IRAC

CASE STUDY ANALYSIS

LEARNING TEAM B
LAW/531
MR. ANDREW VAN NESS
NOVEMBER 16, 2015

Introduction
This

weeks assignment will show an

example of an IRAC method analysis

The

case assigned will be from this

weeks readings.

CASE
Brehm

v. Eisner

Michael

Ovitz, head of Creative Artists Agency, was hired in

October 1995 largely due to Eisner

Ovitz
The

insisted on an employment agreement

accepted employment package

$23.6

million per year for the first five years of the deal, plus bonuses
and stock options

The

stock options would appreciate at least $50 million in five years

or Disney would make up the difference

Entitled

to a Non-Fault Termination payment (NFT), which consisted of

his remaining salary

In

December 1996, Ovitz was officially terminated by action of Eisner

alone.

Issue (Ruben)
The

issue in our case is Disney shareholders

making a claim in the action against Eisner
and other directors.

Breach

of fiduciary duty ( by having no

approval of the OEA to elect Ovitzs as
President

Disagreement

with severance pay-out to Ovitz

Rule (Eli)

Fiduciary duties of directors and officers

Duty of care of directors and officers

MBCA section 8.30 states:

(a) Each member of the board of directors shall act:

(1) in good faith, and

(2) in a manner the director reasonably believes to be in the

best interests of the corporation

Business Judgment Rule

Informed decision

No conflicts of interest

Rational basis

Analysis (Jonah)

CLAIMS
A) Approval of employment and Ortiz as president
B) No Fault Termination of Ortiz and subsequent severance
costs

l
a
e
p
p
Business Judgment Rule
A
t
r
u
Aronson demand futility test
o
C
e
m
e
r
p
u
S
Duty

of Care

Analysis (Jonah)

Reasonably Available Information

Board

decision making process (Fiduciary Duties)

Approval

of employment contract

Termination

Complaint:
Good

Allege particular facts

Faith reliance on Expert or Gross Negligence

Material

and reasonable subject matter (the MATH)

Constitute

Eisners

without cause

waste or fraud

fiduciary conduct

Analysis (Jonah)

Remark
s

Just as the 85,000-ton cruise ships Disney Magic and Disney

Wonder are forced by science to obey the same laws of
buoyancy as Disneyland's significantly smaller Jungle Cruise
ships, so is a corporate board's extraordinary decision to
award a $140 million severance package governed by the
same corporate law principles as its everyday decision to
authorize a loan. . . . Nature does not sink a ship merely
because of its size, and neither do courts overrule a board's
decision to approve and later honor a severance package,
merely because of its size.

Conclusion (Valerie)

- Actions were consistent with what is expected of a faithful fiduciary

-Weighed the alternatives, received advice from counsel and then exercised his
business judgment in the manner he thought best for the corporation

- Knew all the material information reasonably available when making the decision

- Did not neglect an affirmative duty to act (or fail to cause the board to act)

- Acted in what he believed were the best interests of the Company, taking into account
the cost to the Company of the decision and the potential alternatives

- Decision to hire Ovitz as President, and then to terminate him on an NFT basis, were
protected business judgments, made without any violations of fiduciary duty.

- Unnecessary for the Court to reach the shareholders' contention that the Disney
defendants were required to prove that the payment of the NFT severance to Ovitz was
entirely fair

HOW LEGAL CONCEPTS IN THIS CASE ARE APPLIED WITHIN A

BUSINESS MANAGERIAL SETTING ? (Valerie)

- Understanding of legal concepts

- Local rules and regulations for certain areas

- Proper licenses and permits

HOW TO MANAGE THE RISK

INVOLVED WITH COMPLIANCE ISSUES
? ( Ruben )
Compliance

risks are those associated with

the need to comply with laws and regulations.
They also apply to the need to act in a
manner which investors and customers
expect, for example, by ensuring proper
corporate governance.

Reference

Business Law. The Ethical, Global, and E-Commerce

Environment.
(Mallor, J., Barnes, A., Langvardt, A., Prenkert,
J., McCrory, M.).
Sixteenth Edition.

Mcdonnell, C., Bruce, S., & Flynn, S. (2009). Business Law (2nd ed.).
Retrieved from http://highered.mcgraw-hill.com/sites/0073375691.