                              COURT OF CHANCERY
                                    OF THE
                              STATE OF DELAWARE
ANDRE G. BOUCHARD                                             LEONARD L. WILLIAMS JUSTICE CENTER
   CHANCELLOR                                                      500 N. KING STREET, SUITE 11400
                                                                  WILMINGTON, DELAWARE 19801-3734



                             Date Submitted: May 16, 2018
                             Date Decided: May 17, 2018


  David E. Ross, Esquire                      Myron T. Steele, Esquire
  Bradley R. Aronstam, Esquire                Matthew E. Fischer, Esquire
  Ross Aronstam & Moritz LLP                  Potter Anderson & Corroon LLP
  100 S. West Street, Suite 400               Hercules Plaza, 6th Floor
  Wilmington, DE 19801                        1313 N. Market Street
                                              Wilmington, DE 19899


        RE:     CBS Corporation, et al. v. National Amusements, Inc., et al.
                Civil Action No. 2018-0342-AGB

  Dear Counsel:

        This letter constitutes the court’s ruling on plaintiffs’ motion for a temporary

  restraining order that was argued yesterday afternoon. Although a more extensive

  discussion of the issues would be desirable, the need for an immediate decision

  necessitates brevity. For the reasons explained below, the motion is denied, and

  the order that was entered at the conclusion of yesterday’s hearing to protect the

  court’s jurisdiction pending this ruling is hereby rescinded.
CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

I.       Background1

         Plaintiffs consist of CBS Corporation and five independent members of its

Board of Directors (the “Board”) who serve on a Special Committee of the Board

that was formed to consider a potential merger of CBS and Viacom, Inc.

         Defendants consist of Shari Redstone, her father Sumner Redstone, National

Amusements, Inc. (“NAI”), NAI Entertainment Holdings LLC, and the Sumner M.

Redstone National Amusements Trust. Ms. Redstone, through her control of NAI,

effectively controls approximately 79.6% of the voting power of CBS, although

NAI owns only approximately 10.3% of the economic stake in CBS.2

         Before 2005, CBS and Viacom were part of one company, which also was

called Viacom. In 2005, CBS and Viacom were split into the standalone entities

they are today. CBS has two classes of stock, both of which are publicly traded on

the New York Stock Exchange. The Class A common stock has voting power; the

Class B common stock does not. Viacom has a similar dual class structure that

gives NAI a similar level of voting control.3


1
  The factual recitation herein comes largely from plaintiffs’ complaint, which was
verified by each member of the Special Committee and a representative of CBS, as the
court’s rules require. Ct. Ch. R. 3(aa). Ms. Redstone declined to submit an affidavit even
though defendants make a number of representations in a 25-page responsive brief about
NAI’s intentions as a controlling stockholder.
2
    Verified Compl. ¶ 4.
3
    See Feuer v. Dauman, 2017 WL 4817427, at *1 (Del. Ch. Oct. 25, 2017).

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
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         According to the complaint, Ms. Redstone began to pursue a merger of CBS

and Viacom in 2016 on the heels of removing Viacom’s then-CEO and replacing a

number of directors on Viacom’s board. The proposed deal allegedly foundered

because Ms. Redstone would not agree to “the combined CBS/Viacom entity

[being] managed as a non-controlled public company with a majority-independent

board for at least the next five years.”4

         Over the next two years, Ms. Redstone took various actions, some of which

are discussed below, that “have led the Special Committee to conclude that she

presents a significant threat of irreparable and irreversible harm to the Company

and its stockholders.”5     By early January 2018, Ms. Redstone again formally

approached the boards of CBS and Viacom and pressed for a combination of the

two companies.6 In response, the CBS and Viacom boards each formed special

committees to evaluate and negotiate a potential combination.7             During

negotiations, Ms. Redstone allegedly “refused to agree to typical public company




4
    Verified Compl. ¶ 43.
5
    Verified Compl. ¶ 2.
6
    Verified Compl. ¶ 46.
7
    Verified Compl. ¶ 49.

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

governance or submit any potential transaction to a vote of all of the unaffiliated

public stockholders of CBS.”8

         On Sunday, May 13, 2018, the Special Committee determined that a

CBS/Viacom merger is not in the best interests of CBS stockholders, other than

NAI.9 The Special Committee contends that, in response to this decision, Ms.

