to the NAI parties. Id. The upshot is that NAI would permit corrective disclosures only if it received a release of stockholder claims challenging the Merger. 208 Compl. ¶ 129. 46 Aside from Ms. Redstone and Klieger, only six members of the thirteen

member ViacomCBS board are former CBS directors, most of whom were installed

by Ms. Redstone in connection with the 2018 Settlement. 209 Griego and Terrell, who

replaced Parsons on the CBS Board in late 2018, also remain.210 The other seven

members of the ViacomCBS board are Ms. Redstone, Klieger, four Viacom directors

who voted for the Merger as Viacom directors (McHale, Nelson, Phillips and

Seligman), and Bakish. 211 Ms. Redstone installed three of those seven directors—

Seligman, McHale, and Nelson—on the Viacom Board in 2016. 212 As noted, these

thirteen directors comprise the Demand Board that would have considered a demand

to pursue CBS’s claims arising from the Merger had Plaintiffs elected to make that

demand.

After the Merger was announced, CBS Class B stock fell overnight from

$48.70 to $44.65 per share, and continued to decline, closing at $39.34 on

December 3, 2019, the day before the Merger closed.213 According to Plaintiffs,

209 Id. 210 Id. 211 Id. 212 Id. 213 Compl. ¶ 133. 47 CBS knew that agreeing to acquire Viacom would cause CBS’s stock price to

plummet because that is precisely what happened the year before when news of the

renewed 2019 merger talks first surfaced, causing “an $8.7 billion loss in market

cap.”214 Not only did the CBS Board approve a deal it had reason to know would be

value dilutive, the CBS Committee did not ensure minority protections

notwithstanding its firm stance on behalf of the minority in 2018. 215

On October 16, 2019, CBS and Viacom amended the Merger agreement to

provide that ViacomCBS stock, which under the initial Merger agreement was to

remain listed on the NYSE, instead would be listed on the NASDAQ (Viacom’s

existing exchange) and trade under the stock ticker symbols VIACA (for class A)

and VIAC (for class B). 216 The companies never provided the market with an

explanation for this change.217

On November 14, 2019, Viacom reported that its third-quarter profits fell 22%

from the same time the previous year, with revenue $50 million lower than the last

214 Compl. ¶ 134. 215 Id. 216 Compl. ¶ 138. 217 Id. 48 fiscal year.218 The Merger closed on December 4, 2019.219 Three days later, Bakish

publicly announced that ViacomCBS would sell CBS’s Manhattan headquarters

“Black Rock,” where CBS had operated since 1964 in a property designated as a

New York City landmark.220 As NAI directed, Seligman was designated Chair of

the N&G Committee without objection from the CBS directors, along with Phillips,

Beinecke and Schuman. 221 McHale and Nelson serve on both the Audit Committee

and Compensation Committee.222

On January 31, 2020, Ianniello left ViacomCBS with thirteen months

remaining on his consulting agreement. 223 Though ViacomCBS did not disclose the

circumstances of Ianniello’s departure, he was conferred compensation and benefits

consistent with a “termination without cause” and replaced by a former Viacom

218 Compl. ¶ 142. 219 Compl. ¶ 144. 220 Compl. ¶ 148. 221 Compl. ¶ 145. While CBS and Viacom were negotiating protections for non-NAI directors, the parties agreed that any nominee for non-NAI director vacancies within two years of closing must be recommended by a majority vote of the N&G Committee—the one chaired by Ms. Redstone’s close friend, Seligman. Compl. ¶ 146. 222 Compl. ¶ 145. 223 Compl. ¶ 149. 49 employee.224 On February 20, 2020, ViacomCBS announced a fourth-quarter net

loss of $258 million (compared to a CBS $887 million profit in Q4 2018), resulting

in a 17% decline in the Class B common stock price to $29.29.225

CBS Files Its Form S-4

On October 25, 2019, the Securities Exchange Commission declared effective

the publicly filed S-4 registration statement in connection with the Merger

(the “Proxy”).226 The Proxy omitted the following facts:

• The reasons CBS’s special committee terminated merger discussions with Viacom in 2016;227

• That Ms. Redstone then threatened CBS directors that she would get the merger done even if she had to find another way; 228

• The reasons CBS’s special committee terminated discussions with Viacom in 2018;229

• That Zelnick wrote directly to Ms. Redstone and Pruzan on February 9, 2019, after the 2018 Settlement, and implored them to speak directly about a merger;230

224 Id. 225 Compl. ¶ 150. 226 Compl. ¶¶ 8, 139. 227 Compl. ¶ 163. 228 Id. 229 Id. 230 Compl. ¶ 164. 50 • That Ms. Redstone attended the February 22, 2019 N&G Committee meeting and, notwithstanding the 2018 Settlement, planted the seeds that fomented the Merger; 231

• That the N&G Committee determined to form a special committee after the February 22 N&G Committee meeting; 232

• That, on August 1, 2019, Viacom advised the CBS Committee that it would likely lower its financial guidance; 233 and

• That the CBS Committee did not then attempt to leverage Viacom’s declining performance to negotiate a lower acquisition price (i.e., a more favorable exchange ratio).234

G. Procedural History

On September 27, 2019, Bucks County sent its demand for inspection of

eleven enumerated categories of documents to the CBS Board. 235 After determining

that CBS’s voluntary production was inadequate, Bucks County filed a complaint in

this Court on October 15, 2019, to inspect CBS’s books and records under 8 Del. C.

231 Id. 232 Id. 233 Compl. ¶ 166. 234 Id. 235 220 Op. at *4. 51 § 220. 236 Trial on a paper record was held on November 22, 2019. 237 This Court’s

decision was issued on November 25, 2019, in advance of the closing of the

Merger. 238

From February 20, 2020 to February 25, 2020, three CBS stockholders filed

separate actions in this Court asserting claims in connection with the Merger.239

On March 31, 2020, the Court granted an order of consolidation and appointment of

lead plaintiffs and lead counsel. 240 Plaintiffs then filed their operative Consolidated

Amended Complaint on April 14, 2020.241

236 Id. 237 Id. 238 C.A. No. 2019-0820-JRS, D.I. 73. The expedited trial and decision were necessary to allow Bucks County time to determine whether to seek injunctive relief with respect to the Merger. Bucks County ultimately did not seek to enjoin the closing, opting instead to seek post-closing damages. 239 See Bucks Cty. Emps.’ Ret. Fund v. Redstone, et al., C.A. No. 2020-0111-JRS (filed Feb. 20, 2020); Stewart Simon v. Leslie Moonves, et al., C.A. No. 2020-0127-JRS (filed Feb. 25, 2020); Int’l Union of Operating Eng’rs of Eastern Penn. and Del., on behalf of ViacomCBS Inc., v. Shari E Redstone, et al., C.A. No. 2020-0128-JRS (filed Feb. 25, 2020). 240 D.I. 15. 241 D.I. 38. 52 The Complaint comprises six counts.242 Count I alleges a claim for breach of

fiduciary duty derivatively on behalf of ViacomCBS against Ms. Redstone, NAI and

SMR Trust for disloyally engineering the Merger to bail out Viacom, in violation of

the 2018 Settlement. 243

Count II asserts claims for breach of fiduciary duty derivatively on behalf of

ViacomCBS against the Director Defendants and Ianniello. 244 Specifically, the

CBS Directors are alleged to have breached their fiduciary duties by facilitating

Ms. Redstone’s personal interest in saving the NAI Parties’ failing investment in

Viacom, thereby disloyally elevating the controller’s interests over the interests of

other CBS stockholders.245 For his part, Ianniello is alleged to have violated his

fiduciary duties by advocating for the Merger out of self-interest in exchange for the

lucrative Merger-related compensation package Ms. Redstone had arranged for him,

and to facilitate the controller’s self-interest, knowing the Merger was unfair to CBS

and its stockholders.246

242 Compl. ¶¶ 222–67. 243 Compl. ¶¶ 222–30. 244 Compl. ¶¶ 231–39. 245 Compl. ¶¶ 232–34. 246 Compl. ¶¶ 235–36. 53 Count III brings individual and class claims against the NAI Parties for

breaching their fiduciary duty of loyalty by forcing former CBS Class B stockholders

to enter into a Merger that effectively caused CBS stockholders to transfer (or sell)

their CBS stock in exchange for stock in a substantively new and less valuable

company, resulting in both diluted ownership stakes and diluted value. 247 In other

words, Plaintiffs assert this as a direct claim because, notwithstanding how the

Merger was characterized by the parties, in reality, the NAI Parties effectively

caused Viacom to acquire CBS by using CBS as a merger vehicle and CBS’s stock

as merger consideration.248

Count IV asserts an individual and class claim against Ms. Redstone, the

Director Defendants and Ianniello for breaching their fiduciary duties of loyalty and

care by, inter alia, (1) allowing Ianniello to negotiate the Merger he already signaled

he was willing to force CBS to pursue, (2) failing to advocate for the interests of

CBS and its public stockholders, (3) allowing Ms. Redstone improperly to influence

the Merger negotiations and (4) entering into the patently unfair Merger to the

detriment of CBS’s public stockholders.249 Plaintiffs also allege in this Count that

247 Compl. ¶¶ 240–46. 248 Compl. ¶ 241. 249 Compl. ¶¶ 249–57. 54 the Director Defendants and Ms. Redstone further breached their fiduciary duties by

causing a materially misleading and incomplete Proxy to be issued when CBS’s

public stockholders were deciding whether (or not) to cash out their investment in

advance of the Merger. 250

Count V asserts a waste claim against the CBS Directors, Klieger, Zelnick and

Ms. Redstone derivatively on behalf of ViacomCBS for increasing Ianniello’s

compensation through amendments to his employment agreement for no rational

business justification or purpose. 251 Specifically, Plaintiffs allege that, as a result of

the waste, CBS (now ViacomCBS) was harmed by being forced to pay Ianniello

approximately $125 million to garner his support for the Merger. 252

Finally, Count VI alleges derivatively on behalf of ViacomCBS a claim for

unjust enrichment against Ianniello, who accepted a substantially increased

severance payment from CBS (now ViacomCBS) as payment for his support of a

patently unfair Merger. 253 Because there was no rational business justification or

purpose for increasing the financial benefits to Ianniello when the CBS Board,

250 Compl. ¶ 253. 251 Compl. ¶¶ 258–62. 252 Compl. ¶ 261. 253 Compl. ¶ 264. 55 management and controllers all knew, even before the Merger talks restarted, that

Ianniello would not be named as permanent CEO, it is alleged that Ianniello was

essentially gifted tens of millions of dollars to steer CBS toward a Merger he knew

was unfair. 254

On June 5, 2020, the NAI Parties, the CBS Committee together with Zelnick,

ViacomCBS, Klieger and Ianniello all separately moved to dismiss the Complaint.255

To follow is the Court’s decision on each of the motions.

II. ANALYSIS

Defendants’ several motions to dismiss present several issues, some

overlapping and some standing alone. I address them roughly from broadest to most

discrete. At the threshold, Plaintiffs argue the motions to dismiss should be

converted into motions for summary judgment under Chancery Rule 12(b) since

Defendants have relied heavily on matters outside the pleadings to support their

motions.256 While Plaintiffs have good reason to raise this issue, I elect not to decide

254 Compl. ¶ 265. 255 D.I. 52 (Ianniello); D.I. 56 (CBS Independent Directors); D.I. 58 (the NAI Parties); D.I. 60 (Klieger); D.I. 61 (ViacomCBS). 256 Ct. Ch. R. 12(b) (“If, on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside the pleading are presented to and not excluded by the Court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.”). 56 it since I am satisfied the case should proceed to discovery in any event.

Next, I address the parties’ dispute regarding whether several of Plaintiffs’ claims

state direct or derivative claims. Here again, I acknowledge the merits of the dispute

but defer its resolution for another day since I am satisfied that, even if derivative,

Plaintiffs have well pled demand futility. That leads to the analysis of the demand

futility question, which as noted, I answer in Plaintiffs’ favor. I then take up

Defendants’ argument that Plaintiffs have failed to state non-exculpated claims. For

reasons explained below, I disagree and therefore deny their motions except as to

Plaintiffs’ disclosure claim as lodged in Count IV.

A. The Motions Will Not Be Converted to Motions for Summary Judgment

Consistent with a practice that is now routine in the context of Section 220

books and records inspections, prior to CBS’s production of documents in

compliance with the Court’s final judgment in the Section 220 litigation, Bucks

County and CBS agreed that “CBS may, in support of a dispositive motion, submit

any full document cited, quoted, or referenced in any such complaint so that the court

may ‘review the actual document to ensure that the plaintiff has not misrepresented

its contents and that any inference the plaintiff seeks to have drawn is a

reasonable one.’” 257 Defendants appear to have interpreted that ostensibly

257 D.I. 74, Juray Decl. Ex. 1 at ¶ 7 (quoting Clovis, 2019 WL 4850188, at *14 n.216). CBS later agreed to the same terms with Co-Lead Plaintiff, International Union. Juray 57 unambiguous language as license to incorporate any portion of any document that

Plaintiffs cited in the Complaint for any purpose that suited them in the prosecution

of their motions. ViacomCBS submitted 31 documents (including 18 documents

produced in the Section 220 Action), and yet never once argued Plaintiffs had

misrepresented those documents in their Complaint or otherwise had asked the Court

to draw unreasonable inferences from the documents. 258 Not to be outdone, the other

Defendants submitted another 57 exhibits in support of their motions. 259 Indeed, the

Decl. Ex. 2 at ¶ 7. There is good reason to condition a Section 220 inspection on an understanding that the producing company may utilize documents produced for inspection to support a motion to dismiss when the stockholder plaintiff misstates or manipulates the content of a document to support an otherwise not well-pled claim. With this understanding in hand, the company is incentivized to make a more fulsome production in response to the demand for inspection. But, as explained below, this does not alter the foundation of Chancery Rule 12(b)(6). Amalgamated Bank v. Yahoo! Inc., 132 A.3d 752, 797 (Del. Ch. 2016) (recognizing that “[a] plaintiff is generally the master of its complaint and can choose what it wants to plead,” and holding that the “incorporation condition” for inspection “does not change the pleading standard that governs a motion to dismiss”) (emphasis in original), abrogated on other grounds, Tiger v. Boast Apparel, Inc., 214 A.3d 933 (Del. 2019). Notwithstanding the incorporation condition, the court’s focus when deciding a motion under Chancery Rule 12(b)(6) must be on the “four corners of the complaint”; all well-pled facts must be deemed as true; and all reasonable inferences must be given to the plaintiff as the non-moving party. Malpiede v. Townson, 780 A.2d 1075, 1082, 1090 (Del. 2001). 258 See ViacomCBS Opening Br. in Supp. of Mot. to Dismiss (“ViacomCBS Opening Br.”) (D.I. 61) at 5–6 n.2. 259 See Ianniello Opening Br. in Supp. of Mot. to Dismiss (“Ianniello Opening Br.”) (D.I. 52) (attaching 16 exhibits, 9 of which were produced in the Section 220 Action); Independent Dir. Opening Br. in Supp. of Mot. to Dismiss (“Dir. Opening Br.”) (D.I. 56) (attaching 28 exhibits, 21 of which were produced in the Section 220 Action); The NAI 58 appendices supporting the motions in which Defendants seek pleading stage

dismissal rival the heft of what this Court often sees in support of motions for

summary judgment. The volume of documents submitted outside the pleadings,

alone, raises doubt regarding whether this Court can decide the motions under

Chancery Rule 12(b)(6). 260

Defendants collectively ask the Court, in effect, to “rewrite [Plaintiffs’] well-

pled complaint” in favor of their own version of events with documents drafted at a

time when litigation relating to their contents was likely.261 That is not how our

Chancery Rule 12(b)(6) works. “The incorporation-by-reference doctrine does not

enable a court to weigh evidence on a motion to dismiss. It permits a court to review

the actual documents to ensure that the plaintiff has not misrepresented their contents

and that any inference the plaintiff seeks to have drawn is a reasonable one.”262

Parties’ Opening Br. in Supp. of Mot. to Dismiss (“NAI Opening Br.”) (D.I. 58) (attaching 13 exhibits, 2 of which were produced in the Section 220 Action). 260 As a general rule of thumb, when the actual weight of declarations and appendices supporting motions to dismiss under Chancery Rule 12(b)(6) substantially dwarf the weight of the motions and briefs supporting the motions themselves, an alarm should sound that perhaps the defendants are bringing their motions under the wrong rule. 261 See Clovis, 2019 WL 4850188, at *14 n.216 (“Section 220 documents may or may not comprise the entirety of the evidence on a particular point. Until that is tested, the Defendants cannot ask the court to accept their Section 220 documents as definitive fact and thereby turn pleading stage inferences on their head. That is not, and should not be, the state of our law.”). 262 Voigt v. Metcalf, 2020 WL 614999, at *9 (Del. Ch. Feb. 10, 2020). 59 Where a defendant improperly and extensively uses Section 220 Documents in

support of a Chancery Rule 12(b)(6) motion to support factual inferences that run

counter to those supported in the complaint, the court may either exclude the

extraneous matter from its consideration or convert the Chancery Rule 12(b)(6)

motion into a motion for summary judgment so that the plaintiff may take discovery

before the court determines if pre-trial dispositive relief is appropriate. 263 In my

view, Defendants’ serial references to matters outside the pleadings in this case

justifies either approach. 264

After due consideration, I have elected to address the motions as styled rather

than delay addressing the legal issues they raise until after discovery. The oversized

record of “matters outside the pleadings” does not alter the outcome of the motions,

and the presence of extraneous matter, while distracting, does not justify a delay in

263 Black v. Gramercy Advisors, LLC, 2007 WL 2164286, at *1 (Del. Ch. July 23, 2007); see also Kessler v. Copeland, 2005 WL 396358, at *4–5 (Del. Ch. Feb. 10, 2005) (converting a motion to dismiss into a motion for summary judgment and allowing plaintiffs the opportunity to take discovery); Dawson v. Pittco Capital P’rs, L.P., C.A. No. 3148-VCN, at 37 (Del. Ch. Dec. 7, 2007) (TRANSCRIPT) (same); Montgomery v. Erickson Air-Crane, Inc., C.A. No. 8784-VCL, at 62–63 (Del. Ch. Apr. 15, 2014) (TRANSCRIPT) (same). 264 Compare Brokerage Jamie Goldenberg Komen Rev. Tr. U/A 06/10/08 Jamie L. Komen Trustee v. Breyer, 2020 WL 3484956, at *6 n.73 (Del. Ch. June 26, 2020) (excluding three disputed references) with Pls.’ Omnibus Answering Br. in Opp’n to Defs.’ Mots. to Dismiss (“Pls.’ Answering Br.”) (D.I. 77), Annex A (identifying at least 166 disputed references to documents in Defendants’ briefs that are not accompanied by any showing that Plaintiffs have misrepresented the documents in their Complaint).

