## Facts

- Disney’s CEO and chair, Michael D. Eisner, recruited his longtime friend Michael S. Ovitz to serve as Disney’s president in 1995.
- Disney approved a five-year employment agreement for Ovitz that included salary, bonus potential, significant stock option grants, and a “non-fault termination” (NFT) provision that would trigger a large severance absent specified misconduct.
- The board and compensation committee relied on a compensation consultant in approving the compensation package.
- After roughly fourteen months, Disney terminated Ovitz under the NFT provision, resulting in a very large severance payout.
- Stockholders brought a derivative action alleging that directors and certain officers breached fiduciary duties and committed corporate waste by approving the contract and later authorizing the NFT termination and payout.
- Defendants moved to dismiss for failure to make a pre-suit demand on the board and failure to plead demand futility with particularity under Court of Chancery Rule 23.1.
- The Court of Chancery dismissed; the stockholders appealed.

## Issues

1. Whether the complaint pleaded particularized facts under Rule 23.1 creating a reasonable doubt that a majority of directors were disinterested and independent or that the challenged decisions were a valid exercise of business judgment, such that demand was excused.
2. Whether the complaint pleaded, with the required particularity, non-exculpated fiduciary breaches or corporate waste in connection with approving Ovitz’s employment agreement and approving the NFT termination payout.

## Decision

- The Delaware Supreme Court held that Rule 23.1 requires particularized factual allegations; conclusory assertions about director dependence on Eisner or inadequate deliberation were insufficient.
- The court affirmed dismissal of many claims for failure to plead demand futility with the required particularity.
- The court clarified that demand-futility analysis is conducted claim-by-claim and explained the roles of the Aronson and Rales frameworks.
- The court reversed in part and remanded to allow repleading of certain allegations consistent with the clarified pleading standards.

## Legal Principles

- A derivative plaintiff must satisfy Rule 23.1’s heightened, particularized pleading standard; notice pleading is inadequate for demand futility.
- Demand futility is assessed on a claim-by-claim basis; the applicable test depends on whether the claim challenges a board decision (Aronson) or other circumstances (Rales).
- The business judgment rule presumes directors acted on an informed basis, in good faith, and in the corporation’s best interests; rebuttal at the pleading stage requires particularized facts suggesting disqualifying conduct (e.g., lack of independence, bad faith, or gross negligence).
- Director reliance in good faith on qualified experts and advisors is permitted; a pleading must allege particularized facts showing the reliance was not in good faith, not actual, or involved an incompetent advisor.
- Corporate waste requires a showing that the transaction was so one-sided that no person of ordinary, sound business judgment could view it as adequate consideration; high executive compensation, without more, does not state waste.
- Courts distinguish between recommended governance practices and legally enforceable fiduciary duties; an imperfect process does not itself establish liability absent well-pleaded facts meeting Delaware’s standards.

## Conclusion

The Delaware Supreme Court required detailed, claim-specific factual pleading to excuse demand in a derivative suit and held that generalized attacks on board process and executive compensation did not overcome the business judgment presumption or state corporate waste without particularized facts, while permitting limited repleading on remand.


Brehm v. Eisner, 746 A.2d 244 (Del. 2000)