A recent Chancery decision dismissed a claim for excessive compensation based on a prior release that covered such claims. The ruling in Feuer v. Dauman, C.A. No. 12579-CB (Del. Ch. Oct. 25, 2017), may be useful in those instances where an analysis is necessary to determine whether a settlement encompasses subsequent claims based on events that pre-dated the settlement.  Unfortunately, the court did not have an opportunity to directly address the propriety of paying compensation of several million dollars during a period when the recipient was physically absent from board meetings and allegedly incapacitated due to mental and physical health issues.

Background: This letter decision granted a motion to dismiss claims for breach of fiduciary duty, waste, and unjust enrichment in connection with a challenge to the payment of approximately $13 million of compensation to Sumner Redstone from July 2014 to May 2016, when the directors of Viacom allegedly knew that he was incapacitated and incapable of doing his job.  The court found that the claims asserted were released as part of a settlement agreement Viacom entered into in August 2016.

The court recounted the procedural history of multiple other lawsuits filed during the relevant period of time involved. Some of those lawsuits involved a contest for the control of Viacom. Those lawsuits were settled in August 2016.

The court quoted from the relevant portions of the settlement agreement and the relevant release language. The instant action was filed approximately one month prior to the settlement agreement being entered into.  The defendant-directors moved to dismiss based on failure to state a claim for relief, as well as failure to plead demand futility.

Holding: The court explained that the plain language of the release in the settlement agreement provides that Viacom released each of the individual defendants from any claims that would clearly encompass those in the instant lawsuit. The court explained that the plaintiff only devoted a single paragraph to address the release issue in its briefing.

The argument was made that the release purported to prospectively limit any exercise of fiduciary duty owed by the directors of Viacom, but the court did not read the release as prospectively limiting any exercise of fiduciary duty. Rather, by its terms, the court explained that the release extinguished potential liability arising from acts that included those in the instant complaint.

Takeaway: The plaintiff chose to rely on its original complaint instead of amending it pursuant to Rule 15(aaa).  In retrospect, the plaintiff might have considered presenting facts in an amended complaint that would have created a record with facts and circumstances under which the release was negotiated and executed, in order to adequately raise issues about its validity, such as the possibility that it was part of a self-interested transaction – – because the directors sued in this case are the same persons who authorized the prior controlling release.

Delaware courts recognize the validity of general releases, and there was no basis in the complaint in this matter to challenge the presumptively valid release. Thus, the instant complaint was dismissed, as to the named plaintiff only, but the court expressed no opinion on the issue on the possibility of additional challenges to the release.  The court stressed that this opinion is not intended to have preclusive effect on potential claims of any other stockholder of Viacom.