Business Judgment Rule In re The Walt Disney Co. Derivative Litigation 907 A.2d 693 (Del. Ch. 2005)

The Walt Disney Company hired Ovitz as its executive president and as a board member for five years after lengthy compensation negotiations. The negotiations regarding Ovitz's compensation were conducted predominantly by Eisner and two of the members of the compensation committee (a four-member panel). The terms of Ovitz's compensation were then presented to the full board. In a meeting lasting around one hour, where a variety of topics were discussed, the board approved Ovitz's compensation after reviewing only a term sheet rather than the full contract. Ovitz's time at Disney was tumultuous and short-lived. In December 1996, only fourteen months after he commenced employment, Ovitz was terminated without cause, resulting in a severance payout to Ovitz valued at approximately $ 130 million. [Disney shareholders then filed derivative actions on behalf of Disney against Ovitz and the directors of Disney at the time of the events complained of (the "Disney defendants"), claiming that the $130 million severance payout was the product of fiduciary duty and contractual breaches by Ovitz and of breaches of fiduciary duty by the Disney defendants and a waste of assets. The Chancellor found in favor of the defendants. The plaintiff appealed.

Based on various reasons, the judgment of the Court of Chancery is affirmed.

Case Questions

Question 1. Did the Court here find that the Directors had breached the duty of due care? What do you think? (Were they grossly negligent?) Question 2. What remedies do shareholders have, other than a shareholders' derivative lawsuit? Question 3. What are the "three categories" of "bad faith" that would be recognizable as breaches of directors' fiduciary duties? Question 4. How was your experience reviewing and responding to the case? Were the resources helpful?