60 deciding important legal issues before the parties expend their resources taking

discovery.265 This was a close call, and the fact the Court, again, has been asked to

make this call reflects a troubling trend in the prosecution of motions to dismiss

following Section 220 inspections. 266 If the trend continues, I suspect we are not far

from the day where this court decides massively briefed motions to dismiss with a

single paragraph order notifying the parties that the court has elected both to treat

the motions as motions for summary judgment and to afford the parties a “reasonable

opportunity to present all material made pertinent to such a motion by Rule 56.”267

B. The Justiciability of the Disclosure Claims and the Direct vs. Derivative Debate

The parties dispute whether Counts III and IV purport to state direct or

derivative claims. Direct claims, of course, belong to the Plaintiffs and are reviewed

in this procedural context under Chancery Rule 12(b)(6); derivative claims, by

265 Ct. Ch. R. 12(b). 266 See, e.g., Clovis, 2019 WL 4850188, at *14 n.216 (explaining the limits of the incorporation by reference doctrine and denying defendant’s attempt to rewrite plaintiff’s complaint through 220 documents); Voigt, 2020 WL 614999, at *9 (rejecting defendant’s attempt to rewrite the complaint by improperly relying on 220 documents); In re Dell Techs. Inc., Class V S’holders Litig., 2020 WL 3096748, at *14; (Del. Ch. June 11, 2020) (same); In re WeWork Litig., 2020 WL 6375438, at *8 (Del. Ch. Oct. 30, 2020) (same). 267 Ct. Ch. R. 12(b). 61 contrast, belong to the corporation and must be reviewed under the more exacting

pleading standards set forth in Chancery Rule 23.1.268

The disputed counts, in essence, allege that the NAI Parties as controlling

stockholders forced CBS to enter into the unfair Merger (Count III), and that

Ms. Redstone and the Director Defendants engaged in a flawed process, in service

to the controller, including the issuance of a misleading Proxy, that resulted in an

unfair Merger that benefited the controller to the detriment of the other CBS

stockholders (Count IV). According to Plaintiffs, while Defendants characterize the

Merger as a CBS acquisition of Viacom, in fact, the Merger converted CBS into a

“substantively new company” and forced CBS stockholders to accept “new, rapidly

depleting stock.”269 As such, their claims are not derivative “buy side” claims on

behalf of a company that paid too much, but direct “sell side” claims on behalf of

stockholders who received too little. Defendants dispute this description and

maintain that both Counts III and IV are derivative claims disguised as direct claims

in a bold attempt to skirt the pleading-stage scrutiny required under Rule 23.1.

268 See Ct. Ch. R. 12(b)(6); Ct. Ch. R. 23.1; Aronson v. Lewis, 473 A.2d 805, 811–12 (Del. 1984). 269 See Compl. ¶¶ 240–57. 62 In determining at the pleading stage whether claims for breach of fiduciary

duty are direct or derivative, as with other pleading stage determinations, the court

must assume the truth of all well-pled allegations in the Complaint and draw all

reasonable inferences in Plaintiffs’ favor.270 In doing so, however, the court does

not accept “the form of words used in the complaint,” but instead “look[s] to all the

facts of the complaint” to determine “whether a direct claim exists.”271 The inquiry

is twofold: “(1) who suffered the alleged harm (the corporation or the suing

stockholders, individually); and (2) who would receive the benefit of any recovery

or other remedy (the corporation or the suing stockholders, individually)?”272

Plaintiffs’ Disclosure Claims Are Not Justiciable

Before turning to the merits of the direct vs. derivative question, the atypical

contours of Plaintiffs’ disclosure allegations justify a closer look to ensure those

270 Dieterich v. Harrer, 857 A.2d 1017, 1029 (Del. Ch. 2004). 271 In re Syncor Int’l Corp. S’holders Litig., 857 A.2d 994, 997 (Del. Ch. 2004) (internal quotations omitted); see also Hartsel v. Vanguard Gp., Inc., 2011 WL 2421003, at *16 (Del. Ch. June 15, 2011) (“The manner in which a plaintiff labels its claim and the form of words used in the complaint are not dispositive; rather, the court must look to the nature of the wrong alleged, taking into account all of the facts alleged in the complaint, and determine for itself whether a direct claim exists.” (citation omitted)), aff’d, 38 A.3d 1254 (Del. 2012); Dieterich, 857 A.2d at 1027 (“Even after Tooley, a claim is not ‘direct’ simply because it is pleaded that way, and mentioning a merger does not talismanically create a direct action. Instead, the court must look to all the facts of the complaint and determine for itself whether a direct claim exists.”). 272 Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033 (Del. 2004). 63 allegations state any cognizable claim under Delaware law, whether direct or

derivative. The gravamen of Plaintiffs’ disclosure claim is that the Proxy’s material

omissions deprived CBS’s public stockholders of the opportunity to decide before

the Merger whether to sell or hold their shares.273 While none of the parties label it

as such, this is a textbook “holder” claim—the reductive term used to describe “a

cause of action by persons wrongfully induced to hold stock instead of selling it.”274

Where, as here, a holder states his cause of action in reference to the fiduciary

relationship existing between the Delaware corporation’s managers and

273 Compl. ¶ 253 (“The CBS Directors, Shari Redstone, Klieger and Zelnick further breached their fiduciary duties by issuing a materially misleading and incomplete Proxy at a critical time when CBS’s public stockholders were deciding whether to cash out their investment.”); see also Pls.’ Answering Br. at 90 (“CBS’s stockholders had to decide pre- Merger whether to cash out their investment or accept the risk of holding stock in a new combined company that would reflect Viacom much more than CBS. CBS stockholders were denied material information, and those that maintained their investments based on the deliberately false Proxy watched their investments crater post-Merger.”); Oral Argument Tr. (D.I. 97) 127:22–128:8 (Plaintiffs agreeing that “the harm here is an inability to decide whether to hold or sell [stock].”). 274 Small v. Fritz Cos., Inc., 65 P.3d 1255, 1256 (Cal. 2003) (emphasis in original); see also Grant Thornton LLP v. Prospect High Income Fund, 314 S.W.3d 913, 926 (Tex. 2010) (“In a ‘holder’ claim, the plaintiff alleges not that the defendant wrongfully induced the plaintiff to purchase or sell stock, but that the defendant wrongfully induced the plaintiff to continue holding his stock. As a result, the plaintiff seeks damages for the diminished value of the stock, or the value of a forfeited opportunity, allegedly caused by the defendant’s misrepresentations.”); Lauren A. Demanovich, Holding Out for a Change: Why North Carolina Should Permit Holder Claims, 92 N.C. L. Rev. 988, 992 (2014) (“A holder claim is a suit brought for damages based on the fact that an individual shareholder suffered financial loss after retaining stock for longer than he or she otherwise would have as a consequence of an officer’s or director’s misrepresentation.”).

64 stockholders, Delaware law applies to the merits under the internal affairs doctrine,

as embodied in the Commerce Clause275 and the Full Faith and Credit Clause.276

As an initial matter, while Plaintiffs purport to plead their holder claim as both

an individual and class action, they cannot bring a holder claim as a class action

under color of Delaware law. As our Supreme Court has made clear, “[a] class action

may not be maintained in a purely common law or equitable fraud case since

individual questions of law or fact, particularly as to the element of justifiable

reliance, will inevitably predominate over common questions of law or fact.”277

Holder claims, at bottom, are grounded in common law fraud or negligent

misrepresentation. 278 Thus, class action treatment of holder claims is inappropriate

under state law. 279

275 U.S. Const. Art. I, § 8. 276 Id. Art. IV, § 1; see also Citigroup Inc. v. AHW Inv. P’ship, 140 A.3d 1125, 1134 (Del. 2016). 277 Gaffin v. Teledyne, Inc., 611 A.2d 467, 474 (Del. 1992). 278 See Citigroup, 140 A.3d at 1132–38; see also Edward T. McDermott, Holder Claims— Potential Causes of Action in Delaware and Beyond?, 41 Del. J. Corp. L. 933, 934 (2017) (hereinafter “Holder Claims”) (“Holder claims are asserted as common law fraud or negligent misrepresentation causes of action.”). 279 Teledyne, 611 A.2d at 474. 65 At best, then, Plaintiffs have pled a direct, individual holder claim. The

question remains whether that claim is (or ought to be) cognizable in Delaware

law. 280 In my view of the law, it is not.

In Malone v. Brincat, 281 our Supreme Court held stockholders may state a

cause of action arising out of directors’ false or misleading disclosures even where

those disclosures do not call for stockholder action.282 This led judges both within

and outside Delaware to assume that holder claims are viable in Delaware, and some

courts have adjudicated holder claims while apparently operating under that

assumption.283 Speculation was fueled in part by then-Vice Chancellor Strine’s

footnoted observation that, “[u]nder Malone, the possibility of a ‘holder’s’ recovery

280 McDermott, Holder Claims, at 933 (explaining that “no Delaware court has ever” addressed directly the legal cognizability of holder claims). 281 722 A.2d 5 (Del. 1998). 282 Id. at 14 (“When the directors are not seeking shareholder action, but are deliberately misinforming shareholders about the business of the corporation, either directly or by a public statement, there is a violation of fiduciary duty.”). 283 See San Diego Cty. Emps.’ Ret. Ass’n v. Maounis, 2010 WL 1010012, at *17 (S.D.N.Y. Mar. 15, 2010) (“New York, Delaware, and California recognize the right to pursue ‘holder’ claims . . . .”); In re Parkcentral Global Litig., 2010 WL 3119403 (N.D. Tex. Aug. 5, 2010) (applying Delaware law and finding “Delaware law allows holder claims to be pursued.”); Albert v. Alex. Brown Mgmt. Servs., 2005 WL 2130607, at *6, *12 (Del. Ch. Aug. 26, 2005) (allowing a variant of a direct holder claim by reasoning that under Tooley, “[a]ny harm was to the unitholders, who either lost their opportunity to request withdrawal from the Funds from the Managers, or to bring suit to force the Managers to redeem their interests”).

66 [] exists.”284 Twelve years after making this observation, however, then-Chief

Justice Strine clarified that Delaware law is not yet settled on whether holder claims

are cognizable under our law.285 That appears to be the last word on the subject from

a Delaware court.

In Citigroup, a unanimous Court questioned the wisdom of recognizing a

common law cause of action that a stockholder could assert directly against

fiduciaries of a Delaware corporation based on allegations that the stockholder was

wrongfully induced to hold rather than sell his stock. 286 Such claims purport to hold

fiduciaries liable for corporate disclosures to the market, even when they act without

gross negligence, scienter or bad faith.287 On its face, at least, this is not consistent

with our law. 288 With this concern perhaps in mind, it is not surprising that, in those

states where holder claims are recognized, the courts emphasize that the claim

284 In re Oracle Corp., 867 A.2d 904, 932 n.118 (Del. Ch. Nov. 24, 2004). 285 Citigroup, 140 A.3d at 1134–35. 286 Id. at 1135. 287 Id. at 1136. 288 See Orman v. Cullman, 794 A.2d 5, 41 (Del. Ch. 2002) (observing that the fiduciary duties relating to disclosure “derive from the combination of the fiduciary duties of care, loyalty and good faith”); Zirn v. VLI Corp., 681 A.2d 1050, 1061–62 (Del. 1996) (holding that directors were exculpated from liability under Section 102(b)(7) of the DGCL for breach of fiduciary duty arising from allegedly misleading disclosures where the disclosures “were made in good faith”).

67 “belongs to the holder and the primary defendant would be the corporation,” not the

corporation’s fiduciaries.289

In addition to the basic concern that holder claims may not square with our

fiduciary duty law, the Court in Citigroup observed that holder claims implicate

“numerous policy and proof problems.” 290 From a policy perspective, the Court

expressed a “general” concern that holder claims breed uncertainty:

When a public corporation . . . has shares in the market, it will have investors from all around the world, and certainly in virtually every state in our nation. For investors to be able to sue not only under federal law, but purport to sue under their own state’s bespoke laws, subjects corporations to potential inconsistencies, inefficiencies, and unfairness.291

From a proof perspective, the Court observed that proving the requisite inducement

flowing from the alleged misrepresentations will be difficult in a holder claim given

that “securities holders may decide to hold or sell stock for various reasons,”

rendering this prima facie element of the claim inherently speculative.292

289 Citigroup, 140 A.3d at 1137. 290 Id. 291 Id. at 1136. 292 Id. at 1140–41 (citing Starr Found. v. Am. Int’l Gp., Inc., 76 A.D.3d 25, 901 N.Y.S.2d 246, 249 (2010) (“Here, the Foundation seeks to recover the value it might have realized from selling its shares during a period when it chose to hold, under hypothetical market conditions for [the defendant corporation’s] stock (assuming disclosures different from those actually made) that never existed. A lost bargain more undeterminable and speculative than this is difficult to imagine.” (internal quotations omitted)). 68 Indeed, when the plaintiff’s fraud claim rests on induced inaction, rather than

induced action, Delaware courts have found such factual predicates difficult to

reconcile with the plaintiff’s burden to prove justifiable reliance and damages

proximately caused by such reliance.293 And, while some courts outside of Delaware

have summarily found proximate causation in the context of a holder claim by

reasoning that the plaintiff’s loss “occurred as a result of . . . reliance [upon] a false

representation where the inaction was the direct natural and intended result of the

false representations,” 294 the flaw in this reasoning was exposed by the Second

Circuit in Lentell v. Merrill Lynch & Co., Inc.:

[I]t cannot ordinarily be said that a drop in the value of a security is caused by the misstatements or omissions made about it, as opposed to the underlying circumstance that is concealed or misstated . . . . Thus to establish loss causation, a plaintiff must allege . . . that the subject of the fraudulent statement or omission was the cause of the actual loss suffered, i.e., that the misstatement or omission concealed something from the market that, when disclosed, negatively affected the value of the security.295

293 See generally, Vichi v. Koninlijke Philips Elecs. N.V., 85 A.3d 725, 807 (Del Ch. 2014) (stating that defendant’s intent to induce the plaintiff, and plaintiff’s justifiable reliance, are prima facie elements of common law fraud); see, e.g., Big Lots Stores, Inc. v. Bain Capital Fund VII, LLC, 922 A.2d 1169, 1177–78 (Del. Ch. 2006) (holding inaction is not legally equivalent to action when assessing justifiable reliance in connection with a claim for fraudulent inducement not to enforce a debt). 294 Reisman v. KPMG Peat Marwick LLP, 787 N.E.2d at 1068. 295 Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 173 (2d Cir. Sept. 27, 2016). 69 Along the same line, common law fraud claims require proof of actual economic

loss,296 but holder claims “are predicated on the fact that there was no actual

economic loss since no actual transaction by the holder was linked to the alleged

wrongdoing.”297 Such metaphysical implications bring to mind Judge Posner’s

observation, “[t]he near miss is not actionable” in tort law. 298

Notwithstanding the problems I (and others) see with holder claims as a matter

state common law,299 I need not decide the viability of Plaintiffs’ holder claim based

on whether the claim is, or should be, cognizable in Delaware. Even if the claim

exists in Delaware, Plaintiffs have not well pled the claim here. I endeavor to explain

the shortcomings below.

To begin, Delaware law distinguishes between disclosures seeking

stockholder action and disclosures that do not seek stockholder action. While the

296 Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 344 (2005); Clarkson v. Goldstein, 2005 WL 1331776, at *8 (Del. Super. May 31, 2005) (“[T]o prove fraud, Plaintiffs must demonstrate . . . actual damages.”). 297 McDermott, Holder Claims, at 938. 298 Stromberger v. 3M Co., 990 F.2d 974, 976 (7th Cir. 1993); see also Anderson v. Aon Corp., 614 F.3d 361, 361 (7th Cir. 2010) (Easterbrook, J.) (stating that hypothetical sales would not involve an actual loss or even a legally cognizable “opportunity”). 299 See McDermott, Holder Claims, at 944–46 (collecting jurisprudential criticisms of holder claims).

70 latter requires proof of causation, reliance and damages, the former does not.300

Presumably in hopes of implicating a lower threshold of proof, Plaintiffs allege the

Proxy constituted a “call for action” in the sense that it came at a critical time when

they were forced to make an “investment decision.” 301 To be sure, Delaware courts

have characterized disclosures relating to “investment decisions,” such as

“purchasing and tendering stock or making an appraisal election,” as calls for

stockholder action.302 But these disclosures reflect instances where “directors

request discretionary stockholder action.”303 In such instances, it follows logically

that when stockholders act following the disclosure, a reasonable inference can be

drawn that the stockholder relied upon the disclosure and that, assuming it is

“material,” any harm flowing from the stockholder’s action proximately resulted

from such reliance. 304

300 Dohmen v. Goodman, 234 A.3d 1161, 1168–69 (Del. 2020) (citing Malone, 722 A.2d at 12). 301 See Pls.’ Answering Br. at 90–91. 302 Dohmen, 234 A.3d at 1168 (citing In re Wayport, Inc. Litig., 76 A.3d 296, 314 (Del. Ch. 2013)). 303 Id. (emphasis added). 304 See, e.g., Unanue v. Unanue, 2004 WL 2521292, at *10 (Del. Ch. Nov. 3, 2004) (“[T]o establish a violation of the duty of disclosure, [a plaintiff] must prove that the omitted fact would have been material to the stockholder action sought.”); Zaucha v. Brody, 1997 WL 305841, at *5 (Del. Ch. June 3, 1997) (“A material fact is one that a reasonable investor would view as significantly altering the ‘total mix’ of information made available.”); In re Novell, Inc. S’holder Litig., 2013 WL 322560, at *13 (Del. Ch. 71 Plaintiffs’ holder claim, by contrast, does not arise out of a disclosure

requesting stockholder action. Under these circumstances, reliance, causation and

damages cannot be so safely assumed because, by definition, the holders were not

asked by the company to act in the manner that gives rise to the claim; indeed, a

holder claim is predicated on a stockholder’s claim that she did not act at all. In

Latesco, L.P. v. Wayport, Inc.,305 Vice Chancellor Laster explained that Delaware’s

stockholder action paradigm “is premised on the collective action problem that

stockholders, in the aggregate, are faced with when asked to vote or tender their

shares,” where they “would be forced to make a decision in an information

vacuum.” 306

Here, Plaintiffs were not “forced to make a decision”;307 they were not even

asked to make a decision. Their vote was neither required nor solicited for the

Merger. The Merger was a foregone conclusion when the NAI Parties decided to

support it. The stockholders’ decision to sell or hold in the wake of the Merger’s

Jan. 3, 2013) (explaining a fact is material where “under all the circumstances . . . [it] would have assumed actual significance in the deliberations of the reasonable shareholder.” (internal quotations and citation omitted)). 305 2009 WL 2246793, at *6 (Del. Ch. July 24, 2009). 306 Id. at *6; see also Dohmen, 234 A.3d at 1170–71 (Del. 2020) (endorsing Wayport’s statement of the rationale undergirding the stockholder action paradigm). 307 Wayport, 2009 WL 2246793, at *6 (emphasis supplied). 72 announcement was an individual decision relating to individual transactions. And

Delaware courts do not “impose an affirmative duty of disclosure for individual

transactions.” 308

Once it is clear the holder claim is not asserted in connection with a disclosure

issued in support of a request for stockholder actions, as our Supreme Court observed

in Citigroup, the claim is not subject to the lesser burden imposed by the stockholder

action paradigm.309 As a practical matter, this means the stockholder must well plead

and prove justifiable reliance, causation and damages. 310 In other words, the

stockholder making a holder claim must plead facts tantamount to either common

law fraud or negligent misrepresentation.311

308 Dohmen, 234 A.3d at 1171. 309 See Citigroup, 140 A.3d at 1132–38. 310 See Grant Thornton, 314 S.W.3d at 928–30; Gutman v. Howard Sav. Bank, 748 F. Supp. 254, 266 (D.N.J. 1990). 311 I note that the standard for a claim under Malone has been characterized as “similar to, but even more stringent than, the level of scienter required for common law fraud.” Metro. Commc’n Corp. BVI v. Advanced MobileComm Techs. Inc., 845 A.2d 121, 158 (Del. Ch. 2004). While a common law fraud claim can be established by showing reckless indifference, Malone requires knowing misconduct. Id. at 158 n.88. Both common law fraud and a Malone claim require “reasonable reliance.” Id. at 157–58. But our Supreme Court has explained the “high bar for Malone-type claims . . . [is] to ensure that our law was not discordant with federal standards and that our law did not encourage a proliferation of disclosure claims outside the discretionary vote or tender context by exposing directors to a host of disclosure claims . . . .” Id. at 158. (footnote omitted). Though these policy concerns are certainly relevant to the evaluation of holder claims, I assume for the purposes of analysis that holder claims would be subject to a lower common law standard in order 73 In Delaware, the prima facie elements of common law fraud are:

(1) a false representation, usually one of fact, made by the defendant; (2) the defendant’s knowledge or belief that the representation was false, or was made with reckless indifference to the truth; (3) an intent to induce the plaintiff to act or to refrain from acting; (4) the plaintiff’s action or inaction taken in justifiable reliance upon the representation; and (5) damage to the plaintiff as a result of such reliance. 312

A claim for negligent misrepresentation in Delaware “is essentially a species

of fraud with a lesser state of mind requirement, but with the added element that the

defendant must owe a pecuniary duty to the plaintiff.”313 At best for Plaintiffs, the

Court might ratchet down the holder pleading standard from fraud to negligent

misrepresentation because the disclosing parties stand in a fiduciary relationship

with Plaintiffs. But where, as here, the CBS Board members are exculpated from

duty of care violations, a claim for negligent misrepresentation falls short and

Plaintiffs must plead “fraud or intentional misrepresentation.” 314

to expose that, even under the most plaintiff-friendly assumptions, Plaintiffs’ holder claims cannot survive. 312 Vichi, 85 A.3d at 807; see also Wayport, 76 A.3d at 323. 313 Vichi, 85 A.3d at 822. 314 Metro. Life Ins. Co. v. Tremont Gp. Hldgs., Inc., 2012 WL 6632681, at *18 (Del. Ch. Dec. 20, 2012) (holding that a claim for negligent misrepresentation cannot survive in the face of an exculpatory charter provision).