Redstone may “immediately replace members of the Board and use the new

directors to force through the merger . . . and make other changes to the CBS

organizational documents” to impede the Board.10

         At the request of the Special Committee, CBS scheduled a special board

meeting to begin at 5 p.m. on May 17, 2018 to consider potential responses to Ms.

Redstone’s conduct.11        At that meeting, the Special Committee intends to

recommend that the Board approve a stock dividend of Class A voting shares to all

holders of Class A voting and Class B non-voting shares (the “Dividend

Proposal”).12 If approved, the dividend would dilute NAI’s voting power from

approximately 80% to 17%, but would not dilute its economic stake or the



8
    Verified Compl. ¶ 2.
9
    Verified Compl. ¶ 62.
10
     Verified Compl. ¶ 62.
11
     Verified Compl. ¶ 7.
12
     Verified Compl. ¶ 71.

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

economic stake of any other CBS stockholder.13 By any reckoning, the Dividend

Proposal is an extraordinary measure, presumably reflective of the depth of

concern the independent members of the Special Committee have about Ms.

Redstone’s intentions.

         Importantly, if approved by the Board, “CBS will not issue any Class A

shares distributable in the stock dividend, or otherwise cause that dividend to

become effective, pending further order of the Court.”14 In other words, the stock

dividend would be conditional “unless and until the Delaware courts decide on a

record whether it is legally and equitably permissible.”15

          On Monday, May 14, 2018, plaintiffs filed their complaint and a motion for

a temporary restraining order. The complaint contains three claims. Count I

asserts that NAI, Mr. Redstone, and Ms. Redstone have breached their fiduciary

duties as the controlling stockholder of CBS. Count II asserts a claim for estoppel

against these same defendants. Count III asserts a claim for aiding and abetting

against the remaining two defendants. In their motion, plaintiffs request that the

court temporarily restrain defendants and their agents from:




13
     Verified Compl. ¶¶ 7, 72.
14
     Verified Compl. ¶ 9.
15
     Tr. 13 (May 16, 2018).

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

             (a) interfering with the composition of CBS’s Board (other than electing

          the slate currently nominated for election at CBS’s May 18 annual meeting

          of stockholders) or modifying CBS’s governance documents until any

          actions approved at the special board meeting called for May 17 become

          effective;

             (b) taking any other actions to interfere with any decisions to be taken by

          CBS’s Board at the May 17 special board meeting; and

             (c) interfering with the issuance of any shares payable in a stock

          dividend.

No precedent has been cited in which this (or any other court) has granted such

relief.

          Approximately two hours after the complaint was filed on May 14, the court

scheduled a hearing on the motion for a temporary restraining order to begin on

Wednesday, May 16 at 2 p.m.            Approximately one hour before the hearing,

defendants filed a letter informing the court that NAI had executed and delivered

consents to amend CBS’s bylaws to, among other things, require approval by 90%

of the directors then in office at two separate meetings held at least twenty business

days apart in order to declare a dividend (the “90% Bylaw”). Given that CBS’s

Board currently consists of fourteen members, three of which are NAI-designees,


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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

the 90% Bylaw (if valid) would allow NAI to block enactment of the Dividend

Proposal.

         In light of NAI’s act of self-help before the court could hear plaintiffs’

motion for a temporary restraining order, the court entered the form of order

submitted by plaintiffs in support of their motion at the conclusion of yesterday’s

hearing as an interim measure to protect the court’s jurisdiction until it could rule

on the motion (the “Interim Order”).16

II.      Analysis

         A temporary restraining order may be issued when the movant demonstrates

that: “[1] it has a colorable claim, [2] faces a likelihood of imminent, irreparable

harm if relief is not granted, and [3] will suffer greater hardships if the TRO is not

granted than the defendants would if the relief were granted.”17 The “colorable

claim” requirement means that a plaintiff must state “essentially a non-frivolous

cause of action.”18

         Defendants make a threshold argument that a stronger showing should be

required on the merits of plaintiffs’ motion for two reasons. First, defendants

contend that plaintiffs should be required to establish actual success on the merits



16
     Dkt. 37.
17
     Arkema Inc. v. Dow Chem. Co., 2010 WL 2334386, at *1 (Del. Ch. May 25, 2010).

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

on the theory that a temporary restraining order would not just maintain the status

quo.      Rather, according to defendants, a temporary restraining order would

effectively provide plaintiffs with “final, irreversible relief” because, if the

temporary restraining order were granted, defendants would lose forever the right

to take corporate action before the Board votes on the Dividend Proposal.19 A flaw

in this argument is that the Dividend Proposal would not be “irreversible” if

approved by the Board. To the contrary, as noted above, it is structured not to

become effective until the resolution of any judicial challenge. The real issue

underlying defendants’ argument is who—a controller or a board of directors—

should have “first-mover” advantage to take action and define the contours of a

fight between them. I touch upon this issue briefly in my consideration of the

balance of the equities.

