Court Opinion

ID: 4458903
Source: CourtListenerOpinion
Date Created: 2019-11-25 21:03:36.974596+00
Date Added: 2024-06-11T15:08:36.447852
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

BUCKS COUNTY EMPLOYEES                   )
RETIREMENT FUND,                         )
                                         )
                        Plaintiff,       )
                                         )
               v.                        )    C.A. No. 2019-0820-JRS
                                         )
CBS CORPORATION,                         )
                                         )
                        Defendant.       )

                         MEMORANDUM OPINION

                      Date Submitted: November 22, 2019
                       Date Decided: November 25, 2019

Michael Hanrahan, Esquire, Corinne Elise Amato, Esquire, Eric J. Juray, Esquire
and Xi (Elizabeth) Wang, Esquire of Prickett, Jones & Elliott, P.A., Wilmington,
Delaware and Eric L. Zagar, Esquire, Michael C. Wagner, Esquire and Grant D.
Goodhart, III, Esquire of Kessler Topaz Meltzer & Check, LLP, Radnor,
Pennsylvania, Attorneys for Plaintiff Bucks County Employees Retirement Fund.

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

SLIGHTS, Vice Chancellor
      National Amusements, Inc. (“NAI”) controls both CBS Corporation and

Viacom, Inc. through its majority ownership of the Class A voting common stock of

both companies. NAI, in turn, is controlled by Shari Redstone (“Redstone”), giving

her effective control of both CBS and Viacom. In 2016, Redstone exercised her

control of Viacom to remove its CEO and change the composition of its board of

directors. After consolidating her control over Viacom, she proposed that CBS and

Viacom merge (the “2016 Merger”). CBS’s board of directors (the “CBS Board”)

empowered a special committee to review the proposed combination.              That

committee eventually declined to pursue the merger after determining that Viacom’s

declining performance made it a less than attractive partner.

      In 2018, Redstone again proposed a CBS-Viacom merger (the “2018

Merger”). The CBS Board appointed another special committee to review and

negotiate the transaction. Once again, after agreeing to an exchange ratio for the

stock-for-stock transaction, the CBS special committee refused to recommend the

2018 Merger after failing to secure Redstone’s agreement to allow the CBS minority

stockholders to vote on the transaction and failing to secure certain governance

protections for the combined company.

      While Redstone had accepted the failure of the 2016 Merger, CBS’s

independent directors suspected she would not sit idle after being rebuffed a second

time. They were convinced she would use her power as controller to force through

                                         1
the 2018 Merger. In response to this perceived threat, CBS’s Board took the

extraordinary step of attempting to issue a stock dividend that would eliminate NAI’s

voting control of CBS. CBS then filed preemptive litigation against NAI in this

court alleging breaches of fiduciary duty and seeking a temporary restraining order

that would prevent NAI from changing the CBS Board in order to rescind the stock

dividend. In its pleadings, CBS aggressively condemned the proposed merger and

accused Redstone of abusing her role as CBS and Viacom’s controller. It alleged,

“[Redstone] presents a significant threat of irreparable and irreversible harm to

[CBS] and its stockholders[.]”1 It also claimed Redstone was pushing the merger to

“rescue Viacom” and seeking the combination “regardless of the strategic and

economic merits of the transaction and to the exclusion of considering any other

potential transaction.”2

         After intense litigation, the parties entered into a settlement agreement

(the “Settlement Agreement”) that, among other things, significantly altered the

composition of the CBS Board. For her part, Redstone agreed that, for a period of

two years, she would not propose a CBS-Viacom merger without the invitation of

two-thirds of CBS’s independent directors.

1
    JX 12 at 2.
2
    JX 14 at 12 n.3; JX 12 at 5.

                                         2
       In April 2019, CBS formed a committee of purportedly non-NAI affiliated

directors (the “Special Committee”) to evaluate strategic transactions. That process

led very quickly, once again, to consideration of a CBS-Viacom merger.

On August 13, 2019, CBS and Viacom announced they would merge (the “2019

Merger”). A CBS stockholder, Plaintiff, Bucks County Employees Retirement

Fund, served CBS with a demand letter in September 2019 (the “Demand”), in which

it sought to inspect certain books and records under 8 Del. C. § 220. The Demand

stated among its purposes for inspection an intent to investigate mismanagement or

wrongdoing related to the 2019 Merger. CBS agreed to provide some, but not all,

of the documents requested in the Demand, and Plaintiff filed its Verified Complaint

shortly thereafter.

       The 2019 Merger will likely close the first week of December 2019. Plaintiff

states it may use the fruits of inspection to seek to enjoin the closing, hence this

expedited post-trial decision.3 For reasons stated below, I find that Plaintiff has

stated a proper purpose for inspection under Section 220 by having demonstrated a

3
   By having adjudicated this Section 220 action on an expedited basis prior to the
transaction’s closing, I do not mean to endorse the Plaintiff’s approach here as a
“playbook” that should be followed by other stockholders who may seek to challenge
transactions pre-closing. Nor do I intend to suggest that the timing of Plaintiff’s strategic
moves here is conducive to a proper review of this transaction prior to its scheduled closing
next week. That very much remains to be seen.

