Am I to understand that most, if not all, of you believe that yesterday’s Disney opinion represents … well… a 100% correct interpretation and application of the law that will be adopted and sustained across the board? I say this with the utmost respect for Chancellor Chandler, as I am of the view that he is obviously a brilliant jurist. But I have some concerns about the opinion, and I am not sure that it represents the final word on the duty of care and good faith.
Specifically, although the opinion was obviously thoughtfully and painstakingly written, there are points in the opinion where I respectfully disagree with the recitation of the law. Further, taking the findings of fact in the opinion as a given, there are instances where the application of the law to the facts troubles me. I am actually a bit surprised to have this reaction, because I fully expected that, either way this case was decided, there would be little room to question the opinion and ultimate holding. (Basically I agree with what I think Profs. Bainbridge and Smith said – this case could have gone either way.)
In addition, plaintiffs’ counsel has indicated that the decision will be appealed, so this opinion might not be the final word in this case. Five years from now, yesterday’s opinion might be but a fuzzy memory, with the responsive Supreme Court opinion instead taking its place in our Corporations textbooks. (I am not suggesting that this will (or should) happen. I am only noting that it might be a bit early for Wachtell, Lipton (for whom I also worked) and other firms to take too much away from yesterday’s Disney directors’ Delaware triumph. To wit, many of us might have a difficult time recalling exactly what valuable information we gleaned initially from the lower courts in the Unocal, Van Gorkom, and Emerald Partners cases.)
In any event, am I alone in my reluctance to wholeheartedly embrace yesterday’s opinion at this juncture? And am I alone in suggesting that Delaware jurisprudence in this area is a bit… inconsistent, such that I would not bet the farm on any one iteration of the current state of the common law in this area?
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1. Posted by Gordon Smith on August 11, 2005 @ 8:41 | Permalink
Elizabeth, I can understand your reluctance on the facts. When I read the last section of Chandler's opinion, I have the impression that he really has to work to find good faith. I suppose that the Supreme Court could reverse and hold that these facts constitute bad faith, but I think they would be saying only that the Disney directors are the once-in-a-generation group that abdicated its duties and produced a very bad result. In other words, I think the facts, not the law, make this case remarkable.
2. Posted by Roger Hipp on August 11, 2005 @ 16:05 | Permalink
The opinion does not offer the appellants much to work with, in light of the way the facts were determined. The Chancellor determined that "Eisner and Litvack did in fact make a concerted effort to determine whether Ovitz could be terminated for cause" (71), even though: (a) Litvack did no legal research (69); (b) Litvack did not ask for an outside opinion (69); (c) Litvack's claim that he briefly discussed the question with an outside attorney was not substantiated (69-70); (d) Litvack did not write a CYA memo or even make any notes (70); (e) Litvack came out the worst of anyone in the opinion, being singled out as "pathetic" and perhaps even "irresponsible" (170). Basically Litvack took a look at the OEA and decided it was a "no-brainer" (70) and that this $140 million decision did not merit further effort. Perhaps Litvack was correct, but how the Chancellor found he made a "concerted effort," I do not undersand.
The fact that smells worst to me is the decision to pay the full amount without even attempting to negotiate for a lesser sum. Litvack testified that it would have been "unethical" and bad for Disney's reputation to use a threat of termination for cause as leverage in negotiations. (72) Are we really to believe it is the policy of the Walt Disnery Corporation never to negotiate over its liabilites, and never to bluff during negotiations because it's unethical? I'm sure Jeffrey Katzenberg would tell us otherwise.
What I suspect *really* happened, though it apparently was not proved, was something like this. Eisner and the board wanted to pay Ovitz the full amount, not out of love for Ovitz (the theory that plaintiffs failed to prove), but out of professional courtesy. It's become an accepted practice to give failed executives eye-popping severance as a sort of parting gift -- think Barad at Mattel, Ivester at Coke, Fiorina at H-P, Purcell and Crawford at Morgan Stanley. If I am right, Eisner and the board wouldn't consider negotiating for a lesser amount; the only question was whether they would follow custom and pour some extra sugar on top. And indeed they did, to the tune of $7.5 million. (I almost wish they had not rescinded the bonus, because I would have loved to see the Chancellor deal with that.)
How do we know Eisner really hated Ovitz? He wouldn't give Ovitz the customary lifetime use of the company plane -- or even the company car (78).
3. Posted by supra footwear on October 30, 2011 @ 1:50 | Permalink
Thanks, I'm going to have nightmares tonight.
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