University of Iowa News Release
Aug. 23, 2004
Law Professor Sale Article Cited In Disney Lawsuit Judge's Decision
The Delaware judge presiding over the recent lawsuit by Walt Disney Co. shareholders against a number of Disney executives, including outgoing CEO Michael Eisner and former president Michael Ovitz, cited a law review article by Hillary Sale in his decision that found the company's directors had done nothing illegal.
In the lawsuit, decided earlier this month, a group of disgruntled Disney shareholders claimed the company's board was nothing more than a rubber stamp for Eisner's decisions and breached their fiduciary responsibilities because they did not pay adequate attention to his actions as CEO. In his decision, Chancellor William B. Chandler of the Delaware Court of Chancery said that bad faith, generally defined as when a corporate director makes decisions that place his or her own considerations before the shareholders', takes many forms. He adds that "sloth" and "shirking of duties" can also constitute bad faith. In his decision, the judge makes a direct citation to Sale's article, "Delaware's Good Faith," published in the Cornell Law Review in 2004.
In the article, Sale discusses the changing role of the Delaware judiciary as it relates to securities and governance law. Delaware is the headquarters state of thousands of publicly traded American corporations -- including many of the Fortune 500-because of the nature of its corporate governance laws. How the state's judiciary interprets the state's laws, then, is of national significance. Sale's article argues that several recent cases decided by the Delaware courts have put forth a set of guiding principles for fiduciary good faith. The article was named one of the 10 best articles on corporate governance law in 2004.
In the Disney case, however, Chandler said that the Disney directors had not acted in bad faith nor shown gross negligence, and that Eisner believed he was acting in the best interests of the shareholders when he hired, and later fired, Ovitz.
STORY SOURCE: University of Iowa News Service, 300 Plaza Centre One, Suite 371, Iowa City, Iowa 52242-2500.
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