On the Twelfth Day of Ovitz ...

10 November 2004

The action brought by Walt Disney Company shareholders against the media mammoth's officers and board, on Monday barnstormed into its twelfth day. The plaintiffs seek compensation for Disney's corporate largesse toward its former president Michael Ovitz.

Making his fourth starring appearance in the witness box was Irwin Russell, former Disney director, chairman of its compensation committee and personal lawyer to the company's chief executive Michael D Eisner. During his stint on the board, Russell it was who oversaw the contract terms of Ovitz' hiring as group president in late 1995.

He also played a key role in formulating Ovitz' $140 million (€108.23m; £75.41m) payoff. Questioned by an attorney for the shareholders, Russell admitted he did not seek an outside legal opinion as to whether Disney could have fired Ovitz for 'due cause' - a situation that would have negated any compensation.

The shareholders' case is that Disney directors failed to consult adequately over the issue of Ovitz' initial service contract and were similarly lax over his monumental severance package - thereby breaching their fiduciary duties.

Russell, however, defended the decision he and Disney counsel Sanford Litvack made to grant Ovitz a so-called nonfault termination, their view being that there was nothing in his conduct or performance that justified dismissal for 'cause' - for example malfeasance or gross negligence.

Asked by Seth D Rigrodsky, attorney for the shareholders if he had "sought an opinion by outside counsel about whether Mr. Ovitz could be dismissed for cause?", Russell replied that he had not.

Undeterred, Rigrodsky pursued his quarry in a manner reminiscent of Albert Finney in Erin Brockovitch, demanding of Russell why he thought it unnecessary to discuss with the board that Ovitz was not reporting his expenses and was "using corporate funds to pay for personal gifts for his friends and business associates?"

Russell said his decision was "based upon a consideration of many aspects." He also maintained that the decision not to fire Ovitz for cause was based on business as well as legal considerations. "The cost of the payout had to be balanced against the probability that Mr Ovitz would sue had he been fired for cause and would have fought to have his contract enforced."

As to the circumstances of Ovitz' hiring, Russell said he had reviewed the draft agreement prior to the committee's meeting on September 26, 1995, but didn't feel it was necessary for other members of the committee to do so. Instead, he showed the committee an "abstract" of the agreement's terms.

It is not recorded whether at this point Rigrodsky emulated Spencer Tracy in Inherit the Wind: pausing, sipping a glass of water, mopping his brow with a crumpled handkerchief and fanning himself with a sheaf of papers before approaching presiding judge, Chancellor William B Chandler III for the coup de grace.

He did, however, tell the judge that "Mr Russell's credibility goes to the very heart of this case."

Which is expected to continue for at least another week.

Data sourced from New York Times and Wall Street Journal Online; additional content by WARC staff