         Second, defendants contend that plaintiffs at least should have to satisfy the

reasonable likelihood of success standard necessary to obtain a preliminary

injunction on the theory that plaintiffs delayed in seeking relief. I disagree with

this contention. On the record before me, it appears that plaintiffs acted in a

sensible and timely manner by filing their motion promptly after the Special


18
  Reserves Dev. Corp. v. Wilmington Tr. Co., 2008 WL 4951057, at *2 (Del. Ch. Nov. 7,
2008).
19
     Defs.’ Answering Br. at 12.

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

Committee concluded on May 13 that a CBS/Viacom merger was not in the best

interests of the Company, when the prospect of retributive action by the controlling

stockholder became acute.

         A.    Colorability of Plaintiffs’ Claims

         The key premise of the complaint is that, since its separation from Viacom

in 2005, CBS has held itself out as a company committed to independent board

governance in order to assuage stockholder concerns about investing in a company

controlled by the Redstones—the so-called “Redstone discount.” To that end, CBS

publicly has “touted the independence of its Board” and “represented that CBS

was—and would be—governed by an independent Board despite being a

‘controlled company.’”20 For example, CBS stated in its registration statement in

2005, and repeated materially identical representations in its proxy statements

every year between 2006 and 2018, that “a majority of the CBS Corp. directors

must be independent, as ‘independence’ is defined in the NYSE listing standard

and in the CBS Corp. Guidelines.”21

         Indeed, according to plaintiffs, the fact that the certificate of incorporation of

CBS (and Viacom), unlike those of some other controlled companies, authorizes

the Board to approve a stock dividend that would dilute NAI’s voting power is


20
     Compl. ¶ 30.

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

itself evidence of CBS’s commitment to independent board governance.

Defendants vigorously dispute this interpretation of CBS’s certificate of

incorporation, on which the court expresses no opinion.

         According to the complaint, Ms. Redstone has taken various actions casting

significant doubt over the genuineness of CBS’s public promises of independent

board governance that are detrimental to the interests of the stockholders who hold

approximately 90% of the economic stake in the Company.22               These actions

include the following:

         o In 2017, Ms. Redstone “interfered with the Nomination and Governance

            Committee process”23 by filling Mr. Redstone’s “newly vacant board seat

            with the Redstones’ personal lawyer who has since been instructing

            management and other directors on Ms. Redstone’s/NAI’s wishes—

            including the desire to replace certain directors.”




21
     Compl. ¶¶ 31-32, 32 n.2.
22
     Compl. ¶ 2.
23
   In its 2005 registration statement, CBS represented that “despite being a ‘controlled
company,’ CBS Corp. . . . will have . . . an independent nominating and governance
committee,” which, according to CBS’s Corporate Governance Guidelines, “will
recommend director candidates to the Board in accordance with the criteria, policies and
principles set forth in its Charter and in these Guidelines.” Compl. ¶¶ 31, 33.


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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

      o “Ms. Redstone has acted to undermine the management team, including,

          without board authority, talking to potential CEO replacements, deriding

          the Chief Operating Officer and threatening to change the Board.”

      o “During the course of the Special Committee’s negotiations with respect

          to a possible merger, Ms. Redstone refused to agree to typical public

          company governance or submit any potential transaction to a vote of all

          of the unaffiliated public stockholders of CBS.”

      o “Ms. Redstone told the CEO of a potential acquirer of CBS that he

          should not make such an offer, thereby depriving CBS stockholders of a

          potentially value-enhancing opportunity that the Board or the Special

          Committee should have been free to evaluate.”

      o “It has been reported that Ms. Redstone is prepared to replace directors at

          CBS, including members of the Special Committee, in order to compel a

          merger [with Viacom] regardless of the determination of the Special

          Committee and the other independent directors of CBS.”

