Sumner Redstone’s “Guardian”?

The WSJ headline this week read: Court to Appoint Guardian for Sumner Redstone. The headline on its face is clear in its implication that the controlling shareholder of CBS Corp., and Viacom Inc., will no longer be in control of his own affairs. The upshot is that he has lost it and lost control of his affairs. Could this be true? He is seeing little green men?

When a guardian is appointed, is all lost for the person?

There is much more to the story than the WSJ headline. There are more details relating to the recent outcome of the matter than suggested by the sensational headline.

The development of the appointment is part of a much larger legal dispute, a legal war, that has its genesis in Mr. Redstone’s past relationship with an old girlfriend who is in her early 50s. He is 95 years old. Her efforts have been a well-documented legal drama stemming from her having been removed from Mr. Redstone’s mansion in Beverly Hills. She contends, by direction of his daughter, who seized on his waning capacity to usurp control. The girlfriend was at one time his health care proxy and by accounts, she was included and provided for in his estate. After their relationship soured, she has persistently fought against his decisions by claiming that he lacked the mental capacity to make the decisions terminating her roles.

There is a significant amount at stake, and Mr. Redstone filed a subsequent lawsuit against her to recover $75 million in gifts that he gave her. His wealth is estimated to be $5 Billion. That trial will be next year, and she is pressing it. Adding to the proceedings are claims by Mr. Redstone’s daughter Shari Redstone and his grandson who will control his trust – when he is determined to be incompetent or on his death. Mr. Redstone was known to have spent the bulk of his adult life legally and generally feuding with his daughter and stated openly that he did not want her to be involved in corporate leadership. In an e-mail to her son she once said, “Your grandfather says I will be chair over his dead body”. The trust controls CBS and Viacom. His family contends that he has capacity.

This is all about money and control. They are common pursuits. But the legal wrangling is interesting and less common as the strategies are assessed and the case evolves.

Certainly, the attorneys for Mr. Redstone adopted the same defensive position present in virtually all these types of cases, where the guardianship is resisted: “he is fine”. That position can be very effective and persuasive where the individual is strong. But here, like in many cases Mr. Redstone was known to be failing and he was of advanced age. His public appearances were growing limited and his visible confidence seemed to diminish. Candor with the court in these circumstances becomes paramount and often a shifting strategy must be considered. Running a bluff, with a hope of settlement is typically a losing strategy. Practical concerns abound in that third parties who interact with the person may offer non-corroborating opinions. In fact, their recounts of interactions may contradict the position that he is fine. In some instances, depositions can blow the case wide open. Worse yet, if medical information is not managed correctly it can be very effectively used despite efforts to keep that proof out of the case. The court knows what inevitably happens to people when they age. It can be a mistake to stake out an impossible position on the proof when your client is declining. Competent counsel effectively identifies and assesses risks. Settlement may be impossible. The trial risk relative to an adverse finding, disclosures of highly sensitive personal and business information. Like in Redstone, an adviser finding can trigger collateral consequence relative to trust and estate planning. Often the finding of lack of capacity can be permanent. In the Redstone case there is plenty at risk at present and into the future.

Mr. Redstone’s lawyers, for many years adhered to the “he is fine” mantra. It staved off the appointment of a guardian and seemed quite effective. The adverse consequences of going forward were averted. However, the recent ruling while on its face may appear to be a big loss, may turn out to be a sizeable win for Mr. Redstone.

Of recent, Mr. Redstone’s attorneys appear to have softened on the “he was fine” position. Instead they shifted to a position of “deteriorating health conditions”. Was that a complete capitulation? Why? But is that enough for appointment of a guardian? It appears that Mr. Redstone’s girlfriend’s attorney thought so – as they have asserted this vindicates her position and further, shows that Mr. Redstone had no capacity when he sued her.

But not so fast. A closer look reveals that the shifting position may well have worked well. Although the headline suggests a whopper of a loss the result is not a complete wipe out for Mr. Redstone.