Brief “
Brehm v. Eisner”
1.
Name: "
Brief Brehm v. Eisner
"
2.
Facts: In 1995, Michael Ovitz and The Walt Disney Company agreed to a deal that called
for Ovitz to lead Disney for five years. However, he was fired without cause in December
1996, which resulted in a $130 million severance payment. Some Disney shareholders sued Ovitz and the board of directors in 1997 for breach of contract and breach of fiduciary duty, but the Court of Chancery sided with the defendants.
3.
Issue: Did the president and the corporate directors' multiple fiduciary duty violations lead to a choice to approve the president's employment contract and a decision to fire him
without assigning blame?
4.
Rule: In addition to their duties of care and loyalty, corporate fiduciaries are obligated to act in good faith, which includes taking any actions that show faithfulness and devotion to the interests of the company and its shareholders. If a fiduciary intentionally puts the corporation's interests ahead of their own, breaks the law, or ignores a duty that has been assigned to them, they have not acted in good faith. Such activities can be a breach of their commitments.
5.
Analysis: The plaintiffs, William Brehm et al., filed a shareholder derivative complaint against the defendant corporation, Walt Disney Company, and its Board of Directors after
the Board of Directors authorized a compensation package for former president Michael Ovitz that paid Ovitz more if he was terminated than if he completed the entirety of the employment agreement.
6.
Conclusion: The Supreme Court of Delaware confirmed the previous ruling that the termination of the president's employment and the payment of severance were made in good faith and without violating any fiduciary duties. The court found that it was reasonable for the board to approve the president's employment agreement, hire him as president, and then terminate him on a non-fault basis. The court also stated that the shareholders failed to show that the approval of the no-fault termination terms was not a rational business decision, and thus their claim of corporate waste failed.
