Ovitz, Eisner join in truce as trial begins over big payout

Onetime Disney foes rally in defense of severance

October 21, 2004|By Richard Verrier | Richard Verrier,LOS ANGELES TIMES

GEORGETOWN, Del. - Their wives were close friends. Their Aspen vacation homes were a 10-minute drive apart. When one underwent heart surgery, the other kept vigil at the hospital.

But whatever personal chemistry Walt Disney Co. chief executive Michael D. Eisner and former Disney President Michael Ovitz enjoyed didn't work professionally. So Eisner pushed out his friend, who never forgave or forgot.

Nearly eight years later, the two men find themselves joined again, this time in a courtroom in this small Delaware town. During a trial that began yesterday, Ovitz and Eisner will be compelled to explain in detail why their relationship imploded. The reason: Shareholders have sued Disney board members, contending that Ovitz's botched hiring and dismissal cost the company as much as $200 million in severance and interest.

Although Ovitz and Eisner barely speak to each other now, they must stand shoulder to shoulder to prove that while Ovitz's parting was bitter, he was not fired for gross negligence or malfeasance. Were Ovitz found guilty of such behavior, he could have been denied the rich cash-and-stock-option package he reaped.

If the plaintiffs prevail in the non-jury trial, any money awarded probably would be paid by the defendants' insurance carrier - not the board members themselves - and returned to Disney's treasury.

Based on pretrial depositions, Eisner is expected to argue that he engineered a once-in-a-lifetime coup by persuading Ovitz in 1995 to give up his position as Hollywood's most powerful agent to become Disney's second-in-command. At the same time, he must demonstrate that Ovitz's performance at Disney was flawed - bad enough to cost him his job but not so bad as to cost him his severance.

Ovitz has his own fine line to walk. He is expected to accuse Eisner and other Disney executives of undercutting him. But he too will argue that Eisner acted properly in easing him out and clearing the way for the severance because the arrangement simply did not gel.

Mark Epstein, Ovitz's lawyer, said his client "worked incredibly hard during the time he was at Disney and the evidence will show that he was entitled to all of the payments that he received." Eisner lawyer Gary Naftalis said that Disney directors were fully involved in consulting Eisner on Ovitz's hiring and firing. He added "that upon termination, Mr. Ovitz received not one penny more than his contract required."

Lawyers for Eisner and other Disney directors contend that they acted in the best interests of shareholders by protecting the company from a breach-of-contract suit that almost certainly would have been filed had they denied Ovitz his payout. That, they say, could have cost far more than the severance package.

Eisner's and Ovitz's performances on the stand will be dissected not only by the presiding judge, Chancellor William B. Chandler III, but by self-appointed jurors sitting in executive suites and on studio lots throughout Hollywood.

With their penchant for playing hardball, Eisner and Ovitz are two men whom much of the industry loves to hate. The prospect of the pair delivering up embarrassing details about each other is thrilling to many.

As veteran talent manager Bernie Brillstein put it: "It will be better than watching Desperate Housewives," the ABC soap opera.

The trial is expected to last about a month, with testimony from Ovitz beginning next week after the shareholders' attorneys present several expert witnesses drawn largely from academia. Among other things, they will argue that Ovitz should have been fired "for cause" and discuss the value of Ovitz's payout when he left in 1996. Ovitz ultimately received $109 million.

Deborah A. DeMott, a Duke University law professor, testified yesterday that Disney's board ignored typical practices of companies incorporated in Delaware and may have violated its own bylaws in the way it hired and fired Ovitz .

The trial is taking place in Delaware because of the state's business-friendly laws, which encourage major companies to incorporate there.

That the case got this far is, in a sense, as surprising as finding Eisner and Ovitz on the same side. Legal experts say it's rare for such shareholder cases to make it to trial because companies nearly always find it cheaper to settle.

Sources close to the case say proposed offers to settle the claims were floated but rejected by American International Group Inc., the liability insurance carrier for Disney directors. An AIG spokesman could not be reached.

Representing the plaintiffs is the firm Milberg Weiss Bershad & Schulman LLP, a New York firm that specializes in shareholder suits against publicly traded companies. Partner Steven G. Schulman said the case is moving forward because Disney directors egregiously rubber-stamped both Eisner's hiring of his friend and his decision to let Ovitz off the hook with a "no-fault termination," requiring Disney to pay him off.

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