Kenneth T. Simeone v. The Walt Disney CompanyKenneth T. Simeone v. The Walt Disney Company
MEMORANDUM OPINION
Date Submitted: March 15, 2023
Date Decided: June 27, 2023
Blake Rohrbacher & Morgan R. Harrison, RICHARDS LAYTON & FINGER, P.A., Wilmington, Delaware; Kevin J. Orsini, Rory A. Leraris & Andrew D. Huynh, CRAVATH, SWAINE & MOORE LLP, New York, New York; Attorneys for Defendant The Walt Disney Company
WILL, Vice Chancellor
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 lоsing 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
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.
I. BACKGROUND
This case was tried on a paper record consisting of 48 exhibits, including a transcript of the plaintiff‘s deposition.1 The facts described below have been proven by a preponderance of the evidence, are drawn from admitted allegations in the pleadings or stipulated facts in the pre-trial order, or are not subject to reasonable dispute.2
A. HB 1557 and Disney‘s Initial Silence
On February 24, 2022, the Florida House of Representatives voted to approve House Bill 1557, titled the “Parental Rights in Education” bill.3 HB 1557 prohibits teachers from discussing certain topics related to sexual orientation and gender identity in kindergarten through third grade classrooms.4 For students in higher grades, the legislation prohibits lessons on these topics that are not “age-appropriate or developmentally appropriate . . . in accordance with state standards.”5
Defendant The Walt Disney Company quickly came under scrutiny for its financial backing of HB 1557‘s sponsors.6 Disney, a leading media and entertainment company incorporated in Delaware and headquartered in California, has a substantial presence in Florida where its Walt Disney World Resort is located.7 Disney is
On March 7, 2022, Robert Chapek—then Disney‘s Chief Executive Officer—circulated an internal memo to Disney employees expressing the company‘s “unwavering commitment to the LGBTQ+ community.”9 Chapek noted that although the company had not made a public statement opposing HB 1557, Disney‘s “lack of statement” should not be mistaken “for a lack of support.”10 He wrote: “We all share the same goal of a more tolerant, respectful world. Where we may differ is in the tactics to get there.”11 Chapek explained that Disney would “continue to be a leader in supporting organizations that champion diversity.”12
Chapek‘s memo was met with pervasive disappointment and frustration from Disney employees and creative partners.13 Some—including actors, directors, writers, and animators—called the memo “weak” and “unacceptable.”14 Others demanded that Disney take a public stand against HB 1557.15
B. Disney‘s Public Opposition to HB 1557
On March 8, 2022, the Florida Senate passed HB 1557 by a vote of 22 to 17.16 The bill was then sent to Governor Ron DeSantis for his signature.17
Also on March 8, Disney‘s Board of Directors held a special meeting about Disney‘s “Political Engagement and Communications.”18 Chapek and Disney‘s then-Chief Corporate Affairs Officer Geoff Morrell “led a discussion with the Board members relating to the communications plan, philosophy and approach regarding Florida legislation and employee response.”19 Chapek and Morrell “responded to Board members’ questions and comments.”20
Disney‘s annual stockholder meeting was held the next day, March 9, beginning at 10:00 a.m. Pacific.21 There, Chapek acknowledged that “many are upset that we did not speak out against the bill” and that the company‘s original approach to HB 1557 “didn‘t quite get the job done.”22 He explained: “We were opposed to the bill from the outset, but we chose not to take a public position on it because we thought we could be more effective working behind the scenes, engaging directly with lawmakers on both sides of the aisle.”23 Chapek announced that Disney was joining a petitiоn against similar legislation and would be supporting efforts to protect the
In his 2023 memoir, Governor DeSantis recalls telling Chapek: “You will end up putting yourself in an untenable position. People like me will say, ‘Gee, how come Disney has never said anything about China, where they make a fortune?‘”26 The Governor wrote that after speaking to Chapek, he thought “this clash with Disney was over.”27
On March 9 at 11:50 a.m. Pacific, the Board held a regularly scheduled meeting.28 Chapek “provided an update on Company matters, addressing: Company values, approach to Florida legislation and [a] planned holistic review of political engagement to be discussed at the June Board retreat.”29 Chapek “responded to Board members’ comments and questions” throughout his presentation.30
