Disney Prevails: No Evidence Of Corporate Wrongdoing In “Lawyer-Driven” Suit

The Delaware Court of Chancery ruled in favor of The Walt Disney Company  in a stockholder suit that derived from the Florida Governor’s attack on the company

This books and records action originates from The Walt Disney Company’s response to Florida House Bill 1557. Disney initially took no public position on the bill, which limits instruction on sexual orientation or gender identity in Florida classrooms. After facing criticism from its employees, Disney reversed course and spoke out against the legislation. Florida’s Governor took issue with Disney’s stance and Florida’s legislature voted to dissolve a special tax district encompassing the Walt Disney World Resort.

Afterwards, the plaintiff—a longtime Disney stockholder—was solicited by counsel to serve a books and records demand. The demand asserts that Disney’s directors and officers may have breached their fiduciary duties to the company and its stockholders by opposing HB 1557. The plaintiff’s theory of wrongdoing is that Disney’s fiduciaries either put their own beliefs ahead of their obligations to stockholders or flouted the risk of losing rights associated with the special district.

Disney told the plaintiff that he lacked grounds to obtain books and records because its directors and officers had not engaged in mismanagement. Nevertheless, Disney produced certain board minutes and corporate policies to the plaintiff. The plaintiff was unsatisfied and filed litigation.

Weighty public policy questions surround the margins of this lawsuit. But when they are stripped away, the case becomes quite simple. The court must determine whether the plaintiff has demonstrated a proper purpose to inspect books and records. He decidedly has not.

Delaware law vests directors with significant discretion to guide corporate strategy—including on social and political issues. Given the diversity of viewpoints held by directors, management, stockholders, and other stakeholders, corporate speech on external policy matters brings both risks and opportunities. The board is empowered to weigh these competing considerations and decide whether it is in the corporation’s best interest to act (or not act).

This suit concerns such a business decision by the Disney board—a decision that cannot provide a credible basis to suspect potential mismanagement irrespective of its outcome. There is no indication that the directors suffered from disabling conflicts. Nor is there any evidence that the directors were grossly negligent or acted in bad faith. Rather, the board held a special meeting to discuss Disney’s approach to the legislation and the employees’ negative response. Disney’s public rebuke of HB 1557 followed.

The plaintiff and his counsel may disagree with Disney’s position on HB 1557. But their disagreement is not evidence of wrongdoing. Regardless, the plaintiff has all necessary and essential documents relevant to his purpose. Judgment must be entered for Disney.

The role of plaintiff’s counsel

Simeone testified that he did not consider pursuing litigation or making an inspection demand after learning about HB 1557. His reaction to Disney’s opposition to HB 1557 and the subsequent legislation rescinding the RCID was concern that his property tax bill would increase. Simeone was later “contacted by a lawyer” in his family—Brian McCall—who knew he was a Disney stockholder and solicited him to serve a demand. After speaking to McCall, Simeone was contacted by Paul Jonna. Jonna is Special Counsel to the Thomas More Society, a “public interest law firm championing Life, Family, and Freedom.” The plaintiff’s verified interrogatory response states that the Thomas More Society is advancing costs for this litigation.

The purposes stated in the demand are pretextual.  Simeone testified that his only purpose for inspection was to “know the person or persons who were responsible for making th[e] political decision” at Disney to publicly oppose HB 1557. He said that he “hope[s] it becomes public and the other shareholders find out about” these identities. He confirmed that he has no other purpose. The only evidence indicating that the purposes listed in the demand might belong to Simeone is the testimony his counsel elicited through leading redirect questions.

The plaintiff’s limited and non-substantive involvement in the demand and litigation further reveals the lawyer-driven nature of this action. Simeone testified that he could not recall reading a draft of the demand before it was sent to Disney. He reviewed but made no edits to the Complaint. He did not see the news articles proffered as evidence in support of his claim.

The plaintiff’s counsel and the Thomas More Society are entitled to their beliefs. They are also entitled to pursue litigation in support of those beliefs. But a Section 220 suit, which is designed to address the plaintiff’s interests as a stockholder, is not a vehicle to advance them.

Merits

Far from suggesting wrongdoing, the evidence here indicates that the Board actively engaged in setting the tone for Disney’s response to HB 1557. The Board did not abdicate its duties or allow management’s personal views to dictate Disney’s response to the legislation. Rather, it held the sort of deliberations that a board should undertake when the corporation’s voice is used on matters of social significance.

(Mike Frisch)