                                             3
credible basis to suspect wrongdoing. I also find that some, but not all, of the

documents sought are necessary and essential to fulfill that purpose.

                                   I. BACKGROUND

         I have drawn the facts from the parties’ pretrial stipulation, evidence admitted

at trial and those matters of which the Court may take judicial notice. 4 A trial on a

paper record was held on November 22, 2019. The following facts were proven by

a preponderance of the competent evidence.5

     A. The Parties and Relevant Non-Parties

         Plaintiff, Bucks County Employees Retirement Fund, is a beneficial owner of

CBS Class B non-voting common stock.6

         Defendant, CBS, is a Delaware corporation with its principal place of business

in New York, New York.7 CBS’s common stock is divided into two classes: Class A

stock, which has one vote per share; and Class B non-voting stock.8

4
 I cite to the trial arguments of counsel as “Tr.__”, the Joint Pre-Trial Stipulation and Order
as “PTO ¶ __,” the joint trial exhibits as “JX__,” and the Verified Complaint as
“Compl. ¶ __.”
5
 Kosinski v. GGP, Inc., 214 A.3d 944, 950 (Del. Ch. 2019) (confirming a stockholder must
prove by a preponderance of the evidence all the elements of a Section 220 claim).
6
    Compl. ¶ 10; PTO ¶ 1.
7
    Compl. ¶ 11; PTO ¶ 2.
8
    PTO ¶ 3.

                                              4
         Non-party, Viacom, is a Delaware Corporation with its principal place of

business in New York, New York.9 Viacom maintains the same dual-class common

stock structure as CBS.10

         Non-party, NAI, is the controlling stockholder of both CBS and Viacom.11

As of August 2019, NAI beneficially owned 78.9% of CBS’s voting stock and

79.8% of Viacom’s voting stock.

         Non-party, Shari Redstone, holds voting control of CBS and Viacom through

her control of NAI.12 She is the Vice-Chair of both the CBS and Viacom boards.13

      B. The 2016 and 2018 Merger Attempts

         In 2016, after Redstone consolidated her control of Viacom by replacing

Viacom’s CEO and replacing directors on its board, Redstone began pursuing a

merger of CBS and Viacom.14 CBS formed a special committee to consider the

9
  Viacom Inc., Annual Report (Form 10-K) 1–2 (Nov. 14, 2019); see In re Gen. Motors
(Hughes) S’holder Litig., 897 A.2d 162, 170 (Del. 2006) (noting this court may take
judicial notice of SEC filings).
10
     PTO ¶ 4.
11
     PTO ¶ 5.
12
     See JX 20 at 7–8; Compl. ¶¶ 12, 14.
13
  See Viacom Inc., Annual Report (Form 10-K) 109 (Nov. 14, 2019); and CBS Corp.,
Proxy Statement (Schedule 14A) 2 (Apr. 12, 2019).
14
   JX 15 at 2. CBS has raised relevancy objections to any evidence related to the 2016
Merger and the 2018 Merger. Those objections are overruled. As explained below, the
CBS Board’s decisions to reject those transactions, but approve the 2019 Merger, are
relevant to Plaintiff’s allegation that the CBS Board has approved this most recent
                                           5
proposed transaction, and that committee ultimately rejected it.15 Redstone was not

pleased with this result. She told CBS’s independent directors, “the failure to get

the deal done ha[s] caused Viacom to suffer,” and promised “the merger would get

done ‘even if [she had] to use a different process.’”16 In a text message she wrote to

her personal attorney, Robert Klieger, after the deal failed, she revealed the reason

for her frustration; “Viacom [was] tanking . . . .”17

           In 2018, Redstone again proposed a merger of CBS and Viacom.18 CBS again

empowered a special committee to negotiate the merger. And, again, CBS declined

transaction for reasons other than the best interests of CBS stockholders. See DRE 401
(“Evidence is relevant if it has any tendency to make a fact [of consequence] more or less
probable that it would be without the evidence[.]”). CBS also objects to certain newspaper
articles and CBS public filings as hearsay. Those objections are also overruled. “In
establishing a credible basis for further investigation of possible mismanagement, hearsay
statements may be considered, provided they are sufficiently reliable.” In re Plains All
Am. Pipeline, L.P., 2017 WL 6016570, at *4 (Del. Ch. Aug. 8, 2017) (internal quotations
omitted). This is especially so when the credible basis is supported by other competent
evidence. See In re Facebook, Inc. Sec. 220 Litig., 2019 WL 2320842, at *2 n.10 (Del. Ch.
May 31, 2019). Finally, CBS has raised several authenticity objections. These objections
are perplexing given CBS’s stipulation to try the case on a paper record, thereby ensuring
that no witness would be presented to authenticate exhibits for either side. PTO ¶ 24. In
any event, I am satisfied that each exhibit to which an authenticity objection has been
lodged “is what the proponent claims it is.” DRE 901(a); DRE 901(b)(4), (7); DRE 902(6).
The authenticity objections, therefore, are overruled as well.
15
     JX 14 at 2.
16
     Id.
17
     JX 7.
18
     JX 14 at 2.