      In my opinion, particularly given CBS’s proclaimed commitment to

independent board governance, these allegations are sufficient to state a colorable




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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

claim for breach of fiduciary duty against Ms. Redstone and NAI as CBS’s

controlling stockholder.24

      B.     Irreparable Harm

      “To demonstrate irreparable harm, a plaintiff must present an injury of such

a nature that no fair and reasonable redress may be had in a court of law and must

show that to refuse the injunction would be a denial of justice. The alleged

injury must be imminent and genuine, as opposed to speculative.”25

      Plaintiffs’ theory of irreparable harm has been somewhat elusive. As I

understand it, plaintiffs’ basic contention is that, if the court does not grant the

unprecedented relief they are seeking in order to prevent Ms. Redstone from

interfering with the Board’s consideration of the Dividend Proposal (or other

matters that may arise) during the special board meeting scheduled for later today,

Ms. Redstone would have “the unfettered ability to replace the Board and cram




24
   See, e.g., Shamrock Hldgs. v. Iger, 2005 WL 1377490, at *6 (Del. Ch. June 6, 2005)
(refusing to dismiss under Rule 12(b)(6) breach of fiduciary duty and equitable fraud
claims where the process Disney ran to select a new CEO was alleged to be inconsistent
with how the company publicly announced the process to stockholders.); Dousman v.
Kobus, 2002 WL 1335621, at *5-7 (Del. Ch. June 6, 2002) (holding that defendants were
estopped from enforcing a supermajority voting bylaw in a way that was inconsistent
with prior public disclosures).
25
   Aquila, Inc. v. Quanta Servs., Inc., 805 A.2d 196, 208 (Del. Ch. 2002) (internal
citations omitted).

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

down a merger with Viacom, or otherwise take action that is detrimental to the

public stockholders who hold 90% of CBS’s equity.”26

         Although NAI’s execution of consents to implement the 90% Bylaw within

hours of the court’s hearing on the instant motion belies defendants’ contention

that plaintiffs’ concerns about Ms. Redstone are hypothetical or speculative, I am

not convinced that the harm plaintiffs fear would be irreparable. To the contrary,

the court has extensive power to provide redress if Ms. Redstone takes action(s)

inconsistent with the fiduciary obligations owed by a controlling stockholder.27

         Plaintiffs already committed during yesterday’s hearing to challenge the

validity of the 90% Bylaw, which this court will have the power to set aside if

indeed it is proven to be invalid or inequitable. As defendants acknowledge,

Section 225 of the Delaware Corporation Law is available to address an improper

removal of directors.28        Similarly, as defendants also acknowledge, recourse

always is available in this court for a merger that is the product of a fiduciary



26
     Pls.’ Mot. for a Temp. Restraining Order ¶ 18.
27
  See, e.g., Hollinger Int’l, Inc. v. Black, 844 A.2d 1022, 1029 (Del. Ch. 2004), aff’d, 872
A.2d 559 (Del. 2005) (granting injunctive relief to prevent Conrad Black from undoing
the independent process to which he had agreed to govern the sale of a publishing
company he controlled).
28
  Defs.’ Answering Br. at 20 (“The availability of an action under Section 225 of the
DGCL precludes any holding that the purportedly threatened removal of directors
constitutes irreparable harm.”).

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

breach.29 To be sure, litigation over these types of issues takes time, is expensive,

and can be distracting and messy. But that does not mean that full relief would not

be available if the present motion is denied.

         C.     Balance of the Equities

         Finally, the court must “balance the plaintiff’s need for protection against

any harm that can reasonably be expected to befall the defendants if the injunction

is granted.”30 In making this determination, the court “must be cautious that its

injunctive order does not threaten more harm than good.                That is, a court in

exercising its discretion to issue or deny such a . . . remedy must consider all of

the foreseeable consequences of its order and balance them. It cannot, in equity,

risk greater harm to defendants, the public or other identified interests, in granting

the injunction, than it seeks to prevent.”31

         Balancing the relevant considerations here implicates an apparent tension in

our law between a controlling stockholder’s right to protect its control position and

the right of independent directors—empowered under 8 Del. C. § 141(a) with


29
   Def’s Answering Br. at 21 (“If any subsequently announced transaction involving CBS
is believed by any CBS stockholders to have resulted from a breach of a controlling
stockholder’s fiduciary duties, those claims—and request for injunctive relief—can be
brought by an appropriate plaintiff at that time.”).
30
     See, e.g. Mills Acq’n Co. v. Macmillan, Inc., 559 A.2d 1261, 1279 (Del. 1989).
31
  In re Del Monte Foods Co. S’hlders Litig., 25 A.3d 813, 839 (Del. Ch. 2011) (quoting
Lennane v. ASK Computer Sys., Inc., 1990 WL 154150, at *6 (Del.Ch. Oct. 11, 1990)).