74 Recognizing that stockholders may bring abusive and baseless holder actions

any time their investments falter in the wake of corporate disclosure(s), jurisdictions

recognizing holder claims “have invariably imposed additional requirements for the

pleading and proof of holder claims beyond the allegations showing the elements of

fraudulent and negligent misrepresentation causes of action.” 315 Some holder

jurisdictions require the plaintiff to allege the challenged misstatements were

communicated directly to the plaintiff by the named defendants in order to sustain a

claim, thereby excluding public disclosures as bases for the claim. 316 Even where

public disclosures are deemed “direct” communications to holders, courts have held

315 McDermott, Holder Claims, at 937. 316 Grant Thornton, 314 S.W.3d at 928–30 (noting “even those courts that have recognized holder claims in some form generally have demanded that plaintiffs meet heightened pleading and proof standards,” and holding “that holder claims, to the extent they are viable, must involve a direct communication between the plaintiff and the defendant.”); Gutman, 748 F. Supp. at 266 (emphasizing “[o]ne critical feature of the present case” was “[that] Plaintiffs had direct dealings with defendants in which the latter made certain of the representations complained of.” That fact made plaintiff’s claim an “ordinary case of deceit” as “[s]uch a case could not be brought by anyone who happened to own [the company’s] stock.” (internal quotations and citations omitted)); Goldin v. Salomon Smith Barney, Inc., 994 So. 2d 517, 520 (Fla. App. 2008) (rejecting a holder claim based on public disclosures under New York law after finding that, “[i]n each of the cases where a plaintiff’s holder claim under New York law survived a motion to dismiss, the affirmative misrepresentation was directly [as opposed to publicly] communicated from the defendant to the plaintiff. In the instant case, there was no such direct communication”); Ohanessian v. Pusey, 2010 WL 728549, at *1 n.2 (D. Colo. Feb. 25, 2010) (rejecting a plaintiff’s holder claim because neither California nor Colorado would provide a cause of action for fraudulent “holding” absent allegations of “an instance where [the plaintiff] actually planned to sell his [] stock but refrained from doing so in reliance on a specific fraudulent misrepresentation of a Defendant”).

75 “any theory of loss causation would still have to identify when the materialization

occurred and link it to a corresponding loss.” 317 Other courts have required that the

plaintiff allege specifically when he would have bought or sold a specific amount of

a security but for the alleged misstatement. 318 At base, these standards attempt to

address the risk of abuse inherent in holder claims by requiring the plaintiff to plead

some particularized facts that distinguish the plaintiff from the mass of stockholders

who also rely on the market.

While Delaware has yet to weigh in on what precisely must be alleged to state

a holder claim, likely because the claim itself has been deemed suspect, our law is

317 In re Williams Sec. Litig.-WCG Subclass, 558 F.3d 1130, 1138 (10th Cir. 2009); see also Holmes v. Grubman, 691 S.E.2d 196, 199 (Ga. 2010) (applying Georgia law and imposing on holders “the burden of proving that the truth concealed by the defendant entered the marketplace, thereby precipitating a drop in the price of the security”); In re Washington Mutual, Inc. Secs. Litig., 259 F.R.D. 490, 507 (W.D. Wash. 2009) (finding causation in the context of a plaintiff’s holder claim based on an allegedly misleading SEC filing where plaintiffs well pled “that the disclosures caused the drop in price by revealing information previously concealed by Defendants through their misrepresentations”); Small, 65 P.3d at 1265 (expressly rejecting under California law the requirement that the misleading statement be made in “personal” communications between parties, but holding that “a plaintiff must allege specific reliance on the defendants’ representations . . . . The plaintiff must allege actions, as distinguished from unspoken and unrecorded thoughts and decisions, that would indicate that the plaintiff actually relied on the misrepresentations. Plaintiffs who cannot plead with sufficient specificity to show a bona fide claim of actual reliance do not stand out from the mass of stockholders who rely on the market”); Rogers v. Cisco Sys., Inc., 268 F. Supp. 2d 1305, 1314 (N.D. Fla. 2003) (dismissing holder claims under Florida law because plaintiffs failed to allege how many shares they would have sold and when they would have sold them). 318 McDermott, Holder Claims, at 937. 76 clear that a claim resting on fraud or negligent misrepresentation must be supported

by particularized facts. 319 Plaintiffs make no effort to meet that pleading burden.

They do not allege the CBS Board communicated with them directly, as “the alleged

misrepresentations were in publicly available documents.”320 Even if Delaware

adopted a standard that allowed public disclosures to provide a bases for holder

claims, Plaintiffs do not attempt to plead with particularity what they would have

sold, when they would have sold and why they would have sold following their

review of the Proxy.321 Indeed, Plaintiffs do not meaningfully attempt to link the

material information withheld from stockholders by the CBS Board to a loss in

stockholder value by, for example, pleading that when “the truth concealed by the

defendant entered the marketplace, [a] precipitating drop in the price of the security

319 See Ct. Ch. R. 9; see also, Fortis Advisors LLC v. Dialog Semiconductors PLC, 2015 WL 401371, at *1, *6 (Del. Ch. Jan. 30, 2015) (applying Rule 9 to a negligent misrepresentation claim). 320 Grant Thornton, 314 S.W.3d at 930. 321 See, e.g., Rogers, 268 F. Supp. 2d at 1314 (granting a motion to dismiss where the plaintiffs “did not allege specifically, how many shares they would have sold and when they would have sold them) (emphasis in original); Small, 65 P.3d at 1265 (requiring holder plaintiffs to allege specific reliance, “for example, that if the plaintiff had read a truthful account of the corporation’s financial status the plaintiff would have sold the stock, how many shares the plaintiff would have sold, and when the sale would have taken place” and requiring allegations of “actions, as distinguished from unspoken and unrecorded thoughts and decisions”).

77 [followed].” 322 Because Plaintiffs pled their holder claim generally as a class claim

without the specificity required to support the claim, it is not surprising they did not

meet (or even attempt to meet) their heightened pleading burden. 323

While Plaintiffs’ disclosure claim is a direct claim not subject to heightened

pleading under Rule 23.1, it is, in essence, a fraud claim subject to heightened

pleading under Rule 9. Plaintiffs have not met that heightened pleading burden and,

therefore, their holder claim as stated in Count IV must be dismissed.

322 Holmes v. Grubman, 691 S.E.2d 196, 201 (Ga. 2010); see Compl. ¶ 6 (attributing the loss in value of CBS Class B common stock to the evident “unfairness [of the Merger] to CBS and its stockholders”); accord Compl. ¶ 133 (attributing the stock’s loss in value to the Merger’s announcement). 323 Because Plaintiffs apparently did not realize they were pleading an individual claim subject to Rule 9(b), they failed to carry their heightened burden to plead particularized facts identifying the role each named defendant played in preparing the Proxy or making the alleged misleading statements or omissions. See GreenStar IH Rep, LLC v. Tutor Perini Corp., 2017 WL 5035567, at *11 (Del. Ch. Oct. 31, 2017); Abbott Labs v. Owens, 2014 WL 8407613, at *7 (Del. Super. Sept. 20, 2014) (noting that Rule 9(b) often requires a plaintiff pleading fraud to allege the “time, place and contents of the false representation”).

78 Counts III and IV – Direct or Derivative Claims?

The parties take fundamentally different views on the essence of Plaintiffs’

other breach of fiduciary duty claims as stated in Counts III and IV. According to

Defendants, the gravamen of Plaintiffs’ claim is that CBS fiduciaries “caused CBS

to massively overpay for Viacom.”324 If that, in fact, is the claim, then the claim is

derivative. 325 Indeed, “a claim that an entity has issued equity in exchange for

inadequate consideration—a so-called dilution claim—is a quintessential example

of a derivative claim.” 326 And that is precisely how this Merger appears to have been

structured. CBS was the putative buyer and surviving entity, providing Viacom

stockholders .59625 shares of newly issued ViacomCBS stock (a name adopted by

CBS following the Merger) for each Viacom share.327 NAI executed a support

324 Compl. ¶ 6. 325 In re J.P. Morgan Chase & Co. S’holders Litig., 906 A.2d 808, 818–19 (Del. Ch. 2005), aff’d, 906 A.2d 766 (Del. 2006) (holding a claim that the exchange ratio in a stock-for- stock merger was unfair to stockholders of acquiring corporation was a derivative claim for overpayment). 326 El Paso Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1265 (Del. 2016) (Strine, C.J., concurring); see also Gentile v. Rossette, 906 A.2d 91, 99 (Del. 2006) (“In the typical corporate overpayment case, a claim against the corporation’s fiduciaries for redress is regarded as exclusively derivative, irrespective of whether the currency or form of overpayment is cash or the corporation’s stock.”). 327 Compl. ¶¶ 4, 7, 11. 79 agreement committing to use its nearly 80% voting control over CBS to act by

written consent and unilaterally approve the Merger. 328

Plaintiffs maintain Defendants’ portrait of their claim (and the Merger) is a

caricature that exaggerates certain features while ignoring the nuance of the form.

According to Plaintiffs, “the unique facts of this case reveal that, in reality, the

Merger was the vehicle through which the NAI Parties (in complicity with the other

Defendants) caused Viacom to acquire CBS.” 329 This reality, say Plaintiffs, is

revealed in the fact that nearly every aspect of their investment in CBS changed

following the Merger, leaving them with stock in a substantively new company

dominated by Viacom. While Ms. Redstone coerced Ianniello and the CBS Board

into playing roles in the dramedy that culminated in the Merger, where CBS

ostensibly played the role of acquirer, Plaintiffs urge the Court to look behind the

curtain to discern what really happened. Ms. Redstone, desperate to combine

Viacom and CBS, and viewing Viacom as the entity that would emerge from the

Merger as superior, caused CBS to be subjugated by Viacom’s Board and

management in a combined company that would henceforth be known as

ViacomCBS. That company now operates under the control of a majority

328 Compl. ¶ 4. 329 See Pls. Answering Br. at 85. 80 NAI/Viacom board, with a majority of Viacom’s former executives at the helm, in

Viacom’s former headquarters, and its stock now trades on Viacom’s (not CBS’s)

former exchange (NASDAQ) under the ticker symbols “VIACA” and “VIAC.”330

Plaintiffs argue that, under these circumstances, “[t]here is no rational reason why

CBS stockholders do not have direct claims” to recover their losses following the

acquisition of CBS at an unfair price.331

As Plaintiffs correctly argue, “equity regards substance rather than form.”332

Against this backdrop, Plaintiffs’ counter-narrative regarding the true manifestation

of the Merger carries some creative force. But the arguments they raise regarding

how the Court should characterize their claims are without precedent and they rest

on assumptions that are difficult to accept at this stage of the proceedings, when all

properly incorporated documents reveal that CBS acquired Viacom. Fortunately,

I need not decide at this preliminary stage of the proceedings the definitive nature of

Plaintiffs’ claims because, for reasons explained below, even if Plaintiffs’ claims are

derivative, they have well pled them as such. Where the nature of a claim is disputed,

330 Compl. ¶¶ 11, 129–31, 135–38, 140–41, 145–49, 242, 250. 331 Id. at 88. 332 Monroe Park v. Metro. Life Ins. Co., 457 A.2d 734, 737 (Del. 1983); accord Gatz v. Ponsoldt, 925 A.2d 1265, 1280 (Del. 2007) (“It is the very nature of equity to look beyond from to the substance of an arrangement.”).

81 and the plaintiff has met its pleading burden under both Chancery Rules 12(b)(6)

and 23.1, it is proper to defer the final determination of whether the claim is direct

or derivative under Tooley until after the factual record on the point is better

developed. 333 For purposes of this motion, I treat Counts III and IV as derivative

and, therefore, subject the claims to Rule 23.1’s heightened pleading requirements.

C. Demand Futility Under Chancery Rule 23.1

“[A] cardinal precept of the General Corporation Law of the state of Delaware

is that directors, rather than stockholders, manage the business and affairs of the

corporation.”334 For purposes of this analysis, the Court assumes that Plaintiffs seek

to bring certain derivative claims on behalf of CBS, which means those claims

presumptively belong to the company with the Demand Board holding the right to

decide how best to exploit the company’s litigation asset.335 And yet, our law allows

that, “[i]n certain circumstances, stockholders may pursue litigation derivatively on

333 See Siegman v. Tri-Star Pictures, Inc., 1989 WL 48746, *9 (Del. Ch. May 5, 1989) (“assuming without deciding that the complaint alleges derivative claims”); Stevanov v. O’Connor, 2009 WL 1059640, at *6 (Apr. 21, 2009) (declining to grant summary judgment for plaintiff’s failure to plead demand futility after concluding the “Plaintiff may be able to show she has a right, consistent with Tooley and its progeny, to pursue directly a claim” and “a more thorough development of the record would clarify the law or its application”). 334 Aronson, 473 A.2d at 811. 335 White v. Panic, 783 A.2d 543, 550 (Del. 2001) (explaining that “[i]n most situations, the board of directors has sole authority to initiate or to refrain from initiating legal actions asserting rights held by the corporation”).

82 behalf of the corporation as a matter of equity to redress the conduct of a torpid or

unfaithful management . . . where those in control of the company refuse to assert

(or are unfit to consider) a claim belonging to it.”336

Where a derivative plaintiff elects not to make a litigation demand and thus

“seeks to displace the board’s authority,” he must plead particularized facts creating

a reasonable doubt concerning the Board’s ability to consider the demand.337

Because a majority of the Demand Board comprises directors not on the CBS Board

that approved the Merger, the parties agree Rales v. Blasband governs the demand

futility inquiry. 338 “The central question of a Rales inquiry, no matter the context, is

336 Cumming v. Edens, 2018 WL 992877, at *11 (Del. Ch. Feb. 20, 2018) (internal quotations omitted). 337 La. Mun. Police Emps.’ Ret. Sys. v. Pyott, 46 A.3d 313, 351 (Del. Ch. 2012) (citation omitted), rev’d on other grounds, Pyott v. La. Mun. Police Emps.’ Ret. Sys., 74 A.3d 612 (Del. 2013). 338 More specifically, although a majority of the ViacomCBS board (eight of thirteen) also served on the CBS Board, the Proxy indicates that only six of the “carryover” CBS Board members (Byrne, Beinecke, Griego, Goldner, Schuman and Terrell) voted to approve the Merger, with Redstone and Klieger abstaining. Thus, the parties agree Rales applies. See Rales v. Blasband, 634 A.2d 927 (Del. 1993); accord, McElrath ex rel. Uber Techs. v. Kalanick, 2019 WL 1430210, at *8 (Del. Ch. Apr. 1, 2019), aff’d sub nom. McElrath v. Kalanick, 224 A.3d 982 (Del. 2020) (applying Rales where, as here, “members of the board who made the business decision in question remain on the board but are now in the minority”) (citing Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 56–57 (Del. Ch. 2015) (“[T]he Rales test applies where a derivative plaintiff challenges a decision approved by a board committee consisting of less than half of the directors who would have considered demand, had one been made.”)); Conrad v. Blank, 940 A.2d 28, 37 (Del. Ch. 2007) (“Since the challenged transaction was not made by . . . even half of [the board’s] members, the test articulated in Rales is the proper standard.”). I note, however, that this court has questioned the effect of abstention on the standard governing 83 the same: ‘whether the board can exercise its business judgment on the corporate

behalf in considering demand.’”339

A director cannot objectively exercise her business judgment in considering a

litigation demand under Rales if she is either: (i) “interested,” meaning she is directly

impacted by or will benefit from the challenged transaction in a manner not shared

by other stockholders or faces a “substantial likelihood of liability” for her role in

the challenged transaction;340 or (ii) not independent of another interested fiduciary

by virtue of personal or professional relationships or otherwise. 341 “In assessing

board level conflicts in the corporate context, this court ‘counts heads’ among the

individual members of the board to assess whether a majority of its members are, or

the Rule 23.1 analysis, and different standards may apply in some instances to different directors. See United Food and Commercial Workers Union v. Zuckerberg, 2020 WL 6266162, at *19 (Del. Ch. Oct. 26, 2020). Because none of the parties raised this issue, and all agree Rales should govern, I apply Rales across the board. 339 Id. (quoting Inter-Mktg. Gp. USA, Inc. v. Armstrong, 2019 WL 417849, at *4 (Del. Ch. Jan. 31, 2019)). 340 Rales, 634 A.2d at 933. 341 Id. at 936. 84 are not, conflicted.”342 If a majority of the demand board is not comprised of

independent or disinterested directors, then demand is futile. 343

The Demand Board consists of 13 directors, eight of whom served on the CBS

Board and six of whom voted to approve the Merger. They are Ms. Redstone,

Klieger, Bakish, Beinecke, Byrne, Goldner, Griego, McHale, Nelson, Phillips,

Schuman, Seligman and Terrell. The Demand Board and pre-Merger CBS Board

are compared below: 344

CBS PRE-MERGER BOARD DEMAND BOARD

1 Beinecke Beinecke

2 Byrne Byrne

3 Goldner Goldner

4 Griego Griego

5 Schuman Schuman

6 Terrell Terrell

7 Ms. Redstone* Ms. Redstone

342 See In re EZcorp Inc. Consulting Agreement Deriv. Litig., 2016 WL 301245, at *34 (Del. Ch. Jan. 25, 2016). 343 Wenske v. Blue Bell Creameries, Inc., 214 A.3d 958, 965 (Del. Ch. 2019). 344 Shading indicates directors who served on both the pre-Merger Board and the Demand Board. Asterisks mark those pre-Merger CBS directors who allegedly did not vote on the Merger.

85 8 Klieger* Klieger

9 Minow Bakish

10 Countryman McHale

11 Zelnick* Nelson

12 Phillips

13 Seligman

Independence

Perhaps in an abundance of caution, Plaintiffs do press an argument, separate

from a “substantial likelihood of liability” argument, that a majority of the Demand

Board lack independence from Ms. Redstone, a CBS fiduciary who (as pled) was

clearly “interested” in the Merger. Delaware law presumes that each member of a

board of directors is independent.345 A plaintiff will overcome this presumption of

independence only by pleading “facts from which the director’s ability to act

impartially on a matter important to the interested party can be doubted because that

director may feel either subject to the interested party’s dominion or beholden to that

345 Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1048 (Del. 2004).

86 interested party.” 346 Our Supreme Court explained these concepts succinctly in

Orman v. Cullman:347

A director may be considered beholden to (and thus controlled by) another when the allegedly controlling entity has the unilateral power (whether direct or indirect through control over other decision makers), to decide whether the challenged director continues to receive a benefit, financial or otherwise, upon which the challenged director is so dependent or is of such subjective material importance to him that the threatened loss of that benefit might create a reason to question whether the controlled director is able to consider the corporate merits of the challenged transaction objectively.348

When assessing director independence, our courts do not “anthropologize”

directors as simply homo economicus; instead, other factors, including personal and

business relationships, can influence and, at times, compromise independence. As

commentators have noted, Delaware’s independence analysis is context-specific and

fact-intensive.349

346 Marchand v. Barnhill, 212 A.3d 805, 818 (Del. 2019) (internal quotation omitted). 347 794 A.2d 5, 25 n.50 (Del. Ch. 2002). 348 Id.; see also Beam, 845 A.2d at 1049 (“This doubt [of a director’s ability to act impartially] might arise either because of financial ties, familial affinity, a particularly close or intimate personal or business affinity or because of evidence that in the past the relationship caused the director to act non-independently vis à vis an interested director.”). 349 See, e.g., Usha Rodrigues, The Fetishization of Independence, 33 J. Corp. L. 447, 470– 76 (2008) (reviewing Delaware's independence jurisprudence and concluding, “Delaware is not bound by ex ante proscriptions against conflicts with the corporation as a whole. Instead, it can look deeply into particular conflicts”).

