How shareholders can stop media outlets from 'bribing' Trump

We’re not your lawyers and this article isn’t legal advice. Talk to your attorney before taking any legal action.

Paramount executives are currently grappling with the decision of whether to settle President Donald Trump’s $20 billion lawsuit against the media conglomerate’s CBS News unit for allegedly editing an interview in favor of Kamala Harris. Companies including ABC’s parent, Disney, and Mark Zuckerberg’s Meta have already settled Trump’s legally dubious claims.

Federal Communications Commission Chair Brendan Carr has opened an investigation into CBS’ alleged “distortion” in conjunction with Trump’s lawsuit against Paramount, and has even threatened media outlets’ license renewals pending compliance with the administration’s policies. Paramount executives reportedly fear that Trump’s FCC will block its proposed merger with movie studio Skydance if it doesn’t settle Trump’s lawsuit.

Yet, The Wall Street Journal has reported that at least some Paramount executives are hesitant to write a check. Not because they care about the First Amendment or the precedent that settling would set for journalists. It’s because they’re scared of getting sued. As they should be — here’s why.

A settlement of a frivolous lawsuit by Trump to secure approval of a merger could amount to bribery. The case would be especially strong if Trump’s team has made clear to CBS, as it reportedly did to Meta before the social media platform settled its own litigation with Trump, that it needs to pay to play. Penalties can be imposed under both U.S. criminal law and the Sherman Antitrust Act.

But the Trump administration is unlikely to prosecute bribes it solicits. So the burning question (and the one that’s likely giving those executives cold feet) is: Can shareholders of Paramount, or other news publishers the administration extorts, do anything about it? After all, this is up to $20 billion of company funds we’re talking about.

The short answer is yes.

Shareholders can file what are known as derivative lawsuits when the company and therefore the values of their shares are harmed, even if the shareholders are not directly harmed. Any shareholder has the option to step into the shoes of Paramount and sue the board or officers on behalf of the company. The court docket would read Paramount v. Paramount.

That means shareholders who care about press freedom and want the press to thrive don’t need to worry about the economic implications of “suing the press” the way they might in other kinds of litigation. If the shareholder wins, the news outlet wins and recovers the monetary damages, not the shareholders.

Yes, the company might need to incur legal fees (although it can later sue to recover those from the executives), but in many cases that’s a drop in the bucket compared to the value recovered by holding executives accountable for waste and illegality.

There are a few important legal requirements to be able to file a derivative suit. For example, one must be a shareholder at the time of the settlement and throughout the entire lawsuit. Selling all of one’s shares at any point in the process would invalidate the suit.

Technically, shareholders must also file a presuit demand letter on the company. This is a letter demanding that the board of directors bring the suit themselves instead of the shareholders. We say “technically” because filing this letter can be a strategic mistake that can cost the lawsuit, and there are exceptions to the requirement that can help avoid the land mines. It’s important to consult your lawyer about this requirement.

Importantly, if a court agrees that the settlement payment constitutes an illegal bribe, company officials cannot claim that paying was in the company’s best interests. An illegal act like bribery negates such defenses. The “business judgment rule,” which generally requires courts to refrain from second-guessing corporate officers’ good faith decisions, does not apply to bribery.

Derivative suits — and board elections — are the only real tools available to shareholders to keep their company executives in check. On their face, derivative suits seem complex and difficult to maintain, but in practice they’re an effective tool for regulating the behaviors of company officials.

For example, Trump ally and former casino boss Steve Wynn — another fan of frivolous defamation lawsuits against the press — knows a thing or two about shareholder’s derivative suits. Wynn Resorts’ officers and directors, including Wynn, agreed to pay $41 million in 2019 following a derivative shareholder suit for their failure to stop Wynn’s alleged sexual misconduct. It meant that the officers and directors, and not the shareholders, incurred the losses the company faced due to their wrongdoing.

At the end of the day, Paramount and its shareholders will be severely affected by a bribe costing even a fraction of the $20 billion Trump’s lawsuit demands, especially if paying off the government undermines CBS’ ability to report on it effectively or otherwise harms its reputation and reduces its viewership.

If those costs are borne by the company itself and not its directors, they could even lead to budget and job cuts, harming CBS journalists and journalism. It would also establish a dangerous precedent: that this administration can abuse its power to pressure media companies into doing its bidding.

Filing a derivative claim immediately after any settlement takes place could not only help shareholders minimize damages to media companies but also could help put a stop to these arguably illegal and definitely unethical settlement agreements. Corporate executives know that — they’re hoping you don’t.