Last week, a Los Angeles judge ruled that 95-year old media magnate Sumner Redstone had the requisite mental capacity to amend his trust back in 2015 and 2016, closing the chapter (as it may be too early to say “book”) on the ugly saga that has played out like a good TV-courtroom drama over the last three years. The court’s decision came just two weeks after Redstone and his family, including CBS and Viacom vice chairman Shari Redstone, reached a comprehensive settlement with his former girlfriend, Manuela Herzer.
Though the romance had ended years earlier, Herzer was kicked out of the Redstone mansion in October 2015. Gone were the days of $129,000 shopping sprees at Barneys and weekends spent at his multimillion-dollar apartment at the Carlyle Hotel in New York. Adding insult to injury, Herzer was then written out of his Trust and removed as Redstone’s health care surrogate. In an attempt to restore her standing in Redstone’s estate plan, Herzer sued on the grounds that Redstone lacked capacity.
Now, here’s the thing: California is one of the few jurisdictions that makes a distinction between having the capacity to create a Will versus the capacity to create a Trust. The latter capacity requires a grantor (i.e. the trust-maker) to not only possess testamentary capacity—which is all that is required to create a Will—but also contractual capacity. Testamentary capacity is the ability to understand a) the nature of one’s assets; b) one’s natural beneficiaries; and c) the nature of the disposition being made. Contractual capacity, on the other hand, requires an individual to be able to communicate, understand, and appreciate a) the rights, duties and responsibilities created or affected by his/her decision; b) the probable consequences of the decision, and c) the significant risks of, benefits of, and reasonable alternatives to the decision.
So, what started as a seemingly retaliatory lawsuit to regain cushioned positioning in Redstone’s plans quickly erupted into a very public battle that not only exposed the magnate’s deteriorating health but also the power vacuum at the top of his corporate empire, National Amusements—the holding company that controls nearly 80% of the voting stock in CBS and Viacom.
With Herzer out, Redstone’s daughter, Shari, was in; she took charge of her father’s care and the family business. And with that came Herzer’s allegations that Shari had been manipulating her father to make a power grab, bringing to light the details of their long-strained father-daughter relationship—and ultimately raising questions about her rise to power.
A recent Los Angeles Times article summated the rippling effect of the Redstone’s estate litigation best:
The legal fights with Herzer prompted a series of dominoes to fall at the two companies: Herzer’s demands that independent doctors examine Redstone forced the one-time titan to relinquish his role as executive chairman of the two companies [to Shari]. The revelations of Redstone’s declining health exposed the companies to shareholder suits and prompted boardroom bickering at Viacom. In August 2016, Shari prevailed in forcing out Viacom’s longtime Chief Executive Philippe Dauman and several board allies—a move that allowed her to usher in a new era of management at Viacom.
(And forget not that during this time, then-CBS Chief Executive Leslie Moonves became the center of a sexual harassment scandal which forced him to step down and lose his $120-million severance package.)
For three years, Herzer tried to get a judge to declare Redstone incapacitated, albeit unsuccessfully. “Mr. Redstone had sufficient capacity to execute the Fortieth Amendment to and Restatement of the Sumner M. Redstone 2003 Trust dated July 23, 2003, and the Forty-First Partial Amendment thereto on their respective dates of execution, October 16, 2015, and May 20, 2016,” wrote Los Angeles Superior Court Judge David Cowan, adding the changes “were not the product of undue influence, fraud, duress, or mistake.”
While the court’s decision may have formally ended the estate litigation, the future still remains unclear as it relates to both Redstone’s estate and his subsidiary companies. Will the fighting over his estate resume when he passes away? And will CBS and Viacom merge sooner rather than later? We will have to wait and see…