R.A. Feuer v. Sumner M. Redstone

• Court: Court of Chancery of Delaware
• Decided: April 19, 2018
• Docket: CA 12575-CB
• Status: Published

Opinion

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

R.A. FEUER, suing derivatively on ) behalf of CBS CORPORATION, ) ) Plaintiff, ) ) v. ) C.A. No. 12575-CB ) SUMNER M. REDSTONE, SHARI ) REDSTONE, DAVID ANDELMAN, ) JOSEPH A. CALIFANO, JR., ) WILLIAM S. COHEN, GARY L. ) COUNTRYMAN, CHARLES K. ) GIFFORD, LEONARD GOLDBERG, ) BRUCE S. GORDON, LINDA M. ) GRIEGO, ARNOLD KOPELSON, ) LESLIE MOONVES, DOUG ) MORRIS, and FREDERIC V. ) SALERNO, ) ) Defendants, ) ) and ) ) CBS CORPORATION, ) ) Nominal Defendant. )

MEMORANDUM OPINION

Date Submitted: January 16, 2018 Date Decided: April 19, 2018

Norman M. Monhait and P. Bradford deLeeuw of ROSENTHAL MONHAIT & GODDESS, P.A., Wilmington, Delaware; Richard D. Greenfield, Marguerite R. Goodman, and Ilene Freier Brookler of GREENFIELD & GOODMAN, LLC, New York, New York; Michael D. Donovan of DONOVAN AXLER, LLC, Berwyn, PA; Counsel for Plaintiff. Kurt M. Heyman, Patricia L. Enerio, and Melissa N. Donimirski of HEYMAN ENERIO GATTUSO & HIRZEL LLP, Wilmington, Delaware; Paul Vizcarrondo, Jonathan Moses, Lauren Kofke, and Courtney Heavey of WACHTELL, LIPTON, ROSEN & KATZ, New York, New York; Counsel for Defendants David Andelman, Joseph A. Califano, Jr., William S. Cohen, Gary L. Countryman, Charles K. Gifford, Leonard Goldberg, Bruce S. Gordon, Linda M. Griego, Arnold Kopelson, Leslie Moonves, Doug Morris, and Nominal Defendant CBS Corporation.

A. Thompson Bayliss, Michael A. Barlow, and David A. Seal of ABRAMS & BAYLISS LLP, Wilmington, Delaware; Michael C. Tu of ORRICK, HERRINGTON & SUTCLIFFE LLP, Los Angeles, California; Robert N. Kliger of HUESTON HENNIGAN LLP, Los Angeles, California; Counsel for Defendant Sumner M. Redstone.

Anne C. Foster, Lisa A. Schmidt, and Kevin M. Gallagher of RICHARDS, LAYTON & FINGER, P.A., Wilmington, Delaware; Elizabeth B. Burnett and Laurence A. Schoen of MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C., Boston, Massachusetts; Wynter L. Deagle of MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C., San Diego, California; Counsel for Defendant Shari E. Redstone.

Edward B. Micheletti and Bonnie W. David of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, Wilmington, Delaware; Jay B. Kasner of SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP, New York, New York; Counsel for Defendant Frederic V. Salerno.

BOUCHARD, C. This stockholder derivative suit alleges that Sumner Redstone, the controlling

stockholder, former Executive Chairman, and now Chairman Emeritus of CBS

Corporation, became incapacitated around the time he turned 91 years old in May

2014 such that he could no longer provide any services of value for the company.

According to plaintiff, CBS’s directors were aware of Redstone’s debilitated state

and inability to make any substantive contribution to the company’s affairs, yet still

approved over $13 million in cash compensation for him over the next few years.

Plaintiff contends that these payments constitute a waste of corporate assets and were

made in bad faith, and that Redstone has been unjustly enriched.

This court has commented many times on the difficulty of pleading a viable

claim for waste against a corporate director under our law. But the particularized

allegations of the complaint here depict an extreme factual scenario—one

sufficiently severe so as to excuse plaintiff from having to make a demand on the

CBS board of directors to press claims concerning certain (but not all) of the

challenged payments, and to permit plaintiff to take discovery so that an evidentiary

record may be developed before the court adjudicates whether those payments were

made in accordance with the directors’ fiduciary duties.

For this reason, as explained in greater detail below, defendants’ motion to

dismiss the complaint under Court of Chancery Rules 23.1 and 12(b)(6) is granted

in part and denied in part. I. BACKGROUND Unless noted otherwise, the facts recited in this opinion are based on the

allegations of the Amended Verified Derivative Complaint (the “Amended

Complaint”)1 and documents incorporated therein.2 Any additional facts are either

not subject to reasonable dispute or subject to judicial notice.

A. The Parties Nominal defendant CBS Corporation (“CBS” or the “Company”) is a

Delaware corporation headquartered in New York, New York. CBS is a mass media

company with operations in entertainment, cable networks, publishing, and local

broadcasting.

Before 2006, CBS was part of the former Viacom Inc., a media conglomerate.

In January 2006, that entity was split into two publicly traded companies: one

retained the Viacom name and the other is CBS. CBS has two classes of stock,

1 Amended Verified Derivative Complaint (Dkt. 46). 2 See Winshall v. Viacom Int’l, Inc., 76 A.3d 808, 818 (Del. 2013) (citations omitted) (“[A] plaintiff may not reference certain documents outside the complaint and at the same time prevent the court from considering those documents’ actual terms” in connection with a motion to dismiss). Plaintiff made a Section 220 demand on March 29, 2016, but the parties did not reach any understanding as to how the documents could be used if litigation ensued. Tr. 81-82 (Sept. 15, 2017) (Dkt. 80). Accordingly, I consider the actual terms of the documents produced in the Section 220 demand and referenced in the Amended Complaint, but do not consider those documents for the truth of the matters asserted therein unless such content is corroborative of a matter that is not subject to reasonable dispute or subject to judicial notice. 2 voting Class A shares and non-voting Class B shares, both of which trade on the

New York Stock Exchange.

Sumner Redstone is the controlling stockholder of CBS. His controlling

interest can be traced to the Sumner Redstone National Amusements Trust, which is

the controlling stockholder of National Amusements, Inc., which in turn owns 79.5%

of the Class A shares of CBS.

On July 20, 2016, when this action was filed, the CBS Board of Directors (the

“Board”) consisted of thirteen directors, all of whom are individual defendants in

this action: David Andelman, Joseph Califano, Jr., William Cohen, Gary

Countryman, Charles Gifford, Leonard Goldberg, Bruce Gordon, Linda Griego,

Arnold Kopelson, Leslie Moonves, Doug Morris, Shari Redstone (Redstone’s

daughter), and Redstone.3 The Amended Complaint also names as a defendant

Frederick Salerno, who was a CBS director from 2007 until May 2016, during which

period the payments challenged here were approved.4

The Amended Complaint, which was filed on January 19, 2017, defines the

period relevant to this action as the period “from approximately the end of May 2014

through the present” (the “Relevant Period”).5 Four members of the Board were

3 Am. Compl. ¶¶ 20-32. 4 Am. Compl. ¶ 33. 5 Am. Compl. ¶ 2 n.1. 3 members of the Compensation Committee during the Relevant Period: Cohen,

Gifford, Gordon, and Morris.6 Three members of the Board were members of the

Nominating and Governance Committee during the Relevant Period: Califano,

Countryman, and Gifford.7 Under its Corporate Governance Guidelines, CBS

requires a majority of its directors to be independent under New York Stock

Exchange listing standards, including all members of the Compensation and

Nominating and Governance Committees.8

The Board delegated responsibilities for certain compensation-related matters

to the Compensation Committee. According to its charter, the “primary purpose” of

the Compensation Committee “is to discharge the responsibilities of the Board

relating to the compensation of the Company’s executive officers and other senior

executives.”9 Throughout the Relevant Period, the Compensation Committee was

responsible for setting the level of Redstone’s compensation as CBS’s Chairman of

the Board.10 This is reflected in the Compensation Committee’s charter, which

provides that the Compensation Committee shall:

Review and approve corporate goals and objectives relevant to the compensation of the Chairman of the Board and the Chief Executive

6 Am. Compl. ¶¶ 24, 26, 28, 32. 7 Am. Compl. ¶¶ 23, 25, 26. 8 Transmittal Aff. of Jonathan Moses (“Moses Aff.”) Ex. 5 at 3-6 (Dkt. 56). 9 Moses Aff. Ex. 14 at 1. 10 Am. Compl. ¶¶ 5(b), (d), (e), (g), (n), 51-52, 72-73, 82-83. 4 Officer. Together with the Nominating and Governance Committee, evaluate annually the performances of the Chairman and the Chief Executive Officer in light of these goals and objectives and report the results of the evaluations to the non-management directors. The Committee shall set the compensation levels of the Chairman and the Chief Executive Officer taking into account the evaluations.11

Plaintiff R.A. Feuer allegedly has been a stockholder of CBS continuously

throughout the Relevant Period.12

B. Overview of Redstone’s Employment and Compensation at CBS Redstone was Chairman of the board of directors of the former Viacom from

1987 through 2005 and its Chief Executive Officer from 1996 through 2005.13 After

CBS split from the former Viacom, Redstone served as Executive Chairman of CBS

from January 1, 2006 until February 4, 2016.14 Redstone also served during this

period as Executive Chairman of the post-split Viacom. A challenge similar to the

one made here has been made to the cash compensation Redstone received from

Viacom after allegedly becoming incapacitated and unable to provide any services

of value to that company.15

Until his resignation as Executive Chairman in February 2016, Redstone’s

employment at CBS was governed by an agreement dated December 29, 2005,

11 Moses Aff. Ex. 14 at 3 (emphasis added). 12 Am. Compl. ¶ 18. 13 Am. Compl. ¶ 20; Moses Aff. Ex. 3 at 26. 14 Am. Compl. ¶ 20. 15 See Feuer v. Dauman, 2017 WL 4817427, at *1 (Del. Ch. Oct. 25, 2017). 5 which was amended on March 13, 2007 and December 10, 2008 (collectively, the

“Employment Agreement”).16 The Employment Agreement provides that

Redstone’s employment could “be terminated by either party at will.”17

As amended in March 2007, the Employment Agreement provided that

Redstone would receive a base salary of $1 million per year and an annual bonus

based on achievement of performance goals established by the Compensation

Committee.18 The Compensation Committee was required to review Redstone’s

base salary “at least annually” and was permitted to award “merit increases” but was

not permitted to decrease Redstone’s salary, “including as it may be increased from

time to time.”19 In other words, if Redstone’s $1 million base salary as March 2007

subsequently was increased, the Compensation Committee did not have the authority

to decrease it from that higher amount. In 2010, the Compensation Committee raised

Redstone’s base salary to $1.75 million.20

The Employment Agreement also entitled Redstone to receive cash bonuses

in accordance with the Company’s Senior Executive Short-Term Incentive Plan (the

16 Am. Compl. ¶ 16. 17 Am. Compl. ¶ 16. 18 Moses Aff. Ex. 10 ¶ 1; Ex. 9 at Ex. 10.1 ¶¶ 2(a), (c). The base salary is payable “no less frequently than semi-monthly.” Ex. 9 at Ex. 10.1 ¶ 2(a). 19 Moses Aff. Ex. 10 ¶ 1. 20 Am. Compl. ¶¶ 50, 72; Moses Aff. Ex. 12 at 44. 6 “STIP”).21 The STIP required the Compensation Committee to make a

determination about which senior executives would be eligible for the program and

set performance goals based on financial targets.22

C. Redstone’s Compensation and Performance for 2014 On February 20, 2014, about two months before Redstone would turn 91 years

old,23 the Compensation Committee approved a set of goals for Redstone for 2014

that included being “a sounding-board/counselor to [the] CEO on issues of strategic

importance,” ensuring that “strategic plans are up-to-date” and “being executed on,”

providing “effective communications with [the] Board,” and assisting “the Board in

maintaining best governance practices.”24 Not long after these goals were set,

beginning in the spring of 2014, Redstone suffered from “a precipitous decline in

his physical health” according to a complaint in an elder abuse lawsuit filed on

Redstone’s behalf in 2016 (the “Elder Abuse Complaint”).25 Redstone’s health

problems included a bout with pneumonia and multiple hospitalizations.26

21 Moses Aff. Ex. 9 at Ex. 10.1 ¶ 2(c)(1); Ex. 4 at 44. 22 Moses Aff. Ex. 13 at Art. II §§ 2.1-2.2. 23 Am. Compl. ¶ 36. 24 Moses Aff. Ex. 21 at 2; Am. Compl. ¶ 52. 25 Am. Compl. ¶¶ 13, 95. 26 Am. Compl. ¶¶ 36, 41. 7 On May 22, 2014, Redstone briefly attended CBS’s annual stockholders’

meeting, where he “called the meeting to order and welcomed the directors to the

meeting” after being carried onstage in a chair.27 Redstone was not physically

present for the July 29, 2014 Board meeting; rather, he called in telephonically.28

Redstone’s verbal participation was limited to saying “Hello Everyone,” since, as a

contemporaneous email sent to CBS’s President and CEO Moonves from a fellow

CBS executive explained, “[you] can’t understand him!”29

By early September 2014, two members of the Board, Moonves and

Kopelson, were aware that Redstone had been hospitalized at the end of August with

pneumonia.30 According to the Elder Abuse Complaint, by this point in time,

“Redstone could not eat or drink, it became difficult for Redstone to initiate

communication or articulate more than the most basic verbal responses,” and he

“required around-the-clock nursing care, and any semblance of independence was

lost.”31 Redstone did not physically attend the October 1, 2014 Board meeting, and

only said “Hello Everyone” at the beginning of the session.32 His participation in

27 Am. Compl. ¶ 38. 28 Am. Compl. ¶ 40. 29 Am. Compl. ¶¶ 39-40. 30 Am. Compl. ¶¶ 41-42. 31 Am. Compl. ¶ 95 (internal quotations omitted). 32 Am. Compl. ¶ 44. 8 the Company’s November 5, 2014 quarterly earnings call amounted to Redstone

saying “[t]his is Sumner. Welcome to the CBS Corp. event.”33 Redstone telephoned

into a Board meeting on December 11, 2014, again only saying “Hello Everyone.”34

On January 28, 2015, the Compensation Committee and the Nominating and

Governance Committee held a joint meeting. According to minutes of the joint

meeting, they discussed “the performance of the Executive Chairman . . . with

respect to [his] previously established goals for 2014.”35 The minutes indicate that

the joint committee reviewed “Mr. Redstone’s role as Executive Chairman of the

CBS Board of Directors, noting that during this period, the Company had produced

exceptional results.”36

Later on January 28, the Compensation Committee met and discussed the fact

that CBS had achieved the 2014 goals for payment of bonus compensation under the

STIP.37 According to minutes of the meeting, the Compensation Committee

discussed the “bonus[] to be paid . . . with respect to . . . the Executive Chairman”

and “the future participation by Mr. Redstone in the Company’s bonus program.”38

33 Am. Compl. ¶ 47. A participant in a Viacom earnings call a few days later described Redstone’s speech as “faint, slurred, barely audible.” Am. Compl. ¶ 48. 34 Am. Compl. ¶ 49. 35 Moses Aff. Ex. 22 at 2; Am. Compl. ¶ 5(a). 36 Moses Aff. Ex. 22 at 2. 37 Am. Compl. ¶¶ 5(b), 51; Moses Aff. Ex. 23 at 1-2. 38 Moses Aff. Ex. 23 at 3. 9 The minutes note that the Compensation Committee was advised by an independent