87 As noted, there are 13 directors on the Demand Board, so, under this prong of

Rales, Plaintiffs must well-plead that seven (i.e., the majority) of the directors lack

independence. Plaintiffs do not challenge Terrell, Griego and Phillips’

independence. 350 Accordingly, to plead futility solely on the basis of a collective

lack of independence, Plaintiffs were obliged to plead that the independence of seven

of the ten remaining directors was compromised to a degree that they were unfit to

consider a demand.

The result of Plaintiffs’ effort to meet this burden, separated from their

liability allegations, is a mixed bag. As to some, such as Schuman, McHale, and

Nelson, the allegations of their connection to Ms. Redstone focus mainly on business

relationships and, standing alone, falter under the weight of the presumption of

independence. 351 As for Byrne, the allegations reveal both personal and professional

relationships with Ms. Redstone, but again, it would be a stretch to say these

350 Plaintiffs did not challenge these three directors’ independence in their answering brief or at oral argument. “It is settled Delaware law that a party waives an argument by not including it in its brief.” Emerald P’rs v. Berlin, 2003 WL 21003437, at *43 (Del. Ch. Apr. 28, 2003). 351 See, e.g., Compl. ¶¶ 22, 76 (alleging Schuman’s consulting firm worked with Viacom, Schuman previously worked for a Viacom portfolio company and Schuman was appointed to the Viacom Board by NAI); Compl. ¶¶ 202–03 (alleging McHale served as general counsel for Viacom’s MTV in the mid-1980’s, while Nelson was the co-chief operating officer of DreamWorks SKG from 1994 to 2003, during which time DreamWorks and Paramount Pictures co-produced several major films).

88 allegations, standing alone, raise a reasonable doubt regarding Byrne’s fitness to

consider a demand. 352 Thus, while Plaintiffs make a gallant effort to marshal their

allegations into a credible challenge to the Demand Board’s independence, given the

nature of their liability allegations against the Director Defendants, it is not

surprising that Plaintiffs’ most persuasive demand futility argument is that the

Demand Board labors under a disabling interest by virtue of their exposure to a

“substantial likelihood of liability.”353 I therefore leave the independence analysis

without drawing any firm conclusions on the adequacy of Plaintiffs’ demand futility

pleading under this prong of Rales.354

352 Compl. ¶¶ 15, 76, 208, 211 (alleging Byrne is a “close friend” of Ms. Redstone and serves on a non-profit board with her). 353 I pause here to note that Defendants’ effort to cast Seligman as independent of Ms. Redstone, on the pled facts, did undermine the credibility of their arguments as to other allegedly non-independent directors. As alleged by Plaintiffs, referring to a document produced in the 220 inspection, Ms. Redstone wrote an email to Seligman in 2017 in which she gushed, “I need another you . . . someone whose loyalty to [NAI] I can trust,” and closed the email with “Xoxox.” Compl. ¶¶ 31, 201. Contrary to Defendants’ suggestion that Ms. Redstone and Seligman were mere business associates, the fair inference from the Complaint is that business associates do not typically close their correspondence to one another with “hugs and kisses.” 354 See Teamsters Local 443 Health Servs. & Ins. Plan v. Chou, 2020 WL 5028065, at *16 (Del. Ch. Aug. 24, 2020) (beginning and ending the Rales inquiry after finding “that a majority of the Demand Board faces a substantial likelihood of liability . . . and therefore the Demand Board cannot bring its independent and disinterested business judgment to bear in considering a demand”); Inter-Mktg. Gp. USA, Inc. v. Armstrong, 2020 WL 756965 (Del. Ch. Jan. 31, 2020) (same).

89 2. Substantial Likelihood of Liability

To plead that a member of the Demand Board faces a “substantial likelihood

of liability” as contemplated by Rales, a plaintiff need not demonstrate “a reasonable

probability of success” on the claim, as that would be “unduly onerous.”355

“Although framed as a substantial likelihood of liability, the standard [] only requires

that [P]laintiffs make a threshold showing, through the allegation of particularized

facts, that their claims have some merit.”356

Five members of the Demand Board were not on the CBS Board at the time

of the Merger and therefore face no prospect of liability in this case. The remaining

eight members of the Demand Board served on the CBS Board at the time of the

Merger and are alleged to have engaged in wrongdoing. Those individuals are:

Beinecke, Byrne, Goldner, Griego, Schuman, Terrell, Klieger and Ms. Redstone.

CBS’s certificate of incorporation exculpated directors from personal liability

to the fullest extent permitted by Delaware law. 357 Thus, Plaintiffs must “plead a

non-exculpated claim against each director [except Ms. Redstone] who moves for

355 Rales, 634 A.2d at 934–35. 356 Zuckerberg, 2020 WL 6266162, at *16 (internal quotations omitted). 357 ViacomCBS Opening Br. Ex. 2 (CBS Am. and Restated Certificate of Incorporate) at Article VII(1). The Court may “take judicial notice of an exculpatory charter provision in resolving a motion addressed to the pleadings.” McMillan v. Intercargo Corp., 768 A.2d 492, 501 n.40 (Del. Ch. 2000).

90 dismissal.” 358 In this context, the inquiry is informed by the standard of review but

ultimately focuses on the more basic question of whether Plaintiffs have pled a non-

exculpated claim—that the Director Defendants breached their duty of loyalty in

connection with the Merger. 359 Even in the face of an exculpatory charter provision,

“when a complaint pleads facts creating an inference that seemingly independent

directors approved a conflicted transaction for improper reasons, and thus, those

directors may have breached their duty of loyalty, the pro-plaintiff inferences that

358 In re Cornerstone Therapeutics Inc. S’holder Litig., 115 A.3d 1173, 1180 (Del. 2015) (citations omitted). The claims against Ms. Redstone, as CBS’s controlling stockholder, would not be subject to exculpation. See 8 Del. C. § 102(b)(7) (providing that exculpation would apply to a stockholder who served as a director only for claims of “breach of fiduciary duty as a director”). 359 See Baiera, 119 A.3d at 62–63 (noting that where the corporation’s “charter includes an exculpatory provision . . . a substantial likelihood of liability ‘may be found to exist if the plaintiff pleads a non-exculpated claim against the directors based on particularized facts’”); Zuckerberg, 2020 WL 6266162, at *17 (observing that, after Cornerstone, “the fact that entire fairness may govern the underlying claim does not give rise to substantial likelihood of liability for purposes of considering a demand unless the complaint pleads facts sufficient to raise a reasonable doubt that the director would not be entitled to exculpation”); In re Oracle Corp. Deriv. Litig., 2018 WL 1381331, at *10 (Del. Ch. Mar. 19, 2018) (holding that a plaintiff must well plead a breach of the duty of loyalty to meet the substantial likelihood of liability standard under Rales in the face of an exculpatory charter provision). This focus on the nature of the claim rather than on standard of review recognizes that claims may be subject to exculpation or shifting standards of review (e.g. MFW) under certain circumstances. See Zuckerberg, 2020 WL 6266162, at *17.

91 must be drawn on a motion to dismiss counsels for resolution of that question of fact

only after discovery.”360

When analyzing the viability of breach of fiduciary duty claims at the pleading

stage, the court frequently begins by tackling the gating question: by what standard

of review will the court likely adjudicate the claim? 361 As noted, in the wake of

Cornerstone, the answer to this question does not, per se, also answer the Rales

“substantial likelihood of liability” question, but the court “must” take the “standard

of review . . . into account when assessing whether a substantial likelihood of

liability exists.”362 As I address the breach of fiduciary duty claim against each

Defendant, therefore, I begin with the standard of review. As is often the case, this

analysis foretells the answer to the substantial likelihood of liability question.

360 Cornerstone, 115 A.3d at 1186. 361 See Tornetta v. Musk, 2019 WL 4566943, at *1 (Del. Ch. Sept. 20, 2019) (noting that the standard of review presents a gating question when confronting pleading stage challenges to breach of fiduciary duty claims); Zuckerberg, 2020 WL 6266162, at *16–22 (instructing that, when evaluating a director’s substantial likelihood of liability under Rales, “if the underlying claim is for breach of fiduciary duty, then the court must determine what standard of review would apply to that claim and take that standard into account when assessing whether a substantial likelihood of liability exists”). I say “likely adjudicate” recognizing that the standard of review is not fixed for all time in the litigation by a pleading stage determination; facts may be developed in discovery that justify a different standard of review. See Orman, 794 A.2d at 31. 362 Zuckerberg, 2020 WL 6266162, at *16–22. 92 While each Count rests on a smilar set of predicate facts, the claims against

each Defendant draws on different legal precepts. In the analysis that follows, I

address the claims against each of the members of the Demand Board separately,

divided between Merger-related and Ianniello compensation-related claims, to

determine whether Plaintiffs have pled with particularity that these Defendants face

a substantial likelihood of liability under Rales. I then address the ramifications of

those determinations on demand futility with respect to each of the derivative claims.

a. The Merger-Related Claims (Counts I–IV)

Counts I through IV of the Complaint relate to the Merger. To reiterate

briefly, Count I asserts a derivative claim for breach of fiduciary duty against the

NAI Parties for disloyally engineering the Merger in a conflicted transaction that

violated the 2018 Settlement and from which they extracted non-ratable benefits.

Count II asserts a derivative claim for breach of fiduciary duty against the CBS

Committee and Ianniello for disloyally approving the unfair Merger at Ms.

Redstone’s behest. Count III asserts a direct claim (reviewed here as if derivative)

against Ms. Redstone and the NAI Parties for breaching their fiduciary duty of

loyalty by forcing former CBS Class B stockholders to enter into a Merger that

effectively caused CBS stockholders to transfer (or sell) their CBS stock in exchange

for stock of a new and less valuable company, resulting in both diluted ownership

stakes and diluted value. And Count IV asserts an individual and class claim 93 (reviewed here as if derivative) against Ms. Redstone, the Director Defendants and

Ianniello for breaching their fiduciary duties by allowing Ianniello to negotiate the

Merger he already signaled he was willing to force CBS to pursue, failing to

advocate for the interests of CBS and its public stockholders, and also by allowing

Ms. Redstone improperly to influence the Merger negotiations and cause CBS to

enter into the patently unfair Merger to the detriment of CBS’s public

stockholders.363

i. The Claims Against the NAI Parties

Delaware’s default standard of review is the business judgment rule, which

“presum[es] that in making a business decision, [a corporate fiduciary] acted on an

informed basis, in good faith and in the honest belief that the action was taken in the

best interests of the company.”364 Plaintiffs bear the burden, including in their

pleading, of rebutting that presumption.365

Because a controlling stockholder “occupies a uniquely advantageous

position for extracting differential benefits from the corporation at the expense of

363 Compl. ¶¶ 249–57. 364 In re Ebix, Inc. S’holder Litig., 2014 WL 3696655, at *26 (Del. Ch. July 24, 2014) (noting that plaintiff had pled sufficient facts to rebut the business judgment rule presumption). 365 Id. 94 minority stockholders,” our law has long recognized that it is right to impose upon

the controller the fiduciary duty of loyalty and good faith running to the corporation

and its other stockholders. 366 Not unique to controllers, the duty of loyalty “requires

an undivided and unselfish loyalty to the corporation” and “demands that there shall

be no conflict between loyalty and self-interest.” 367

As a general matter, under our law, a controller engages in a “conflicted

transaction” when (1) “the controller stands on both sides [of a transaction]”;

or (2) “the controller competes with the common stockholders for consideration.”368

The controller will be deemed to “compete with common stockholders for

consideration” when the controller (1) “receives greater monetary consideration for

its shares than the minority stockholders”; (2) “takes a different form of

consideration than the minority stockholders”; or (3) “gets a unique benefit by

extracting something uniquely valuable to the controller, even if the controller

366 EZcorp, 2016 WL 301245, at *11 (citation omitted). 367 Guth v. Loft, 5 A.2d 503, 510 (Del. 1939). 368 Id.; Larkin v. Shah, 2016 WL 4485447, at *8 (Del. Ch. Aug. 25, 2016) (“Conflicted transactions include those in which the controller stands on both sides of the deal (for example, when a parent acquires its subsidiary), as well as those in which the controller stands on only one side of the deal but ‘competes with the common stockholders for consideration.’”).

95 nominally receives the same consideration as all other stockholders.”369 Under any

of these scenarios, the controller’s conduct will be subjected to entire fairness

review, “the highest standard of review in corporate law.”370 In the merger context,

where the controller engages in a conflicted transaction, entire fairness applies “as a

substitute for the dual statutory protections of disinterested board and stockholder

approval, because both protections are potentially undermined by the influence of

the controller.”371

The parties here agree on three basic facts pertaining to the NAI Parties’

relationship to the Merger. First, the NAI Parties controlled both Viacom and CBS,

holding slightly more than 80% of the voting power in each entity. Second, NAI

“stood on both sides” of the Merger. Third, the CBS Board did not anchor their

process in the safe harbor established in the seminal MFW decision. 372 The parties

369 IRA Tr. FBO Bobbie Ahmed v. Crane, 2017 WL 7053964, at *6 (Del. Ch. Dec. 11, 2017) (internal quotations omitted). 370 In re Crimson Expl. Inc. S’holder Litig., 2014 WL 5449419, at *9 (Del. Ch. Oct. 24, 2014). 371 Id. 372 Compl. ¶¶ 111, 134, 157; 220 Op. at *6 (noting that the Merger did not “follow the MFW roadmap”); see MFW, 88 A.3d at 644; Tornetta, 2019 WL 4566943, at *12 (“MFW provides a roadmap that allows fiduciaries to engage in conflicted controller transactions worthy of pleadings stage business judgment deference. In the conflicted controller context, in particular, MFW’s ‘dual protections’ are meant to ‘neutralize’ the conflicted controller’s ‘presumptively coercive influence’ so that judicial second-guessing is no longer required.” (quoting In re Rouse Prop., Inc., 2018 WL 1226015, at *1 (Del. Ch. 96 fundamentally disagree, however, regarding the implication of these undisputed

facts on the standard review.

Plaintiffs argue that, because the NAI Parties stood on both sides of the

Merger, and elected not to trigger the MFW safe harbor, entire fairness should apply

as the operative standard of review come what may.373 Defendants disagree with the

fundamental premise of Plaintiffs’ argument—i.e., that Delaware law requires entire

fairness review any time a controlling stockholder stands on both sides of a

transaction—and argue that the Merger’s pro rata treatment of minority

stockholders allows the business judgment rule to remain as the standard of

review. 374 According to Defendants, in a case like this, where the controller has an

Mar. 9, 2018) (citing Kahn, 88 A.3d at 644))). While the CBS Board created and deployed a special committee with respect to the Merger, “[b]ecause the controller’s influence operates at both the board and stockholder levels, neither a special committee nor a majority-of-the-minority vote, standing alone, is sufficient to sterilize the controller’s influence and reestablish the presence of a qualified decision maker.” J. Travis Laster, The Effect of Stockholder Approval on Enhanced Scrutiny, 40 Wm. Mitchell L. Rev. 1443, 1461 (2014). 373 See Pls.’ Answering Br. at 40 (“That the presence of a controller on both sides of the transaction—standing alone—triggers entire fairness review has been a precept of Delaware corporate law for nearly forty years.”) (emphasis in original). 374 See In re Synthes, Inc. S’holder Litig., 50 A.3d 1022, 1024 (Del. Ch. Aug. 17, 2012) (“[P]ro rata treatment remains a form of safe harbor under [Delaware] law.”); see also In re BHC Commc’ns, Inc. S’holder Litig., 789 A.2d 1, 11 (Del. Ch. 2001) (explaining the mere fact that controlling stockholder proposed transaction or participated in negotiations “could not ordinarily support a claim of breach of fiduciary duty against it unless there were well- pleaded allegations that it had an interest in the transaction that differed from that of the other stockholders and exercised its control over the approval of the transaction”); 97 essentially equal economic stake in the two companies to be combined, there is no

incentive for the controller to favor itself at the minority’s expense.

As in Viacom, both parties claim “settled” Delaware law supports their

position.375 And, as in Viacom, while tempting, I need not decide which party has

the better of the “settled” law on their side, or even if the law on the point is settled

at all. 376 This is because, as in Viacom, in addition to the NAI Parties’ “presence”

on both sides of the Merger, other facts, as particularly alleged in the Complaint,

reveal that the Merger was a “conflicted controller” transaction. 377

First, as bulleted below, Plaintiffs allege with particularity that Ms. Redstone

engineered the Merger to bail out Viacom for the benefit of NAI, and thereby

extracted a non-ratable benefit from the transaction:378

Crimson, 2014 WL 5449419, at *12 (“Entire fairness review is not triggered solely because a company has a controlling stockholder. The controller must also engage in a conflicted transaction.”); Voigt, 2020 WL 614999, at *23 (same). 375 In re Viacom, Inc. S’holders Litig., 2020 WL 7711128, at *3 (observing that the parties’ fundamental disagreement over the supposedly “settled” state of Delaware law on the extent to which a controller’s “mere presence” on both sides of a transaction, alone, was sufficient to create a conflict that would justify entire fairness review was “interesting”). 376 Id. at *13–16 (taking up the “mere presence debate” but ultimately concluding that a definitive ruling on the question was unnecessary since the plaintiffs had well-pled other bases to conclude that the transaction was conceivably conflicted). 377 Crimson, 2014 WL 5449419, at *12. 378 This court has recognized that the “bailout” scenario is a transactional paradigm that presents a conflict of interest for the controller. See, e.g., In re Tesla Motors, Inc. S’holder Litig., 2018 WL 1560293, at *2 (Del. Ch. Mar. 18, 2018) (“Tesla I”) (involving a controller 98 • Communications from Ms. Redstone indicate she worried Viacom was “tanking” and that “time ha[d] run out” for Viacom. 379 If Viacom could not be rescued, Ms. Redstone’s substantial investment in Viacom would be squandered.380

• Viacom’s business model relied on outdated content and technology, “saddled with cable channels with dimming prospects, diminishing brands and franchises, difficult negotiations with pay-TV distributors because of its sinking ratings, and a [] focus[] on aging technology while consumers instead ‘cut’ their tie to cable companies, focusing on streaming through the internet instead.”381 Plaintiffs allege, “[t]his was one of the primary reasons CBS resisted a merger in 2018: it did not wish to have to try to repair a faltering business, particularly during a time in which it would increasingly need to focus on cutting-edge technology and new content.” 382

• Ms. Redstone was exploring a sale of NAI, 383 was advised of the “risk” that Viacom would be unsellable, and was told that NAI would end up owning only an “orphaned” Viacom were NAI to put both Viacom and CBS up for sale. 384

• Ms. Redstone was advised that “[t]he ideal scenario for [NAI] may be a combination of [CBS] and [Viacom] as a first step, followed by a sale of

allegedly causing one controlled company to “bailout” another controlled company at an unfair price); In re BGC P’rs, Inc., 2019 WL 4745121 (Del. Ch. Sept. 30, 2019) (same); In re Southern Peru Copper Corp. S’holder Deriv. Litig., 52 A.3d 761, 787 (Del. Ch. 2011), aff’d sub. nom. Ams. Mining Corp. v. Theriault, 51 A.3d 1213 (Del. 2012) (same). 379 Compl. ¶ 56. 380 Compl. ¶¶ 55, 224. 381 Compl. ¶ 182. 382 Id. 383 Compl. ¶ 158. 384 Compl. ¶¶ 158, 224. 99 [NAI],” and her son agreed that “selling NAI [after the Merger] would be ideal.”385

• Apparently acting on her stated concerns, and the recommendations of her advisors, Ms. Redstone attempted in 2016 and 2018 to merge Viacom and CBS. Both attempts were rejected by the CBS Board, with the final attempt culminating in the CBS Board attempting to dilute Ms. Redstone’s control with a dividend. 386 The CBS Board’s action was motivated by their belief that NAI and Ms. Redstone “present[ed] a significant threat of irreparable and irreversible harm to the Company and its stockholders” because she was seeking “to combine CBS and Viacom regardless of the strategic and economic merits of the transaction.” 387

• The Merger was not the product of organic acquisitive interest on the part of the CBS Board; rather, it was initiated by Ms. Redstone at a time when she was contractually prohibited from doing so at a meeting she was contractually barred from attending. 388

• Beinecke and Minow took Ms. Redstone’s demands to the full CBS Board without disclosing what took place at the February 22 N&G Committee meeting attended by Ms. Redstone.389

• Viacom’s performance was declining and neither the market nor most of the analysts that covered the stock viewed the Merger as value-accretive

385 Compl. ¶ 158. 386 NAI contends that the 2018 merger discussions broke down over a disagreement concerning governance and management of the combined company (triggered by CBS’s former CEO, who resigned well before discussions). See NAI Opening Br. at 49. But this contradicts the well pled allegations in the Complaint, which this Court must regard as true at this stage of the proceedings. See Compl. ¶¶ 66–71. 387 Compl. ¶ 67–68. 388 Compl. ¶¶ 95, 97, 100. 389 Id. 100 for CBS. 390 As one analyst put it: “[I]t’s not clear what this deal does for [CBS] shareholders beyond NAI[,] synergies at $500mm are probably not much larger than transaction fees. . . . To us, this deal is mostly about [NAI] consolidating its control. . . . We think the real winner is NAI.” 391

Defendants are right to argue that some of these facts, standing alone, make

for a leaky vessel in which to float a bailout claim, even at the pleading stage.

