## Facts

- Disney’s CEO and board chair, Michael Eisner, led efforts to recruit Michael Ovitz to serve as Disney’s president in 1995.
- Ovitz’s employment terms, including substantial severance protections, were negotiated largely by Eisner with limited committee and board involvement before approval.
- The board’s compensation committee and full board approved an employment agreement later criticized as unusually generous.
- Ovitz served for roughly 14 months; Eisner concluded Ovitz was not a good fit and decided he should be terminated.
- Eisner and the board chose to end Ovitz’s employment as a “non-fault termination,” triggering severance valued at approximately $130–140 million, rather than attempt a for-cause termination that could prompt litigation and reputational harm.
- Stockholders brought a derivative action challenging (1) approval of the employment agreement and (2) the decision to grant a non-fault termination and pay the severance.

## Issues

1. Whether Disney directors and Eisner breached fiduciary duties of care and loyalty, including good faith, by approving Ovitz’s employment agreement through an allegedly inadequate decisionmaking process.
2. Whether Disney directors and Eisner breached fiduciary duties by choosing a non-fault termination and authorizing the resulting severance rather than pursuing a for-cause termination.
3. Whether the non-fault termination payment constituted corporate waste.

## Decision

- Judgment was entered for all defendants on all claims after trial.
- The court held the directors and officers did not breach fiduciary duties of care or loyalty, including the obligation to act in good faith, in approving the hiring terms or authorizing the non-fault termination.
- The court held the severance did not constitute corporate waste under Delaware’s demanding standard.
- The court criticized aspects of Disney’s governance and process but concluded the conduct did not meet the legal thresholds for liability.

## Legal Principles

- The business judgment rule protects board decisions when directors act on an informed basis, in good faith, and with an honest belief the action serves the corporation’s best interests.
- A flawed or abbreviated process does not create liability absent gross negligence (care) or disloyalty/bad faith (loyalty); Delaware law does not impose liability for failing to follow best governance practices.
- Bad faith requires more than poor judgment or weak process; it involves intentional dereliction of duty, conscious disregard, or improper motive.
- In assessing a termination decision, courts defer to board and officer judgment where the decision is rational, informed by advice, and made in good faith, even if it results in a large payout.
- Corporate waste requires showing the corporation received no consideration, or consideration so inadequate that no person of ordinary, sound judgment could find it adequate; negotiated compensation and severance rarely meet this standard.
- An executive does not breach fiduciary duty merely by accepting benefits clearly authorized by contract and conferred by the corporation’s decisionmakers.

## Conclusion

The Court of Chancery held that Disney’s approval of Ovitz’s employment terms and its later choice to treat his departure as a non-fault termination were protected business judgments, and that neither decision supported liability for breach of fiduciary duty or corporate waste under Delaware law.


In re Walt Disney Co. Derivative Litigation, 907 A.2d 693 (Del. Ch. 2005)