Lexis Nexis - Case Brief

Not a Lexis Advance subscriber? Try it out for free.

Law School Case Brief

Brehm v. Eisner (In re Walt Disney Co. Derivative Litig.) - 906 A.2d 27 (Del. 2006)


The good faith required of a corporate fiduciary includes not simply the duties of care and loyalty, but all actions required by a true faithfulness and devotion to the interests of the corporation and its shareholders. A failure to act in good faith may be shown, for instance, where the fiduciary intentionally acts with a purpose other than that of advancing the best interests of the corporation, where the fiduciary acts with the intent to violate applicable positive law, or where the fiduciary intentionally fails to act in the face of a known duty to act, demonstrating a conscious disregard for his duties.


In August 1995, Michael Ovitz ("Ovitz") and The Walt Disney Company ("Disney" or the "Company") entered into an employment agreement under which Ovitz would serve as President of Disney for five years. In December 1996, only 14 months after he commenced employment, Ovitz was terminated without cause, resulting in a severance payout to Ovitz valued at approximately $ 130 million.

In January 1997, several Disney shareholders brought derivative actions in the Court of Chancery, on behalf of Disney, against defendants Ovitz and the directors of Disney who served at the time of the events complained of (the "Disney defendants"). The plaintiffs claimed that the $ 130 million severance payout was the product of fiduciary duty and contractual breaches by Ovitz, and breaches of fiduciary duty by the Disney defendants, and a waste of assets. The Court of Chancery ruled that the director defendants did not breach their fiduciary duties or commit waste. Plaintiffs-appellants sought review of the judgment in favor of all defendants on all claims alleged in the amended complaint.


Did a decision to approve the president's employment agreement and a decision to terminate him on a non-fault basis result from various breaches of fiduciary duty by the president and the corporate directors?




The Supreme Court of Delaware affirmed the judgment. The Court held that no reasonably prudent fiduciary in the president's position would have unilaterally called a board meeting to force the corporation's chief executive officer to reconsider his termination and the terms thereof, with that reconsideration for the benefit of shareholders and potentially to the president's detriment. The decisions to approve the president's employment agreement, to hire him as president, and then to terminate him on a non-fault basis were protected business judgments, made without any violations of fiduciary duty. Having so concluded, it was unnecessary to reach the shareholders' contention that the directors were required to prove that the payment of severance was entirely fair. Because the shareholders failed to show that the approval of the no-fault termination terms of the employment agreement was not a rational business decision, their corporate waste claim failed.

Regarding the applicable standard of review on an appeal from a decision granting summary judgment, the Supreme Court of Delaware reviews the entire record to determine whether the Chancellor's findings are clearly supported by the record and whether the conclusions drawn from those findings are the product of an orderly and logical reasoning process. The Supreme Court does not draw its own conclusions with respect to those facts unless the record shows that the trial court's findings are clearly wrong and justice so requires. 

Access the full text case Not a Lexis Advance subscriber? Try it out for free.
Be Sure You're Prepared for Class