On March 10, DeSantis publicly criticized companies “like [] Disney.”31 He stated that Florida policy should be “based оn the best interest of Florida citizens, not on the musing of woke corporations.”32
Chapek sent another memo to Disney employees on March 11, thanking those who reached out to share their “pain, frustration and sadness over the company‘s response” to HB 1557.33 Chapek promised to “become a better ally.”34
Governor DeSantis signed HB 1557 into law on March 28.35 The same day, Disney issued a public statement opposing the bill:
Florida‘s HB 1557, also known as the “Don‘t Say Gay” bill, should never have passed and should never have been signed into law. Our goal as a company is for this law to be repealed by the legislature or struck down in the courts, and we remain committed to supporting the national and state organizations working to achieve that. We are dedicated to standing up for the rights and safety of LGBTQ+ members of the Disney family, as well as the LGBTQ+ community in Florida and across the country.36
In response, Governor DeSantis said that Disney had “crossed the line.”37
C. Effects on the RCID
Disney‘s opposition to HB 1557 prompted Florida politicians to consider revoking
Florida‘s Rеedy Creek Improvement Act (RCIA) was enacted in 1967.39 The RCIA formed the RCID, a special district consisting of 25,000 acres of land on which the Walt Disney World Resort was built.40 The RCID was granted the same authority and responsibility as a county government.41 For example, it is authorized to levy taxes, write building codes, and develop and maintain its own infrastructure.42 The RCID is run by a five-member board of supervisors, who were originally selected by landowners within the district.43
On March 30, a Florida state representative tweeted that he had met with colleagues to discuss repealing the RCIA.44 During a speech the following day, Governor DeSantis said that he supported a repeal of the law.45
On April 19, Governor DeSantis announced that he was expanding a special legislative session to evaluate abolishing the RCID and five other special districts unrelated to Disney.46 Within 48 hours, the Florida House of Representatives voted 70 to 38 in favor of dissolving the special districts at issue.47 Governor DeSantis wrote in his memoir that “[n]obody saw it coming, and Disney did not have enоugh time to put its army of high-powered lobbyists to work to try to derail the bill.”48 The dissolution was scheduled to go into effect in June 2023.49
On April 22, Governor DeSantis signed the dissolution bill into law.50 He announced that Disney would no longer control the RCID and would be held responsible for certain Florida taxes.51 He also announced that he would release a proposal making Disney responsible for over $1 billion in debts owed by the RCID.52
Later, during a June 5, 2022 interview, Governor DeSantis recalled warning Disney that it “shouldn‘t get involved” with HB 1557 because “it‘s not going to work out well” for the company.53
Disney‘s stock price fell during the summer from $145.70 per share on March 1 to $91.84 on July 14.54 On November 9—the day after Governor DeSantis was reelected—Disney‘s stock fell to $86.75 per
D. The Section 220 Demand and the First Document Production
On July 8, 2022, plaintiff Kenneth T. Simeone sent Disney a demand pursuant to
According to the demand, Simeone is “concerned that officers and directors of Disney may have breached their fiduciary duties to the Company and its stockholders by, inter alia, failing to appreciate the known risk that the Company‘s political stance would have on its financial position and the value of Disney stock.”58
He suspects that Disney officers and directors “plac[ed] their own political views ahead of their duties to act in the best interests of Disney and its stockholders.”59
The demand listed four related, purported purposes for the inspection:
- To investigate potential wrongdoing, mismanagement and breaches of fiduciary duties by members of Disney‘s Board, Company executives, or others in connection with the Company‘s decision to publicly oppose the Parental Rights Act, despite being warned, and therefore having knowledge, that such opposition would be harmful to the Company and stockholder value;
- To determine the extent to which the Company‘s opposition, or perceived opposition, to the Parental Rights Act has harmed the Company‘s value, including but not limited to, the loss or potential loss of favorable tax benefits оr other benefits the Company has traditionally received from the State of Florida, whether in connection with the Reddy [sic] Creek Improvement District, or otherwise;
- To assess the ability of Disney‘s Board to impartially consider a demand for action, including a request for permission to file a derivative lawsuit on Disney‘s behalf; and
