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Yet another executive compensation case appears to be heading to the courtroom. On June 23th, New York Supreme Court Justice Charles Ramos denied Viacom’s motion to dismiss, finding that there was sufficient evidence supporting the plaintiffs’ claims to let the case go forward. The case next moves to the discovery phase and then on to trial.

The case, In re Viacom Inc. Shareholder Litigation, was brought in 2005 by two shareholders alleging that Viacom’s directors breached their fiduciary duty in approving nearly $160 million in compensation to three executives in 2004 (a year when the company reported a $17.5 billion loss and the stock price declined 18%). The case also involves a claim for unjust enrichment against the three executives: Viacom’s then-chairman and CEO, Sumner Redstone, and co-president and COOs, Tom Freston and Leslie Moonves. The plaintiffs are demanding that the executives pay back the money and for Viacom to enact stricter corporate-governance rules.

In its motion to dismiss, Viacom claimed that a majority of its board (seven of twelve of its directors) were independent, but Justice Ramos found that there was sufficient evidence to doubt the independence of one of the seven, who was a former chairman of Bear Stearns – and Bear Stearns had advised Viacom on a number of major transactions.

This case is different than Disney because a finding that the board wasn’t independent likely would change the standard against which to measure the board’s conduct – from a “business judgment” standard to the more challenging “entire fairness” standard. An entire fairness standard would put the onus on Viacom’s directors to prove that they acted fairly in determining the amount of compensation.

Two week warning! Only two weeks left until the Early Bird Discount expires for the important conference: “Implementing the SEC’s New Executive Compensation Disclosures: What You Need to Do Now!” The Early Bird expires on July 20th – so take advantage of the huge savings while you can. For example, the Early Bird member rate for a single attendee is only $495, after July 20th – it goes up to $750 (which is still reasonable but 50% more than the Early Bird rate).

Reminder: Accelerated Filer Testing Date

As I have blogged about before, don’t forget that last Friday – June 30th – was the testing date for calendar year-end companies as to whether or not they are “accelerated filers”…

DOL’s Administrative Review Board Hands Down Important Whistleblower Decision under Section 806

At the end of May, the Administrative Review Board of the US Department of Labor handed down an important decision in a whistleblower case under Section 806 of Sarbanes-Oxley. In Klopfenstein v. PCC Flow Techs. Holding, the Review Board held that a private subsidiary (or its employees) may be covered by Section 806 under an agency theory of liability – and that it did not matter that the employee did not believe that anything fraudulent had occurred so long as the employee reasonably believed a SEC rule, or other subject in “the realm covered by the SOX,” had been violated. The Review Board adhered to the letter of the DOL regulations in applying a low standard for causation, concluding that a terminated employee need prove only that retaliation was a “contributing factor” in the discharge decision, and not the only or even the main reason for his termination.

This is the first ruling by the Review Board on the question of whether non-public subsidiaries are covered under the Act. We have posted a copy of the decision and order – as well as related law firm memos – in our “Whistleblowers” Practice Area.

This is a big deal because of who issued the ruling. It is the Administrative Review Board, which is the appellate (ie. higher) authority in the DOL. So what the Review Board says matters a lot, as it will now guide future Adminstrative Law Judge decisions, as ALJs are supposed to follow the Review Board. All the whistleblower decisions under Section 804 of Sarbanes-Oxley have been handed down by ALJs until this one.