One important lesson in the Delaware decision in In Re The Walt Disney Company Derivative Litigation , decided August 9, 2005, is not taught within the four corners of the opinion.

That is: Even if Disney suggests that Delaware will give directors significant leeway before finding that directors are personally liable to the company, getting into the gray area of director behavior in which the matter goes all the way to trial is an expensive, time-consuming proposition.

Any directors who want to save their companies the time, money and aggravation of a Disney type trial will avoid being as lax – even if they are not personally liable – as the Disney directors were.

The trial related to the 1995 one-year hiring-and-firing of Michael Ovitz as a Disney executive, and payment under his employment contract of $140 million. The derivative litigation claimed that directors had breached their fiduciary duties of due care and loyalty, and should personally repay the company for the money wasted. In the Disney opinion, the directors were found not to bear personal liability.

The first litigation in the case commenced in 1997. By the end of the 37-day trial, eight years later, the parties had generated 9,360 pages of trial transcripts – on top of the innumerable pages and billable hours in the briefing, motions, and other activities that had taken place over the eight years of litigation.

Chancellor Chandler used 22 pages of his 174-page opinion to review the state of the art of Delaware law regarding the fiduciary duties of directors. For anyone who has not reviewed the standards of director fiduciary duties in Delaware lately, these 22 pages represent a overview of the state of the law.

At one point, the chancellor discusses how great the level of inattention by a director must be in order for it to represent a breach of fiduciary duty: 

“Upon long and careful consideration, I am of the opinion that the concept of intentional dereliction of duty, a conscious disregard for one's responsibilities, is an appropriate (although not the only) standard for determining whether fiduciaries have acted in good faith. Deliberate indifference and inaction in the fact of a duty to act is, in my mind, conduct that is clearly disloyal to the corporation. (emphasis in the original).”

After setting the bar low, the chancellor permitted the Disney directors, including Michael Eisner, to go over it.

Along the way, however, he was not kind in his views of their conduct. If the parties did not run afoul of the legal standards he articulated, they fell short of standards to which he indicated they should aspire.

Michael Eisner, the Disney CEO, was in particular singled out for the opprobrium:

“By virtue of his Machiavellian (and imperial) nature as CEO, and his control over Ovitz's hiring in particular, Eisner to a large extent is responsible for the failings in process that infected and handicapped the board's decision making abilities. Eisner stacked his (and I intentionally write “his” as opposed to “the Company's”) board of directors with friends and other acquaintances who, though not necessarily beholden to him in a legal sense, were certainly more willing to accede to his wishes and support him unconditionally than truly independent directors.”

Disney is sprinkled with biting characterizations.

It makes you wonder what the chancellor would have written if he had found they had done something wrong.

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Bruce Dravis is a partner at Downey Brand LLP, operating primarily in the firm's Sacramento and Roseville offices, specializing in corporate, securities and business law. His column appears in The Daily Recorder on the third Monday of each month.