                                            6
to go forward. This time, the parties got as far as negotiating an exchange ratio of

.6135 shares of CBS per each Viacom share, but the deal fell apart after Redstone

refused to make certain governance concessions.19 In particular, CBS insisted that

the merger be subject to approval by a vote of the majority of CBS’s unaffiliated

stockholders.20 Redstone said no.21 Fearing that Redstone would use her control

over CBS to force through a merger, CBS’s independent directors took extraordinary

measures. Specifically, the independent directors sought to eliminate NAI’s control

of CBS through a stock dividend. CBS then preemptively sued NAI in this court to

obtain judicial approval of the dividend and restrain NAI from forcing a merger.

In various filings with the court, CBS alleged the merger was a “rescue” and a

“bailout” of Viacom that Redstone was pursuing “regardless of the strategic and

economic merits of the transaction . . . .”22 Much of the background of this litigation

is set forth in this court’s opinion in CBS Corporation v. National Amusements,

Inc.23; it need not be rehashed here.

19
     JX 143 at 79.
20
     Id.
21
     Id.
22
     JX 14 at 12 n.3; JX 19 at 8; JX 12 at 5.
23
     2018 WL 2263385 (Del. Ch. May 17, 2018).

                                                7
           The parties eventually resolved the 2018 litigation through the Settlement

Agreement.         Among other provisions, that agreement forbids Redstone from

proposing a merger of CBS and Viacom for two years absent an invitation from two-

thirds of CBS’s independent directors.24 The Settlement Agreement also prompted

an overhaul of the CBS Board, with seven directors resigning and six new directors

joining.25

           At the same time, facing allegations of sexual misconduct, CBS’s CEO, Leslie

Moonves, resigned his role and was replaced on an interim basis by Joseph

Ianniello.26 Ianniello had been a strong ally of Moonves during CBS’s conflict with

NAI, and NAI had directly sued Ianniello in counterclaims brought in the

2018 Chancery litigation.27 The counterclaims alleged, among other things, that

Ianniello was overcompensated and lacked the qualifications to function as CBS’s

24
     JX 30 at 2.
25
     Id.
26
     Id. at 4.
27
     See JX 18.

                                             8
CEO.28 Weeks after the Settlement Agreement, three additional CBS directors

resigned.29 One was later replaced, leaving the CBS Board with 11 directors.30

      C. The 2019 Merger

           CBS’s Nominating and Governance Committee held a meeting on

February 22, 2019.31 Redstone attended the meeting although she is not a member

of that committee.32    During the meeting, the committee discussed “strategic

possibilities for the Company” and “the return of Centerview Partners LLC and

Lazard Frères & Co. LLC[,]” who had functioned as CBS’s financial advisors during

the prior merger attempts.33   After Redstone left the meeting, the committee

determined to recommend to the full CBS Board that it form a Special Committee

to “review certain specified strategic transactions for the Company.” 34 CBS’s

Executive Vice President and Chief Legal Officer, Lawrence Tu, attended the

28
     Id. at 9.
29
     JX 32.
30
     JX 34 at 9.
31
     JX 53.
32
     Id.
33
     Id. at 2.
34
     Id.

                                        9
February 22 meeting. He abruptly resigned his post immediately following the

meeting for “Good Reason,” as defined in his employment agreement.35

           On March 9, CBS’s independent directors held a special meeting.36 Senior

advisors from Centerview and Lazard attended this meeting where “specific

potential acquisition/merger opportunities” for CBS were discussed.37                       After

Centerview and Lazard’s representatives left the meeting, Ianniello presented

management’s recommendation that CBS merge with Viacom. 38 Ianniello then left

the meeting and the CBS Board determined to engage outside legal counsel to advise

the CBS Board in connection with a potential CBS-Viacom merger.39 The Special

Committee was formed about a month later, on April 9, 2019.40

           Months before the CBS Board embarked on its consideration of a CBS-

Viacom merger for the third time, Redstone and Ianniello met in the fall of 2018

after the Chancery litigation had been resolved. Following that meeting, in a striking

35
  JX 54 at 2; see JX 6 at 13 (defining “Good Reason” as including an assignment of “duties
or responsibilities . . . materially inconsistent with [his] position, titles, offices or reporting
relationships . . . or that materially impair [his] ability to function [in his assigned role].”).
36
     JX 56.
37
     Id. at 1.
38
     Id. at 3.
39
     Id.
40
     JX 66.

                                                10
about-face from his spirited support of Moonves’s opposition to the 2018 Merger,

Ianniello expressed his support for a CBS-Viacom merger.41 Redstone and Ianniello

met again to discuss the merger on March 25, 2019, and Ianniello again expressed

his support for the deal.42 A month later, on April 23, Ianniello and CBS entered

into an amended employment agreement that substantially increased his

compensation.43

          The 2019 Merger was publicly announced on August 13, 2019.44 While the

transaction is structured so CBS will acquire Viacom, Plaintiff characterizes the

transaction as a “Viacom takeover of CBS.”45 Under the merger agreement, CBS

will acquire Viacom through a stock exchange whereby Viacom’s stockholders will

receive .59625 shares of CBS stock for each of their Viacom shares.46 Even though

CBS is the acquiring company, the combined company will be named

ViacomCBS.47 CBS stock will be delisted from its exchange and the new stock will

41
     JX 143 at 81.
42
     Id. at 82.
43
     JX 70.
44
     JX 143 at 110.
45
     Pl.’s Opening Pre-Trial Br. (“OB”) at 2, 17.
46
     JX 143 at 4.
47
     Id. at 5.

