Delaware high court upholds Disney severance ruling

[JURIST] The Delaware Supreme Court [official website] has upheld [text, PDF] a lower court's ruling declaring Walt Disney Co. [corporate website] directors and two former executives not liable for the approval of a $130 million severance package [JURIST report] for former Disney president Michael Ovitz [Wikipedia backgrounder], after serving only 14 months as president. Several shareholders originally sued former CEO Michael Eisner [BBC profile; JURIST report], former general counsel Sanford Litvack and the Disney board, claiming that the board of directors serving when Disney hired Ovitz violated their fiduciary duties and wasted resources when they hired, and fired without cause, the former Hollywood agent in 1996. The 17 shareholders alleged [oral arguments recorded audio] that the directors should have fired Ovitz for cause, therefore depriving him of the severance package, and that the directors' decision to hire Ovitz represented "gross negligence."

The decision [text, PDF] from the State Court of Chancery [official website] and its subsequent appeal [JURIST report] to the state Supreme Court turned on the definition of bad faith. Justice Jack Jacobs of the Supreme Court noted that there was no well-defined theory in corporate fiduciary law for the definition of bad faith, adding that there was no substantive difference between two definitions outlined by the Court of Chancery last August because the two definitions outlined an "intermediate category of conduct." Jacobs' new definition of bad faith holds an executive board member accountable for violating their fiduciary duty to shareholders if they act with a conscious disregard instead of a deliberate intent. Rita Farrell of the New York Times has more.



 

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