Disney Averted Suit, Witness Says

A Los Angeles trial lawyer testified Tuesday that Walt Disney Co. “avoided a very serious, ugly lawsuit” by terminating then-President Michael Ovitz’s contract on a no-fault basis in 1996 and paying his severance.

Larry R. Feldman, who specializes in wrongful termination cases, said his review of the case found that there was no reason to deny Ovitz the payments under his employment contract.

The language in Ovitz’s contract detailing what constitutes gross negligence and malfeasance meant he would have had to engage in “something up at the higher end of bad behavior” to justify having Disney withhold his money, Feldman said.

“I didn’t see a shred of paper that in any way comes close to what you would need to prove dishonesty,” Feldman testified in the Georgetown, Del., trial of a shareholder lawsuit seeking to recover Ovitz’s severance.

Ovitz was fired after about 15 months on the job at Burbank-based Disney. Plaintiffs’ lawyers value Ovitz’s severance package at more than $140 million. They argue that his tenure was so fraught with problems that Disney directors would have been justified in firing him for cause and denying him the payments.

But Feldman testified that Disney directors would have risked an even bigger payout if they denied Ovitz the money.

Accusing Ovitz of wrongdoing, Feldman testified, would have let him collect “hundreds of millions of dollars” in damages for fraud, defamation and breach of contract.

Feldman said he would have “gladly represented” Ovitz in a suit against Disney had that happened.

Plaintiffs’ lawyers argue that directors rubber-stamped Disney Chief Executive Michael Eisner’s hiring and firing of Ovitz. They add that Ovitz mishandled his expense account and lied while at Disney.

But Feldman said shareholders had failed to prove Ovitz had lied or violated Disney policies by giving extravagant gifts during his brief tenure as president of the company. Ultimately, Feldman testified, Disney was prudent in its decision.

“There was nothing anyone could show that was deceitful, improper,” he said.

Ovitz negotiated the contract language to protect him from the “backbiting” that he could expect when Eisner named an outsider as president, passing over others who had been at the company longer, Feldman said.

Investors would have had to show that Ovitz engaged in either criminal activity or acted in a highly “reckless manner,” Feldman said. He added that there was no evidence of either of those types of conduct.

Feldman, who was called as an expert witness to defend Ovitz, said he was hired by Ovitz’s lawyers last year to review evidence in the case at a rate of $725 per hour.

Feldman said he spent about 150 hours examining Ovitz’s employment agreement and related documents in preparation to testify in the case. He is special counsel with the Los Angeles office of New York’s Kaye Scholer.

The 2-month-old case resumed after recessing for the holidays. The trial is entering its closing phase of testimony, with a final group of witnesses expected over the next few days. After that, Chief Delaware Chancery Court Judge William B. Chandler III is expected to issue a decision, a process that could take several months.

Disney has directors and officers’ insurance provided by American International Group Inc. and other companies that might cover a ruling that required Eisner and other executives to return the Ovitz severance payment.