                                              11
trade under the new Viacom tickers VIACA and VIAC.48 Viacom CEO, Robert

Bakish, will become CEO of the combined company.49 The new board will comprise

thirteen members: six current CBS directors, four current Viacom directors,

Redstone and two of her allies, Klieger and Bakish.50 Ianniello will stay on as

Chairman and CEO of CBS and reportedly will receive up to $70 million at closing.51

CBS’s unaffiliated stockholders will have no say; indeed, CBS’s Board apparently

did not even ask to condition the 2019 Merger on the approval of CBS’s unaffiliated

stockholders.52 CBS’s stock was trading at $48.70 per share when the deal was

announced; it is currently trading around $39 per share.53

48
     For Viacom’s Class A and Class B shares, respectively. JX 138 at 1.
49
     JX 129 at 2.
50
  Id. at 3. Additionally, Nicole Seligman, whom Redstone had previously installed on the
Viacom board, and with whom Redstone has a close personal relationship, will Chair the
Nominating and Governance Committee, which will review related party transactions for
the combined company. See JX 129 at 3; JX 160; About CBS Corp., CBS. CORP. (Nov. 24,
2019, 10:34 PM), https://www.cbscorporation/wp-content/uploads/2018/03/NG-Charter-
12-12-13.pdf. I take judicial notice of CBS’s own statements about its corporate
governance because their accuracy cannot reasonably be questioned. See D.R.E. 201(b)(2).
51
     JX 143 at 164–67; JX 128 at 1.
52
     Tr. 26:1–17.
53
   See JX 149; CBS Corp. (CBS), YAHOO! FINANCE (Nov. 24, 2019, 10:29 PM),
https://finance.yahoo.com/quote/CBS?p=CBS. I take judicial notice of these reported
stock prices because they are not subject to reasonable dispute. See D.R.E. 201(b)(2); see
also Gen. Motors, 897 A.2d at 169.

                                             12
      D. Procedural History

         Plaintiff sent its Demand on September 27, 2019.54 Of the eleven enumerated

categories of documents sought for inspection, nine are still live 55: (3) documents

reviewed by the CBS Board in connection with creating the Special Committee and

appointing directors following the 2018 Settlement Agreement; (4) documents

reviewed by the Nominating and Governance Committee for purposes of

determining director independence; (5) and (6) materials reviewed by the CBS

Board and its committees relating to the 2016, 2018 and 2019 Mergers, including

presentations by the CBS Board’s financial advisors; (7) expert reports prepared for

CBS concerning the 2018 litigation; (8) documents concerning Ianniello’s

employment and compensation; (9) and (10) electronic documents exchanged

between Redstone and the CBS and Viacom Boards and their advisors; and

(11) electronic documents exchanged between Redstone and Ianniello.56 After

determining that CBS’s voluntary production was inadequate, Plaintiff filed its

54
     JX 132.
55
   At trial, the parties appeared to agree that Plaintiff has been provided with documents
responsive to Requests (1) and (2), which sought books and records related to the current
merger and director conflict questionnaires. Tr. 82:3–20. CBS shall certify that it has
produced all documents responsive to these Requests.
56
     JX 132 at 8–9.

                                           13
Verified Complaint on October 15, 2019, and this Court granted Plaintiff’s Motion

to Expedite on October 24. Trial on a paper record was held on November 22.

                                       II. ANALYSIS

         The standard for evaluating a demand for books and records under

Section 220 is well settled. A stockholder of a Delaware corporation may inspect a

corporation’s books and records for any “proper purpose” reasonably related to the

stockholder’s “interest as a stockholder.”57 It is also well settled that the desire to

investigate mismanagement or wrongdoing is a proper purpose.58 To justify the

purpose to investigate mismanagement or wrongdoing, the stockholder must

demonstrate “a credible basis from which a court can infer that mismanagement,

waste or wrongdoing may have occurred.”59 “Credible basis” is the lowest burden

of proof known in our law; a plaintiff need only present “some evidence” of

wrongdoing, “through documents, logic, testimony or otherwise,” to satisfy the

57
   8 Del. C. § 220(b) (“A proper purpose shall mean a purpose reasonably related to such
person’s interest as a stockholder.”). CBS does not dispute Plaintiff is a stockholder or that
it has satisfied the “form and manner requirements.” See Amalgamated Bank v. Yahoo!
Inc., 132 A.3d 752, 775–76 (Del. Ch. 2016) (discussing “form and manner” requirements).
58
   Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117, 121 (Del. 2006) (“It is well
established that a stockholder’s desire to investigate wrongdoing or mismanagement is a
‘proper purpose.’”). Plaintiff pleads other purposes to inspect but acknowledges in its brief
that establishing these purposes requires that it establish a credible basis to investigate
mismanagement. OB 30.
59
     Seinfeld, 909 A.2d at 118 (internal quotation marks omitted).