compensation consultant, Moonves, and CBS’s Chief Human Resources Officer

during this meeting.39 At this January 28, 2015 meeting, the Compensation

Committee approved a $9 million bonus for Redstone for 2014.40

The following day the Board met.41 The meeting minutes state that Gifford,

as chair of the Compensation Committee, apprised the Board of the prior day’s

deliberations and the conclusions of the joint committee.42 All in, CBS paid

Redstone $10.75 million of cash compensation for fiscal year 2014, of which $1.75

million was his base salary and $9 million was a performance bonus.43

D. Redstone’s Compensation and Performance for 2015 In 2015, Redstone did not participate in any conference calls with Wall Street

analysts. He also did not physically attend any Board meetings in 2015,

participating instead by phone.44 The agenda for the January 29, 2015 Board meeting

indicates that Redstone greeted the Board; at the other three Board meetings that

year Redstone did not speak at all.45

39 Moses Aff. Ex. 23 at 1. 40 Am. Compl. ¶¶ 5(b), 55; Moses Aff. Ex. 23 at 3, 11-12; Ex. 24. 41 Am. Compl. ¶ 5(c). 42 Am. Compl. ¶ 5(c). 43 Am. Compl. ¶ 50. 44 Am. Compl. ¶ 56. 45 Am. Compl. ¶¶ 5(i), (j), 56. 10 At a February 19, 2015 meeting, the Compensation Committee addressed

Redstone’s compensation for 2015.46 The meeting minutes indicate that the

Compensation Committee discussed “changes in the goals and objectives from the

prior year and the status of the participation of the Executive Chairman in the

Company’s 2015 bonus program,” as well as Redstone’s annual base salary.47 The

Compensation Committee ultimately did not establish goals for Redstone in 2015,

determined that he would not receive a bonus that year, and kept his base salary at

$1.75 million.48 The Board later decided to re-nominate Redstone to be a director.49

In the spring of 2015, Redstone’s failing health became a subject of tabloid

intrigue. On May 20, 2015, The Hollywood Reporter published an article entitled

“Sumner Redstone’s Two Girlfriends Throwing Him 92nd Birthday ‘Passion to

Party’ Bash Amid Viacom Intrigue.” It reported that Redstone’s “health is said to

have declined considerably since his last in-person interview, which [The Hollywood

Reporter] published in January 2014 . . . Now sources say his speech is all but

unintelligible.”50 Leah Bishop, Redstone’s estate attorney, acknowledged in the

46 Am. Compl. ¶¶ 5(d), (e). 47 Am. Compl. ¶¶ 5(d), (e), 54, 57; Moses Aff. Ex. 25 at 5. 48 Am. Compl. ¶¶ 5(d), (e), (g), 72; Moses Aff. Ex. 25 at 5. 49 Am. Compl. ¶ 60. 50 Am. Compl. ¶ 59. 11 article that Redstone’s speech was “severely impaired” and that he “no longer can

be understood on the phone.”51

On May 31, Vanity Fair published an article entitled “Who Controls Sumner

Redstone?” One person who saw Redstone in person stated in the article: “Sumner

(a) cannot speak and (b) hasn’t had a meal since Labor Day other than tubes. I think

there’s a big charade going on that Sumner’s doing fine . . . I think he’s pretty out of

it . . . He can’t speak, and I don’t know how much he knows what’s going on.”52 The

article also reported that a person visiting with Robert Evans, one of Redstone’s

closest friends, said “[h]e [i.e., Redstone] looks like he’s dead,” to which Evans

responded, “[w]ell, you should see him in person—he looks even worse.”53

In October 2015, two CBS directors, Goldberg and Kopelson, each met

separately with Redstone at his home. During these meetings, Redstone was

“especially vacant and absent,” and “appeared out of touch, remote and non-

responsive to the people around him.”54 Scrutiny of Redstone’s health further

intensified after Manuela Herzer, Redstone’s former caretaker, filed a petition in

51 Am. Compl. ¶ 59. 52 Am. Compl. ¶ 62. 53 Am. Compl. ¶ 62. 54 Am. Compl. ¶¶ 66-67. 12 California state court on November 24, 2015 claiming that Redstone did not have

the capacity to revoke her status as his healthcare agent (the “Herzer Action”).55

On December 2, 2015, Moonves received an email from a fellow director

stating: “The recent legal actions and continuing questions regarding Sumner

Redstone’s health create an environment of uncertainty that could distract investors

from focusing on the operational performance of the company. We want our

shareholders to be totally confident that CBS is being managed and governed at the

level they expect.”56

According to the Amended Complaint, the Compensation Committee decided

at its January 27, 2016 meeting that Redstone “would not receive a bonus for fiscal

year 2015” but “approved the continued contractual salary compensation payable

to” Redstone of $1.75 million for 2016.57 The only reference to Redstone’s

compensation in the minutes of that meeting, by contrast, states simply that “the

Committee noted that the Executive Chairman would not be receiving a bonus for

55 Am. Compl. ¶¶ 7-8. 56 Am. Compl. ¶ 70. The Amended Complaint states that the email was sent from “Bruce Goldberg,” which appears to be a mistake, as that name is a combination of the names of two different CBS directors: Leonard Goldberg and Bruce Gordon. I infer that the email came from one of these two directors. 57 Am. Compl. ¶¶ 72-73. 13 2015.”58 Two days later, Redstone was present telephonically for the Board meeting

but did not speak at all.59

E. Redstone Becomes Chairman Emeritus of CBS In early February 2016, the California court in the Herzer Action ordered an

examination of Redstone by a geriatric psychiatrist.60 According to an article in The

New York Times, the geriatric psychiatrist “found that [Redstone] lacked mental

capacity.”61

On February 2, 2016, Redstone tendered his resignation as Executive

Chairman of CBS.62 The next day, on February 3, the Board held a special meeting

and discussed Redstone’s resignation.63 Redstone attended this meeting by

telephone but did not speak.64 The Board accepted his resignation and unanimously

appointed Redstone as Chairman Emeritus.65 According to a Board resolution

adopted on February 3, 2016, the appointment was made “in view of [Redstone’s]

many years of leadership as Executive Chairman and his significant historical

58 Moses Aff. Ex. 26 at 3-4. 59 Am. Compl. ¶ 76. 60 Am. Compl. ¶ 77. 61 Am. Compl. ¶ 77. 62 Am. Compl. ¶ 5(n). 63 Am. Compl. ¶¶ 5(m), 79. 64 Am. Compl. ¶ 79. 65 Am. Compl. ¶¶ 5(n), 80; Moses Aff. Ex. 27 at 1-3. 14 contributions to the Company.”66 Minutes of a February 3, 2016 Board meeting

reflect that Redstone “indicated that he would continue to be available for

consultation and to attend Board meetings.”67

On February 18, 2016, the Compensation Committee considered Redstone’s

compensation as Chairman Emeritus.68 Minutes of the meeting state that the

Compensation Committee took “into account his reduction in responsibilities

following his resignation as the Company’s Executive Chairman on February 2, and

his continuing employment with the Company as an at-will employee.”69 The

minutes also state that the Compensation Committee discussed Redstone’s

“significant historical contributions to the Company during his previous executive

positions with the Company, including his status as a renowned leader in the

entertainment industry and his leadership on the Company’s Board of Directors, and

his continuing availability for advice and consultation and continuing participation

on the CBS Board of Directors as Chairman Emeritus.”70 The Compensation

66 Moses Aff. Ex. 27 at 3. 67 Moses Aff. Ex. 27 at 1. 68 Am. Compl. ¶ 5(n). 69 Am. Compl. ¶ 5(n). 70 Am. Compl. ¶ 5(n). 15 Committee approved annual compensation of $1 million for Redstone in his role as

