302 A.3d 956
Del. Ch.2023Background
- Florida passed HB 1557 (the "Parental Rights in Education" bill). Disney initially stayed publicly neutral, then—after employee backlash—publicly opposed the law.
- Florida officials, including Governor DeSantis, reacted by targeting Disney’s special self-governing Reedy Creek Improvement District (RCID); legislature moved to alter/abolish RCID.
- Longtime Disney stockholder Kenneth Simeone, solicited by outside counsel and supported by the Thomas More Society, served an 8 Del. C. § 220 demand seeking board materials (including director questionnaires and emails) to investigate alleged fiduciary breaches for the board’s public opposition to HB 1557.
- Disney produced board minutes and corporate political/charitable policies, redacting privileged or non-responsive material, declined to produce director questionnaires and emails, and refused a Rule 30(b)(6) deposition absent court order.
- Simeone sued to compel inspection. The Court of Chancery held a paper trial and denied further inspection, ruling Simeone failed to show a proper purpose, a credible basis for wrongdoing, or that additional records were essential; judgment for Disney.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Simeone stated a proper purpose under §220 | Simeone sought to investigate possible wrongdoing/mismanagement and assess harm from Disney’s opposition to HB 1557 (and pursue remedial measures) | The demand’s stated purposes are counsel-driven and not the stockholder’s actual purposes | Held: Demand was lawyer-driven; Simeone’s true purpose was limited and not the asserted purposes — no proper purpose |
| Whether plaintiff showed a credible basis to infer possible mismanagement | Board ignored known risks (Governor’s warnings) and sacrificed shareholder value by taking a political position | Board’s actions were a deliberative business judgment responsive to employee/stakeholder interests; disagreement with judgment is insufficient | Held: No credible basis for wrongdoing; plaintiff only disputes a business decision |
| Whether the requested records are necessary and essential | Emails, director questionnaires, and three years of communications are needed to probe motives/conflicts and harm | Disney produced formal board minutes and relevant policies; emails and questionnaires are overbroad or unnecessary | Held: Board-level minutes and policies were produced and sufficient; additional records not essential |
| Whether a Rule 30(b)(6) deposition should be ordered | Deposition needed to identify locations of documents and privilege assertions | Depositions in §220 actions are not routine; plaintiff has not shown proportional need given lack of proper purpose | Held: Denied — no entitlement to a corporate deposition absent proven proper purpose and necessity |
Key Cases Cited
- Seinfeld v. Verizon Commc’ns, Inc., 909 A.2d 117 (Del. 2006) (Section 220 proper-purpose standard and limits on inspection)
- Thomas & Betts Corp. v. Leviton Mfg. Co., Inc., 681 A.2d 1026 (Del. 1996) (plaintiff must show each category of records is essential to the stated purpose)
- Lebanon Cnty. Emps.’ Ret. Fund v. AmerisourceBergen Corp., 243 A.3d 417 (Del. 2020) (credible-basis requirement to infer possible mismanagement)
- Espinoza v. Hewlett-Packard Co., 32 A.3d 365 (Del. 2011) (limitations on scope and redactions in §220 productions)
- KT4 P’rs LLC v. Palantir Techs. Inc., 203 A.3d 738 (Del. 2019) (board materials often suffice; emails only required in limited circumstances)
- Revlon, Inc. v. MacAndrews & Forbes Hldgs., Inc., 506 A.2d 173 (Del. 1986) (boards may consider other constituencies if rationally related to shareholder value)
- Brehm v. Eisner, 746 A.2d 244 (Del. 2000) (definition of corporate waste)
- Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264 (Del. 2014) (Garner doctrine: privileged material ordered only if essentiality shown)