University:
California State University, Northridge
Course:
BLAW 280 | Business Law I
Academic year:

2021
Views:

462

Pages:

2
Author:

ilikemyicons0y5

William Brehm v. Michael D. Eisner, Michael S. Ovitz, and The Walt Disney Company Supreme Court of Delaware Facts: Disney CEO Michael Eisner personally executed a contract, signing his personal friend Michael Ovitz on as Disney’s President. Ovitz’s contract also included a non-fault termination clause. Ovitz has many financial options worth millions included into this contract that was approved by Disney’s Board of Directors. This approved agreement was reviewed and endorsed by a corporate compensation expert as well, who later stated that no one had computed the actual compensation Ovitz would get if there was a non-fault termination. Ovitz worked for about a year before negotiating a non-fault termination of his employment. This termination then paid him $38 million per his contract, which was much more than he would have even made carrying out his full contract. Michael Brehm, on behalf of Disney’s shareholders, filed a derivative lawsuit against The Walt Disney Corporation and its Board of Directors, stating they caused harm to the corporation by agreeing to this contract which created “corporate waste” and was a breach of fiduciary duties. Issues: Should Disney’s Board of Directors be held personally liable for a breach of fiduciary duty to shareholders? Did their actions cause “corporate waste” or did they fall under the “business judgment rule” in good faith? Rule of Law: Under the “Business Judgment Rule”, actions taken by the board of directors must be in good faith; there must be reasonable doubt as to the validity of a transaction; burden of proof falls on the plaintiff. Holding: Court held that the Plaintiffs did not have a well-plead complaint and that they failed to prove that any of the board’s actions or agreements were made in bad faith or breached a fiduciary duty. They held that due to the lack of significant proof of the contrary, that there was no basis for a finding a corporate waste. Court found in favor of the Defendants. Reasoning: They stated that the plaintiffs would have needed to prove that the board did not rely on the facts given to them by the compensation expert when agreeing to the contract; if they didn’t, there may have been a breach, however, they relied on the findings to decide to approve the contract. Because there was no outward reasoning to believe the deal was made in bad faith to harm the corporation, there was no reason to think the business judgment rule would not apply. – a concurring judge’s opinion stated that he thought that the burden that was placed upon the plaintiffs was too high to not move the case forward to discovery. Analysis/Opinions: This is one of those sketchy situations that I feel as though needed more time and information to make a judgment call on. The fact that Ovitz was a personal friend of Eisner’s with no work experience alone makes you question the merits of his entire contract. Here, however, the court placed a very high amount of burden on the plaintiff’s complaint and denied the request to move forward with discovery. I feel like this was an error judgment. The compensation expert even came out and said no one calculated the amount he would have been paid for the termination; this alone should have been grounds to reconsider and assess the issues by the shareholders.