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Brehm v. Eisner

Supreme Court of Delaware

September 14, 1999, Submitted ; February 9, 2000, Decided

No. 469, 1998

Opinion

 [*248]  Upon appeal from the Court of Chancery.

VEASEY, Chief Justice:

In this appeal from the Court of Chancery, we agree with the holding of the Court of Chancery that the stockholder derivative Complaint 1 was subject to dismissal for failure to set forth particularized facts creating a reasonable doubt that the director defendants were disinterested and independent or that their conduct was protected by the business judgment rule. 2 Our affirmance, however, is in part based on a somewhat different analysis than that of the Court below or the parties. Accordingly, in the interests of justice, we reverse only to the extent of providing that one aspect of the dismissal shall be without prejudice,  [**3]  and we remand to the Court of Chancery to provide plaintiffs a reasonable opportunity to file a further amended complaint consistent with this opinion.

 The claims before us are that: (a) the board of directors of The Walt Disney Company ("Disney") as it was constituted in 1995 (the "Old Board") breached its fiduciary duty in approving an extravagant and wasteful Employment Agreement of [**4]  Michael S. Ovitz as president of Disney; (b) the Disney board of directors as it was constituted in 1996 (the "New Board") breached its fiduciary duty in agreeing to a non-fault" termination of the Ovitz Employment Agreement, a decision that was  [*249]  extravagant and wasteful; and (c) the directors were not disinterested and independent. 3

 The Complaint, consisting of 88 pages and 285 paragraphs, is a pastiche of prolix invective. It is permeated with conclusory allegations of the pleader and quotations from the media, mostly of an editorial nature (even including a cartoon). A pleader may rely on [**5]  factual statements in the media as some of the "tools at hand" 4 from which the pleader intends to derive the particularized facts necessary to comply with Chancery Rule 11(b)(3) and Chancery Rule 23.1. But many of the quotations from the media in the Complaint simply echo plaintiffs' conclusory allegations. Accordingly, they serve no purpose other than to complicate the work of reviewing courts.

 This is potentially a very troubling case on the merits. On the one hand, it appears from the Complaint that: (a) the compensation and termination payout for Ovitz were exceedingly lucrative, if not luxurious, compared to Ovitz' value to the Company; and (b) the processes of the boards of directors in dealing with the approval and termination of the Ovitz Employment Agreement were casual, if not sloppy and perfunctory. On the other hand, the Complaint is so inartfully drafted that it was properly dismissed under our pleading standards [**6]  for derivative suits. From what we can ferret out of this deficient pleading, the processes of the Old Board and the New Board were hardly paradigms of good corporate governance practices. Moreover, the sheer size of the payout to Ovitz, as alleged, pushes the envelope of judicial respect for the business judgment of directors in making compensation decisions. Therefore, both as to the processes of the two Boards and the waste test, this is a close case.

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746 A.2d 244 *; 2000 Del. LEXIS 51 **

WILLIAM BREHM and GERALDINE BREHM, as Trustees and Custodians; MICHAEL GRENING; RICHARD KAPLAN and DAVID KAPLAN, as Trustees; THOMAS M. MALLOY; RICHARD J. KAGER and CAROL R. KAGER, as Joint Tenants; MICHAEL CAESAR, as Trustee for Howard Gunty, Inc., Profit Sharing Plan; ROBERT S. GOLDBERG, I.R.A.; MICHAEL SHORE; MICHELE De BENDICTIS; PETER LAWRENCE, I.R.A.; MELVIN ZUPNICK; JUDITH B. WOHL, I.R.A.; JAMES C. HAYS; and BARNETT STEPAK, Plaintiffs Below, Appellants, v. MICHAEL D. EISNER, MICHAEL S. OVITZ, STEPHEN F. BOLLENBACH, REVETA F. BOWERS, ROY E. DISNEY, STANLEY P. GOLD, SANFORD M. LITVACK, IGNACIO E. LOZANO, JR., GEORGE J. MITCHELL, THOMAS S. MURPHY, RICHARD A. NUNIS, LEO J. O'DONOVAN, SIDNEY POITIER, IRWIN E. RUSSELL, ROBERT A.M. STERN, E. CARDON WALKER, RAYMOND L. WATSON and GARY L. WILSON, Defendants Below, Appellees. and THE WALT DISNEY COMPANY, Nominal Defendant Below, Appellee.

Subsequent History:  [**1]  Released for Publication February 25, 2000.

Later proceeding at In re Walt Disney Co. Derivative Litig., 2003 Del. Ch. LEXIS 283 (Del. Ch., Feb. 6, 2003)

On remand at, Motion denied by, Sub nomine at In re Walt Disney Co. Derivative Litig., 825 A.2d 275, 2003 Del. Ch. LEXIS 52 (Del. Ch., May 28, 2003)

Prior History: Court Below: Court of Chancery of the State of Delaware, in and for New Castle County. C.A. No. 15452.

In re Walt Disney Co. Derivative Litig., 731 A.2d 342, 1998 Del. Ch. LEXIS 186 (Del. Ch., Oct. 7, 1998)

Disposition: AFFIRMED IN PART, REVERSED IN PART AND REMANDED.

CORE TERMS

termination, particularized, non-fault, reasonable doubt, Plaintiffs', options, resigned, business judgment rule, Derivative, gross negligence, business judgment, allegations, severance, payout, stockholders, stock, disinterested, calculate, vest, amended complaint, corporate governance, board of directors, derivative suit, due care, malfeasance, decisions, good faith, discovery, fiduciary duty, approving

Civil Procedure, Appeals, Standards of Review, Abuse of Discretion, Business & Corporate Law, Shareholder Actions, Actions Against Corporations, General Overview, Class Actions, Derivative Actions, De Novo Review, Standards of Review, Pleadings, Heightened Pleading Requirements, Fraud Claims, Pleading & Practice, Complaints, Requirements for Complaint, Rule Application & Interpretation, Directors & Officers, Management Duties & Liabilities, Fiduciary Duties, Governments, Fiduciaries, Causes of Action, Demand Futility, Demand Requirement, Business Judgment Rule, Enforcement of Corporate Rights, Duty of Care, Torts, Negligence, Gross Negligence, Compensation, Salaries, Contracts Law, Contract Formation, Consideration, Mergers & Acquisitions Law, Sales of Assets, Foreign Corporations, Negligent Acts of Directors & Officers, Record Inspection & Maintenance, Inspection Rights, Corporations, Corporate Governance