The judge's decision to fully exonerate former Walt Disney Co. CEO Michael Eisner and fellow directors over Michael Ovitz's $140 million severance was so replete with errors and oversights that it sho
LOS ANGELES (The Hollywood Reporter) -- The judge's decision to fully exonerate former Walt Disney Co. CEO Michael Eisner and fellow directors over Michael Ovitz's $140 million severance was so replete with errors and oversights that it should be overturned, according to the shareholders who brought the case.
The 49-page appeal, filed Oct. 24 in the Supreme Court of Delaware, suggests 15 areas in which the trial judge allegedly misread the law, overlooked evidence or put an unreasonable burden on the plaintiffs.
Among other things, Delaware Court of Chancery Judge William Chandler III was accused of wrongly assuming that the board of directors had no duty to decide whether Ovitz should receive the severance -- after just 14 months on the job -- or be fired outright for incompetence and paid nothing.
"This legal ruling improperly absolved the director defendants from any and all liability for failing to meet, consider and approve the terms of Ovitz's departure," according to the filing by plaintiffs' attorneys Joseph Rosenthal, Seth Rigrodsky and Steven Schulman.
The defendants remain confident that Chandler's Aug. 9 decision will survive the appeal.
"A lot of their brief is that they just don't agree with the chancellor's findings," said Ovitz's attorney, Mark Epstein. "It seems to me that having them say they would credit different evidence and draw different inferences is probably not the strongest argument one can make in an appellate court. It strikes me that they're trying to retry the case in the wrong forum."
The defendants have a month to file their response, after which the plaintiffs will have two weeks to reply. The appeals court may want to hear arguments before ruling.
Chandler found that the directors did not breach their duty or waste Disney's money in the hiring and firing Ovitz, who became Disney's president in 1995 largely at the prompting of his close friend, Eisner.
The plaintiffs, representing a group of shareholders, pursued the lawsuit for eight years to get the severance returned to Disney's coffers with interest, a sum estimated to be $262.2 million. If found liable, the directors would have been personally responsible for paying back the bulk of the money.
Although he did not find liability, Chandler blasted Eisner for acting as the "infallible monarch of his personal Magic Kingdom" who should not have unilaterally committed Disney to hiring Ovitz for one of the richest pay packages in U.S. history.
In their appeal, the plaintiffs insist that they proved that the board did not do enough to learn about the contract Ovitz was offered. That alone, it is alleged, amounted to gross negligence and breach of fiduciary duty, two key legal thresholds to establish liability.
It was claimed that the directors failed to consider the risk of offering Ovitz a no-fault termination, which allowed him to walk away with his full five-year compensation, or seek the advice of a compensation expert. The plaintiffs further insist that Ovitz's "lack of veracity and abysmal performance" was more than enough to get him fired for cause.
Chandler also was criticized for looking at the potential liability of each individual director instead of the board as a whole.
Another claim is that the court imposed a "more stringent" standard than necessary for the plaintiffs to prove their case.
The plaintiff's final argument is that Chandler wrongly assumed that the case was about applying modern standards of corporate governance to decisions made a decade ago.
"This is false," according to the appeal. "Plaintiffs never argued for the retroactive application of any sort of 21st century standards of corporate governance."