Deborah DeMott: Making headlines with Disney, drawing raves as Reporter
Before Eisner, Ovitz, and Poitier, there was DeMott. In a
shareholder derivative action brought by Walt Disney Company shareholders against its directors, Duke Law School’s David F. Cavers Professor of Law Deborah A.
DeMott, a specialist in business associations and corporate governance, led a parade of witnesses that has included some marquee Hollywood names, including Sidney Poitier, Disney Chief
Executive Michael Eisner, and Michael Ovitz, who was fired after serving only 14 months as Disney’s president, and whose termination package is at issue in the case.
DeMott was the first witness for the plaintiffs in the lawsuit that seeks to recover the $140 million paid to Ovitz on his firing, as well as about $60 million in damages, costs, and legal fees. In a report that was widely covered, including in The New York Times, whose account is quoted here, DeMott shared her findings that Disney directors and officers “‘breached their fiduciary duties in connection with Disney’s selection and employment of Michael S. Ovitz as Disney’s president,’ and in Mr. Eisner’s decision to designate the departure of Mr. Ovitz in December 1996 as a no-fault termination, which qualified him for a full severance.” DeMott had been retained by the shareholders in a capacity independent of her faculty position.
Although she declined to discuss the specifics of the case with Duke Law Magazine, as it is ongoing at press time in a Delaware court, news reports quoted her as testifying that there was no evidence that Eisner’s decision to hire Ovitz was preceded by a meeting of corporate directors, or that the Board considered the value of his payout under a no-fault termination. In broader terms, she says, the case is about the expectations that investors reasonably would have about the performance of directors, the accountability of directors, and the responsibility and accountability of the company’s senior officers.
“Directors should be actively engaged in significant decisions to be made on behalf of the corporation. Active engagement would include having relevant information, and bringing judgment to bear on the decision on the matter.”
DeMott is also in the spotlight in her role as Reporter for the Restatement Third (Agency) of the American Law Institute (ALI), a project started in 1995. That project is expected to wrap with the ALI’s annual meeting in May 2005.
“It’s been a wonderful project, and I’ll miss it when it’s gone,” says DeMott, echoing Edward Gibbon’s sentiments on finishing Decline and Fall of the Roman Empire in 1787, after working on it for 15 years. “He wrote–and I’m paraphrasing–that he penned the last sentence with ‘a combination of exhilaration and melancholy.’ Exhilaration because he was coming to the conclusion of this work and was pleased with what he’d done, and melancholy because it had become a part of his life, and he was fond of it. And it would still be a part of him, but not in the same way.
“I think the part of it that on balance I liked best, is the overall cogency of the subject–the overall coherence and structure of it. Over time I’ve come to appreciate and value that.”
Describing agency as “a very foundational area of common law,” DeMott notes that some dimensions of it, such as the doctrine of imputation, have become more visible in recent years in light of recent corporate scandals.
“Imputation explains how it is that we charge a principal with the legal consequences of knowledge of an agent, regardless of whether a principal is an individual person or an organization. In the context of recent scandals, imputation questions are relevant to charging corporations, or holding corporations to the consequences of knowledge of their agents, including their officers. For example, it is relevant to securities fraud litigation. To the extent that an officer of a corporation knows something, is it fair to say that the corporation itself as a defendant should be charged with that knowledge?”
ALI Director Lance Liebman points out that agency is a particularly difficult area to tackle, because there is a wide range of situations where someone may act in an agency capacity, with different rules for each; the rules for a corporate official, for example, are different from those for a real estate agent. He calls DeMott “the perfect model of an ALI Reporter,” in the way she masters each section of the Restatement and then responds to input from the Advisers, the ALI Council, and eventually the full membership. Liebman notes, with a laugh, that these participants can be critical or even non-comprehending in their attempt to help the finished work.
“A meeting of Advisers can be an exceptionally challenging experience. Deborah’s ability to accept constructive criticism, to re-think ideas she has come to hold seriously, to adapt, to modify, and yet hold her ground when she feels she’s right have been remarkable. Her first drafts are excellent, but she is then willing to keep rewriting, reconsidering, improving, and adding. The quality of her finished work is very, very high.”
Liebman, a member of the Columbia law faculty, adds that DeMott’s excellence as a teacher is on display when she presents her sections to the hundreds of ALI members at the Institute’s annual meeting.
“Her manner is so inclusive–she’s willing to listen and think about what will make [the Restatement] better.”
DeMott describes her entry into the law of agency as an outgrowth of some of the comparative work that has taken her, at frequent intervals, to Britain, Australia, and Canada. While on a Fulbright lectureship at Sydney and Monash Universities in Australia in 1986, she became interested in fiduciary obligation as a doctrine, but one that had a different history and development in Australia than it did in the United States.
“That became a jumping-off point for a new phase in my scholarship, in which I attempted to come to grips with fiduciary obligation as a distinct body of doctrine and principle and that, in turn, was my opening to agency.”
Taking comparative approaches to legal doctrines and regulatory institutions has been a key dimension of DeMott’s scholarship for over 20 years. Initially she looked at how capital markets in the United States and Britain, similar in many ways, differed in their regulation of hostile and friendly takeover transactions, later expanding her study to include Canada and Australia. From 2000—2002 she held a secondary appointment in the Law Department of the London School of Economics, teaching a section of a course on capital market and takeover regulation, mainly focusing on the differences between Britain and Europe and the United States. More recently, she has taken a comparative look at partnership law in the United States and England.
“There are some basic similarities and, in my opinion, one big difference: Under English partnership law, a person who agrees to be a partner for a particular term is bound by that commitment and may not escape it by dissolving the partnership or dissociating from the partnership. The U.S. tradition recognizes that a partner who dissociates from a partnership contrary to the partner’s agreement is subject to liability for breach of contract, but a partner has power to dissociate. So a former partner would not be subject to liability as a partner on new partnership obligations incurred after the point of dissociation. It’s an interesting point of departure between systems that otherwise are quite similar in many ways.”
An unexpected byproduct of DeMott’s work on the Restatement was her acquisition of a new hobby: rose gardening. The space demands of the ALI project factored greatly in her decision to buy a spacious, 75-year-old home in the Forest Hills neighborhood of Durham, which came with a mature rose garden.
“I wouldn’t have thought that this would have been what I would have wanted in a garden, but I’ve become very fond of my roses. Each day I’m here during the growing season, I enjoy doing something in my rose garden. They’re a nice change from what I do otherwise.”