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

broad authority to manage “the business and affairs” of the corporation—to

respond to a threat posed by a controller, including possible dilution of the

controller.

           On the one hand, cases such as Frantz Mfg. Co. v. EAC Indus. and

Adlerstein v. Wertheimer recognize a controller’s right to address threats to its

control preemptively. In Frantz, for example, our Supreme Court found that a

controller’s preemptive enactment of bylaw amendments was “a permissible part

of [the controller’s] attempt to avoid its disenfranchisement as a majority

shareholder.”32 And in Adlerstein, this court noted that a board’s decision to keep

a controller “in the dark” about a plan to issue preferred stock destroying his voting

control was “significant” because the controller had the power to prevent the

issuance by unseating directors.33 The court explained that the controller “may or

may not have exercised this power had he been told about the plan in advance [b]ut

he was fully entitled to the opportunity to do so.”34

           On the other hand, there is a line of authority emanating from Mendel v.

Carroll, where Chancellor Allen expressed an openness to “the possibility that a

situation might arise in which a board could, consistently with its fiduciary duties,

32
     Frantz Mfg. Co. v. EAC Indus., 501 A.2d 401, 407 (Del. 1985).
33
     Adlerstein v. Wertheimer, 2002 WL 205684, at *9 (Del. Ch. Jan. 25, 2002).
34
     Id.
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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

issue a dilutive option in order to protect the corporation or its minority

shareholders from exploitation by a controlling shareholder who was in the process

of threatening to violate his fiduciary duties to the corporation.”35 It could be

argued that, implicit in this reasoning, it would be reasonable in an appropriate

circumstance to afford a board “breathing space” to deliberate over such options

free from the preemptive power of a controller by affording temporary relief of the

type plaintiffs seek here. Otherwise, how would a board be able to take such

action as a practical matter if, as Adlerstein holds, the controller has a “right to

advance notice [that] derives from a basic requirement in our corporation law that

boards of directors conduct their affairs in a manner that satisfies minimum

standards of fairness”?36

         No precedent has been identified, however, in which the court has ever

entertained, much less sanctioned, the type of request for relief that plaintiffs make

here. In and of itself, this suggests that a truly extraordinary set of circumstances

would be necessary to grant such a request.


35
  651 A.2d 297, 306 (Del. Ch. 1994); see also Klaassen v. Allegro Dev. Corp., 2013 WL
5967028, at *11 (Del. Ch. Nov. 7, 2013) (“[A] board acting loyally may take action to
oppose, constrain, or even dilute a large or controlling stockholder.”) (citing, among other
cases, Mendel v. Carroll and Hollinger, 844 A.2d at 1088); Ford v. VMware, Inc., 2017
WL 1684089, at *11 (Del. Ch. May 2, 2017) (“Delaware decisions recognize that a board
can respond to a threat posed by a controlling stockholder.”).
36
     Adlerstein, 2002 WL 205684, at *9.

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CBS Corporation, et al. v. National Amusements, Inc., et al.
C.A. No. 2018-0342-AGB
May 17, 2018

      The exigency of plaintiffs’ application precludes further consideration of this

point of tension. Adlerstein, which expressly endorsed a controller’s right to make

the first move preemptively to protect its control interest, is the clearest precedent

and weighs heavily in defendants’ favor. Exercise of that right, of course, is

subject to judicial review, which can afford full relief in this circumstance in my

opinion to vindicate the interests of CBS and its stockholders, if appropriate.

Accordingly, the balance of the equities weighs in defendants’ favor.

                                        *****

      For the reasons explained above, plaintiffs’ motion for a temporary

restraining order is DENIED, and the Interim Order is hereby RESCINDED

effectively immediately.

      IT IS SO ORDERED.

                                         Sincerely,

                                         /s/ Andre G. Bouchard

                                         Chancellor

AGB/gm




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