On January 29, 2025, Vice Chancellor Travis Laster of the Delaware Court of Chancery issued an order holding that our stockholder client had stated a proper purpose to investigate breaches of fiduciary duty by Shari Redstone, the controlling stockholder of media company Paramount Global, relating to a transaction negotiated by Redstone to sell Paramount to Skydance Media.
Kessler Topaz’s client, the State of Rhode Island Office of the General Treasurer, on behalf of the Employees’ Retirement System of Rhode Island, sought “books and records” to investigate Redstone’s efforts to steer merger discussions in a way that favored her personal interests at the expense of public stockholders. Rhode Island based its allegations primarily on news articles that reported that Redstone had rebuffed other potential merger options in favor of the Skydance deal because it favored Redstone’s Class A shares at the expense of Paramount’s non-voting Class B shares held by the public.
Vice Chancellor Laster’s opinion held that Rhode Island’s efforts to investigate breaches of fiduciary duty by Redstone were a “proper purpose” that would entitle a stockholder to review Paramount’s books and records.
The opinion also held that Rhode Island had provided a “credible basis” to suspect that Redstone had engaged in wrongdoing. Rhode Island’s credible basis was largely established through dozens of news articles, from the Wall Street Journal, the New York Times, the Financial Times, the New York Post, Reuters, and Bloomberg. Paramount argued that these articles were insufficient to establish a credible basis to suspect wrongdoing because they relied primarily on anonymous sources, without “contemporaneous corroborative evidence.”
The court rejected Paramount’s bright-line rule that news articles based on anonymous sources could never sufficiently establish a credible basis to infer wrongdoing. In so doing, the court explained the importance of anonymous sources to journalists. Quoting a U.S. Supreme Court opinion, the court wrote: “Anonymous pamphlets, leaflets, brochures and even books have played an important role in the progress of mankind…. It is plain that anonymity has sometimes been assumed for the most constructive purposes.”
The court went on to defend the journalists and publishers who rely on anonymous sources: “News organizations put their reputations on the line when publishing articles that rely on anonymous sources, and they have internal policies regarding their use…. They typically require a supervising editor to know the name of the anonymous source. They also typically require approval from an even higher-ranking editor when an anonymous source is central to a story.”
Ultimately, the court held that Paramount’s proposed rule that articles based on anonymous sources can never suffice to establish a credible basis “would dramatically reduce the ability of stockholders to rely on news sources when seeking books and records. Investigative journalists have uncovered many serious instances of corporate fraud, often with the help of anonymous sources. Stockholders can generally rely on that work.”
The court’s opinion not only defends the importance of journalists’ work in uncovering corporate malfeasance, but will also, in this case, allow Rhode Island to continue investigating Redstone’s breaches of fiduciary duty relating to the Skydance deal.
Read Opinion Addressing Stockholder’s Proper Purpose Here