- To explore possible remedial measures, including, without limitation, seeking a meeting with the Board to discuss proposed reforms, communicating with other Disney stockholders, preparing a stockholder resolution for Disney‘s next annual meeting, and/or taking appropriate legal action in the event that members of the Board and/or Disney executives did not properly discharge their fiduciary duties.60
Simeone sought four categories of documents pertaining to the subject matter of the demand. These include: (1) director independence questionnaires and “any other documents” reflecting ties among Disney directors; (2) Disney policies or guidelines about charitable оr political contributions, or public positions on legislation or public policy issues; (3) meeting minutes and materials from the Disney Board or any Board committee about the Parental Rights Act, Disney‘s March 28 press release, the dissolution of the RCID, the economic benefits to Disney from the RCID, and the policies and guidelines that were the subject of request; and (4) written
On July 15, Disney‘s outside counsel sent Simeone a written response to the demand.62 This response explained that Simeone had failed to state a proper purpose for inspection and that the requested documents were not necessary and essential to any such purpose.63 The letter closed by offering to further discuss the demand.64
Between July 15 and October 28, the parties met and conferred on the scope of a production of Disney books and records.65 During these negotiations, the parties agreed that Disney could redact both privileged and non-responsive content from any Board materials that Disney produced in response to the demand.66
On October 28, after the parties executed a confidentiality agreement, Disney produced 73 pages of documents while “reserv[ing] all rights to challenge whether the Demand satisfie[d] the threshold requirements for an inspection under
E. The Litigation and the Second Document Production
On December 5, 2022, Simeone filed a Verified Complaint Pursuant to
Simeone served a set of document requests, interrogatories, and requests for admission on Disney.73 He also served Disney with a notice of a
Disney correspondingly served discovery on the plaintiff.77 On February 10, 2023, Disney deposed Simeone. During the deposition, Simeone‘s counsel instructed him not to answer questions about the terms of his attorney engagement agreement related to the demand and this action.78 After the deposition, Disney renewed its request for the terms of Simeone‘s counsel‘s engagement.79 On February 28, Simeone served a verified interrogаtory response about his fee and cost arrangements with counsel.80
A trial on a paper record was held on March 15.81 The matter was taken under advisement at that time.
F. Additional Events
On November 20, 2022, the Board announced that Chapek would be terminated as CEO.82 He was replaced by former Disney CEO Bob Iger.83
The Florida legislature eventually decided not to dissolve the RCID.84 On January 8, 2023, it was reported that Governor DeSantis had proposed installing a state-appointed board of supervisors to govern the district.85 Governor DeSantis explained that the proposal would eliminate Disney‘s “self-governing status” and “special legal privileges.”86 In February, Governor DeSantis signed a bill that effectively took control of the RCID (renamed the Central Florida Tourism Oversight District) and appointed five members to a reconstituted board of supervisors.87
According to media reports, the newly appointed board of supervisors discovered that before DeSantis signed this bill, the prior board had passed restrictive covenants and a development agreement giving Disney certain rights.88 On May 5, Governor
II. ANALYSIS
Section 220 of the Delaware General Corporation Law provides stockholders with a qualified right to inspect corporate books and records.91 To obtain inspection, a stockholder must satisfy the statute‘s form and manner requirements.92 The stockholder must also prove, “by a preponderance of the evidence, a proper purpose entitling the stockholder to an inspection of every item sought.”93 The stockholder must further “demonstrate by a preponderance of the evidence that ‘each category of books and records is essential to accomplishment of the stockholder‘s articulated purpose for the inspection.‘”94
The plaintiff does not meet the standard for a Section 220 inspection for three independent reasons. First, the purposes described in the demand are not the plaintiff‘s own purposes. Second, the plaintiff has not provided a credible basis from which to infer possible wrongdoing. Third, the defendant has provided the plaintiff with all necessary and essential documents.
