Disney Wins One As Delaware Judge Rules For Company In Shareholder Lawsuit  

Business

A judge in Delaware Chancery Court has ruled against a shareholder who sued Disney for documents regarding its opposition to Florida’s so-called Don’t Say Gay law. The decision came as a separate, more sweeping lawsuit moves forward in the state, where Disney has sued Gov. Ron DeSantis for retaliation after the company spoke out against the legislation.

Plaintiff Kenneth Simeone called Disney’s decision to oppose the controversial bill negligent since it created a backlash that harmed the stock and business. Judge Lori Will ruled, however, that there’s no evidence of wrondoing and that the plaintiff was a tool of his attorneys, who solicited him to bring the case and drove it forward. “The court must determine whether the plaintiff has demonstrated a proper purpose to inspect books and records. He decidedly has not,” the judge wrote, citing “the lawyer-driven nature of this action.”

 Simeone, she said, “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 and his counsel may disagree with Disney’s position on HB 1557 [The Parental Rights In Education Bill]. But their disagreement is not evidence of wrongdoing.”

Former CEO Bob Chapek publicly pillored the bill at Disney’s 2022 annual meeting on March 9, 2022 under pressure from employees. Gov. DeSantis signed it into law on March 28. The same day, Disney issued a public statement opposing it. DeSantis said the company had “crossed the line.” He later revoked Disney’s special status in the state where it had for years operated a special tax district in Orlando called Reedy Creek Improvement District. DeSantis effectively took control of the district, ,Walt Disney World is based and appointed five members to a reconstituted board of supervisors.

The judge found it wasn’t the case that Disney’s directors and officers breached their fiduciary duties to the company and its stockholders by opposing the bill and noted that Disney had produced board minutes and corporate policies for the plaintiff.

“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.”

HB 1557 prohibits teachers from discussing certain topics related to sexual orientation and gender identity in kindergarten through third grade classrooms. For older grades, it prohibits lessons on these topics deemed not “age-appropriate or developmentally appropriate.”

“The plaintiff has not provided a credible basis from which to infer possible wrongdoing,” the judge said.

She noted, as many have since, that the case “exemplifies the challenges a corporation faces when addressing divisive topics—particularly ones external to its business.”

“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.”

“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 corporate 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.”

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