In recent years, the executive compensation world has witnessed “moonshot” equity compensation packages and related litigation, perhaps most famously the litigation over the Tesla/Musk multibillion-dollar award. A few decades ago, an executive compensation drama unfolded in Hollywood and then Delaware, with real players in the entertainment and legal world fighting over the legality of what, in retrospect compared to today’s standards, seems like a modest severance package-roughly $130 million- paid to the terminated President of Disney (Michael Ovitz), who was once referred to as the most powerful man in Hollywood.

This Disney/Ovitz litigation- one of the earlier challenges to Board level executive compensation decisions-deserves a second look, and in this case, that includes our interview with John Fox, a California based attorney who served as the expert witness for Disney on the issue of whether there was contractual “cause” under California law to fire Ovitz and avoid any severance.

Background

The case was filed in Delaware Chancery Court by Disney shareholders in early 1997. There were pretrial twists and turns, and the case was tried before Chancellor Chandler over 37 days between October 2004 and January 2005.

The issues in the Disney/Ovitz case included whether the Directors on the Disney Compensation Committee breached their fiduciary duties in approving the Ovitz employment agreement and whether the CEO (Eisner) and General Counsel (Litvack) breached their fiduciary duties by treating the Ovitz termination as a “no fault” termination (“NFT”) under the employment agreement, eligible for severance; the plaintiffs argued that Ovitz should have been fired for “cause” based on his “gross negligence” or “malfeasance,” the contractual cause standards in his employment agreement (governed by California law).

Fox’s expert opinion, as a partner at Fenwick & West at the time, was that the cause triggers in Ovitz’s contract were not implicated by the facts and circumstances surrounding Ovitz’s performance and that Disney could have faced liability had it pursued a cause termination. In his expert report he concluded that Disney “could not have met the ‘good cause’ termination standard of the [Ovitz employment agreement] based on the record to date in the case. This is a classic ‘failed performance expectations’ case and nothing more.”[1]

For the record, there were six experts who testified in the Disney litigation on “cause” and related compensation matters.  Chancellor Chandler was critical of the three experts who testified for the plaintiffs (professors from Duke, Stanford and USC, respectively).

But when it came to Fox, Chancellor Chandler noted that “Fox’s report and testimony were very thorough, well-reasoned and informed by Fox’s extensive practical experience as an employment law litigator and advisor” and that “his legal conclusions… are of far greater weight and persuasive value than the conclusions reached by [the leading expert for the plaintiffs].” The Judge added that “Fox’s report is of significant value to the Court, and I will weigh his conclusions accordingly.”

In his 174-page opinion issued in August 2005, Chancellor Chandler addressed the waste and breach of fiduciary duty claims against the Disney Directors. On the waste claim, relying on the expert opinion of Fox, Chancellor Chandler held that “given his performance, Ovitz could not have been fired for cause under [his employment agreement]” and that any “early termination of his employment therefore, had to be in the form of an NFT.”[2]

On the breach of fiduciary duty claims, Chancellor Chandler reviewed the conduct of each of the Director defendants on the Compensation Committee in connection with the hiring of Ovitz and the conduct of Eisner and Litvack in terminating him.[3] While he noted many discrepancies between “corporate best practices” and the actual conduct of these defendants, he concluded that the plaintiffs failed to prove, by a preponderance of evidence, that the defendants had (i) violated their fiduciary duty of due care (i.e., failed to prove they were grossly negligent) or (ii) acted in bad faith (i.e. failed to prove an intentional dereliction of duty). As a result, the appropriate standard of review was the business judgment rule, the action of the defendants was upheld and judgment was entered for the defendants on all counts.

In 2006, the Delaware Supreme Court (sitting en banc) unanimously affirmed the decision of the Delaware Chancery Court.

The John Fox Interview

John Fox was kind enough to join us recently in October 2026 for a one-hour interview-what follows are excerpts.[4]

Can you provide us with some background on your practice prior to your role as an expert witness in the Disney litigation?

JF– For the first 12 years of my practice I was at Pepper, Hamilton & Scheetz until I went into the Labor Department as a political appointee in the Reagan administration and ran the OFCCP, one of the three Federal civil rights agencies that operate nationally. When I left OFCCP in 1986 I joined Paul Hastings in California and then eventually joined the San Francisco office of Fenwick & West.

How did you get involved as an expert witness for Disney?