A. Whether the Stated Purposes Are the Plaintiff‘s Purposes
The “propriety of the stockholder‘s purpose” is the “paramount factor in determining whether a stockholder is entitled to inspection of corporate books and records.”95 Section 220 defines a proper purpose as one “reasonably related to such person‘s interest as a stockholder.”96 In rare circumstances, a defendant can prove that a stockholder lacks a proper purpose where “the purposes for the inspection belong to [the stockholder‘s counsel]” rather than the stockholder himself.97 Disney has prevailed in making that showing here.
a lawyer” in his family—Brian McCall—who knew he was a Disney stockholder and solicited him to serve a demand.100 After speaking to McCall, Simeone was contacted by Paul Jonna.101 Jonna is Special Counsel to the Thomas More Society, a “public interest law firm championing Life, Family, and Freedom.”102 The plaintiff‘s verified interrogatory response states that the Thomas More Society is advancing costs for this litigation.103
The purposes stated in the demand are pretextual.104 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 1557.105 He said that he “hope[s] it becomes public and the other shareholders find out about” these identities.106 He confirmed that he has no other purpose.107
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.108
The plaintiff‘s limited and non-substantive involvement in the demand and litigation further reveals the lawyer-driven nature of this action.109 Simeone testified that he could not recall reading a draft of the demand before it was sent to Disney.110 He reviewed but made no edits to the Complaint.111 He did not see the news articles proffered as evidence in support of his claim.112
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
B. Whether the Plaintiff Has Demonstrated a Proper Purpose
The plaintiff‘s demand identifies four purposes; all center around the same desire to investigate wrongdoing. The second and fourth purposes—to determine whether Disney‘s opposition to HB 1557 was harmful to the company and to “explore possible remedial measures”114—are derivative of and dependent upon whether there was mismanagement in the first place. The third purpose of assessing the impartiality of the Board if presented with a litigation demand—though proper in the abstract115—similarly focuses on whether the Board is interested in the alleged underlying wrongdoing.116 Consequently, I focus on the first stated purpose: “[t]o investigate potential wrongdoing, mismanagement and breaches of fiduciary duties . . . in connection with the Company‘s decision to publicly oppose the Parental Rights Act.”117
“It is well established that a stockholder‘s desire to investigate wrongdoing or mismanagement is a ‘proper purpose.‘”118 But “a bare allegation of possible waste, mismanagement, or breach of fiduciary duty, without more, will not entitle a stockholder to a Section 220 inspection.”119 “[A] stockholder seeking to investigate wrongdoing must show, by a preponderance of the evidence, a credible basis from which the court can infer there is ‘possible mismanagement as would warrant further investigation.‘”120 This burden, though the lowest standard of proof in our law, is neither “a formality”121 nor “inconsequential.”122 A stockholder must present “some evidence to suggest a credible basis for wrongdoing.”123 Simeone has failed to do so.
The plaintiff is not describing potential wrongdoing. He is critiquing a business decision.127 “A stockholder cannot obtain books and records simply because the stockholder disagrees with a board decision, even if the decision turned out poorly in hindsight.”128
Although choosing to speak (or not speak) on public policy issues is an ordinary business decision, this case exemplifies the challenges a corporation faces when addressing divisive topics—particularly
Far from suggesting wrongdoing, the evidence here indicates that the Board actively engaged in setting the tone for Disney‘s response to HB 1557.132 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.133
As Chapek told stockholders during Disney‘s 2022 annual meeting, the company‘s original approach to HB 1557 “didn‘t quite get the job done.”134 The company, facing widespread backlash from its staff and creative talent, changed course after the full Board held a special meeting about “Political Engagement and Communications.”135 The Board discussed “the communications plan, philosophy and approach regarding Florida legislation and employee response.”136 Only then did Chapek announce
The Board‘s consideration of employee concerns was not, as the plaintiff suggests, at the expense of stockholders. A board may conclude in the exercise of its business judgment that addressing interests of corporate stakeholders—such as the workforce that drives a company‘s profits—is “rationally related” to building long-term value.138 Indeed, the plaintiff acknowledges that maintaining a positive relationship with employees and creative partners is crucial to Disney‘s success.139 It is not for this court to “question rational judgments about how promoting non-stockholder interests—be it through making a charitable contribution, paying employees higher salaries and benefits, or more general norms like promoting a particular corporate culture—ultimately promote stockholder value.”140
