Disney Investor Intent Questioned in Row Over Florida LGBTQ Law

A Delaware judge on Wednesday questioned a Walt Disney Co. shareholder on what he hoped to investigate if given records regarding the company’s decision to publicly oppose a Florida law limiting classroom instruction on sexual orientation and gender identity.

Such records could be used to sue company executives or directors for allegedly breaching their duties to investors. Vice Chancellor Lori Will of the Delaware Chancery Court appeared skeptical there was a legal question raised by Disney’s criticism of the legislation widely known as the “Don’t Say Gay” law.

“It’s not a loyalty issue from your standpoint, it’s the board didn’t do enough investigating?” she asked during trial in Wilmington, Del.

Shareholder Kenneth Simeone alleges that Disney’s decision in March 2022 to oppose the law championed by Gov. Ron DeSantis (R), a potential 2024 presidential candidate, created “far-reaching” financial risks.

Bob Chapek, Disney’s CEO at the time, initially told employees the company wouldn’t make a public statement about the law aimed at instruction for students in kindergarten through third grade. But within 48 hours the company reversed course, even though DeSantis had warned Chapek in a phone call that Disney could end up in an “untenable position” if it publicly opposed him, Sean Bellew of Bellew LLC, counsel for Simeone, said during trial.

Disney lost control over tax and improvement issues at its Orlando-area theme park as result of its criticism of the law.

The board may have had an interest in placating its employees’ anger about the legislation, but it’s not clear they did enough analysis to understand the consequences their decision would have on Disney shareholders, Bellew said.

Will pressed him on what alleged wrongdoing Simeone sought to investigate.

Bellew replied that DeSantis’ warning should have made the company consider what losing control of a special municipal district would mean for shareholders.

“This is a very particular situation where they needed to appreciate, if they didn’t heed the warnings, what would the outcome be,” he said.

Business Decision

Disney has provided 73 pages of board meeting minutes, but all but 16 pages were fully redacted, Bellew said, flipping through pages with so many redacted lines they appeared to be solid black rectangles.

“We don’t know why, after the conducting of those two meetings of the board of directors, the company changed directions as significantly as it did,” he said.

Simeone’s lawsuit seeking additional records was politically motivated, said one of Disney’s attorneys, Kevin Orsini of Cravath Swaine & Moore LLP.

There’s no evidence that Disney’s board or executives acted in self-interest over the interests of shareholders, though Simeone may have disagreed with their decisions, he said.

“A disagreement with a business decision isn’t enough to permit inspection,” Orsini said. “That is business judgment, not wrongdoing.”

Disney ultimately lost its fight with DeSantis. Florida’s Republican-led Legislature first moved last year to strip the company of its control of a special municipal district encompassing the Disney World theme park. This year, lawmakers gave DeSantis the power to appoint a five-member board to set the district’s tax rates and oversee infrastructure projects.

Disney had held control of the district, with Florida lawmakers’ approval, since 1967.

Will said she was considering the arguments and would issue a ruling later.

Simeone is represented by LiMandri & Jonna LLP and Bellew LLC. Disney is represented by Richards Layton & Finger PA and Cravath Swaine & Moore LLP.

The case is Simeone v. The Walt Disney Co., Del. Ch., No. 2022-1120.