## Facts

- Stockholder plaintiffs brought a derivative action challenging (1) the board’s approval of Michael Ovitz’s 1995 employment agreement and (2) the later decision to terminate him without fault and pay a large separation package.
- The employment agreement included a generous “non-fault termination” (NFT) provision that would require substantial payments and accelerated equity vesting if Ovitz was terminated without cause.
- Plaintiffs alleged the compensation committee and board approved the agreement through a thin process, including failure to value or meaningfully scrutinize the economic effect of the option grant and NFT terms.
- After a short and unsuccessful tenure, Ovitz was terminated without fault, resulting in a payout alleged to be roughly $130–$140 million in cash and options.
- Plaintiffs alleged the later board did not meaningfully evaluate alternatives to a non-fault termination and did not delay or reconsider the transaction once structured.
- Disney’s charter contained a DGCL § 102(b)(7) exculpatory provision eliminating directors’ monetary liability for duty-of-care breaches, but not for bad faith, loyalty breaches, or intentional misconduct.
- After an earlier complaint was dismissed, plaintiffs filed a second amended complaint with additional particularized allegations; defendants moved to dismiss.

## Issues

1. Whether the second amended complaint pled particularized facts sufficient to state non-exculpated fiduciary-duty claims against directors notwithstanding the DGCL § 102(b)(7) exculpatory provision.
2. Whether the alleged approval of Ovitz’s employment agreement and NFT terms supported a reasonable inference of bad faith or conscious disregard of duty, rather than only exculpated negligence.
3. Whether the alleged conduct surrounding the non-fault termination and payout plausibly stated claims for bad faith and/or corporate waste at the pleading stage.

## Decision

- The Court of Chancery partially granted and partially denied the motion to dismiss.
- The court held that, accepting well-pleaded allegations as true, plaintiffs alleged facts that could support findings of non-exculpated misconduct (including bad faith or conscious disregard) in connection with both the hiring contract approval and the termination payout.
- The court applied the § 102(b)(7) provision to eliminate claims that sounded only in duty-of-care negligence, trimming certain claims and/or defendants.
- The court allowed the core fiduciary-duty and waste theories regarding the Ovitz employment agreement and severance package to proceed to discovery.

## Legal Principles

- A DGCL § 102(b)(7) charter provision bars monetary liability for duty-of-care breaches but does not foreclose claims predicated on bad faith, loyalty violations, or intentional misconduct.
- On a motion to dismiss, the court assumes well-pleaded facts are true and asks whether the pleaded facts support a reasonable inference of non-exculpated wrongdoing.
- Allegations of an uninformed, perfunctory approval process for a major compensation decision may support an inference of bad faith (i.e., intentional dereliction of duty or conscious disregard of responsibilities), sufficient to survive dismissal.
- Corporate waste requires pleading a transaction so one-sided that no person of ordinary, sound business judgment could conclude the corporation received adequate consideration; large compensation or severance arrangements may satisfy pleading-stage waste scrutiny if alleged facts plausibly show no rational corporate benefit.

## Conclusion

The court held that the second amended derivative complaint, viewed under pleading-stage standards, alleged sufficiently serious process and oversight failures in approving and executing Ovitz’s employment and non-fault termination arrangements to state potentially non-exculpated claims (including bad faith and waste) despite Disney’s DGCL § 102(b)(7) exculpatory clause, warranting discovery and further proceedings.


In re Walt Disney Co. Derivative Litig., 825 A.2d 275 (Del. Ch. 2003)