                                              14
standard.60 A plaintiff must also show that each category of documents sought is

“necessary, essential, and sufficient for the shareholders’ purpose.”61

      A. Plaintiff has Shown a Credible Basis to Infer Mismanagement

         Plaintiff maintains it has easily satisfied the low threshold of credible basis

with both logic and documentary evidence. The theory of wrongdoing focuses on

Redstone’s status as a conflicted controlling stockholder who has, for years, been

seeking a bailout of the sinking Viacom ship, which she controls, with resources

provided by CBS, which she also controls. According to Plaintiff, Redstone’s

unrelenting desire to merge the two companies has culminated in a transaction

process that was unfair and a transaction result with no economic justification.62

         As for the logic supporting its claim of wrongdoing, Plaintiff highlights the

extraordinary lengths to which the CBS Board was willing to go just one year ago

to prevent Redstone from forcing CBS into a transaction with Viacom that was not

materially different from the transaction the CBS Board has now approved. 63 All

that has changed, it argues, is the composition of the CBS Board and the replacement

60
   Kosinski, 214 A.3d at 953; see Seinfeld, 909 A.2d at 123 (“Although the threshold for a
stockholder in a section 220 proceeding is not insubstantial, the ‘credible basis’ standard
sets the lowest possible burden of proof.”).
61
     BBC Acquisition Corp. v. Durr-Fillauer Med. Inc., 623 A.2d 85, 88 (Del. Ch. 1992).
62
     See Pl.’s Reply Pre-Trial Br. (“RB”) 5–9.
63
     See RB 9–11.

                                                 15
of a CEO who resisted Redstone in 2016 and 2018 with a CEO who now answers to

her.64 According to Plaintiff, having found CBS’s leadership too independent,

Redstone used the fallout from the 2018 Chancery litigation to install leadership at

CBS that is more susceptible to her control.65

           In addition to the basic logic that supports a suspicion of wrongdoing, Plaintiff

points to documentary evidence, in the form of CBS’s public filings and the

documents CBS has already produced for inspection, that supports its stated purpose

for inspection. Specifically, Plaintiff focuses on Redstone’s participation in the

Nominations and Governance meeting                   on February 22, 2019,          where,

notwithstanding the Settlement Agreement’s prohibitions, it appears Redstone, once

again, may have pushed for a Viacom-CBS merger.66 To accent the point, Plaintiff

highlights the abrupt resignation of CBS’s Executive Vice President and Chief Legal

Officer immediately after this meeting, suggesting he resigned in response to

wrongdoing he witnessed.67

64
  See Compl. ¶¶ 35–36. Former CBS CEO Les Moonves was the driving force opposing
of the 2018 merger. See generally JX 18.
65
     Id.
66
     RB 11–12.
67
     RB 12–13.

                                              16
         CBS, not surprisingly, views the evidence differently.         It maintains the

evidence, both in public filings and internal documents, reveals that it conducted an

exemplary process to ensure that independent decision makers negotiated the

transaction with Viacom and analyzed the risks and benefits of the transaction from

CBS’s perspective. In this regard, CBS argues there is no evidence that Redstone

dominated or controlled the process or the decision makers.68 Moreover, CBS

maintains the Company’s exculpatory charter provision leaves Plaintiff to argue that

CBS’s Board members breached their duty of loyalty or acted in bad faith.69 As to

this point, CBS argues the mere presence of a controller on both sides of the

transaction does not provide a credible basis to infer non-exculpated wrongdoing.70

         I note, as an initial matter, that CBS’s Section 102(b)(7) argument is

misplaced. Plaintiff has indicated it may pursue pre-closing, equitable relief.71

68
     See Def.’s Answering Pre-Trial Br. (“AB”) 33–36.
69
  See AB 30–45. See 8 Del. C. § 102(b)(7); Southeastern Pa. Trans. Auth. v. AbbVie, Inc.,
2015 WL 1753033, at *13 (Del. Ch. Apr. 15, 2015), aff’d, 132 A.3d 1 (Del. 2016)
(“A stockholder . . . has stated a proper purpose only insofar as the investigation targets
non-exculpated corporate wrongdoing.”).
70
     AB 32–41.
71
     Compl. ¶ 39; RB 16.

