Ovitz Ruling Upheld

The Delaware Supreme Court ruled that Walt Disney Co. directors did not violate their duties when giving a $140 million severance package to Michael Ovitz in the mid-’90s.

In a 5-0 decision, the court upheld the ruling of Delaware Chancery Court Judge William Chandler III, who was highly critical of Disney CEO Michael Eisner for his hiring and firing of Ovitz but decided the Disney directors acted properly in dispensing a fat severance package.

“Even though the Chancellor found much to criticize in Eisner’s ‘imperial CEO’ style of governance, nothing has been shown to overturn the factual basis for the court’s conclusion that, in the end, Eisner’s conduct satisfied the standards required of him as a fiduciary,” Justice Jack Jacobs wrote for the court.

Eisner hired his one-time friend and CAA founder Ovitz, but the latter was sent adrift in 1996 after 14 months at Disney’s helm. Disney shareholders took the company to task, leading to a much-watched trial in Delaware in 2005 where Eisner and Ovitz testified about the end of their professional and personal relationships.

The justices also rejected the idea that Ovitz was ineligible for the severance payment because he violated his duty in not convening a board meeting to consider terminating him for cause.

The decision cannot be appealed.

Despite the outcome, the ruling should not hurt shareholders’ efforts to hold company directors’ feet to the fire, according to some legal experts. The ruling broadens and clarifies the responsibilities of directors, corporate law professor Lyman Johnson told the Los Angeles Times.

“I think they validated that there is a basis for lawsuits against directors and officers who misbehave,” Johnson said.