Together, however, Plaintiffs’ particularized allegations allow a reasonable

inference that Ms. Redstone derived a non-ratable benefit from the Merger by using

CBS to bail out the NAI Parties’ separate investment in Viacom. Though

Ms. Redstone’s concern for Viacom’s viability date back to 2016, Plaintiffs well

plead that Viacom’s financial situation had not materially improved in the interim.392

And advisors’ warnings, paired with Ms. Redstone’s actions, reveal that her concern

for Viacom persisted, as she remained committed to a Viacom bail-out by CBS with

the assistance of an allegedly ineffective special committee, as discussed below, and

without the approval of CBS’s minority stockholders. A sinking ship remains a

sinking ship, regardless of its proximity (spatial or temporal) from rock-bottom; and

390 Compl. ¶¶ 175–76. 391 Compl. ¶ 176 (quoting ViacomCBS – What’s Love Got to Do With It?, Wells Fargo Securities Equity Research, Sept. 23, 2019 at 1–2). 392 Compl. ¶ 67 (citing CBS 00005143); see also id. at ¶ 104. 101 Plaintiffs have satisfactorily pled Ms. Redstone believed Viacom needed to be

rescued at the time of the Merger.

Second, and relatedly, Plaintiffs have alleged with particularity that the

Merger represented a means by which Ms. Redstone extracted the non-ratable

benefit of enhancing NAI’s value in preparation for its future sale. 393 In other words,

Plaintiffs’ particularized allegations allow a reasonable inference that CBS’s

acquisition of Viacom was motivated not only by Ms. Redstone’s concerns about

Viacom’s viability as a going concern, but also her desire to shop NAI following

their consolidation.

On this theory of non-ratable benefit, IRA Trust FBO Bobbie Ahmed v. Crane

is instructive. 394 There, a controller was alleged to have engaged in a recapitalization

to perpetuate control in future transactions.395 While the controller did not derive a

non-ratable benefit from the recapitalization itself, the court found it reasonably

conceivable that a non-ratable benefit was extracted nonetheless because the

complaint alleged the recapitalization was motivated to allow the controller to

393 Compl. ¶¶ 5, 158–61, 243. 394 2017 WL 7053964 (Del. Ch. Dec. 11, 2017). 395 Id. 102 perpetuate its control in future transactions.396 In other words, the court did not blind

itself to credible, well-pled allegations of a non-ratable benefit accruing to a

controller in a transaction, even though the transaction appeared superficially to treat

all stockholders equally.

Plaintiffs’ allegations describe in much the same way how Ms. Redstone’s

actions were motivated to enhance the value of NAI to the detriment of other CBS

stockholders. Ms. Redstone refused to consider an acquirer’s interest in CBS if it

did not also “include Viacom.”397 Ms. Redstone’s son admitted to Klieger that

Ms. Redstone believed “selling NAI would be ideal.” 398 And the second merger

attempt was initiated directly after the NAI Parties were advised that “a sale of

[NAI]” was preferable to a sale of either or both of CBS and Viacom, concluding

that “[t]he ideal scenario for [NAI] may be a combination of [CBS] and [Viacom]

as a first step, followed by a sale of [NAI].” 399 These facts, pled with particularity,

allow a reasonable inference that the NAI Parties extracted a non-ratable benefit by

396 Id. 397 Compl. ¶ 59. 398 Compl. ¶ 158 (quoting CBS 00004137). 399 Compl. ¶ 58 (quoting CBS 00004219). 103 enhancing the value of NAI to the detriment of CBS.400 Thus, the claims in Counts I

and III stated against the NAI Parties are subject to entire fairness review, with the

burden of persuasion resting on the Defendants.401

As this court has noted, at the pleading stage, “[t]he possibility that the entire

fairness standard of review may apply tends to preclude the Court from granting”

dispositive relief on the pleadings. 402 As discussed below, this case is no exception

as I find Plaintiffs have well pled facts that support a reasonable inference the Merger

was not entirely fair to CBS. They have also pled with particularity facts that allow

400 I note that my decision here rests on unique facts as pled in this Complaint. The mere fact a controller’s holding company will benefit from synergies flowing from a combination of two of its companies does not necessarily mean that the acquiror obtained a non-ratable benefit that would justify entire fairness review; such a broad reading of this decision or IRA Trust would have inordinate and unintended consequences on M&A by, for example, reflexively subjecting transactions among private equity portfolio companies to entire fairness review at the pleading stage. Here, Plaintiffs have pled with particularity that the controller was able and willing to pursue a transaction to the detriment of CBS stockholders because she was contemplating a near-term sale of NAI. 401 See Kahn v. Lynch Commc’n Sys., Inc., 638 A.2d 1110, 1115 (Del. 1994) (“A controlling or dominating shareholder standing on both sides of a transaction . . . bears the burden of proving entire fairness.”). As explained below, because Plaintiffs have raised bona fide questions regarding the effectiveness of the CBS Committee, there is, for now, no basis to assume that burden shifting is appropriate. Id. at 1120–21 (noting that either an effective independent committee or majority of the minority vote condition in connection with a controlling stockholder transaction will justify switching the entire fairness burden from defendant to plaintiff). 402 Klein v. H.I.G. Capital, L.L.C., 2018 WL 6719717, at *16 (Del. Ch. Dec. 19, 2018); see also Sciabacucchi v. Liberty Broadband Corp., 2018 WL 3599997, at *15 (Del. Ch. July 26, 2018) (same).

104 the Court to conclude that the NAI Parties face a substantial likelihood of liability

with respect to the putative derivative claims asserted against them in the Complaint.

ii. The Claims Against Other Members of the Demand Board

Having determined that the claims against the controller will be subject to

entire fairness review, intuitively, one might conclude that the claims against the

Director Defendants should be subject to the same standard of review, particularly

since the gravamen of the allegations against the NAI Parties is that Ms. Redstone

dominated the CBS Board to achieve her personal objectives. 403 But that is not how

our law works. As our Supreme Court made clear in Cornerstone, entire fairness

review for one does not mean entire fairness review for all:

[T]o require independent directors to remain defendants solely because the plaintiffs stated a non-exculpated claim against the controller and its affiliates would be inconsistent with Delaware law and would also increase costs for disinterested directors, corporations, and stockholders, without providing a corresponding benefit. First, this Court and the Court of Chancery have emphasized that each director has a right to be considered individually when the directors face claims for damages in a suit challenging board action. And under Delaware corporate law, that individualized consideration does not start with the assumption that each director was disloyal; rather, independent directors are presumed to be motivated to do their duty with fidelity . . . . This Court has [] refused to presume that an independent director is not entitled to the protection of the business judgment rule

403 See, e.g., In re Radiology Assoc., Inc. Litig., 1990 WL 67839, at *8 (Del. Ch. May 16, 1990) (noting that all defendants, controlling stockholders and directors alike, had conceded that the entire fairness standard of review applied to all claims of breach of fiduciary duty arising out of a cash-out merger initiated by a controlling stockholder).

105 solely because the controlling stockholder may itself be subject to liability for breach of the duty of loyalty if the transaction was not entirely fair to the minority stockholders.404

This is particularly important when breach of fiduciary claims against board

members, like the clams against the CBS Committee members, must be reconciled

with the corporation’s Section 102(b)(7) charter provision. 405 Under these

circumstances, a separate, start-from-scratch review of the allegations against the

Director Defendants is necessary. Even so, as explained below, the Complaint well-

pleads that the CBS Committee members—Beinecke, Byrne, Countryman, Goldner,

Griego, Minow, Schuman and Terrell—breached their fiduciary duty of loyalty by

favoring NAI’s interests over those of CBS’s minority stockholders. Entire fairness

review, therefore, is triggered as to the claims against these defendants.

As an initial matter, while it is certainly the case that the claims against the

Director Defendants (including the CBS Committee members) must be analyzed

separately from those asserted against the NAI Parties, the Court cannot ignore the

role of the controller in evaluating the loyalty of the Director Defendants with respect

to the Merger, as alleged in the Complaint. And, here again, the lodestar is conflict.

404 Cornerstone, 115 A.3d at 1182–83 (internal quotations omitted). 405 See id. at 1185 (“Establishing a rule that all directors must remain as parties in litigation involving a transaction with a controlling stockholder would thus reduce the benefits that the General Assembly anticipated in adopting Section 102(b)(7).”). 106 While courts and commentators have aptly referred to the coercive controller as the

“800-pound gorilla,”406 or the “king or queen” of the company, 407 the reality is that

controllers come in different forms depending, in large measure, upon the extent to,

and purpose for, which they exert their influence.408 Delaware law attempts to

account for some of this nuance by, for example, considering a controller’s

demonstrated “retributive capacities,” 409 the extent to which a minority stockholder

can control the informational environment in which the board operates,410 and the

406 In re Pure Res., Inc. S’holders Litig., 808 A.2d 421, 436 (Del. Ch. 2002); Leo E. Strine, The Inescapably Empirical Foundation of the Common Law of Corporations, 27 Del. J. Corp. L. 499, 509 (2002). 407 Zohar Goshen & Assaf Hamdani, Corporate Control and Idiosyncratic Vision, 125 Yale L.J. 506, 509 (2016). 408 See generally Ann M. Lipton, After Corwin: Down the Controlling Shareholder Rabbit Hole, 72 Vand. L. Rev. 1977 (2019) (thoroughly analyzing the doctrinal development of Delaware’s controlling stockholder jurisprudence and describing generally the various factors that might influence the controller to exercise his control). 409 In re Tesla Motors, Inc. S’holder Litig., 2020 WL 553902, at *6 (Del. Ch. Feb. 4, 2020) (“Tesla II”) (citing Pure Res., 808 A.2d at 436); see also EZcorp, 2016 WL 301245, at *41– 42 (“[G]iving pleading-stage effect to a controller’s actual threats and retributive behavior has important integrity-preserving consequences. If a controller anticipates that threats will have legal consequences for demand futility and other doctrines, then he should be less likely to make and carry them out.”). 410 See, e.g., FrontFour Capital Gp. LLC v. Taube, 2019 WL 1313408, at *22–23 (Del. Ch. Mar. 22, 2019) (finding entire fairness applied to transactions involving an alleged control group, in part, based on the well-pled fact that the controller directed the flow of information regarding the transactions).

107 controller’s ability and propensity to exploit his influence to tunnel corporate

benefits (and behavior) in a desired direction.411

The nuance takes on added layers in companies operating with a dual-class

common stock structure, whereby economic and voting rights are bifurcated and the

controllers are more aptly described as “small-minority controllers” in recognition

of their outsized voting power when compared to their minimal stake of equity

capital.412 The juxtaposition of Sumner Redstone and Ms. Redstone provides a case

in point. Both held identical degrees of control over CBS and Viacom when they

controlled NAI, but each exercised that control in opposite ways. As alleged,

Sumner Redstone’s statements and actions reflect a controller dedicated to

independent corporate governance; 413 Ms. Redstone’s alleged statements and

411 Basho Techs. Holdco B, LLC v. Georgetown Basho Inv’rs, LLC, 2018 WL 3326693, at *1 (Del. Ch. July 6, 2018) (deemphasizing voting percentage in the controller inquiry in view of other factors). 412 See Lucian A. Bebchuk & Kobi Kastiel, The Perils of Small-Minority Controllers, 107 Geo. L.J. 1453, 1456–1514 (2019) (highlighting the governance and policy risks of dual-class structures and providing empirical evidence regarding various mechanisms by which “small minority control” is perpetuated); Yu-Hsin Lin, Controlling Controlling- Minority Shareholders: Corporate Governance and Leveraged Corporate Control, 2 Colum. Bus. L. Rev. 453 (2017) (documenting how stock exchanges and countries around the world are grappling with dual-class common stock as control-enhancing mechanisms and observing there appears to be a race-to-the-bottom dynamic where exchanges are pressured not to exclude sales of shares from companies with dual-class voting stock to remain competitive). 413 Compl. ¶¶ 13, 36. 108 actions, on the other hand, reflect a controller who will stop at nothing to achieve

her personal ambitions, regardless of the consequences for the CBS stockholders to

whom she owes fiduciary duties.414 Sumner Redstone, as a self-disabled small-

minority controller, would be unlikely to taint the conduct of a board of directors

operating in his midst. Ms. Redstone, as the active, and at times, retributive small-

minority controller, introduces the specter of coercion within the governing bodies

of the compan(ies) she controls, spurred, perhaps, by the fact that her control over

the companies far exceeds her financial stakes and concomitant risk.415

Defendants argue I should not consider allegations concerning

Ms. Redstone’s past behavior as she attempted to cause a Viacom/CBS merger when

assessing the substantial likelihood that members of the Demand Board will face

liability under Rales. I disagree. “[G]iving pleading-stage effect to a controller’s

actual threats and retributive behavior has important integrity-preserving

consequences.” 416 The well-documented history of Ms. Redstone’s past attempts at

414 See Compl. ¶¶ 37–49. 415 See In re USG Corp. S’holder Litig., 2020 WL 5126671, at *13 (Del. Ch. Aug. 31, 2020) (observing, “the mere presence of a controller does not trigger entire fairness per se[,]” but more scrutiny must be paid to transactions where the controller has, either acutely or persistently, exercised control over the decision making of other fiduciaries) (citations omitted). 416 EZcorp, 2016 WL 301245, at *42. 109 merging Viacom with CBS regardless of the transaction’s economic merit, and past

boards’ fervent resistance to her efforts, must color the lens through which the Court

scrutinizes the faithfulness with which the CBS Board executed its fiduciary duty

during the third, and successful, attempt at a merger, particularly at the pleading

stage.

Delaware law has long encouraged boards to form special committees when

confronted with a conflicted transaction to neutralize the influence any conflicted

board members might have on the decision-making process. In general, an effective

special committee should consist of independent and disinterested directors with an

appropriately broad mandate from the full board. Indeed, in the context of a

transaction with a controlling stockholder, “the special committee must have

real bargaining power that it can exercise with the majority stockholder on an

arm[’s-]length basis.” 417 It should also have its own legal and financial advisors who

themselves are free from the influence of any interested board members. Even when

the special committee has independent legal and financial advisors and negotiates

diligently, however, our Supreme Court has recognized that the requisite degree of

fiduciary independence may nevertheless be found lacking if the committee and

417 Lynch, 638 A.2d at 1115. 110 controller fail, at least, to attempt to ensure that the committee is empowered to

negotiate free of outside influence. 418

After the 2018 Settlement, the Complaint recounts with particularized factual

allegations how each member of the CBS Committee acceded to Ms. Redstone’s

will in breach of their non-exculpated fiduciary duty of loyalty. The defects in the

CBS Committee’s process began before its inception. Notwithstanding the “cooling

off” period contemplated by the 2018 Settlement, on January 31, 2019, the CBS

Board heard from representatives of Centerview and Lazard regarding “their views

on strategic alternatives available to the Company.”419 Just over a week later,

Zelnick e-mailed Ms. Redstone and Pruzan—the co-founder of Centerview—to

encourage them “to connect”; the pair agreed to speak on February 11.420 On

February 16, 2019, Ms. Redstone was asked at a staged Viacom virtual town hall by

Bakish, Viacom’s CEO, about a Viacom/CBS merger. 421 Having recently been in

contact with the CBS Board’s strategic advisor, Ms. Redstone responded that “scale

418 Id. 419 Compl. ¶ 87. 420 Compl. ¶ 88 (citing CBS 00006244). 421 Compl. ¶ 89. 111 matters” and Viacom “will look for transactions to accelerate [its] strategy.” 422 Five

days later, on February 21, 2019, a group of CBS Committee members (but not the

entire committee) met again with Centerview and Lazard to review strategic

acquisition opportunities.423 The advisors presented these members of the CBS

Committee with Viacom’s financial metrics, which included flat revenue and

declining operating income.424 At this point, it appeared that CBS was not yet sold

on the prospect of acquiring Viacom, as there were no firm plans in place to proceed

with any exploration of a transaction. 425

The very next day, on February 22, 2019, Ms. Redstone “crashed” an N&G

Committee meeting chaired by Beinecke, with Minow in attendance. 426 Zelnick,

who had just opened the backchannel between Ms. Redstone and Centerview, “did

not participate” for reasons undisclosed. 427 At that meeting, notwithstanding the

prohibition in the 2018 Settlement, Ms. Redstone asked that Centerview and Lazard

422 Id. 423 Compl. ¶ 90. 424 Id. 425 Compl. ¶ 91. 426 Compl. ¶¶ 93, 208. 427 Compl. ¶¶ 93–94. 112 be invited to return so they could “continue more detailed discussions with the

independent directors regarding strategic possibilities for [CBS].” 428

While Defendants derisively characterize Plaintiffs’ allegations regarding

Ms. Redstone’s demand for the formation of a special committee as

“bare speculation,” the meeting’s minutes show that “discussion continued” after

Ms. Redstone left, leading to the recommendation that the CBS Board form a special

committee. 429 The “continu[ation]” of discussions implies that discussions had

begun while Ms. Redstone was at the meeting. And Tu, CBS’s then-Chief Legal

Officer, who had attended the meeting and was well aware of the 2018 Settlement

conditions, abruptly resigned the same day for “Good Reason,” which, according to

his employment agreement, is triggered when he is assigned “duties or

responsibilities . . . materially inconsistent with [his] position, titles, offices or

reporting relationships . . . or that materially impair [his] ability to function as Senior

Executive Vice President and Chief Legal Officer of CBS.”430 Plaintiffs’ allegations

thus allow a reasonable inference that Ms. Redstone initiated CBS’s pursuit of the

428 Compl. ¶ 95 (citing CBS 00002036). 429 Id. 430 Compl. ¶ 98. 113 Merger at the February 22, 2019 N&G meeting she attended without invitation,

notwithstanding the 2018 Settlement, which prohibited her from so doing.

Beinecke, as Chair of the N&G Committee, also fully aware of the 2018

Settlement, faithfully acceded to Ms. Redstone’s demands by calling for a special

committee. 431 Indeed, the process to form the committee began immediately

following the February 22 N&G meeting, when an invitation was sent the next

business day to the “CBS Independent Directors” for a March 9, 2019 meeting that

led to the formation of the CBS Committee—a committee whose mandated focus

was on a merger with Viacom.432 Beinecke then concealed Ms. Redstone’s

misconduct at the February 22 meeting from the full CBS Board.433 And throughout

the CBS Committee’s negotiations, Beinecke acted as a backchannel for Ms.