Chairman Emeritus.71 In this role, Redstone was not eligible for a bonus.72

On April 15, 2016, the Company disclosed in a proxy statement that the Board

had nominated Redstone for re-election as a director.73

On May 9, 2016, the Herzer Action was dismissed when the California court

determined that Redstone “was sufficiently competent to terminate Ms. Herzer as

his caretaker.”74 The California court reasoned that “Redstone is presumed to have

capacity and Herzer’s expert did not establish that he lacked capacity to change his

agent.”75 The court also emphasized that it was “not making any ultimate finding

related to Redstone’s mental capacity.”76

On May 20, 2016, Philippe Dauman (the CEO and a director of Viacom) and

George Abrams (a Viacom director) were informed that Redstone had removed them

as trustees of the Sumner Redstone National Amusements Trust and as directors of

National Amusements, Inc., the entities through which Redstone maintains his

controlling interest in CBS.77 In response, Dauman and Abrams filed a lawsuit in

71 Am. Compl. ¶ 83. 72 Moses Aff. Ex. 19. 73 Am. Compl. ¶ 81. 74 Am. Compl. ¶¶ 8, 84; Moses Aff. Ex. 17 at 1. 75 Moses Aff. Ex. 17 at 17. 76 Id. at 11 (emphasis in original). 77 Am. Compl. ¶¶ 89-90. 16 Massachusetts state court, seeking to be reinstated.78 Relevant to this action,

Dauman and Abrams alleged in their complaint that Redstone:

suffers from profound physical and mental illness. In particular, he is afflicted with a “subcortical neurological disorder” that can be characterized by dementia, impaired cognition, a slowness of mental processing, a loss of memory, apathy, and depression. Because of his diminished physical and mental health, Mr. Redstone is unable to initiate or participate in meaningful conversation, including communications concerning his business or personal affairs. In court proceedings earlier this year, lawyers representing Mr. Redstone appear to have agreed [that] Mr. Redstone is subject to mental impairment and stipulated that he is susceptible to undue influence.79

Redstone did not attend CBS’s annual stockholders meeting on May 26,

2016.80 On June 14, 2016, Redstone was taken by car to visit CBS, where he met

with Moonves for approximately ten minutes but did not leave the car.81

On October 25, 2016, the Elder Abuse Complaint was filed on Redstone’s

behalf against Herzer and other defendants, alleging elder abuse, breach of fiduciary

duty, constructive fraud, and intentional infliction of emotional distress.82 Among

other things, the Elder Abuse Complaint describes Redstone’s extreme decline in

health since the spring of 2014, his inability to communicate orally, his complete

78 Am. Compl. ¶ 91. 79 Am. Compl. ¶ 91. 80 Am. Compl. ¶ 86. 81 Am. Compl. ¶ 93. 82 Am. Compl. Ex. B. 17 reliance on nursing care, and a mental state where he was “easily duped, confused

and manipulated.”83

The Board did not nominate Redstone for re-election as a director at CBS’s

May 19, 2017 annual meeting.84 It appears that Redstone continues to hold the title

of Chairman Emeritus,85 but it is unclear from the record how much compensation

he has received from the Company since the Compensation Committee set his salary

for that position in February 2016 at $1 million annually.

II. PROCEDURAL HISTORY On March 29, 2016, plaintiff made a Section 220 demand on CBS.86 On July

20, 2016, plaintiff filed this action derivatively on behalf of CBS. Plaintiff did not

make a pre-suit demand on the Board, alleging that demand would be futile.

On January 19, 2017, after defendants filed a motion to dismiss the original

complaint, plaintiff filed the Amended Complaint, which asserts two claims. Count

I asserts a claim for breach of fiduciary duty for waste of corporate assets against all

the individual defendants, except Redstone, with respect to the compensation he

83 Am. Compl. ¶ 95. 84 Moses Aff. Ex. 35 at 3. 85 Sumner M. Redstone, CBS CORP., https://www.cbscorporation.com/people/sumner-m- redstone/ (last visited Apr. 18, 2018). 86 Am. Compl. ¶ 2 & Ex. A. 18 received from CBS during the Relevant Period. Count II asserts that Redstone was

unjustly enriched by the receipt of this compensation.

On February 2, 2017, defendants filed a motion to dismiss the Amended

Complaint under Court of Chancery Rules 23.1 and 12(b)(6) for failure to plead

demand futility and failure to state a claim upon which relief may be granted,

respectively. After initial briefing, the court heard oral argument on the motion to

dismiss on September 15, 2017. On December 22, 2017, the court requested

supplemental briefing concerning who (i.e., the Compensation Committee or the

Board) was empowered to terminate the Employment Agreement, and the legal

implications of the answer to that question on the pending motion. Briefing on this

issue was completed on January 16, 2018.

III. ANALYSIS Plaintiff challenges three categories of cash payments that CBS made to

Redstone during the Relevant Period, namely the payment of (1) a $9 million bonus

for 2014, (2) his annual base salary of $1.75 million as Executive Chairman from

late May 2014 until his resignation from this position in February 2016, and (3) his

annual base salary of $1 million as Chairman Emeritus beginning in February

2016.87 These categories are depicted in the chart below:

87 Am. Compl. ¶¶ 50, 72, 83. 19 is futile when the directors upon whom the demand would be made “are incapable

of making an impartial decision regarding such litigation.”90

Because plaintiff did not make a demand on the Board before initiating this

action, he must allege with particularity that his failure to make such a demand

should be excused.91 In this analysis, I accept as true plaintiff’s particularized

allegations of fact and draw all reasonable inferences that logically flow from those

allegations in plaintiff’s favor.

Under Delaware law, depending on the factual scenario, there are two

different tests for determining whether demand may be excused: the Aronson test

and the Rales test.92 The test articulated in Aronson v. Lewis93 applies when “a

decision of the board of directors is being challenged in the derivative suit.”94 The

test set forth in Rales v. Blasband, on the other hand, governs when “the board that

would be considering the demand did not make a business decision which is being

90 Rales v. Blasband, 634 A.2d 927, 932 (Del. 1993). 91 Ct. Ch. R. 23.1. 92 Both tests boil down to the same inquiry: whether “the derivative plaintiff has shown some good reason to doubt that the board will exercise its discretion impartially and in good faith.” In re infoUSA, Inc. S’holders Litig., 953 A.2d 963, 986 (Del. Ch. 2007). 93 473 A.2d 805. 94 Rales, 634 A.2d at 933 (emphasis in original). 21 challenged in the derivative suit,” such as instances “where directors are sued

derivatively because they have failed to do something.”95

“A decision approved by at least half of the corporation’s directors who would

consider a demand, even when acting by committee, can be imputed to the entire

board and thus triggers the Aronson test. . . . By contrast, the 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 a demand,

had one been made.”96 Under either test, plaintiff “must impugn the ability of at

least half the directors in office when it initiated [its] action . . . to have considered

a demand impartially.”97

B. Demand Futility is Governed by the Rales Test Plaintiff’s breach of fiduciary duty and unjust enrichment claims are governed

by Rales. The Amended Complaint and the materials it incorporates by reference

show that Redstone’s compensation during the Relevant Period was determined by

the Employment Agreement and the four-member Compensation Committee. More

specifically, Redstone’s $1.75 million base salary for 2014 and 2015 was set by the

terms of the Employment Agreement entered into before the Relevant Period and

95 Id. at 933-34 & n.9. 96 Teamsters Union 25 Health Servs. & Ins. Plan v. Baiera, 119 A.3d 44, 56-57 (Del. Ch. 2015) (citations omitted). 97 Id. at 57 (citation omitted). 22 could only be reduced by terminating the Employment Agreement, which did not

occur until Redstone resigned in February 2016. Thus, any challenge to these

payments is based on inaction and subject to Rales.98 Challenges to Redstone’s $9

million bonus in 2014 and the setting of his $1 million annual salary in 2016 as

Chairman Emeritus also are analyzed under Rales because they were decisions made

by the four-member Compensation Committee, which comprised a minority of the

full thirteen-member Board.