                                            17
Thus, CBS concedes, as it must, that its exculpatory charter provision would not be

relevant if this Court were asked to provide such relief.72

           Moreover, Plaintiff has presented some evidence to support a credible basis

to infer actionable fiduciary duty breaches, satisfying its low burden. First, it is

undisputed that, by declining to submit the merger to CBS’s unaffiliated

stockholders for approval, the CBS Board has tacitly agreed to submit the transaction

to entire fairness review if challenged.73 In the Section 220 context, that fact will

pique suspicion because it opens the possibility “that the transaction was not at arm’s

length, less than optimal, and potentially tainted by the undermining influence of a

controller.”74 Thus, while declining to allow unaffiliated stockholders to vote on the

transaction, without more, is not enough to establish a credible basis to suspect

wrongdoing, “[t]here is no reason why [failure to follow the MFW road map] cannot

contribute to a credible basis.”75 This suspicion is all the more justified here since,

contrary to its firm stance in 2018, the CBS Board inexplicably did not even ask to

72
  See AB 30 n.8; 8 Del. C. § 102(b)(7) (extending exculpation only to personal liability
for damages).
73
  Cf. In re MFW S’holder Litig., 67 A.3d 496, 502 (Del. Ch. 2013), aff’d, Kahn v. M & F
Worldwide Corp., 88 A.3d 635 (Del. 2014) (laying out a road map for a board to earn
business judgment deference in a controller squeeze-out merger context).
74
     Kosinski, 214 A.3d at 954.
75
     Id.

                                            18
condition the 2019 Merger on the approval of the majority of CBS’s unaffiliated

stockholders.76

         Second, while the terms of the most recent version of the merger do not mirror

those of previous versions, there is a credible basis to suspect they are not materially

improved from those rejected in 2018.77 Yet the Board has abruptly changed its

position regarding whether a combination with Viacom will benefit CBS and its

stockholders. From the perspective of CBS stockholders, a straight line can be

drawn between Redstone’s previous attempts to merge Viacom with CBS, which

CBS maintained just one year ago “presents a significant threat of irreparable and

irreversible harm to [CBS] and its stockholders[,]” and the current attempt to

combine these companies.78 This logical nexus is further evidence of wrongdoing.79

         Third, Plaintiff has demonstrated the 2019 Merger may provide Redstone with

a nonratable benefit, similar to those the CBS Board found so offensive in 2018 that

76
  Tr. 26:1–17. CBS also opposed Bakish leading the combined company in 2018 but has
abandoned this position as well. Id.
77
   CBS points to what it calls “hard-fought victories” won by the CBS Special Committee
with respect to the 2019 Merger. But at least some of these governance protections are
short-term and leave open the possibility Redstone will simply wait them out. See JX 89
at 3, 5; JX 88 at 2; JX 100 at 47, 51; JX 142 at 9.
78
     JX 12 at 2.
79
  See Donnelly v. Keryx Biopharmaceuticals Inc., 2019 WL 54460115, at *5 (Del. Ch.
Oct. 24, 2019) (connecting a prior merger attempt by an allegedly controlling minority
blockholder to a subsequent merger when assessing plaintiff’s evidence of wrongdoing).

                                           19
it sought to dilute Redstone’s stake in CBS and enjoin the 2018 Merger.80 Redstone

has previously voiced significant concern about Viacom’s performance and long-

term viability as a standalone company, even going so far as to say it is “tanking.”81

When CBS was considering a transaction with Verizon, Redstone made clear that

any potential transaction with CBS “needs to include Viacom[,]” a demand NAI’s

financial advisors passed on to Verizon.82 Her repeated pursuits of a merger with

CBS give some support to Plaintiff’s allegation that Redstone views a CBS-Viacom

merger as a bailout of her controlling interest in Viacom. In the context of Plaintiff’s

low burden here, this is some evidence of possible wrongdoing.

          Fourth, Plaintiff has introduced documentary evidence that provides a basis

to suspect an improper transaction process. For instance, although Redstone is not

a member of the Nominating and Governance Committee, she attended that

Committee’s meeting on February 22, 2019.83 At this meeting, the committee

appears to have discussed with Redstone “strategic possibilities” for CBS and

authorized the engagement of Lazard and Centerview to assist in a strategic review.84

80
     See Nat’l Amusements, 2018 WL 2263385, at *1–2.
81
     JX 7.
82
     JX 9; JX 162.
83
     JX 53 at 1.
84
     Id. at 2.

                                           20
Shortly after Redstone left the meeting, the Committee voted to recommend that the

CBS Board form the Special Committee.               That committee, in turn, almost

immediately began negotiating a merger with Viacom . . . again.85 Of course, the

2018 Settlement Agreement forbid Redstone from in any way proposing or

promoting, directly or indirectly, a CBS-Viacom Merger unless two-thirds of CBS’s

unaffiliated directors invited such a proposal.86 It is certainly reasonable to infer that

Redstone recommended the 2019 Merger at the February 22 meeting without an

invitation, in apparent violation of the Settlement Agreement, and the other directors,

undeterred by the Settlement Agreement or the Board’s past opposition to a merger

with Viacom, acted swiftly to advance Redstone’s wishes.

         Fifth, Ianniello’s conduct during the 2019 Merger negotiations raises

suspicions. During the 2018 Merger negotiations, Ianniello was a fierce ally of then-

CEO Moonves as he opposed the transaction, leading NAI to name Ianniello as a

defendant in its counter-suit against CBS.87 In the months after the 2018 settlement,

Ianniello met with Redstone and soon after changed his position on the merger,

becoming one of the most vocal advocates in support of the combination.88 Plaintiff

85
     JX 143 at 81–83.
86
     JX 31 at 5.
87
     See JX 18.
88
     JX 143 at 81–82.

                                           21
notes this change of heart coincides with Ianniello receiving a substantially boosted

compensation package, his negotiating a large payout upon completion of the

2019 Merger and his securing a management role with CBS post-merger.89 Ianniello

attended numerous Special Committee meetings and Plaintiff maintains it is fair to

infer that he acted as Redstone’s surrogate in these sessions.90 While there are

perfectly benign explanations for Ianniello’s behavior, the evidence of his rather

abrupt change of heart, and personal incentives to back the controller, add to the low

quantum of evidence Plaintiff is obliged to muster in order to meet its “credible

basis” burden.