Redstone despite the committee’s selection of Byrne to serve as its conduit to the

NAI Parties.434 Taken together, these allegations support a reasonable inference that

431 Compl. ¶¶ 95, 97, 100. 432 Compl. ¶¶ 99–105. 433 Compl. ¶¶ 100, 208. Neither the CBS Board minutes nor the Proxy disclosed Redstone’s attendance at the February 22 N&G Committee meeting. Compl. ¶¶ 95, 97, 164–65. 434 See Compl. ¶¶ 95, 97, 100, 113 (citing CBS 00000068). 114 Beinecke acted disloyally to advance Ms. Redstone’s wish to combine Viacom and

CBS regardless of the transaction’s merits. 435

The Complaint then details how each CBS Committee member allowed

Ms. Redstone to overcome their presumptive loyalty to CBS’s other stockholders.

No member objected to Ms. Redstone’s role in prompting the Merger discussions

notwithstanding their knowledge of the 2018 Settlement.436 No member objected to

operating under a limited mandate that forced the CBS Committee to focus only on

a deal with Viacom.437 No member defied Ms. Redstone’s demands that the CBS

Committee have no authority to declare dividends, amend the bylaws or issue any

shares of capital stock—the precise tools used by the CBS Board in 2018 to defend

the stockholders to whom they owed fiduciary duties from the NAI Parties’

overreaching.438 Each member also agreed to gut the CBS Committee’s authority to

“hir[e], select[], compensate[] or terminate[] any senior executives of the Company,”

435 See Compl. ¶ 53. 436 Compl. ¶ 157. 437 Compl. ¶ 106. As the court aptly noted in EZcorp, “‘the starting point of a decision process has a disproportionate effect on its outcome.’” 2016 WL 301245, at *40 (citing Antony Page, Unconscious Bias and the Limits of Director Independence, 2009 U. Ill. L. Rev. 237, 260 (2009) (quoting Samuel D. Bond et al., Information Distortion in the Evaluation of a Single Option, 102 Org. Behav. & Hum. Decision Processes 240, 240 (2007))). 438 Compl. ¶ 106. 115 hindering their ability to bargain for key management personnel. 439 Finally, in a

move this Court has already described as “inexplicabl[e],” albeit in the context of

adjudicating a Section 220 dispute, the Special Committee did not even attempt to

secure a condition that the Merger be approved by CBS’s unaffiliated stockholders

after NAI signaled it would not agree to that condition. 440

“[O]ur law has long inquired into the practical negotiating power given to

independent directors in conflicted transactions.”441 “Even an independent,

disinterested director can be dominated in his decision-making by a controlling

stockholder,” 442 resulting in directors that are “more independent in appearance than

in substance.”443 While the focus is on how the CBS Committee “actually negotiated

the deal . . . rather than [on] how the committee was set up,”444 our courts have

considered the starting point from which the special committee launched their

439 Id. (citing CBS 00001794). 440 220 Op. at *6; Compl. ¶ 111. 441 Cornerstone, 115 A.3d at 1184. 442 Tesla I, 2018 WL 1560293, at *17. 443 EZcorp, 2016 WL 301245, at *21 (quoting In re Cox Commc’ns, Inc. S’holders Litig., 879 A.2d 604, 619 (Del. Ch. 2005) (Strine, V.C.)). 444 Southern Peru, 52 A.3d at 789; see also Kahn v. Tremont Corp., 694 A.2d 422, 429 (Del. 1997) (stating a special committee must “function in a manner which indicates that the controlling shareholder did not dictate the terms of the transaction and that the committee exercised real bargaining power at ‘an arms-length’”).

116 negotiations when assessing the committee’s adherence to its duty of loyalty amid

the presence of a controller.445

That case law is relevant here, where the Court is evaluating whether the

Director Defendants individually are substantially likely to be liable for acting

disloyally by acceding to their controller’s demand to approve the Merger. Their

ability to negotiate against the controller is at the crux of that inquiry. By assenting

to the NAI Parties’ constraints on their mandate without protest, each member of the

CBS Committee evidenced their inability to push back against the asserted will of

the controller. This docility, in turn, forced the CBS Committee into “a world where

there was only one strategic option to consider, the one proposed by the

controller . . . [thus entering] a dynamic where at best it had two options[:] either

figure out a way to do the deal the controller wanted or say no.” 446 And, as discussed

below, the NAI Parties’ dominance extended to the non-CBS Committee Director

Defendants as well.

445 See Southern Peru, 52 A.3d at 787. 446 Southern Peru, 52 A.3d at 763, 801. See also Oracle, 2018 WL 1381331, at *11 (“‘The reason for the disloyalty (the faithlessness) is irrelevant[;] the underlying motive (be it venal, familial, collegial, or nihilistic) for conscious action not in the corporation's best interest does not make it faithful, as opposed to faithless.’” (quoting Guttman v. Huang, 823 A.2d 492, 506 n.34 (Del. Ch. 2003)).

117 The inference of disloyalty to be drawn from each of these failures is bolstered

by the fact that, in an effort to fulfill their fiduciary duties, independent CBS

fiduciaries had recently and consistently worked strenuously to preserve some or all

of the protections the CBS Committee brushed off when leading CBS into the

Merger. Tools to preserve the CBS Committees’ ability to say no, and to push back

against the NAI Parties, were all the more necessary after Ms. Redstone twice

reshuffled the boards of both Viacom and CBS following CBS’s rejection of her past

two merger attempts in efforts to secure a more favorable deck.447 The CBS

Committee’s collective failure even to ask for any of these protections bolsters an

inference that each member resigned to Ms. Redstone’s will, without regard for the

stockholders to whom they owed fiduciary duties.

Each of the CBS Committee members’ alleged conduct during negotiations

only serves to strengthen an inference of disloyalty. The Proxy and Section 220

documents indicate that each of the holdover directors not handpicked by

Ms. Redstone, who only a year before had sued the NAI Parties as members of the

2018 special committee (Griego, Minow and Countryman), acquiesced to a limited

role in the Merger negotiations. 448 Although they had concluded, less than a year

447 Compl. ¶¶ 43, 45, 76–81. 448 Compl. ¶ 104. 118 earlier, that a merger with Viacom was “not in the best interest of all the Company’s

stockholders” and had gone to extraordinary lengths to protect CBS from

Ms. Redstone’s influence, Section 220 documents show these directors did not even

explain to the CBS Committee the reasons for their past fervent opposition to a

Viacom/CBS merger, even though no relevant circumstances had changed.449

As pled, their will to resist was gone.450

Indeed, while the passage of time may affect the advisability of a merger,

Plaintiffs have pled with particularity that nothing meaningfully changed between

the second and third merger attempt. In the lead-up to the second merger attempt,

Viacom had significantly underperformed its fiscal year 2017 budget and a financial

advisor to the then-operative CBS special committee warned that “Viacom[’s]

business continue[d] to suffer.”451 Centerview told CBS that, notwithstanding a

perceived competitive need to scale up CBS’s operations, a combined Viacom/CBS

449 Id. 450 Compl. ¶ 67 (citing CBS 00005143); see also Compl. at ¶ 104. Defendants ask for an inference that, because some board members had participated in resisting Ms. Redstone in her previous merger attempts, their loyalty cannot be questioned because they previously demonstrated their independence from her. That may be a reasonable inference, and further discovery may support it as fact. But that is not the only reasonable inference. It is also reasonable to infer, as Plaintiffs plead, that these fiduciaries’ about-face signals their resignation to Ms. Redstone’s will notwithstanding their fiduciary duties. At the pleading stage, Plaintiffs get the reasonable inferences, not Defendants. 451 Compl. ¶ 64. 119 would “remain relatively small compared to other participants in the industry.”452

Most importantly, the 2018 CBS special committee worried about “the ability of the

Company’s controlling stockholder to take certain actions, particularly in light of the

Company’s controlling stockholder’s prior actions and statements.”453 These

fiduciaries worried Ms. Redstone might apply private pressure on directors,

eliminate CBS management and continue to try to force a Viacom bailout. 454 With

these concerns in mind, the 2018 CBS special committee ultimately declined to

pursue the transaction and even sued Ms. Redstone because she was seeking “to

combine CBS and Viacom regardless of the strategic and economic merits of the

transaction.”455

In 2019, Centerview again advised the CBS Committee of Viacom’s

floundering financial performance.456 Ms. Redstone remained firmly in control of

both companies. And, as was evidently predictable, Ms. Redstone applied pressure

452 Id. 453 Compl. ¶ 65. 454 Compl. ¶ 66. 455 Compl. ¶ 67. 456 Compl. ¶ 87. Defendants point out that properly incorporated documents suggest the financial advisors and CBS senior management highlighted at this meeting the attractive “scale” of a combined Viacom/CBS. CBS 00001741–42. But Viacom’s revenue remained flat, indicating that Centerview’s previously stated concern for the relative scaled size of the combined entity should have remained unchanged. See Compl. ¶ 90.

120 through various channels to force a Viacom/CBS merger yet again, this time in

breach of a binding contract between the NAI Parties and CBS. 457 By remaining

silent under these unique set of facts, it is reasonable to infer that each of these

directors’ ostrich-politik violated their duty of loyalty.458

Meanwhile, the new directors handpicked by Ms. Redstone after the 2018

Settlement—Beinecke, Byrne and Terrell—were charged with interfacing with the

CBS Committee’s legal and financial advisors.459 The CBS Committee designated

Byrne to interface with NAI at arms-length, yet Beinecke continued his backchannel

communications with Ms. Redstone.460 Ms. Redstone made her expectations with

457 See, e.g., Compl. ¶ 208 (alleging that then-chair of the N&G Committee Beinecke “demonstrated her fealty to Shari Redstone by implementing Shari Redstone’s demands and concealing the misconduct from the full CBS Board”); Compl. ¶ 100 (“[N]either Beinecke nor Minow reported on Shari Redstone’s conduct at the February 22, 2019 N&G Committee meeting.”). 458 Compare In re Walt Disney Co. Deriv. Litig., 825 A.2d 275, 288 (Del Ch. 2003) (holding that directors’ abdication of responsibility for negotiating an employment agreement supported an inference that they violated their fiduciary duties) with McElrath, 224 A.3d at 993 (rejecting a loyalty claim against a board where plaintiff failed to establish the board “rubberstamp[ed] the transaction presented by [the company’s] CEO [and controller]”). 459 Compl. ¶ 104. 460 Compl. ¶¶ 117–18. 121 respect to the Merger known to the CBS Committee members through these

conduits, and each executed faithfully on her vision.461

Indeed, the CBS Committee achieved almost none of the terms flagged by

their advisors and viewed by the CBS Board mere months before as critical to any

acquisition of Viacom, apparently because these priorities conflicted with

Ms. Redstone’s preferences. To reiterate, “Board composition” and “[c]ommittee

representations” were previously flagged as key governance imperatives; yet the

CBS Committee acquiesced to Ms. Redstone’s demand for 13 director positions and

attained only 6 positions for CBS directors, giving Viacom and NAI control of the

new board and key committee assignments. 462 “Management at C-suite level” and

“[k]ey operational roles” were flagged as critical management objectives; yet the

CBS Committee deferred to Ms. Redstone’s instruction that Viacom management

should dominate the combined company and Ianniello should have only a short

tenure post-merger (regardless of the substantial financial consequences of his

461 The dynamic between Ms. Redstone and the CBS Committee stands in stark contrast to the dynamic at work in Lenois v. Lewal, where the controller attempted to create an “information vacuum” unbeknownst to the board, and the board demonstrated its independence by, inter alia, questioning the controller, pushing back on the transaction’s speed and securing a majority-of-the-minority condition. Lenois, 2017 WL 5289611, at *16 (Del. Ch. Nov. 7, 2017). 462 Compl. ¶¶ 112, 125. 122 departure). 463 “Other” key tactical issues identified were the combined company’s

“name / HQ / listing” and “[p]otential NAI commitments with respect to the

transaction”; yet, at Ms. Redstone’s insistence, the combined company showed

Viacom’s name first; it sold CBS’s landmark headquarters (“Black Rock”) in favor

of Viacom’s, it listed on Viacom’s exchange under “VIAC”; and NAI made no

meaningful commitments to refrain from dominating the combined company.464

In sum, the Complaint well pleads each member of the CBS Committee (including

those on the Demand Board) resigned to Ms. Redstone’s will on nearly every point

past CBS fiduciaries had flagged as critical to CBS and its stockholders. 465

The CBS Committee’s pliability may be explained, in part, by its choice of

lead negotiator, Ianniello, who Plaintiffs allege steered the CBS Committee in the

wrong direction as soon as the Director Defendants approved his quid pro quo

463 Compl. ¶¶ 105, 114. 464 Compl. ¶¶ 125, 129, 131, 148, 151. 465 Properly incorporated documents cited by Defendants, show the CBS Committee extracted some governance protections, including preventing “(1) any change in the overall number of directors until the two-year anniversary of the Merger’s closing, and (2) employment changes in connection with several executive positions, for durations ranging from fifteen months (for Mr. Ianniello) to two years post-close.” Dir. Opening Br. at 17. Of course, NAI and Viacom already had majority control of the combined company’s board and purported employment protections proved toothless when Ianniello was terminated less than two months after the start of his consultancy period. Compl. ¶¶ 125, 149.

123 compensation arrangement with Ms. Redstone. But the Director Defendants do not

argue they were led blindly into the night. Nor could they be heard to do so, as they

approved the Merger’s terms and expressed their endorsement to the CBS

stockholders and the market at large.466

This court will not play “Monday morning quarterback,” 467 even when an

“800-pound gorilla” is suited and potentially poised to take the field of play. 468 But

Plaintiffs have alleged with particularity the moves this particular controller made

to influence each of the CBS Committee members and the ultimate outcome of the

contest. It is further pled with particularity that these Defendants welcomed the

controller, with all her self-interest, into the huddle. The extreme set of facts before

the Court—the CBS Committee members’ behavior that stood in stark contrast to

the conduct of similarly situated fiduciaries confronting nearly identical

circumstances less than a year before, combined with the documented evidence of

Ms. Redstone’s dogged determination to make this deal happen “one way or the

other”—suffice to state with particularity that each of the CBS Committee members

breached their fiduciary duty of loyalty by approving the patently unfair Merger in

466 Compl. ¶ 176. 467 See In re Affiliated Computer Servs., Inc. S’holders Litig., 2009 WL 296078, at *10 (Del. Ch. Feb. 6, 2009). 468 See Baiera, 119 A.3d at 65. 124 order to appease Ms. Redstone. Their actions, therefore, must be subjected to the

same exacting standard as their controller: entire fairness review.

iii. The Claims Against Ianniello

Finally, as noted, the Complaint asserts Merger-related claims against

Ianniello, and it is appropriate, again, to begin the assessment of those claims with

an analysis of the applicable standard of review. Because this analysis inevitably

implicates the compensation issues that are the subject of Counts V and VI discussed

below, some discussion of those issues is warranted here. The analysis of this claim

also implicates the claims relating to the Merger against the members of the CBS

Committee, as just analyzed.469

Ianniello requested to meet with Ms. Redstone in September 2018, just days

after the 2018 Settlement was formally entered following the CBS Board’s attempt

to dilute Ms. Redstone of her voting power. 470 The CBS Board’s actions were, of

course, prompted by its determination that Ms. Redstone’s relentless pursuit of a

469 To be clear, Ianniello is not a member of the Demand Board. The question remains, however, whether a majority of the Demand Board could objectively consider a stockholder demand to pursue breach of fiduciary claims against Ianniello. As discussed below, because the claims relating to Ianniello are interwined with the claims against members of the Demand Board, there is good reason to doubt the Demand Board’s ability to exercise its business judgment under Rales with respect to a demand to pursue those claims. To put that later analysis in context, I address the derivative claims relating to Ianniello’s Merger-related conduct and compensation here. 470 Compl. ¶ 85; Cf. Ianniello Opening Br. at 35–36. 125 Viacom/CBS merger, regardless of the transaction’s merits, posed an intolerable

threat to CBS and its stockholders.471 Ianniello had thrown his weight behind the

CBS Board’s resistance to Ms. Redstone and evidently anticipated that his future at

CBS hinged on the outcome of the 2018 litigation.472 Ianniello’s instinct on that

point was well-honed, as Ms. Redstone counterclaimed in that litigation that

Ianniello “knowingly breached his own fiduciary duties and knowingly and actively

assisted the Director Defendants in breaching their fiduciary duties, including

through his participation in and encouragement of the Director Defendants’ decision

to declare the extraordinary dilutive dividend.” 473

On the heels of the settlement of Ms. Redstone’s claim against him, with the

2018 Settlement’s reshuffling of the CBS Board front and center, Ianniello advised

Ms. Redstone during their September 2018 meeting that he now understood the

merits of a Viacom/CBS combination.474 Ianniello’s conversion from apostate to

apostle with respect to a Viacom/CBS merger apparently prompted Ms. Redstone’s

471 See Compl. ¶ 67. 472 Compl. ¶ 73 (documenting then-CBS CEO Moonves discussing with Ianniello the plan to dilute NAI’s stake, and Ianniello responding that he had Moonves’ back “to the end.” (quoting CBS 00004048–49)). 473 Compl. ¶ 73 (quoting CBS 00004073). 474 Compl. ¶ 85. 126 own epiphany; although she had accused him of being a disloyal fiduciary only

months before, she now believed Ianniello was worthy of substantial golden

parachute compensation,475 and thereafter made her views known during

Compensation Committee meetings (which, of course, were meant to be free of

NAI’s influence under the 2018 Settlement) 476 where she advocated on Ianniello’s

behalf.477 Although Defendants would have the Court draw an inference that Ms.

Redstone simply turned the other cheek with respect to Ianniello, that inference

would stand in stark relief to Ms. Redstone’s documented penchant to react strongly

when corporate fiduciaries opposed her will. 478 A quid pro quo, however, is a well-

worn play in Ms. Redstone’s playbook: Ms. Redstone paid off former Viacom CEO

Dauman with $72 million in severance to settle a lawsuit prompted by her unilateral

475 Ms. Redstone had questioned the original Ianniello agreement entitling Ianniello to resign with Good Reason, and to be paid $60 million, if he was not named President and/or CEO. Compl. ¶ 74. More specifically, Ms. Redstone questioned the validity of the golden parachute, alleging that it had not been “approved, or even discussed, by the full Board prior to the agreement being signed.” Id. 476 Compl. ¶ 77. 477 Compl. ¶¶ 86–87, 92–93. 478 See, e.g., Compl. ¶¶ 37–49 (altering the composition of Viacom’s board after members supported Dauman’s plan to sell Viacom’s minority stake in Paramount).

127 replacement of six Viacom directors with her own selections shortly after seizing

control of NAI and the SMR Trust.479

While the Compensation Committee that crafted the employment agreements

(including Griego), and the CBS Board that signed off on them, knew Ms. Redstone

would never allow Ianniello to continue in his role at CBS,480 they nevertheless

changed his compensation package in the Second Ianniello Amendment in at least

four ways. First, Ianniello received more cash. His base salary increased from

$2.5 million to $3 million and he received a guaranteed cash bonus for 2019 of

$15 million (up from a potential $12 million), and an immediate lump sum payment

of $5 million.481 Second, “[t]he change to Ianniello’s base salary increased his

479 Compl. ¶¶ 45–48. 480 Compl. ¶ 259. Plaintiffs’ pleading as to the CBS Board’s knowledge that Ianniello had no shot at becoming CEO of the combined company is supported by several alleged facts. First, the CBS Board purportedly embarked on a CEO search, but there is no evidence that it ever actually worked to locate a permanent CEO at CBS. Compl. ¶¶ 83–84. The sham CEO search process indicates the CBS Board knew it had no need to find a permanent CEO because it had resigned itself to the inevitability of the Merger, Ianniello’s departure and Bakish’s ultimate selection as Viacom/CBS CEO. Second, Ms. Redstone had previously voiced her opposition to Ianniello’s pay even before he joined the 2018 CBS Board’s attempt to dilute Ms. Redstone’s voting control. Compl. at ¶ 74. Indeed, the CBS Board later acknowledged that Ms. Redstone’s relationship with Ianniello made his management of the company impossible. Compl. at ¶ 114 (citing CBS 00000076). Third, Ms. Redstone’s history of retributive actions taken against those who crossed her was known to the CBS Board. Compl. ¶¶ 43–46, 65, 78–80, 156 (documenting Ms. Redstone’s “well- publicized” retributive actions). 481 Compl. ¶ 108. 128 potential exit package in the event he did not become permanent CEO.” 482 Third,

the Director Defendants broadened the scope of scenarios in which Ianniello would

receive “enhanced severance,” including as long as he was not named permanent

CEO by December 31, 2019. 483 Fourth, these same fiduciaries provided for

additional compensation to be paid to Ianniello post-Merger, during a “Consulting

Period.”484 By providing Ianniello with enhanced compensation in the event of his

inevitable post-Merger severance, Ianniello was incented to support and effectuate

a Viacom/CBS merger against his prior, good faith belief that such a transaction

would be harmful to CBS.

