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In re Walt Disney Co. Derivative Litig.

Court of Chancery of Delaware, New Castle

April 28, 2005, Submitted ; August 9, 2005, Decided ; August 9, 2005, Filed

CONSOLIDATED C. A. No. 15452

Opinion

 [*696] OPINION

TABLE OF CONTENTS

Introduction

FACTS

Michael Ovitz Joins The Walt Disney Company

Background

Ovitz First Contemplates Leaving CAA But His Negotiations

With MCA Fail

Ovitz Seriously Considers Joining The Walt Disney Company

Ovitz's Contract With Disney Begins to Take Form

Crystal is Retained to Assist Russell and Watson in

Evaluating the OEA

Ovitz Accepts Eisner's Offer

Disney's Board of Directors Hires Michael Ovitz

The October 16, 1995 Compensation Committee Meeting

Ovitz's Performance as President of the Walt Disney Company

Ovitz's Early Performance

A Mismatch of Cultures and Styles

Approaching the Endgame

Specific Examples of Ovitz's Performance as President of

The Walt Disney Company

Veracity and "Agenting"

Gifts and Expenses

Ovitz's Termination

The Beginning of the End

The September 30, 1996 Board Meeting

Options for Ovitz's Termination

The November 25, 1996 Board Meeting

The Illusion Dispelled

Ovitz's Bonus and His Termination

Expert Witnesses

Professor Deborah DeMott

Professor John Donohue

Professor Kevin Murphy

Larry R. Feldman

John C. Fox

Frederick C. Dunbar

LEGAL STANDARDS

The Business Judgment Rule

Waste

The Fiduciary Duty of Due Care

The Fiduciary Duty of Loyalty

Section 102(b)(7)

Acting in Good Faith

ANALYSIS

Ovitz Did Not Breach His Duty of Loyalty

Defendants Did Not Commit Waste

The Old Board's Decision to Hire Ovitz and the Compensation

Committee's Approval of the OEA Was Not Grossly Negligent

and Not in Bad Faith

Eisner

Russell

Watson

Poitier and Lozano

The Remaining Members of the Old Board

Eisner and Litvack Did Not Act in Bad Faith in Connection

With Ovitz's Termination, and the Remainder of the New Board

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907 A.2d 693 *; 2005 Del. Ch. LEXIS 113 **; 35 Employee Benefits Cas. (BNA) 1705

IN RE THE WALT DISNEY COMPANY DERIVATIVE LITIGATION

Subsequent History: As Amended November 15, 2006  [**1]  

Affirmed by Brehm v. Eisner (In re Walt Disney Co. Derivative Litig.), 906 A.2d 27, 2006 Del. LEXIS 307 (Del., June 8, 2006)

Prior History: In re Walt Disney Co. Derivative Litig, 2005 Del. Ch. LEXIS 28 (Del. Ch., Feb. 4, 2005)

CORE TERMS

termination, hiring, fiduciary duty, good faith, terms, negotiations, board of directors, bad faith, fiduciary, options, shareholders, bonus, gross negligence, attendance, business judgment rule, decisions, conversation, approve, board meeting, questions, expenses, press release, elected, loyalty, best interest, preponderance of evidence, duty of care, intentionally, contractual, malfeasance

Business & Corporate Law, Agency Relationships, Fiduciaries, General Overview, Governments, Fiduciaries, Labor & Employment Law, Employment Relationships, Fiduciary Responsibilities, Duties & Liabilities, Directors & Officers, Management Duties & Liabilities, Civil Procedure, Trials, Jury Trials, Province of Court & Jury, Courts, Authority to Adjudicate, Care, Good Faith & Reasonable Skill, Corporations, Corporate Governance, Fiduciary Duties, Causes of Action, Duty of Loyalty, Business Judgment Rule, Remedies, Defenses, Torts, Business Torts, Fraud & Misrepresentation, Shareholders, Shareholder Duties & Liabilities, Evidence, Burdens of Proof, Contracts Law, Contract Formation, Consideration, Negligent Acts of Directors & Officers, Elements, Duty, Negligence, Damages, Monetary Damages, Affirmative Duty to Act, Self-Dealing, Controlling Shareholders, Fiduciary Duties, Articles of Incorporation & Bylaws, Personal Liability, Class Actions, Derivative Actions, Injunctions, Business & Corporate Compliance, Contracts Law, Contract Conditions & Provisions, Exculpatory Clauses, Exculpatory Clauses, Defenses, Demurrers & Objections, Affirmative Defenses, Duty of Good Faith, Piercing the Corporate Veil, Inferences & Presumptions, Presumptions, Creation, Failure to Act, Types, General Agents, Authority to Act, Actual Authority, Compensation, Express Authority, Implied Authority, Establishment, Delegation of Authority, State & Territorial Governments, Elections, Terms in Office, Removal & Resignation