JF- I really don’t know but I have a strong suspicion that it was because of one of my mentors, the smartest labor lawyer that’s ever lived, I’m quite sure, Paul Grossman of Paul Hastings. He was outside counsel to Disney. And so, all I know is that I got a call, there were 90 lawyers representing the Board and the Company, and I got a call from what would become my lead handler out of one of the New York firms. And he said, can you meet us in the American Airlines lounge at San Francisco because about 10 or 15 of us will be leaving a deposition. They traveled as a herd, 40 defense lawyers for every deposition.

Had you ever served as an expert witness in a Delaware shareholder derivative action?

JF- Disney was my very first expert witness engagement at all. And counsel for Disney interviewed me-we had a little private room in the Admirals Club at the airport-I recall it as a somewhat chaotic “two headed” interview, with multiple interviewers-after the interview they tell me that “we’ll be back in touch with you”- and I left bewildered. I thought wow, this is a very strange world I walked into called expert witness work. And it led to great and wonderful things.

How much time do you think you spent on the Disney case from start to finish?

JF- Oh I do, I know. I had about 450, maybe 500 hours on the case. I also deputized a second-year associate to basically be a very high-end paralegal. Because let me tell you how I did the expert report. Having never done one before. I just decided how I was going to do it. They wanted me to testify as the California employment law expert. That is what I was certified to be, as the California employment law expert for the Board and the Company. Schulman [a partner at the Milberg Weiss law firm, representing the plaintiffs] did not object. He thought about it.[5]

Your expert report was very effective with Chancellor Chandler- can you explain how you presented it, and the format it took.

JF- It was 672 pages of PowerPoints with Fenwick and West legends on them. There were the PowerPoints and a narrative report, and an Excel spread sheet with detailed evidence and transcript references. But the way I attacked this, and this is unusual, I was going to be the anchor witness, they told me, after my one-day deposition. And in Delaware they can’t talk to you about any of this. I was not prepped at all. And they all held their breathes because they didn’t know me from Adam.

They told me I had a perfect deposition-you hit all the legal points, couldn’t have had a better deposition. I said well, that was lucky. I was just having a good day. That then led to them saying, you’re going to be the anchor witness for our case. And they taught me something I didn’t know about litigation, to tell you the truth. I had never thought about using an expert as the closing argument.

So, what they did is twofold- they told me I would be the anchor witness, and they had decided that they were going to waive their final argument and rely on my testimony as their closing statement. And they did- I adjourned the case- the defense got up and said, we waive our final arguments. We are going to rely on Mr. Fox’s testimony as our closing argument.

What about the trial and Chancellor Chandler’s style?

JF-I was told it was the first trial ever carried on the internet-plaintiffs’ counsel had rented a house adjacent to the courthouse in a little place called Georgetown, Delaware-classic old New England style town with the commons in the middle. I am told they had 22 lawyers sitting in the house, listening to my every word. And in the courtroom, they had three tables stacked deep, three seats to each table- listening to my testimony

So, I’m being sworn in and I turned to Schulman [counsel for the plaintiff] and I said well, Mr. Schulman, you greeted me so warmly yesterday in the courtroom-how would you like me to refer to you today-as Mr. Schulman or as Steve, what is your pleasure? And then the most remarkable thing happened. The Judge’s head shot straight up, and he was suddenly very interested and he’s looking at Schulman and Schulman can’t figure out what to do- he started looking at the ceiling and the Judge leans forward. And then it’s like it was Sidney Poitier – who had just testified in the case the month before[6]-you know his famous line “You may call me Mr. Tibbs” –and Schulman says, “you may call me Mr. Schulman” and the Judge just shook his head and turned and looked at me.”

Did you see the testimony of Professor Donohue, the lead expert for the plaintiffs?

JF- Yes- he testified right before me-I had his expert report-I went right at him because I thought his report was all reaction to press reports about Ovitz-he had these very gross generalities-What I decided to do, since I had to tell the court whether the conduct that Ovitz had engaged in was cause and rose to the level of gross negligence and malfeasance- I decided to read all the testimony and see what was admitted into evidence and react to that-so I got the daily transcripts and I had my junior associate read them, to do issue spotting, anything that related to potentially gross negligence or malfeasance. And I documented every one of those utterances that were admitted into evidence in my report and in my PowerPoints. I had the summary in the PowerPoints and the detail in the Excel spread sheet- and then I had the narrative that just explained the law.