         Sixth, Lawrence Tu’s abrupt “for Good Reason” resignation as CBS’s

Executive Vice President and Chief Legal Officer following the February 22

meeting raises yellow, if not red, flags.91 Tu’s Employment Agreement defines

“Good Reason” to include “the assignment [] of duties or responsibilities that . . .

materially impair your ability to function as Senior Executive Vice President and

Chief Legal officer of CBS[.]” 92 It is reasonable to infer that Tu’s resignation was

in response to what he saw as a violation of the 2018 Settlement Agreement.

89
     RB 28.
90
     Id. at 29–30.
91
     JX 54 at 2.
92
     JX 6 at 13.

                                         22
         The totality of these proven facts crosses the low threshold of proving a

“credible basis to suspect wrongdoing.”93 This, coupled with the fact that the

2019 Merger is a conflicted controller transaction that likely will be subject to entire

fairness review if challenged, more than adequately supports Plaintiff’s proffered

purpose for inspection.94

         B. Plaintiff is Entitled to the Books and Records that are Necessary and
            Essential to Fulfill Its Purposes

         Having stated a proper purpose, Plaintiff is entitled to all books and records

necessary and essential to fulfill that purpose.95 “Documents are necessary and

essential pursuant to a Section 220 demand if they address the crux of the

shareholder’s purpose and if that information is unavailable from another source.”96

“The plaintiff bears the burden of proving that each category of books and records

is essential to accomplishment of the stockholder’s articulated purpose for the

inspection.”97 To meet this burden, Plaintiff must “make specific and discrete

93
     Seinfeld, 909 A.2d at 123.
94
  See Kosinski, 214 A.3d at 953–56 (combining a potentially suspect process followed in
a controller transaction with other evidence of wrongdoing to find a credible basis);
Donnelly, 2019 WL 54460115, at *5 (finding a credible basis to infer wrongdoing where a
controller may have engaged in a conflicted transaction).
95
     Kosinski, 214 A.3d at 957.
96
  Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264, 1271
(Del. 2014) (internal quotations omitted).
97
     Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1035 (Del. 1996).

                                            23
identification, with rifled precision, of the documents sought.”98 Some, but not all,

of Plaintiff’s Demand meets this standard.99

         Plaintiff’s request (3) seeks documents reviewed “by the CBS Board in

connection with (i) the nomination and appointment of each member of the

CBS Board to the special committee for the 2019 Merger; and (ii) the September 9,

2018 meeting” where new directors were added in connection with the Settlement

Agreement.100 After considering the evidence, I am satisfied Plaintiff is entitled to

documents responsive to subpart (i) of this request, but not subpart (ii). While

(i) would allow Plaintiff to gain key insight into the constitution of the Special

Committee, it is unclear what information (ii) would provide that Plaintiff could not

glean from the already produced director questionnaires. Stated differently, the

documents described in (ii) are not necessary to fulfill Plaintiff’s purpose.

98
   Brehm v. Eisner, 746 A.2d 244, 266 (Del. 2000); see also Wal-Mart Stores, Inc., 95 A.3d
at 1283 (“The term ‘rifled precision’ requires the Court of Chancery to make a qualitative
analysis of documents demanded. ‘Rifled precision’ is not a quantitative limitation on the
stockholder’s right to obtain all documents that are necessary and essential to a proper
purpose.”).
99
  As previously noted, CBS has already produced documents responsive to the first two
requests in the Demand.
100
      JX 132 at 8.

                                           24
            Request (4) similarly seeks documents that would shed light onto the

independence of CBS’s directors.101 These likewise are not necessary and essential

to Plaintiff’s purpose as it is unclear what information they would provide Plaintiff

that it would not already have from the conflict questionnaires.

            Plaintiff’s requests (5) and (6) seek Board minutes, Board materials and

financial advisor presentations from the 2016, 2018 and 2019 Mergers.102 Plaintiff

is entitled to these documents. The wrongdoing Plaintiff has established a credible

basis to investigate involves a narrative that directly implicates the 2016 and 2018

merger attempts not as past-tense, isolated events, but as part of a continuing story

of misconduct.103         Given the CBS Board’s decisive rejection of these past

transactions, and their temporal proximity to the transaction at issue here, documents

from the 2016 and 2018 Mergers will provide key information to Plaintiff about

whether the 2019 Merger is the product of wrongdoing.