Plaintiff argues that the Aronson test should apply because a majority of the

directors reviewed Redstone’s performance and “the full CBS board was aware that

Sumner was incapacitated and essentially went along with the decision purportedly

made by” the majority of directors regarding Redstone’s compensation.99 I disagree

for two reasons. First, reviewing performance is distinct from setting specific

amounts to be paid. It is indisputable that the four-member Compensation

Committee, which had the fully-delegated authority to set the level of Redstone’s

compensation under its charter, made the decisions establishing the amount of

98 In re Goldman Sachs Grp., Inc. S’holder Litig., 2011 WL 4826104, at *6 (Del. Ch. Oct. 12, 2011). 99 Pl.’s Answering Br. 24, 26 (emphasis added) (Dkt. 65). According to plaintiff, “two committees (comprised of 6 directors), along with defendant Moonves” made the compensation decisions. Id. at 26. This assertion is incorrect because the Compensation Committee’s charter clearly states that the Compensation Committee is vested with the full authority to “set the compensation level[] of the Chairman.” Moses Aff. Ex. 14 at 3. 23 Redstone’s bonus and his salary as Chairman Emeritus.100 Plaintiff does not dispute

this point.101 Second, the fact that the Board and the Nominating and Governance

Committee were aware of the Compensation Committee’s considerations in setting

Redstone’s compensation does not mean that the Nominating and Governance

Committee affirmatively made the decision to pay Redstone those amounts.102

C. Demand is Partially Excused under the Rales Test Under Rales, plaintiff’s claims should be dismissed under Rule 23.1 unless

the particularized allegations of the Amended Complaint “create a reasonable doubt

that, as of the time the complaint is filed, the board of directors could have properly

exercised its independent and disinterested business judgment in responding to a

demand.”103 The demand futility analysis “is conducted on a claim-by-claim basis”

under Delaware law.104 “Independence means that a director’s decision is based on

100 See Calma v. Templeton, 2015 WL 1951930, at *6 (Del. Ch. Apr. 30, 2015) (holding that Rales applied where a dully authorized compensation committee, and not the entire board, approved a restricted stock grant). 101 Tr. 51 (Sept. 15, 2017) (“Q: Do you agree that the four members of the compensation committee had plenary authority to make each of the decisions that you’re challenging . . . ? A: I think that’s supported by the organic documents that were produced in response to the 220 and, in particular, the compensation committee charter.”). See Baiera, 119 A.3d at 57 (“The inference of full board approval . . . amounts to little 102

more than speculation.”). 103 634 A.2d at 934. 104 Cambridge Ret. Sys. v. Bosnjak, 2014 WL 2930869, at *4 (Del. Ch. June 26, 2014) (citing Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 833 A.2d 961, 977 n.48 (Del. Ch. 2003), aff’d, 845 A.2d 1040 (Del. 2004); Needham v. Cruver, 1993 WL 179336, at *3 (Del. Ch. May 12, 1993)). 24 the corporate merits of the subject before the board rather than extraneous

considerations or influences.”105 “A director is considered interested where he or

she will receive a personal financial benefit from a transaction that is not equally

shared by the stockholders. Directorial interest also exists where a corporate

decision will have a materially detrimental impact on a director, but not on the

corporation and the stockholders.”106 Accordingly, a director can be rendered

“interested” with respect to whether litigation should be brought when the director

would face a substantial threat of personal liability.107

Here, it bears emphasis that plaintiff has not argued that any of the directors

were not independent.108 Plaintiff instead contends only that the Board was not

“disinterested” because its members face a substantial threat of personal liability on

the theory that the decision to continue paying Redstone throughout the Relevant

Period “simply cannot be a decision made in good faith and constitutes waste.”109

Consistent with the approach of analyzing demand futility claim-by-claim, I address

below the alleged threat of personal liability to the directors arising from plaintiff’s

105 Aronson, 473 A.2d at 816. 106 Rales, 634 A.2d at 936 (citation omitted). 107 Kohls v. Duthie, 791 A.2d 772, 782 (Del. Ch. 2000). 108 See Tr. 52 (Sept. 15, 2017); Emerald Partners v. Berlin, 726 A.2d 1215, 1224 (Del. 1999) (“Issues not briefed are deemed waived.”). 109 Pl.’s Answering Br. 31. 25 claims related to three challenged categories of cash payments to Redstone: (1) the

$9 million bonus paid for 2014, (2) the Executive Chairman salary ($1.75 million

annually) paid from late May 2014 until Redstone resigned from that position in

February 2016, and (3) the Chairman Emeritus salary ($1 million annually)

beginning in February 2016. I begin with a brief discussion of the legal standards

for bad faith and waste.

1. Legal Standards for Bad Faith and Waste As general matter, “bad faith will be found if a fiduciary intentionally fails to

act in the face of a known duty to act, demonstrating a conscious disregard for his

duties,”110 or if “the decision under attack is so far beyond the bounds of reasonable

judgment that it seems essentially inexplicable on any other ground other than bad

faith.”111 “Good faith is presumed and the party challenging director action bears

the burden of rebutting that presumption.”112 “The proper inquiry is not whether a

director neglected to do all that [he] should have . . . but rather whether the director

knowingly and completely failed to undertake [his] responsibilities.”113

110 Lyondell Chem. Co. v. Ryan, 970 A.2d 235, 243 (Del. 2009) (citation and internal quotations omitted). 111 Crescent/Mach I Partners, L.P. v. Turner, 846 A.2d 963, 981 (Del. Ch. 2000) (citation and internal quotations omitted). 112 McGowan v. Ferro, 859 A.2d 1012, 1036 (Del. Ch. 2004) (citation omitted). 113 DiRienzo v. Lichtenstein, 2013 WL 5503034, at *13 (Del. Ch. Sept. 30, 2013) (citation and internal quotations omitted). 26 “The Delaware Supreme Court has implicitly held that committing waste is

an act of bad faith.”114 In order to make out a waste claim, a plaintiff needs to show

that the corporation has entered into a transaction in which it received consideration

“so inadequate in value that no person of ordinary, sound business judgment would

deem it worth what the corporation has paid.”115 In the context of employee

compensation, courts afford great deference to a board’s decision,116 since “[t]he

decision as to how much compensation is appropriate . . . is a core function of a

board of directors”117 and “[c]ourts are ill-fitted to attempt to weigh the ‘adequacy’

of consideration.”118

As the above formulations demonstrate, the “standards for corporate waste

and bad faith by the board are similar” in that, to prevail on either theory, “the

plaintiff must overcome the general presumption of good faith by showing that the

board’s decision was so egregious or irrational that it could not have been based on

114 In re Walt Disney Co. Derivative Litig., 907 A.2d 693, 749 (Del. Ch. 2005) (citing White v. Panic, 783 A.2d 543, 553-55 (Del. 2001)). 115 Grobow v. Perot, 539 A.2d 180, 189 (Del. 1988) (quoting Saxe v. Brady, 184 A.2d 602, 610 (Del. Ch. 1962)), overruled on other grounds by Brehm, 746 A.2d 244. 116 See Brehm, 746 A.2d at 263 (“[A] board’s decision on executive compensation is entitled to great deference.”). 117 In re Goldman Sachs, 2011 WL 4826104, at *14. 118 Brehm, 746 A.2d at 263 (citation omitted). 27 a valid assessment of the corporation’s best interests.”119 In short, it takes an extreme

factual scenario for a plaintiff to state a claim for bad faith or waste.

