On June 8, 2006, a unanimous Delaware Supreme Court affirmed the judgment entered on August 9, 2005 by the Court of Chancery in The Walt Disney Company Derivative Litigation dismissing all claims in a plaintiffs' derivative action against Michael Eisner and other current or former directors of The Walt Disney Company.
Plaintiffs alleged in their amended complaint that the defendant directors had breached their fiduciary duties and committed corporate waste in connection with the 1995 hiring and then the 1996 termination of Michael Ovitz as president of Disney. Plaintiffs argued that Disney should not have paid Ovitz $140 million in termination benefits when Ovitz was terminated 14 months after his hiring, contending that Ovitz should have been fired with cause. They sought to recover from the director defendants $262 million (including interest).
In a 91-page opinion written by Justice Jack Jacobs, the Supreme Court found that the "Chancellor's factual findings and legal rulings were correct and not erroneous in any respect." The findings and rulings of Chancellor William B. Chandler III were set out in his 174-page opinion which laid out in close detail the sequence of events leading to both the hiring and termination of Ovitz. Based on his review of the 37-day trial record (which included almost five days of testimony from Mr. Eisner), the Chancellor concluded that Mr. Eisner's actions "were taken in good faith" and "with the subjective belief that those actions were in the best interests of the Company." The Supreme Court found that the record - including the "Chancellor's assessment of the credibility of Mr. Eisner" - supported the determination that Mr. "Eisner's conduct satisfied the standards required of him as a fiduciary." Chancellor Chandler also dismissed plaintiffs' claim for waste, finding that Mr. "Eisner believed that Ovitz would be an excellent addition to the Company throughout 1995" and that "Ovitz could not have been fired for cause" under his employment agreement. Here, too, the Supreme Court agreed that plaintiffs' claim "must fail."
Kramer Levin Naftalis & Frankel LLP was lead counsel for Mr. Eisner at the trial and on the appeal, with Ashby & Geddes of Wilmington, Delaware as co-counsel. Gary P. Naftalis (Co-Chairman of the Kramer Levin Naftalis & Frankel Firm and Chair of its Litigation Department), argued the appeal for Mr. Eisner, assisted by his partners Michael S. Oberman and Paul H. Schoeman with associate Shoshana Menu. Mr. Naftalis stated that Mr. Eisner is "very pleased" with the Supreme Court decision. "We always believed that there was no basis for this case and that Mr. Eisner always acted properly and in the best interests of the Disney shareholders."
Published July 1, 2006.