Defendants maintain there is nothing unusual about the amendments to

Ianniello’s employment contract, and the fact that Ms. Redstone attended

Compensation Committee meetings, without more, does not support an inference

that either Ms. Redstone or Ianniello breached their fiduciary duties.485 Indeed,

Ianniello’s employment agreement was going to expire on June 30, 2019, making

482 Ianniello Opening Br. at 11; see also ViacomCBS Opening Br. at 20 n.8 (“The April 2019 amendment increased Ianniello’s enhanced severance . . . .”). 483 Compl. ¶ 109. 484 Id. 485 Ianniello Opening Br. at 27–28. 129 the Second Ianniello Amendment necessary as a matter of course.486 But their

argument again misconstrues Plaintiffs’ claim. Plaintiffs do not contend that

Ianniello’s employment contract is per se unlawful. Nor do they dispute that

Ianniello was likely due for a renegotiation of his employment agreement. Rather,

Plaintiffs assert that the timing of the amendments, the process that led to them and

the concessions made to Ianniello, when coupled with his conduct relating to the

Merger, support a reasonable inference that the NAI Parties, Ianniello and the

Director Defendants breached their fiduciary duties.487 In other words, Plaintiffs

assert the CBS fiduciaries effectively paid Ianniello for no reason other than to

appease their controller, knowing this payment would secure Ianniello’s support of

the Merger Ms. Redstone had been doggedly pursuing for years.

The well-pled facts further demonstrate Ianniello delivered on his end of the

bargain. Despite—or rather, as Plaintiffs allege, because of—his conflict, Ianniello

was a consistent advocate for the Viacom/CBS combination, presenting at the

486 See Ianniello Opening Br. at 3, 11. 487 Ianniello argues that his ownership of CBS Class B stock aligned his interests with CBS Class B stockholders. See Ianniello Opening Br. at 30. But Plaintiffs’ focus is on the $70 million in severance and bonuses which, of course, are non-ratable benefits accruing only to Ianniello and large enough to incent him to compromise his other CBS-related interests. At this stage, Ianniello has offered no basis that would allow the Court to deny Plaintiffs the reasonable inference that his contractual incentive to support the allegedly unfair merger overpowered his counteracting incentive as a stockholder to support only a fair merger.

130 seminal March 9 meeting “management’s recommendation that [CBS] take next

steps in exploring a possible combination with Viacom.” 488 CBS focused on a

Viacom/CBS combination thereafter. 489 He was later designated to “negotiate and

complete” the Merger at the request of the CBS Committee,490 eventually delivering

for Ms. Redstone her desired corporate combination. And while Ianniello’s post-

Merger work as a “consultant” might have provided Defendants some factual cover

to rebut Plaintiffs’ quid pro quo theory, the Complaint pleads with particularity that

Ianniello worked for less than two months post-closing before cashing out for a

second time.491 While ViacomCBS did not disclose the reason for Ianniello’s abrupt

departure, he was awarded compensation and benefits consistent with a “termination

without cause.”492

The temporal proximity of Ianniello’s previous opposition to a merger with

Viacom, his subsequent meeting with Ms. Redstone after the 2018 Settlement and

Ms. Redstone’s withdrawn objection to his existing compensation terms do more

488 Compl. ¶ 100 (quoting CBS 00001742). 489 Compl. ¶¶ 103–04. 490 Compl. ¶ 105. 491 Compl. ¶¶ 132, 149. 492 Compl. ¶ 149. 131 than “raise suspicions.” 493 Ms. Redstone’s newfound interest in and enthusiasm for

Ianniello’s compensation resulted in Ianniello first retaining and then expanding his

substantial severance compensation in the event he was not named the ViacomCBS

CEO. And everyone involved knew he would not be named the ViacomCBS

CEO. 494 Both Ianniello’s and Ms. Redstone’s 180-degree change from their prior

positions support reasonable inferences that Ianniello’s enriched severance

compensation was a quid pro quo and that he violated his fiduciary duty, with the

Director Defendants’ help, by giving his loyalty to Ms. Redstone in return. As a

result, Counts II and IV are, as to Ianniello, subject to entire fairness review. And

there is ample reason to doubt that the Demand Board could exercise its business

judgment in deciding whether to prosecute these claims given their integral role in

the alleged breaches.

iv. The Complaint Well Pleads the Merger Was Not Entirely Fair

“The concept of fairness has two basic aspects: fair dealing and fair price.”495

Fair price “relates to the economic and financial considerations of the proposed

merger, including all relevant factors: assets, market value, earnings, future

493 220 Op. at *7. 494 Compl. ¶ 83. 495 Weinberger v. UOP, Inc., 457 A.2d 701, 711 (Del. 1983). 132 prospects, and any other elements that affect the intrinsic or inherent value of a

company’s stock.”496 Fair dealing “embraces questions of when the transaction was

timed, how it was initiated, structured, negotiated, disclosed to the directors, and

how the approvals of the directors and the stockholders were obtained.” 497

As noted, overcoming entire fairness is typically a Sisyphean task for

defendants at the pleading stage, where the court must accept all of Plaintiffs’ well-

pled facts as true and draw every reasonable inference in their favor.498 Defendants

take to the task nonetheless, relying on cases where the plaintiffs failed to allege any

evidence of unfair process or price.499 Like the King of Ephyra, try as they might,

Defendants cannot push the boulder up the mountain because this Complaint

adequately pleads both unfair price and unfair process.

As to price, Plaintiffs have alleged that past CBS boards resisted a merger

with Viacom, even suing to prevent NAI from forcing a merger only months before

496 Lynch, 638 A.2d at 1115. 497 Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1156, 1163 (Del. 1995) (citing Weinberger, 457 A.2d at 711). 498 In re Lear Corp. S’holder Litig., 967 A.2d 640, 648 (Del. Ch. 2008). 499 Dir. Opening Br. at 33 (citing Monroe Cty. Emps.’ Ret. Sys. v. Carlson, 2010 WL 2376890, at *2 (Del. Ch. June 7, 2010) (dismissing complaint for failure to plead unfair price or process); Capella Hldgs., Inc. v. Anderson, 2015 WL 4238080, at *5 (Del. Ch. July 8, 2015) (same); Solomon v. Pathe Commc’ns Corp., 1995 WL 250374, at *5 (Del. Ch. Apr. 21, 1995) (same), aff’d, 672 A.2d 35 (Del. 1996).

133 negotiations for the Merger commenced, because the then-independent CBS

fiduciaries knew that a Viacom/CBS combination had no strategic or economic

value to offset the costs inherent in a merger. 500 Indeed, the mere potential that Ms.

Redstone might cause CBS to merge with Viacom had, for years, curbed investor

enthusiasm for CBS stock. 501 And the CBS Board knew that acquiring Viacom in

the Merger would cause CBS’s stock price to plummet because that is precisely what

happened the year before when news of the renewed talks with Viacom led to an

$8.7 billion loss in market capitalization.502

Plaintiffs further allege the CBS Committee failed to renegotiate the Merger

price after Viacom announced poor results in the fourth quarter and full year ended

December 31, 2019, bailing out what Ms. Redstone herself described as a “tanking”

company.503 Though Defendants make much of the fact that the Proxy states NAI

declared it “was economically indifferent to the exchange ratio in the range being

discussed,”504 that statement implies NAI would not be indifferent if the parties

500 Compl. ¶¶ 6, 150, 169–71. 501 Compl. ¶ 175–76. 502 Compl. ¶ 134. 503 Compl. ¶¶ 6, 150. 504 See NAI Opening Br. at 44 (quoting Sinclair Oil Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971)).

134 entertained other ranges. In other words, the Complaint allows reasonable

inferences that NAI had a price preference and that CBS substantially overpayed for

Viacom.

Even if these allegations did not support a reasonable inference of unfair price

at the pleading stage (and they do), “the test for fairness is not a bifurcated one as

between fair dealing and price. All aspects of the issue must be examined as a whole

since the question is one of entire fairness.”505 “Just as a ‘strong record of fair

dealing can influence the fair price inquiry, . . . process can infect price.’”506 Thus,

where it is well-pled that “the alleged defects in the negotiation process ‘infected’”

the transaction’s price, a plaintiff “has adequately pleaded an inference of unfair

price.”507

505 Weinberger, 457 A.2d at 711. 506 Garfield v. BlackRock Mortg. Ventures, LLC, 2019 WL 7168004, at *12 (Del. Ch. 2019) (quoting Reis v. Hazlett Strip-Casting Corp., 28 A.3d 442, 467 (Del. Ch. 2011)). 507 Id.; see also Howland v. Kumar, 2019 WL 2479738, at *5 (Del. Ch. June 13, 2019) (“At the pleadings stage, it is likewise reasonable to infer that the process affected the price.”); Gentile v. Rosette, 2010 WL 2171613, at *9 (Del. Ch. May 28, 2010) (“From a tainted process, one should not be surprised if a tainted price emerges.”); HMG/Courtland Props., Inc. v. Gray, 749 A.2d 94, 116 (Del. Ch. 1999) (holding defendants did not satisfy burden by showing that the price was “within the low end of the range of possible prices that might have been paid in negotiated arms-length deals” where “[t]he process was . . . anything but fair”).

135 For reasons recounted above, the Merger’s process was not fair. After

Ms. Redstone catalyzed the formation of a special committee at the February 22,

2019 N&G Committee meeting, as pled, the CBS Committee acceded to her will at

every turn in a sharp departure from CBS boards of the recent past. They engaged

advisors who had met privately with Ms. Redstone before the special committee was

formed. They accepted Ms. Redstone’s request for a restricted mandate without

seeking any structural mechanisms to insulate their decisions from her influence.

They actively sought out and acquiesced to Ms. Redstone’s demands during

negotiations. Thus, it is reasonable to infer the Merger’s process was not fair.

v. Demand is Futile as to Counts I-IV

Having determined that a majority of the Demand Board members face a

substantial likelihood of liability under Rales for their own conduct with respect to

the Merger-related claims—Ms. Redstone on Counts I, III and IV, and the members

of the CBS Committee on Counts II and IV—it follows that Plaintiffs have

adequately pled demand futility as to the claims stated in Counts I through IV that

implicate these Defendants. While it is true the demand futility analysis “is

conducted on a claim-by-claim basis,” 508 where “the factual allegations underlying

[different Counts] are congruous,” demand is excused as to all of those counts under

508 Cambridge Ret. Sys. v. Bosnjak, 2014 WL 2930869, at *4 (Del. Ch. June 26, 2014). 136 Rales’ substantial likelihood of liability prong.509 In other words, where a member

of the demand board’s interest extends beyond derivative claims asserted against

him to claims asserted against his co-defendants, he is deemed unfit to consider a

demand to pursue those claims as well.

With this in mind, I am satisfied that a majority of the Demand Board is

“interested” with respect to the intertwined Merger-related claims against both the

NAI Parties and all members of the CBS Committee. They are also interested with

respect to the Merger-related claims against Ianniello as those claims are

“congruous” with the claims asserted against the NAI Parties and the CBS

Committee members. 510 As discussed below, this same rationale applies to the

intertwined Merger-related claims asserted against the other Director Defendants as

well.511 Thus, demand is excused with respect to all Merger-related derivative

claims pled in Counts I through IV.

509 Chou, 2020 WL 5028065, at *26 (excusing demand for Counts which would require an investigation of officer breaches after the court found a majority of the director defendants substantially likely to be liable for a separate Count implicating the same set of facts). 510 Id. 511 I take up the claims against the remaining Director Defendants, Kleiger and Zelnick, separately in the Rule 12(b)(6) section of this Opinion for two reasons. First, for reasons discussed above, a majority (7/13) of the demand board (Beinecke, Byrne, Goldner, Griego, Schuman, Terrell and Ms. Redstone) is interested under Rales without counting Kleiger (Zelnick is not a member of the Demand Board). Second, Kleiger and Zelnick 137 b. The Compensation-Related Claims (Counts V and VI)

Counts V and VI arise out of Ianniello’s compensation arrangement, as

described in detail above. Count V asserts claims against the Director Defendants

and Ms. Redstone on the ground that the Ianniello compensation arrangement

approved by them constitutes waste—“an exchange of corporate assets for

consideration so disproportionately small as to lie beyond the range at which any

reasonable person might be willing to trade.” 512 Count VI asserts that, by extension,

this arrangement resulted in Ianniello’s unjust enrichment because “he received an

unjustified benefit at the expense of the Company.”513 I address each these claims

separately below.

i. The Claims Against Ms. Redstone

Plaintiffs name Ms. Redstone in Count V for her role in awarding Ianniello a

compensation package that Plaintiffs contend constituted waste. Delaware sets a

high threshold for waste, which is “extreme and rarely satisfied.” 514 To constitute

waste, “[t]he company would literally have to get nothing whatsoever for what it

abstained from voting to approve the Merger and have separately moved for dismissal under Chancery Rule 12(b)(6) on that basis, invoking the so-called abstention doctrine. 512 Lewis v. Vogelstein, 699 A.2d 327, 336 (Del. Ch. Oct. 28, 2015) (citations omitted). 513 Pls.’ Answering Br. at 104. 514 Espinoza v. Zuckerberg, 124 A.3d 47, 67 (Del. Ch. 2015) (citation omitted). 138 gave.”515 In the context of executive compensation, “a board’s decision . . . is

entitled to great deference,” and “large amounts of money, whether in the form of

current salary or severance provisions” constitute corporate waste only where they

result in “irrational[] squander[ing] or giv[ing] away corporate assets.”516

Allegations that compensation is “excessive or even lavish” are “insufficient as a

matter of law.”517

As explained, Ms. Redstone is alleged to have engineered Ianniello’s

compensation, assuming the role of Ianniello’s advocate at Compensation

Committee meetings—a committee of which she was not a member and whose

meetings were, per the 2018 Settlement, to be free of her influence. 518 Her newfound

interest in Ianniello’s enhanced compensation marked an about-face from the

position she took just prior to her September 2018 meeting with Ianniello, where the

pair’s quid pro quo arrangement was allegedly hatched. Beyond her attendance at

the relevant Compensation Committee meetings, Ms. Redstone (along with the other

515 In re 3COM Corp. S’holders Litig., 1999 WL 1009210, at *4 (Del. Ch. Oct. 25, 1999). 516 Brehm v. Eisner, 746 A.2d 244, 263 (Del. 2000). 517 3COM, 1999 WL 1009210, at *4–5. 518 Compl. ¶ 77. 139 Director Defendants) approved the compensation package that was spawned at these

meetings, a package Plaintiffs allege was wasteful.

The NAI Parties join the other Defendants in arguing the waste claim must be

dismissed because Plaintiffs have not adequately pled “that CBS ‘received no

consideration at all’ in exchange for Ianniello’s compensation” when Ianniello

stayed on post-Merger as a consultant.519 According to Defendants, Ianniello’s role

as lead negotiator in the Merger and the purported prospect of his staying on as

manager at CBS, combined with his tenure post-Merger as a consultant, reveal that

CBS did receive sufficient consideration for Ianniello’s pre- and post-Merger

compensation to defeat Plaintiffs’ waste claim.

As explained above, the particularized allegations in the Complaint support a

reasonable inference that Ianniello was paid compensation not for his anticipated

service to CBS but in exchange for his support of a merger he believed was bad for

CBS’s stockholders. Thus, to the extent Ianniello’s compensation was provided for

his role as negotiator during the Merger, Ianniello was not performing that work for

the benefit of CBS. To the contrary, Plaintiffs well plead that Ianniello negotiated

the Merger for the benefit of the NAI Parties and to the detriment of CBS. In doing

519 Independent Dir. Reply Br. in Supp. of Mot. to Dismiss (“Dir. Reply Br.”) (D.I. 83) at 37 (quoting White, 783 A.2d at 554).

140 so, Ianniello’s loyalties ran not to CBS but to its controller, Ms. Redstone, who

desired a combination of her two companies regardless of its cost to CBS. Under

these circumstances, compensation provided by CBS to Ianniello for his role as

“negotiator” is, effectively, a “gift” constituting waste.

As for Ianniello’s consulting period, Plaintiffs well plead that role was also

known to be a fiction. While employee retention may in some cases defeat a waste

claim, Plaintiffs allege that all fiduciaries involved knew that Ianniello’s post-

Merger work would be short-lived. 520 And that is precisely what played out;

Ianniello was terminated from CBS post-Merger almost as soon as his consultancy

started, entitling him to a second sizable severance.521 The particularized facts as

pled in the Complaint in support of Count V thus demonstrate that Ms. Redstone is

substantially likely to be liable under Rales for her role in facilitating Ianniello’s

compensation.

ii. The Claims Against the Director Defendants

The Director Defendants dispute Plaintiffs’ waste claim for the same reasons

rejected in my analysis of Ms. Redstone’s liability, and that analysis applies equally

here. The Director Defendants do not dispute that their role in the waste claim—

520 Compl. ¶ 149. 521 Id. 141 approving Ianniello’s compensation package in their capacity as members of the

CBS Board—is sufficient to implicate their duty of loyalty were I to find the claim

well-pled. For reasons explained, I find Plaintiffs’ particularized allegations allow

a reasonable inference that Ianniello’s compensation arrangement constituted waste.

Though the CBS Board may have been unaware of the exact terms of the quid pro

quo, they knew Ms. Redstone’s newfound enthusiasm for providing Ianniello

additional compensation was not grounded in his future at the combined company.

They designated Ianniello to lead negotiations even as they placed before him an

incentive faithfully to execute on Ms. Redstone’s plan notwithstanding his duty of

loyalty to CBS shareholders. Thus, Plaintiffs have well pled that the Director

Defendants’ approval of Ianniello’s compensation expose them to a substantial

likelihood of liability for waste under Count V.

For reasons already explained, Plaintiffs have pled with particularity how both

Ms. Redstone and the Director Defendants face a substantial likelihood of liability

under Rales for approving Ianniello’s wasteful compensation in a quid pro quo

arrangement. And Plaintiffs have well pled that Ianniello, for his part, accepted the

wasteful compensation and, in return, delivered on his promise to execute the Merger

faithfully for Ms. Redstone, in breach of his fiduciary duties to CBS stockholders.

