A federal judge has blocked a $36 million derivative suit filed against Viacom Inc. and its 11 board members alleging that the board breached their fiduciary duty by blocking Class B shareholders from approving an executive compensation plan, which permitted the company's top three executives to receive tax-deductible compensation. Although the plaintiff claimed that the compensation plan violated a section of the Internal Revenue Code because only certain shareholders voted, the court held that the IRC cannot trump the Delaware General Corporation Law, which permits the creation of nonvoting stock.
"The United States Supreme Court has recognized that 'no principal of corporation law and practice is more firmly established than a state's authority to regulate domestic corporations, including the authority to define the voting rights of shareholders,'" said U.S. District Judge Sue L. Robinson of the District of Delaware, citing CTS v. Dynamics Corp. of America, a 1987 Supreme Court decision.
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