2. The 2014 Bonus “The Delaware General Corporation Law (DGCL) expressly empowers a

board of directors to appoint committees and to delegate to them a broad range of

responsibilities, which may include setting executive compensation.”120 When a

committee, rather than the board of directors, has plenary power to fix an executive’s

compensation, then it is the committee that legally determines the amounts to be paid

to that executive.121

At CBS, the responsibility for setting Redstone’s compensation as Executive

Chairman of the Company during the Relevant Period validly and solely laid with

the four-member Compensation Committee. As mentioned above, the

Compensation Committee’s charter provides that its “primary purpose . . . is to

discharge the responsibilities of the Board relating to the compensation of the

Company’s executive officers and other senior executives” and expressly states that

119 White, 783 A.2d at 554 n.36 (citation omitted). 120 In re Walt Disney Co. Derivative Litig., 906 A.2d 27, 54 (Del. 2006) (citing 8 Del. C. § 141(c)). 121 Id. 28 the Compensation Committee “shall set the compensation level[] of the

Chairman.”122

At the beginning of 2014, before Redstone allegedly became incapacitated in

late May 2014, the Compensation Committee decided to include Redstone in the

bonus pool for 2014 and set the 2014 performance criteria that CBS would have to

achieve in order for Redstone to be entitled to a bonus.123 After the Company

reportedly achieved its performance goals, the Compensation Committee awarded

Redstone a $9 million bonus.124

Relevant to the demand futility analysis, the decision to award this $9 million

bonus was an exercise of discretion made solely by the four members of the

Compensation Committee. This means that, putting the members of the

Compensation Committee and Redstone aside, eight members of the thirteen-

member Board did not participate in making the decision to award the $9 million

bonus and thus would not face a substantial threat of personal liability for that

decision. Accordingly, because these eight directors constitute a majority of the

Board and their independence is not questioned, demand on the Board is not excused

122 Moses Aff. Ex. 14 at 1, 3. 123 Moses Aff. Ex. 20 at 10. 124 Am. Compl. ¶¶ 5(b), 55; Moses Aff. Ex. 23 at 3, 11-12; Ex. 24. 29 with respect to plaintiff’s breach of fiduciary duty claim challenging Redstone’s

2014 bonus.

3. The Executive Chairman Salary Payments Unlike the 2014 bonus, payment of Redstone’s $1.75 million annual salary as

Executive Chairman from the end of May 2014, when he allegedly became

incapacitated, through early February 2016, when he resigned as Executive

Chairman, was not the product of an affirmative decision of the Compensation

Committee. Rather, the salary compensation Redstone received during this period

was set by default in the Employment Agreement that was entered into before the

Relevant Period. As discussed above, under the Employment Agreement, the

Compensation Committee could only increase, and not decrease, Redstone’s salary,

which was set at $1.75 million annually in 2010. Thus, the only way for CBS to

reduce or eliminate this annual salary obligation would have been for the Company

to terminate the Employment Agreement, which could be “terminated by either party

at will upon receipt of notice to the other party.”125

The parties disagree whether the Board alone, or also the Compensation

Committee, was empowered to terminate the Employment Agreement. Plaintiff

argues that the Board alone had this authority. Defendants, on the other hand, argue

that the Compensation Committee was empowered to terminate the Employment

125 Moses Aff. Ex. 9 at Ex. 10.1 ¶ 9. 30 Agreement “without further Board approval” pursuant to the authority delegated to

it under its charter, but they concede that the “Board could also have terminated the

agreement pursuant to its inherent ability to manage and direct the affairs of the

Company.”126

I need not decide whether the Board alone had the authority to terminate the

Employment Agreement because, as defendants acknowledge, the Board retained

the concurrent power to do so.127 Thus, it would not be appropriate to limit my

inquiry solely to the members of the Compensation Committee when considering

which directors potentially face a substantial threat of personal liability for failing to

terminate, or failing to at least consider terminating, the Employment Agreement.

Put differently, given the full Board’s conceded inherent ability to terminate the

Employment Agreement, all of its members could face a sufficiently substantial

threat of liability if it would have been wasteful or an act of bad faith not to at least

consider doing so.

A central tenant of our corporate law is that the “business and affairs of every

corporation . . . shall be managed by or under the direction of a board of directors.”128

126 Defs.’ Suppl. Br. 1 (Dkt. 86). 127 Indeed, before the court asked for supplemental briefing concerning whether the Compensation Committee or the Board was empowered to terminate the Employment Agreement, it was defendants’ position that this was “a decision rightly left to the judgment of the Board.” Defs.’ Opening Br. 43 (Dkt. 55). 128 8 Del. C. § 141(a). 31 To be sure, directors may—and must as a practical matter for a large public

corporation—delegate day-to-day decision-making to officers.129 Critically though,

these “delegations ‘must be monitored in order to ensure their quality and

integrity.’”130

Here, as one would expect for a corporate executive receiving millions of

dollars of compensation, Redstone’s Employment Agreement expressly required

him to “be actively engaged” in performing certain specified duties:

Without limiting the foregoing, you [Redstone] will be actively engaged in, and have responsibility, working with the Board and the President and [CEO] of CBS, [] for (a) the overall leadership and strategic direction of CBS, (b) providing guidance and support to senior management of CBS, (c) the coordination of the activities of the Board and (d) communication with shareholders and other important constituencies.131

Contrary to the terms of the Employment Agreement quoted above, the Amended

Complaint alleges numerous facts demonstrating that it should have been abundantly

clear to the members of the Board—from their attendance at Board meetings, press

publicity, and other interactions with the Company—that far from being “actively

129 8 Del. C. § 142. 130 1 STEPHEN A. RADIN, THE BUSINESS JUDGMENT RULE 444 (6th ed. 2009) (quoting William B. Chandler III, The Legal Framework for Analyzing Audit Committee Oversight, CORP. GOVERNANCE ADVISOR 18 (Jan./Feb. 2000)). 131 Moses Aff. Ex. 9 at Ex. 10.1 ¶ 1. 32 engaged” in the CBS’s affairs, Redstone was providing no meaningful services to

the Company beginning at some point in the latter part of 2014 or in 2015:

 On May 22, 2014, after being carried onstage in a chair, Redstone only briefly attended the annual stockholders meeting to call it to order.132

 Beginning with the July 29, 2014 Board meeting, Redstone, who usually attended Board meetings in person, never physically attended another Board meeting.133

 Redstone’s participation in the July 29, 2014 Board meeting, the October 1, 2014 Board meeting, the November 5, 2014 quarterly earnings call, the December 11, 2014 Board meeting, and the January 29, 2015 Board meeting consisted of little more than introducing himself. He made no substantive contribution.134

 Redstone did not participate in any conference calls with Wall Street analysts in 2015, and he did not speak at all at any of the other Board meetings held in 2015—on March 31, May 21, October 2, and December 10.135

 On May 20, 2015, The Hollywood Reporter published an article reporting that Redstone was severely impaired.136

 On May 31, 2015, Vanity Fair published a similar article.137

 On November 24, 2015 the Herzer Action was filed.138

132 Am. Compl. ¶ 38. 133 Am. Compl. ¶¶ 40, 44, 49, 56. 134 Am. Compl. ¶¶ 40, 44, 47, 49, 56. 135 Am. Compl. ¶ 56. 136 Am. Compl. ¶ 59. 137 Am. Compl. ¶ 62. 138 Am. Compl. ¶¶ 7-8. 33 The Amended Complaint also sets forth individualized allegations as to

several CBS directors—namely Moonves, Kopelson, and Goldberg—indicating that

they knew about Redstone’s inability to contribute to CBS in any meaningful sense:

 On July 14, 2014, Moonves received an email from a CBS executive alerting him that Redstone’s speech was incomprehensible.139

