In re Viacom: director independence takes center stage in executive pay lawsuit

In Viacom, the New York Supreme Court denied a motion to dismiss a shareholder breach of fiduciary duty claim, holding that the pleadings raised a sufficient doubt as to the independence of the board of directors. The court indicated that if the plaintiff succeeded in establishing at trial that the board was not independent, the directors' decisions would not be protected by the business judgment rule but would be evaluated under the "entire fairness" standard. The decision serves as a reminder that, while boards and compensation committees tend to have at the forefront of their minds the independence requirements set forth in stock exchange listing standards, independence standards under state law, which may be both less clear-cut and more difficult to meet, also are an important consideration in the compensation context. In addition to raising a claim of breach of fiduciary duty, the Viacom plaintiff argued that the payments to the three executives constituted unjust enrichment. The court also upheld this claim.