The plaintiff has not put forth any legitimate basis to question the Board‘s impartiality in responding to the legislation.141 He argues that Disney‘s directors were motivated by personal beliefs because “several Board members are actively involved with ‘political organizations such as the Human Rights Campaign‘” that “adamantly opposed” HB 1557.142 That some directors may be involved with a non-profit organization does not itself create a conflict of interest—much less undermine the full Board‘s deliberative process. In any event, there are no facts in the record to infer that the directors’ personal beliefs caused them to act contrary to the interests of Disney and its stockholders.143 The
I also find deficient the plaintiff‘s argument that the Board “ignored a known risk” of negative consequences from opposing the legislation.145 Perhaps the Board could have avoided political blowback by remaining silent on HB 1557. At the same time, doing so could have damaged the company‘s corporatе culture and employee morale. The weighing of these key risks by disinterested fiduciaries does not evidence a potential lack of due care, let alone bad faith.146
Moreover, even if a board‘s defiance of a political threat could provide a credible basis to suspect wrongdoing, there is no factual support for that conclusion here.147 Neither the Complaint nor any of the sources relied on by the plaintiff demonstrate that Disney was warned of financial repercussions or dissolution of the RCID before Chapek‘s March 9 announcement.148 According to the Complaint, it was not until March 30—three weeks after Disney first publicly opposed HB 1557 and two days after its March 28 statement—that the specter of dissolving the RCID was explicitly raised.149
At bottom, the plaintiff disagrees with Disney‘s opposition to HB 1557.150 He has every right to do so. But “disagreement with [a] business judgment” is not “evidence of wrongdoing” warranting a Section 220 inspection.151 Such an inspection would not be reasonably related to the plaintiff‘s interests as a Disney stockholder; it would intrude upon the “rights of
C. Whether the Plaintiff Has Proven He Lacks Essential Information
Even if the plaintiff had demonstrated a proper purpose, no further inspection would be warranted. The plaintiff has not met his “burden of proving that the information [in the records sought] is essential to that purpose, taking into account the books and records [the company] has previously furnished.”153
“Formal board-level documents are often the beginning and end of a Section 220 production where a plaintiff aims to investigate” potential mismanagement.154 Disney has repeatedly represented that it produced all Board-level materials related to HB 1557, Disney‘s response to the legislation, the potential loss or modification of the RCID, and Disney‘s policies on charitable and political giving.155 Still, the plaintiff maintains that he needs three years of email and correspоndence “between and among Board members and CEO Chapek” about the same topics.156
The Delaware Supreme Court has instructed that “the Court of Chancery should not order emails to be produced when other materials (e.g., traditional board-level materials, such as minutes) would accomplish the petitioner‘s proper purpose.”157 A deviation from this typical approach is not merited here. The Board maintained formal records of its actions, and the relevant records were provided to the plaintiff.158
The plaintiff also contends that Disney‘s production is incomplete because the Board minutes it produced were redacted.161 The parties agreed that Disney could redact portions of documents that were not responsive to the demand.162 Irrespective of this agreement, irrelevant information cannot be “essential” to the purpose of the demand.163
Disney‘s redactions for responsiveness covered text that was also withheld as attorney-client privileged. At the plaintiff‘s request, Disney provided a log detailing its privilege redactions.164 This privilege log not only substantiates Disney‘s privilege assertions. It also reflects that the redacted entries concern irrelevant matters: discussions about stockholder correspondence, ongoing litigation or regulatory matters that predate the passage of HB 1557, or privileged discussions concerning the directors’ duties and rules as a general matter.165
The plaintiff therefore has all necessary and essential information. He would not be entitled to additional books and records had he prevailed on the other elements of his claim.
Finally, the plaintiff asks that Disney be ordered to рroduce a Rule 30(b)(6) deponent to testify about “what type of documents exist, where they are located, and whether Disney is asserting any privilege.”166 He has not demonstrated why a deposition would be proportionate to the needs of this case.167
“Books and records actions are not supposed to be sprawling, oxymoronic lawsuits with extensive discovery.”168 “[T]he discovery obligation typically confronted by the corporate defendant is relatively minimal” and “has been described as ‘narrow in purpose and scope.‘”169 A deposition of a corporate representative in a books and records action is not a matter of right.170 It is particularly uncalled for in this case since the plaintiff did not prove a proper purpose.
III. CONCLUSION
For the reasons described above, I decline to grant the plaintiff‘s request for a further inspection of Disney books and records. Judgment will be entered for the defendant.