 By early September 2014, Moonves and Kopelson (as well as several CBS executives) knew that Redstone had been hospitalized at the end of August 2014 with pneumonia.140

 On November 3, 2014, Kopelson sent Moonves an email stating: “Hard to tell if he is worse. Barely communicates and then is totally unintelligible. Had coughing fit Saturday night and Sydney took him into the hospital just to check him out and then home.”141

 In October 2015, Goldberg and Kopelson met with Redstone at his home, during which Redstone was “especially vacant and absent” and “appeared out of touch, remote and non-responsive to the people around him.”142

 On December 2, 2015, Moonves received an email from a fellow CBS director expressing concern about distractions caused by legal actions and questions regarding Redstone’s health.143

139 Am. Compl. ¶ 39. 140 Am. Compl. ¶¶ 41-42. 141 Am. Compl. ¶ 45. 142 Am. Compl. ¶¶ 66-67. 143 Am. Compl. ¶ 70. 34 One logically would expect, and thus it would reasonable to infer, that these reports

and observations about Redstone’s condition would have been reported back to the

other members of the Board.144

Viewing these and the other alleged facts in the light most favorable to

plaintiff, as the court must at this stage of the case, the Amended Complaint

describes with particularity a situation where the members of the Board face a

substantial threat of liability for non-exculpated claims for waste and/or bad faith

because: (1) Redstone’s contributions to the Company after May 2014 were so

negligible and inadequate in value that no person of ordinary, sound business

judgment would deem them worth the millions of dollars in salary that the Company

was paying him; and (2) the failure to inquire into Redstone’s health or to at least

consider terminating his Employment Agreement while the Company paid him

millions of dollars over a twenty-month period is reflective of a conscious disregard

of the directors’ fiduciary duties.

To be clear, the Board certainly did not need to terminate Redstone’s

employment immediately upon him falling ill. Redstone has been a leading and

144 See J. Travis Laster & John Mark Zeberkiewicz, The Rights and Duties of Blockholder Directors, 70 BUS. LAW. 33, 45 (2014) (citing Gantler v. Stephens, 965 A.2d 695 (Del. 2009) (“The failure by an officer or director to provide information regarding the corporation to the board, or a group of directors who direct that information not be furnished to one or more directors, may constitute a breach of fiduciary duty on the part of the officers or directors responsible for the failure.”). 35 prominent figure in the entertainment industry for decades, before and after CBS

became an independent public company. He was entitled to be treated in a dignified

and respectful manner upon falling ill, as one would hope the Company would treat

any of its employees. According to the allegations of the Amended Complaint,

however, the Company made no effort to reckon with the financial consequences of

Redstone’s severe incapacity for approximately twenty months. If plaintiff’s

allegations are true, the Board’s extended period of inaction is inexplicable.

Focusing on the decline in Redstone’s compensation “from $11.76 million in

2013 to $1 million in 2016,” defendants argue that “[t]here is simply no logical

inference . . . that Mr. Redstone’s capabilities and health issues were ignored.”145

Perhaps discovery will bear out that these concerns actually were addressed as

defendants imply, but the record currently before the court does not. To the contrary,

there is no indication in plaintiff’s pleading, or in the many documents defendants

chose to place in the record from the Section 220 production to plaintiff, that

Redstone’s mental or physical capacity or his ability to perform any substantive tasks

was discussed in any meaningful sense during the Relevant Period.146 Glaringly

145 Defs.’ Reply Br. 30 (Dkt. 68). 146 For example, CBS’s Board and Compensation Committee minutes in the latter part of 2014 and throughout 2015 contain no discussion of Redstone’s mental or physical capacity. See Moses Aff. Exs. 20, 22-34. Defendants argue that “there is no requirement under Delaware law that board minutes adopt any level of particularity.” Defs.’ Reply Br. 30. True enough, but at this stage of the litigation all reasonable inferences must be drawn in favor of plaintiff. 36 absent, for example, is any memorandum or other writing candidly assessing

Redstone’s capabilities and the pros and cons of terminating his Employment

Agreement.147

In sum, based on the particularized allegations of the Amended Complaint and

the procedural posture of the pending motion, the court has good reason to doubt the

ability of the Company’s directors to investigate impartially claims against

themselves concerning the salary payments made to Redstone as Executive

Chairman after late May 2014. Accordingly, demand is excused with respect to that

part of Count I of the Amended Complaint.

4. The Chairman Emeritus Salary Payments On February 3, 2016, the day after Redstone resigned as Executive Chairman,

the Board appointed him as Chairman Emeritus.148 About two weeks later, on

February 18, the Compensation Committee decided to pay Redstone an annual salary

147 Pointing to the Company’s proxy statement, defendants assert that if Redstone’s employment had been terminated due to disability, the vesting of approximately $3.2 million in equity awards would be accelerated. Defs.’ Opening Br. 13; Defs.’ Reply Br. 21; Tr. 25 (Sept. 15, 2017). That certainly would be a valid consideration for the Board to take into account in deciding upon a course of action. The problem at this procedural stage, however, is that there is no indication in the record (including the documents that defendants submitted with their papers) that this factor actually was considered in real time. Tr. 25-26 (Sept. 15, 2017). 148 Am. Compl. ¶¶ 20, 80; Moses Aff. Ex. 27. 37 of $1 million for “his continuing employment with the Company as an at-will

employee following [his] resignation.”149

The setting of Redstone’s compensation as Chairman Emeritus was a

Compensation Committee decision, like the setting of the bonus payment in 2014.

Nevertheless, it would be unreasonable in my view to expect that the other members

of the Board would be able to consider a demand regarding this decision

impartially.150 Practically speaking, it would be against the personal interests of

those directors to be critical of a decision to pay Redstone an annual salary of $1

million given that plaintiff’s claims regarding the base salary payments made to

Redstone as Executive Chairman after May 2014 (before he became Chairman

Emeritus in February 2016) will proceed against them.

Put differently, how could a director realistically be expected to criticize a

subsequent decision to pay a $1 million annual salary when that director is already

being sued for permitting prior annual salary payments to have been made to that

same, allegedly incompetent person? This concern about impartiality is particularly

149 Am. Compl. ¶¶ 5(n) (quoting minutes of Feb. 18, 2016 Compensation Committee meeting (Moses Aff. Ex. 28 at 5)), 83. 150 One might question the non-Compensation Committee directors’ ability to be impartial with respect to the 2014 bonus payment for the same reason, but that one-time decision was qualitatively different. It is not contested that the Company met its performance goals for 2014 and that Redstone was able to perform his duties for approximately five months in 2014, which by itself may be sufficient consideration for the bonus. See Tr. 47, 65 (Sept. 15, 2017). 38 acute here, where there is no indication from the allegations of the Amended

Complaint that Redstone’s mental or physical capacity had improved in early 2016

relative to the latter half of 2014 through 2015. Accordingly, demand is excused

with respect to the claims regarding Redstone’s compensation as Chairman

Emeritus.

5. Demand is Excused for Part of the Unjust Enrichment Claim Count II of the Amended Complaint asserts that Redstone was unjustly

enriched through his receipt of cash compensation during the Relevant Period. This

claim parallels plaintiff’s breach of fiduciary duty claim in Count I, turning on the

same challenged payments.151

For the reasons explained above, plaintiff has pled no particularized facts

excusing his failure to make a demand on the Board with respect to the 2014 bonus

payment. This holds true whether the theory of recovery for that payment is based

on an alleged breach of fiduciary duty or unjust enrichment. The Board, however,

could not impartially consider unjust enrichment claims with respect to the

Executive Chairman and Chairman Emeritus base salary payments, since, as

explained above, twelve of its thirteen members face a sufficiently substantial threat

151 See Seinfeld v. Slager, 2012 WL 2501105, at *16 (Del. Ch. June 29, 2012) (dismissing unjust enrichment claims that were “derivative of” other claims, including waste claims, that were dismissed for failure to demonstrate that demand on the board was excused). 39 of personal liability for breach of fiduciary duty by permitting those payments to be

made. Accordingly, demand with respect to that aspect of Count II is excused.

