The lawsuit filed this week challenging the mental competence of media mogul Sumner Redstone has raised questions among legal and business experts over the future of the 92-year-old billionaire’s empire and how his companies should respond.

Redstone controls CBS Corp. and Viacom Inc., which owns Paramount Pictures, MTV and other media properties. The companies have a combined market value of about $45 billion, but neither has publicly discussed details of Redstone’s deteriorating health.

The suit filed in Los Angeles County Superior Court by Manuela Herzer claims Redstone was not mentally competent when he removed her from oversight of his healthcare last month.

1 / 3 A photo of Sumner Redstone, left, that was submitted as part of a probate lawsuit in Los Angeles County Superior Court filed by one of his former girlfriends, Manuela Herzer. () 2 / 3 Photos of Sumner Redstone that were submitted as part of a probate lawsuit in Los Angeles County Superior Court filed by one of his former girlfriends, Manuela Herzer. () 3 / 3 A photo of Sumner Redstone that was submitted as part of a probate lawsuit in Los Angeles County Superior Court filed by one of his former girlfriends, Manuela Herzer. ()


Redstone’s lawyers have called the legal action by Redstone’s ex-girlfriend “preposterous,” “meritless” and “riddled with lies” — but it could nonetheless force CBS and Viacom to address the issue of Redstone’s competence, some legal experts say.

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Companies are not required to disclose medical details about their executives, according to analysts. But they do have to divulge “material” information — in other words, anything that reasonable investors would need to make informed decisions when buying and selling stocks.

If the court finds that Redstone is in fact incapable of making decisions, that could open up the companies to potential lawsuits from shareholders claiming that key information was kept from them, lawyers said.


“It raises the question of who knew what when, and what should’ve been disclosed to shareholders at what point in time,” said Los Angeles attorney Bryan Sullivan, a partner at Early Sullivan Wright Gizer & McRae who has handled fiduciary duty matters. “If one person in the power structure knew he was incompetent, then there is potential liability under SEC regulations for failure to disclose material facts.”

If one person in the power structure knew he was incompetent, then there is potential liability under SEC regulations for failure to disclose material facts. Bryan Sullivan, attorney

A representative for Viacom did not respond to a request for comment, and CBS declined to comment.

The issue of executive health came to the forefront in 2009 when Apple Inc. co-founder Steve Jobs took a medical leave and disclosed a hormone imbalance. Jobs, who had undergone surgery in 2004 to remove a cancerous tumor in his pancreas, did not say whether his cancer had returned at the time but said that the issue was “more complex” and required a six-month leave.


In April 2009, Jobs underwent a liver transplant. That procedure triggered a discussion of whether Apple, long known for its secretive corporate culture, had run afoul of federal securities rules by not disclosing the severity of the executive’s condition. Jobs returned to work at Apple in June 2009.

He took another leave from Apple in 2011 — citing health issues — and resigned from his post before he died that October from complications of pancreatic cancer.

Another recent high-profile case of an executive’s declining health taking center stage was former Los Angeles Clippers owner Donald Sterling, who lost control of his enterprise after being declared mentally incapacitated.

In the aftermath of the release of an audio recording of Sterling disparaging blacks in April 2014, the 81-year-old executive’s wife sought control of the National Basketball Assn. team.


In May 2014, two doctors found Sterling, who by then was banned for life from the NBA, mentally incapable of continuing on as a member of the family trust that owned the basketball franchise. Shelly Sterling then reached a deal to sell the Clippers to former Microsoft Corp. Chief Executive Steve Ballmer for $2 billion.

Donald Sterling has unsuccessfully fought the sale of the team in court.

Some corporate governance experts say companies have been more forthright about their executives’ health problems since the Jobs ordeal. Still, it often makes more sense for companies to stay muted, said law professor Allan Horwich, who practices at the Chicago firm Schiff Hardin. Firms can expose themselves to greater risk if they make affirmative public statements about an executive’s health.

“This issue becomes much more difficult for the company when they do say something and they leave out information about the health of an executive who might not be able to serve,” said Horwich, who focuses on securities litigation and fiduciary duty matters. He also teaches at Northwestern University’s Pritzker School of Law.


Steven Davidoff Solomon, a law professor at UC Berkeley, also said it’s unclear what the companies would need to divulge to shareholders and when.

“Given the control he has over the company, one would like to think that the company would think this is material information that should be disclosed,” Solomon said. “But it’s hard to know how much the company knows and how much it doesn’t know and what it’s real duties are.”

The future of Viacom and CBS has been the subject of much speculation on Wall Street in recent months. Viacom has suffered from falling ratings at its cable networks and a weak film slate from its Paramount Pictures movie studio. Shares of Viacom, which owns MTV, Nickelodeon and Comedy Central, have fallen 32% this year. In contrast, CBS’ stock has decreased just 8%.

On Friday, Viacom shares slipped $1.19 to $51.16, while CBS fell 23 cents to $50.75.


Herzer’s suit demands that Redstone receive a mental examination, including a brain scan, and submit to a videotaped deposition. If her suit succeeds, Herzer could return to prominence in Redstone’s affairs. Her suit asked the court to determine that her authority as the healthcare agent be reinstated.

Herzer was the agent of Redstone’s advance healthcare directive and says she made decisions about his medical care until she was expelled from Redstone’s home last month. Viacom Chief Executive Philippe Dauman then took over as the agent of Redstone’s healthcare directive. If a doctor determines that Redstone has become incapacitated, Dauman would make decisions on Redstone’s behalf. Redstone’s lawyers say the former girlfriend filed the suit to avoid being cut out of his will.

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For the Record


An earlier version of this article said Manuela Herzer made healthcare decisions on Sumner Redstone’s behalf until she was expelled from his home. The article should have said Herzer says she made decisions about Redstone’s medical care.

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Redstone and his family control 79% of the voting shares of the two companies. Redstone has not been involved in the day-to-day functions of Viacom or CBS for some time. CBS is run by CEO Leslie Moonves.

When Redstone dies, the Sumner M. Redstone National Amusements Trust will determine what happens to his controlling interest in the companies. The companies each have a two-tier stock structure, with most shareholders owning nonvoting shares.


Still, a fraught and protracted legal battle could harm the Redstone empire even if the court finds the allegations to be meritless, said David Becher, a professor of finance at Drexel University.

“Even if it is a frivolous suit and there’s nothing going on, I think the distractibility is going to hurt the company,” Becher said.

ryan.faughnder@latimes.com

yvonne.villarreal@latimes.com


daniel.miller@latimes.com

Staff writer Meg James contributed to this report.

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