But I needed to tell a story-and I started by looking at every shred of evidence and now here I am distilling it for them-the Judge had three lawyers as clerks in the courtroom, taking copious notes. They were very busy the entire time-I was observing them they day before and the day of my testimony. And they took, if you look at my expert opinion and you look at what the Judge wrote, they used-I was the draft.

Were you surprised how critical the Judge was of Professor John Donohue, the plaintiffs’ lead expert witness?

JF- I must tell you, when I got the opinion, 174 pages and you might remember the Judge’s style when he got to discussing the experts, he had a headline for each expert and he went through each one of them and I was the last one and he had shredded Donohue and the other plaintiffs’ experts[7]-and I was the last one-Oh my God, I thought I’m going to be crucified here in a moment and my partners are going to show me where the front door is just real soon-I can feel it coming and then I turn the page and the Judge understood and found my expert presentation persuasive.

Were you also familiarizing yourself with the Delaware business judgment issues in the case, which were related to the cause/NFT determination?

JF- No, I was not charged to deal with Delaware law- the point of view was that the employment contract and California law controlled what the Company must do and was permitted to do with respect to Ovitz. I’ve tried a lot of employment cases, and I believe that in employment law, it’s not much different than 1950’s westerns. Somebody’s got a white hat, somebody’s got a black hat. And what you have to do is make sure that the judge or jury understands that you are representing the white hat.

It’s all about the equities at the bottom of the case. And you build your facts to show those good things. So, I tried to show the good things Ovitz did as well as rebut the things that they had hit my way as to what was dishonest or good cause in their view. And so, I put in two pieces that I think shocked the plaintiffs’ counsel. One was a well-known fact that had been bantered around a little bit in discovery, but I don’t think anybody at the table had been aware of it, because they got frenzied about it-I said, you know, within six months of the time Ovitz arrived at Disney, Disney stock went up a billion dollars. And I saw the Judge write this down and saw his law clerks all double time their already frantic writing.

And I analogized it to, you know, in law firms-you know you give a little more leeway to a rainmaker than you do a service partner that’s just turning out normal billable hours-and I think they got that analogy. I said, you know, there’s been a question as to whether he was malfeasant at the record company[8] but he had signed Janet Jackson which was a dramatic thing for Disney-at the time she was bigger than Michael and Ovitz had been her agent and she was number one in the world at the time he signed her and even though the record company was failing, Janet was holding it up.

So, John, let’s fast forward to the present-tell us a little about your current law practice.

JF-I’m usually in the office by 7 AM-I am an across-the-board labor lawyer-my practice is mainly in California and the main driver now is wage and hour cases and defending employers in California Private Attorney General Act claims arising under the labor code-I also get involved in C-suite matters when companies are being sold or preparing for other liquidity events.

Thank you very much for your time today, John.

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[1] In his expert report to the Chancery Court, Fox reviewed the extensive record and opined that the entire record was devoid of any evidence that the alleged acts by Ovitz met the applicable California standard-his opinion was that “gross negligence” or “malfeasance” required intentional failure to perform a material duty in reckless disregard of the consequences to Disney.

[2] The plaintiffs had attacked a range of activities by Ovitz as exhibiting untruthful and dishonest behavior and constituting cause for termination. These included matters relating to business expense reimbursement, gift giving, office refurbishment, charitable contributions, failure to pursue projects, alienation of executives, failure to devote full efforts and even the release of the movie “Kundun.”

[3] The breach of fiduciary duty allegations were directed at different Disney actors: against the Compensation Committee Directors for hiring Ovitz and approving his employment agreement; against the Board for electing Ovitz President; and against Eisner and Litvack for effecting Ovitz’s NFT.

[4] The interview has been edited for clarity and readability.

[5] At the time, Milberg Weiss was a leading plaintiffs’ securities law firm. Steven Schulman was a partner at that firm.

[6] Sidney Poitier was a Director on the Disney Compensation Committee and a named Director defendant in the case. He was a witness in the litigation. His role as the detective Mr. Tibbs was in the 1967 movie, “In The Heat of the Night.”

[7] Professor Deborah DeMott (Duke Law School) was plaintiffs’ first expert on Delaware corporate governance issues; Professor John Donohue (Stanford Law School) was the plaintiffs’ second expert opining that grounds for a cause termination existed; Professor Kevin Murphy (USC Business School) was the plaintiffs’ third expert opining as to the excessive magnitude of Ovitz’s compensation package.

[8] Among the allegations lodged by the plaintiffs against Ovitz was that he had been grossly negligent in handling Disney’s Hollywood record business.