D. The Amended Complaint States Claims for Breach of Fiduciary Duty and Unjust Enrichment In this section, I address whether plaintiff has stated a claim for relief with

respect to the claims for which demand is excused, i.e., the breach of fiduciary duty

and unjust enrichment claims concerning the Executive Chairman and Chairman

Emeritus salaries paid to Redstone after late May 2014. The standards governing a

motion to dismiss for failure to state a claim for relief under Court of Chancery Rule

12(b)(6) are well settled:

(i) all well-pleaded factual allegations are accepted as true; (ii) even vague allegations are “well-pleaded” if they give the opposing party notice of the claim; (iii) the Court must draw all reasonable inferences in favor of the non-moving party; and ([iv]) dismissal is inappropriate unless the “plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof.”152

1. The Executive Chairman Salary Payments “The standard for pleading demand futility under Rule 23.1 is more stringent

than the standard under Rule 12(b)(6), and a complaint that survives a motion to

dismiss pursuant to Rule 23.1 will also survive a 12(b)(6) motion to dismiss,

assuming that it otherwise contains sufficient facts to state a cognizable claim.” 153

152 Savor, Inc. v. FMR Corp., 812 A.2d 894, 896-97 (Del. 2002) (citations and internal quotations omitted). 153 Citigroup, 964 A.2d at 139 (citation and internal quotations omitted). 40 Accordingly, for the same reasons stated in the demand futility analysis, plaintiff has

stated a claim with respect to the payment of the Executive Chairman salary from

the latter half of 2014 until Redstone’s resignation from that position in February

2016. To briefly reiterate, plaintiff sufficiently has alleged well-pled facts

demonstrating that Redstone’s contributions over that time period were so

disproportionately small that continued payment of the Executive Chairman salary

($1.75 million annually) was a decision beyond the range of what any reasonable

person might be willing to trade for such “services.”

2. The Chairman Emeritus Salary Payments Plaintiff also has stated a claim for breach of fiduciary duty with respect to

the Chairman Emeritus salary payments. The Company explicitly stated that it

appointed Redstone as Chairman Emeritus and decided to pay him an annual salary

of $1 million with the expectation that Redstone would continue to contribute to

CBS. In particular, the minutes of the Compensation Committee’s February 18,

2016 meeting state that it set Redstone’s salary in consideration of his “continuing

employment with the Company as an at-will employee,” and that Redstone’s

“continuing availability for advice and consultation and continuing participation on

the CBS Board of Directors as Chairman Emeritus” was a factor in making this

41 decision.154 But, as discussed above, plaintiff has alleged facts that the Board knew

that Redstone would not be able to contribute anything of value to CBS by this time,

and had known so for a while.

The Compensation Committee minutes reflect that Redstone’s “significant

historical contributions to the Company” also was discussed when determining the

Chairman Emeritus salary.155 The Company similarly recited in a proxy statement

that “[t]he Board believes that that appointment of Mr. Redstone as Chairman

Emeritus is appropriate, in view of his many years of leadership as Executive

Chairman of the Board and his significant historical contributions to the

Company.”156 Relying on these references, defendants defend the Chairman

Emeritus salary awarded to Redstone based on this court’s dismissal of waste claims

involving the payment of compensation for past services rendered.

In each of those cases, however, the payments made were one-time events,

typically as part of a severance or retirement arrangement.157 Here, by contrast, the

154 Am. Compl. ¶ 5(n) (quoting minutes of Feb. 18, 2016 Compensation Committee meeting (Moses Aff. Ex. 28 at 5)); see also Moses Aff. Ex. 28 at Ex. K (approving the $1 million Chairman Emeritus salary “with respect to the continuing at-will employment arrangement with Mr. Sumner M. Redstone”). 155 Am. Compl. ¶ 5(n) (quoting minutes of Feb. 18, 2016 Compensation Committee meeting (Moses Aff. Ex. 28 at 5)). 156 Moses Aff. Ex. 3 at 8. 157 See Seinfeld, 2012 WL 2501105, at *7 (dismissing waste claim with respect to a $1.8 million retirement bonus paid for past services rendered); Zucker v. Andreessen, 2012 WL 2366448, at *10 (Del. Ch. June 21, 2012) (dismissing waste claim with respect to a 42 Board did not purport to make only a single payment to Redstone for past

contributions as part of a plan of separation. Rather, the Company chose to continue

to pay him an annual salary in “exchange” for services it allegedly knew that he

could not render. The decision to award an apparently ongoing salary of this size

under the circumstances was “sufficiently unusual to require the court to refer to

evidence before making an adjudication of [its] validity and consistency with

fiduciary duty.”158 Accordingly, this aspect of Count I also states a claim for relief.

3. Unjust Enrichment 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.”159 “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.”160 “When the complaint alleges an express, enforceable contract

severance package); Zupnick v. Goizueta, 698 A.2d 384, 388-89 (Del. Ch. 1997) (dismissing waste claim with respect to a stock option award granted for past services rendered where the options became exercisable immediately upon the executive’s retirement and the executive was eligible to retire when the options were granted). 158 Lewis v. Vogelstein, 699 A.2d 327, 339 (Del. Ch. 1997) (Allen, C.). 159 Fleer Corp. v. Topps Chewing Gum, Inc., 539 A.2d 1060, 1062 (Del. 1988) (citation and internal quotations omitted). 160 Nemec v. Shrader, 991 A.2d 1120, 1130 (Del. 2010) (citation omitted). 43 that controls the parties’ relationship, however, a claim for unjust enrichment will

be dismissed.”161

Because Redstone’s base salary compensation as Executive Chairman was

governed by the Employment Agreement, plaintiff has not stated a claim for unjust

enrichment with respect to those payments. It is not alleged, however, that Redstone

ever signed a new employment contract in connection with his appointment as

Chairman Emeritus after his resignation as Executive Chairman.162 With respect to

these payments, Redstone only implicitly challenges the fourth element, i.e., the

absence of justification:

To the extent the Complaint seeks to challenge the compensation paid to Mr. Redstone following his resignation as Executive Chairman and appointment as Chairman Emeritus, it nonetheless fails to state a claim because . . . there was no underlying wrongful conduct by the Individual Defendants in awarding that compensation to Mr. Redstone.163

I disagree. For the reasons explained above, plaintiff has adequately pleaded that

the Chairman Emeritus payments made to Redstone were wasteful and thus lacked

justification. Accordingly, at this stage of the case, the court cannot conclude that

161 Bakerman v. Sidney Frank Importing Co., Inc., 2006 WL 3927242, at *18 (Del. Ch. Oct. 10, 2006) (citation omitted). 162 Redstone’s Joinder & Mot. to Dismiss ¶ 4 n.5 (Dkt. 58). 163 Id. 44 there is no reasonably conceivable set of circumstances under which Redstone was

unjustly enriched by these particular payments.164

IV. CONCLUSION For the reasons stated above, defendants’ motion to dismiss is GRANTED in

part and DENIED in part. This action will proceed in the manner set forth above.

The parties are directed to confer and to submit an implementing order within five

business days of this decision.

IT IS SO ORDERED.

164 See Ryan v. Gifford, 918 A.2d 341, 361 (Del. Ch. 2007) (quoting Schock v. Nash, 732 A.2d 217, 232-33 (Del. 1999)) (“A defendant may be liable ‘even when the defendant retaining the benefit is not a wrongdoer’ and ‘even though he may have received [it] honestly in the first instance.’”). 45