Plaintiffs have not, however, alleged that Ianniello is liable for waste under Count 142 V, presumably because Ianniello did not approve the wasteful compensation; he is

alleged to have received it. Hence the claim against him for unjust enrichment in

Count VI.522

According to Ianniello, the unjust enrichment claim against him cannot stand

alongside the fiduciary duty-based claims because the claims are duplicative. 523 I

reject that premise as applied here since this is clearly a case where the unjust

enrichment claim addresses conduct separate and apart from the waste claim and the

Merger-related fiduciary duty claims. As noted, the waste flows from the giving (or

gifting) of unearned compensation; the unjust enrichment flows from the receiving

of unearned compensation. The Merger-related claims seek damages resulting from

522 “The elements of unjust enrichment are: (1) an enrichment, (2) an impoverishment, (3) a relation between the enrichment and impoverishment, (4) the absence of justification, and (5) the absence of a remedy provided by law.” Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010). See also Metcap Sec. LLC v. Pearl Senior Care, Inc., 2009 WL 513756, at *5 (Del. Ch. Feb. 27, 2009) (“Unjust enrichment is the ‘unjust retention of a benefit to the loss of another, or the retention of money or property of another against the fundamental principles of justice or equity and good conscience.’” (citation omitted)). 523 Ianniello also makes the argument that the unjust enrichment claim is barred because his compensation was the subject of written contracts with CBS. While it is true an unjust enrichment claim will be barred when the claim is duplicative of a breach of contract claim, that general rule will not apply where, as here, the existence of the contract itself is the basis of the unjust enrichment claim. See LVI Gp. Invs., LLC v. NCM Gp. Hldgs., LLC, 2018 WL 1559936, at *16 (Del. Ch. Mar. 28, 2018) (acknowledging that unjust enrichment claims are often displaced by breach of contract claims, but holding that “when a plaintiff alleges that ‘it is the [contract], itself, that is the unjust enrichment,’ the existence of the contract does not bar the unjust enrichment claim.”) (alteration in original) (quoting McPadden, 964 A.2d at 1276).

143 an unfair merger; the unjust enrichment claim seeks to recoup unearned

compensation. While the claims may meet and overlap when the time comes to

assess a remedy, assuming all claims prevail, they do not overlap now. 524

iv. Demand is Futile as to Counts V-VI

A majority of the Demand Board faces a substantial likelihood of liability on

Count V, and demand as to those claims, therefore, is futile. Though Count VI does

not name any member of the Demand Board, a majority of the Demand Board is

524 See Frank v. Elgamal, 2012 WL 1096090, at *11 (Del. Ch. Mar. 30, 2012) (denying motion to dismiss an unjust enrichment claim defendants argued was duplicative of a fiduciary breach claim because "Delaware law . . . permit[s] a plaintiff to simultaneously assert two equitable claims even if they overlap. A plaintiff will only receive, at most, one recovery, but, at least at this procedural juncture, [plaintiff] may simultaneously assert a claim for breach of fiduciary duty and a claim for unjust enrichment against the [defendants]." (citing MCG Capital Corp. v. Maginn, 2010 WL 1782271, at *25 n.147 (Del. Ch. May 5, 2010) ("In this case, then, for all practical purposes, the claims for breach of fiduciary duty and unjust enrichment are redundant. One can imagine, however, factual circumstances in which the proofs for a breach of fiduciary duty claim and an unjust enrichment claim are not identical, so there is no bar to bringing both claims against a director."))); see also McPadden v. Sidhu, 964 A.2d 1262, 1276 (Del. Ch. 2008) (“[D]efendants’ argument that plaintiff has conflated the unjust enrichment claim and the breach of fiduciary duty claim is unavailing. If plaintiff has pleaded and then prevails in demonstrating that the same conduct results in both liability for breach of [defendant’s] fiduciary duties and disgorgement via unjust enrichment, plaintiff then will have to elect his remedies. But at this time, defendants have [] wholly failed to satisfy their burden to justify dismissal of this count.”); Donald J. Wolfe, Jr & Michael A. Pittenger, Corporate and Commercial Practice in the Delaware Court of Chancery § 12.01[b] (2016) (“The contract itself is not necessarily the measure of [the] plaintiff’s right where the claim is premised on an allegation that the contract arose from wrongdoing (such as breach of fiduciary duty or fraud) or mistake and the [defendant] has been unjustly enriched by the benefits flowing from the contract.”).

144 similarly incapable of considering a demand to prosecute that Count. Here again,

the “congruity” of the compensation-related claims against Ms. Redstone, the

Director Defendants and Ianniello cannot be ignored for purposes of Rales.525 For

his part, Ianniello acknowledges the inextricability of the fiduciary duty-based

claims and unjust enrichment claim by arguing the claims are duplicative.526 While

I have rejected that argument, I do agree that the factual predicate underlying these

claims—Ms. Redstone and the Director Defendant’s approval of Ianniello’s

compensation package and his acceptance of the unearned compensation—are so

intertwined as to disable a director who is substantially likely to be liable under

Count V from considering a demand to prosecute Count VI. Accordingly, I am

satisfied under Rales that Plaintiffs have pled demand futility with respect to all

claims asserted in Counts V and VI.

D. The Motions to Dismiss Under Chancery Rule 12(b)(6)

Defendants separately argue the Complaint fails to state a non-exculpated

claim for which relief can be granted.527 When considering a motion to dismiss

under Chancery Rule 12(b)(6), the Court must:

525 Chou, 2020 WL 5028065, at *26. 526 See Ianniello’s Reply Br. at 17–22. 527 See Ct. Ch. R. 12(b)(6). 145 (1) accept all well pleaded factual allegations as true, (2) accept even vague allegations as ‘well pleaded’ if they give the opposing party notice of the claim, (3) draw all reasonable inferences in favor of the non-moving party, and (4) [not dismiss the claims] unless plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances. 528

Dismissal is only warranted where Plaintiffs fail to plead facts supporting an element

of their claim, or if “it appears with reasonable certainty that, under any set of facts

that could be proven to support the claims asserted, the [P]laintiffs would not be

entitled to relief.”529 In opposing Defendants’ dismissal motions, Plaintiffs are owed

every reasonable factual inference in their favor. 530

Of course, I have already determined that the Merger-related Counts are

subject to entire fairness review and that Plaintiffs have well pled the Merger was

not entirely fair. To reiterate, if “the court reviews the conduct under the entire

fairness standard, the claim is likely to proceed at least through discovery, if not

trial.”531 Moreover, “[t]he standard for pleading demand futility under Rule 23.1 is

528 Cent. Mortg. Co. v. Morgan Stanley Mortg. Capital Hldgs. LLC, 27 A.3d 531, 535 (Del. 2011) (citation omitted). 529 McMullin v. Beran, 765 A.2d 910, 916 (Del. 2000) (quotation omitted). 530 In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *7 n.36, 38 (Del. Ch. July 24, 2009). 531 Tornetta, 2019 WL 4566943, at *1. 146 more stringent than the standard under Rule 12(b)(6).”532 “A complaint that pleads

a substantial threat of liability for purposes of Rule 23.1 ‘will also survive a 12(b)(6)

motion to dismiss.’”533 Because I have determined the CBS Committee members

on the Demand Board face a substantial likelihood of liability on Plaintiffs’ non-

exculpated claims that they breached their fiduciary duty of loyalty under the more

exacting Rule 23.1, it follows that the Complaint states viable claims against these

directors for their role in negotiating and approving the Merger and the Second

Ianniello Amendment (Counts II, IV, and V) for purposes of Chancery Rule

12(b)(6).

In brief reprise of the Rule 23.1 discussion, and to be clear, this holding

extends to the CBS Board members (Minow and Countryman) who are uniquely

situated in that they neither abstained from approving the Merger (both were

members of the CBS Committee) nor serve on the Demand Board. In other words,

the Court’s determination that a majority of the members of the Demand Board–

those who served on the CBS Committee–face a substantial likelihood of liability

based on pled facts extends as well to Minow and Countryman.

532 In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d 106, 139 (Del. Ch. 2009). 533 In re China Agritech, Inc. S’holder Deriv. Litig., 2013 WL 2181514, at *24 (Del. Ch. May 21, 2013) (quoting McPadden, 964 A.2d at 1270).

147 As for the compensation-related claims, Plaintiffs allege both Minow and

Countryman approved of Ianniello’s compensation arrangement as members of the

CBS Board in a manner and under circumstances that, for reasons already explained,

rendered the compensation effectively a gift. These claims are viable as to them just

as they are viable as to the other Director Defendants who serve on the Demand

Board.

As for the Merger-related claims, Minow was a member of the N&G

Committee and, with Beinecke, concealed from the CBS Board Ms. Redstone’s

conduct at that meeting where she acted in violation of the 2018 Settlement.534

As members of the CBS Committee, both Countryman and Minow together joined

Griego in the backseat as negotiations proceeded, without making any effort, as they

did in the recent past, to insulate the CBS Committee from Ms. Redstone’s influence

or even inform the CBS Committee (comprised mainly of new directors) why they

previously took drastic action to prevent a Viacom/CBS combination. 535 Along with

their fellow directors on the CBS Committee, they also allowed Ms. Redstone to

extract concessions flagged as key imperatives by their financial advisors. Their

actions, in view of the CBS Boards’ recent history with Ms. Redstone, make it

534 Compl. ¶ 95. 535 Compl. ¶ 104. 148 reasonably conceivable that they approved both Ianniello’s Second Amended

Employment Agreement and the Merger in breach of the duty of loyalty for all the

reasons stated above. It follows that Counts II, IV and V survive all of the CBS

Committee members’ motions to dismiss.

Counts I and III against the NAI Parties also survive for reasons already

explained. As noted, the well-pled facts make reasonably conceivable that the NAI

Parties disloyally engineered the unfair Merger to bail out Viacom and better

position NAI for a future sale. The Complaint proffers facts suggesting

Ms. Redstone leveraged her control of the NAI Parties to catalyze and control the

Merger negotiations, extracting a non-ratable benefit through a self-interested

transaction at the stockholders’ expense. Under these circumstances, Plaintiffs have

stated a claim for breach of fiduciary duty against the NAI Parties under Counts I

and III.

The foregoing discussion also provides ample bases to reject Ianniello’s

motion to dismiss Counts II and VI. As explained, Ianniello’s assumption of a

position on the Merger diametrically opposed to the one he held just prior to the

2018 Settlement, combined with Ms. Redstone’s change in position on Ianniello’s

compensation package, combine to make reasonably conceivable the existence of a

quid pro quo arrangement between the two. By selling his endorsement for the

Merger—which Plaintiffs well plead Ianniello knew was bad for CBS 149 stockholders—Ianniello conceivably violated his fiduciary duty of loyalty.

Ianniello’s motion to dismiss Counts II and IV must be denied.

Not only did Ianniello’s support deliver Ms. Redstone her desired merger and

management team, it also resulted in his enrichment to the tune of tens of millions

of dollars. 536 Less than two months after the Merger closed, Ianniello was handed

millions more and told to leave for good. 537 In total, Ianniello is alleged to have

received from CBS more than $125 million to garner his support for the Merger.

For reasons recounted in the Court’s Rule 23.1 analysis, Plaintiffs have well pled

this constituted a “gift” from CBS to Ianniello for Ms. Redstone’s benefit.538 Thus,

Ianniello’s motion to dismiss Count VI must also be denied.

Finally, the Court must address the dismissal bids of Klieger and Zelnick, the

two directors (excluding Ms. Redstone) who purportedly abstained from voting on

the Merger and who have moved on that basis to dismiss Counts IV and V. As to

Count V, both Klieger and Zelnick voted as members of the CBS Board to grant

Ianniello increased compensation intended to garner his support for the Merger.539

536 Compl. ¶ 265. 537 Compl. ¶ 149. 538 Compl. ¶ 266. 539 Compl. ¶ 260. 150 I have already determined the Complaint well pleads there was no rational business

justification or purpose for the amended Ianniello compensation awards. And

neither Zelnick nor Klieger seriously attempt to distinguish their actions from the

other directors. 540 Plaintiffs have stated a waste claim against both directors.

As for Count IV, Klieger and Zelnick each assert the so-called “abstention

defense.” Both did not serve as members of the CBS Committee that negotiated and

approved the Merger. Thus, both argue they cannot be held liable for breaches of

fiduciary duty connected to the Merger.

In support of their abstention defense, Klieger and Zelnick rely principally on

In re Tri-Star Pictures, Inc. Litigation.541 In Tri-Star, the court held that two

directors could not be liable for breaches of fiduciary duty arising out of a challenged

540 Klieger argues without citation that, because he was not a member of the Compensation Committee, he cannot be held liable for the compensation that the CBS Board ultimately approved. Klieger Reply Br. at 11. Of course, this argument would apply as well to the other Director Defendants who were not members of the Compensation Committee. But those defendants do not argue their disassociation from the Compensation Committee somehow absolve them of the consequences of their endorsement of Ianniello’s allegedly wasteful compensation as members of the CBS Board, and for good reason. It is clear from the Complaint and otherwise that the CBS Compensation Committee “advised the Board of the key terms of [the Agreement], without objection.” See Ianniello Opening Br. at 10 n.2; see also Compl. ¶¶ 108–09, 260 . For reasons already explained, Plaintiffs have well pled the entire CBS Board knew this enhanced compensation package had no rational business justification. Thus, Klieger’s tacit approval of the Ianniello quid pro quo arrangement makes it reasonably conceivable he is liable under Count V along with the other Director Defendants and Ms. Redstone. 541 1995 WL 106520 (Del. Ch. Mar. 9, 1995). 151 transaction because neither director “attend[ed] or otherwise participate[d] in the []

board meeting[s] at which the Combination was considered and approved, and they

did not vote on that transaction.” 542 Rather, both directors “deliberately removed

themselves from the decision-making process (and also from the preparation of the

proxy materials), because they recognized . . . they had potential conflicts of

interest.” 543

While “Delaware law clearly prescribes that a director who plays no role in

the process of deciding whether to approve a challenged transaction cannot be held

liable on a claim that the board’s decision to approve that transaction was

wrongful,”544 this is “not an invariable rule.” 545 The “cookie-cutter step [of not

voting] is not sufficient to establish a successful abstention defense” where, for

example, “certain members of the board of directors conspire with others to

formulate a transaction that is later claimed to be wrongful.”546 While an abstention

542 Id. at *2. 543 Id. 544 Id. 545 Valeant Pharm. Int’l v. Jerney, 921 A.2d 732, 753 (Del. Ch. 2007); see also Tri-Star Pictures, 1995 WL 106520, at *3 (“[N]o per se rule unqualifiedly and categorically relieves a director from liability solely because that director refrains from voting on the challenged transaction.”) (emphasis in original). 546 Tri-Star Pictures, 1995 WL 106520, at *3. 152 defense is not typically addressed at the pleadings stage,547 a plaintiff must plead

facts supporting an inference the abstaining director somehow “play[ed] a role in the

negotiation, structuring, or approval of the proposal.”548

Plaintiffs allege Zelnick played a meaningful role in facilitating the Merger

despite abstaining from the vote to approve it. Specifically, it is alleged that,

notwithstanding the 2018 Settlement, Zelnick opened a backchannel between

Ms. Redstone and the CBS Committee’s financial advisor, Pruzan, shortly after

Pruzan’s firm, Centerview, presented strategic alternatives to the CBS Board.549

Ms. Redstone “publicly confirmed that the CBS-Viacom Merger was back on” days

later. 550 Plaintiffs allege Zelnick then inserted himself into the Merger negotiations

he had helped set in motion by presiding over early meetings of the purportedly

“independent directors” who were discussing “potential strategic alternatives”

547 In re Pilgrim’s Pride Corp. Deriv. Litig., 2019 WL 122456, at *17 (Del. Ch. Mar. 15, 2019); see Weinberger, 457 A.2d at 710–711 (post-trial); Emerald P’rs, 2001 WL 115340, at *19–20 (post-trial), rev’d on other grounds, 787 A.2d 85 (Del. 2001); Tri-Star Pictures, 1995 WL 106520, at *1 (summary judgment); Citron v. E.I. Du Pont de Nemours & Co., 584 A.2d 490, 492 (Del. Ch. 1990) (post-trial). 548 Valeant, 921 A.2d at 753; see In re Ebix, Inc. S’holder Litig., 2018 WL 3545046, at *12 (Del. Ch. July 17, 2018); Frederick Hsu Living Tr. v. ODN Hldg. Corp., 2017 WL 1437308, at *38 (Del. Ch. Apr. 14, 2017, revised Apr. 24, 2017). 549 Compl. ¶¶ 87–88. 550 Compl. ¶ 89. 153 (allegedly code for a Viacom/CBS merger) 551 and attending the meeting during

which these directors turned the negotiating reins over to the conflicted Ianniello.552

Zelnick then signed the special committee charter that constrained the CBS

Committee’s power to resist Ms. Redstone’s undue influence. 553 And, after he

purportedly stopped participating in the Merger discussions, Plaintiffs allege he

continued to exert influence on the CBS Committee through Byrne.554

In view of these allegations, it would be premature to dismiss Count IV against

Zelnick. In Emerald Partners v. Berlin, 555 the court (in its post-trial opinion)

emphasized in upholding an abstention defense that “there [wa]s not evidence or

claim that [the director] attempted to influence the views, or the vote, of any of the

non-affiliated directors.”556 That is not the procedural posture in which Zelnick

advances his abstention defense here. Plaintiffs do “claim” that Zelnick actively

aided Ms. Redstone’s intrusion into the CBS Committee’s process and worked to

influence the committee by communicating through Byrne. While discovery may

551 Compl. ¶¶ 81, 90. 552 Compl. ¶ 105. 553 Compl. ¶ 106. 554 Compl. ¶ 117. 555 2003 WL 21003437, at *42–43. 556 Id. at *42 (emphasis supplied). 154 reveal that Zelnick, in fact, took no legally significant actions related to the Merger,

Plaintiffs have pled facts warranting the opportunity for discovery on that claim.

Indeed, in the only case Defendants cite where a court granted a motion to

dismiss on the basis of abstention, In re Dell Technologies Inc. Class V Stockholders

Litigation, 557 the court dismissed breach of fiduciary duty claims brought against a

director who abstained from participating in the negotiations that preceded a

disputed stock redemption because, by the plaintiff’s own allegations, the director’s

involvement “was limited to attending meetings of the Board, approving the issuance

of the proxy materials, and approving the [transaction].”558 Zelnick’s alleged

participation in the Merger was clearly more inauspicious.

As for Kleiger, at first glance, his participation in the Merger more closely

resembles the conduct of the dismissed director in Dell. Plaintiffs allege Klieger

participated in the Merger by executing a written consent to form a disempowered

special committee.559 Unlike Zelnick, Klieger is not alleged to have received and

communicated backchannel directions from the controller to the CBS Committee.

Nor is he alleged to have sought to influence the CBS Committee in any way.

557 2020 WL 3096748 (Del. Ch. June 11, 2020). 558 Id. at *43. 559 Compl. ¶ 106. 155 The only act Klieger is alleged to have undertaken related to the Merger is his vote

to approve Ianniello’s wasteful compensation, a vote for which he will separately be

held to answer and defend.

As discussed above, however, Ianniello’s compensation package was an

integral part of Ms. Redstone’s plan to ensure that her third attempt to cause a

Viacom/CBS merger did not meet the fate of her past two attempts. 560 And, as noted,

Plaintiffs well plead that the CBS Board (including Zelnick and Klieger) knew

precisely what it was doing when it approved the quid pro quo arrangement,

including that the arrangement was connected to the controller’s efforts to cajole

CBS fiduciaries to do what CBS fiduciaries had refused to do the year before—

support the Merger.561 Indeed, Ms. Redstone confided in Klieger that “Viacom is

tanking”562 and he was made aware of Ms. Redstone’s desire ultimately to sell

NAI. 563 Under these circumstances, as well pled in the Complaint, dismissal on the

basis of abstention would be premature.564

560 Compl. ¶¶ 85–87, 100. 561 Compl. ¶¶ 43–46, 65, 78–84, 114, 156, 259. 562 Compl. ¶ 56 (quoting CBS 00004135). 563 Compl. ¶ 158 (citing CBS 00004137). 564 See In re Dairy Mart Convenience Stores, Inc. Deriv. Litig., 1999 WL 350473, at *1 n.2 (Del. Ch. May 24, 1999) (rejecting an abstention defense on the pleadings and holding that 156 III. CONCLUSION

For the foregoing reasons, Defendants’ Motions to Dismiss are DENIED as

to Counts I, II, III, V and VI. Defendants’ Motions to Dismiss are GRANTED as to

Count IV’s disclosure claim, but DENIED as to the balance of the claims asserted

in Count IV.

IT IS SO ORDERED.

under certain circumstances directors have an affirmative duty to attempt to prevent the board on which they serve from engaging in conduct harmful to the corporation).