            Plaintiff’s request (7) seeks expert reports prepared on behalf of CBS in

connection with the 2018 Litigation.104 Plaintiff has not established why these

reports would provide necessary and essential information that would not be

101
      Id.
102
      Id.
103
      See JX 14–28; Tr. 11:22–26:17.
104
      JX 132 at 8.

                                            25
provided in the books and records concerning the 2016 and 2018 Mergers. Plaintiff

already has (and has relied upon) substantial information from the 2018 litigation; it

is unclear why these expert reports, likely subject to work product immunity, would

be necessary and essential to fulfill Plaintiff’s stated purpose.105

         Plaintiff’s request (8) seeks documents concerning Ianniello’s employment

and compensation arrangements and his communications with Redstone.106

Plaintiff is entitled to receive CBS’s Board-level documents regarding Ianniello’s

compensation in the date range described in the Demand. Part of Plaintiff’s

supported theory of wrongdoing involves Ianniello self-interestedly endorsing the

2019 Merger as Redstone’s surrogate after she facilitated substantial compensation

and merger-related payments to Ianniello.107 These documents are necessary to

allow a proper investigation of this alleged wrongdoing. Plaintiff is not, however,

entitled to the electronic communications sought in this request, at least not in this

Section 220 production.       The CBS Board-level compensation documents are

sufficient to enable Plaintiff’s investigative purpose.

105
    See generally JX 12, JX 14–27 (litigation documents and news reports from the 2018
litigation).
106
      JX 132 at 9.
107
      RB 28–30.

                                           26
         Last, Plaintiff makes a broad demand for inspection of “electronic documents”

sent by Shari Redstone or NAI to any CBS or Viacom Board member or their

advisors, and vice versa.108 As support, it points to language from our Supreme

Court’s recent decision in KT4 Partners LLC, v. Palantir Technologies, Inc., where

the Court reversed the trial court’s post-trial finding that the production of emails

and text messages was not “necessary and essential.”109 Plaintiff argues Palantir

establishes that stockholders have a broad right to inspect electronic documents in

response to Section 220 requests.110 CBS reads Palantir more narrowly. After

considering the evidence here, I am satisfied that I need not undertake a definitive

construction of Palantir’s guidance with respect to a stockholder’s right to inspect a

company’s electronically stored information in order to address document

Categories 9-11. Plaintiff has asked for all electronic communications between

Redstone, CBS, Viacom and their directors and advisors.111 This broad ranging

request is far more appropriate for discovery in a plenary action; it bears little

resemblance to the “rifled precision” this Court requires in a Section 220 demand.112

108
      JX 132 at 9. This encompasses requests 9–11.
109
      203 A.3d 738 (2019).
110
      RB 22.
111
      PTO ¶ 14.
112
      Brehm, 746 A.2d at 266.

                                            27
         Plaintiff is entitled to inspect a narrow set of electronic documents, however.

Plaintiff’s credible basis showing includes proof of suspected wrongdoing at the

February 22 Nominations and Governance Committee meeting.113 In order to

investigate this alleged wrongdoing further, Plaintiff is entitled to electronic

communications between Shari Redstone and the members of the Nominations and

Governance Committee fourteen (14) days before and after that meeting. It is also

entitled to inspect non-privileged electronic communications from these parties to

Lawrence Tu, and vice versa, during that time-span.114 Plaintiff has met its burden

of showing these documents are necessary and essential to its stated purpose.115

113
      RB 11–13; JX 53.
114
    CBS has argued that Plaintiff’s request for documents specifically related to the
February 22 meeting was not stated in its Demand and is, therefore, improper. Tr. 81:13–
22. I agree that a stockholder may not invent new demands for inspection, not articulated
in the demand it sent to the company, during the course of Section 220 litigation.
See In re Facebook, Inc. Sec. 220 Litig, 2019 WL 2320842, at *17 (Del. Ch. May 31,
2019). But Plaintiff’s Demand for electronic documents, at Requests 9–11, is clearly broad
enough to capture such documents related to the February 22 meeting.
115
    As noted, the parties dispute, under Palantir, who bears the burden of demonstrating
that electronic documents should or should not be included in the company’s production
of books and records in response to a Section 220 demand. Compare Palantir, 203 A.3d
at 754 (noting that the company had not “buttress[ed] its claims [that the stockholder was
not entitled to emails] with any evidence that other materials would be sufficient to
accomplish [the stockholder’s] purpose”), with id. at 756 (“when a [plaintiff] [] reasonably
identifies the documents it needs and provides a basis for the court to infer that these
documents likely exist in the form of electronic mail the [] corporation cannot insist on a
production order that excludes emails even if they are in fact the only responsive corporate
documents that exist and are therefore by definition necessary.”). Here again, I need not
decide who has the better reading of Palantir in ordering inspection of this limited set of
electronic documents since I am satisfied Plaintiff has demonstrated that Redstone, the
Viacom board and the CBS Board communicated by means of text messages and emails
                                            28
                                 III.   CONCLUSION

      For the foregoing reasons, judgment shall be entered in favor of Plaintiff,

Bucks County Employees Retirement Fund. Given the exigencies created by the

impending closing of the 2019 Merger, the parties shall promptly contact Chambers

to arrange a conference to discuss an appropriate implementing Order and Final

Judgment.

regarding company business and there is an absence of board-level materials relating to
this narrow topic. See JX 7–9; JX 160–62.

                                          29