Kenneth T. Simeone v. The Walt Disney Company
Date Submitted: March 15, 2023; Date Decided: June 27, 2023 (2023)
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Rule of Law:
Under Delaware law, a stockholder seeking to inspect corporate books and records must prove a proper purpose that is genuinely their own, supported by a credible basis for potential wrongdoing or mismanagement, and demonstrate that the requested documents are essential to that purpose, rather than merely disagreeing with a board's business decision on social or political issues.
Facts:
- On February 24, 2022, the Florida House of Representatives voted to approve House Bill 1557 (HB 1557), which limits instruction on sexual orientation or gender identity in Florida classrooms.
- The Walt Disney Company (Disney) initially took no public position on HB 1557, leading to disappointment and frustration from many of its employees and creative partners.
- On March 7, 2022, Disney’s then-Chief Executive Officer, Robert Chapek, circulated an internal memo expressing the company’s “unwavering commitment to the LGBTQ+ community” but noted Disney’s “lack of statement” on HB 1557 should not be mistaken for a lack of support.
- On March 8, 2022, Disney’s Board of Directors held a special meeting to discuss Disney’s “Political Engagement and Communications” and its approach to Florida legislation and employee response.
- During Disney’s annual stockholder meeting on March 9, 2022, Chapek publicly announced Disney’s opposition to HB 1557.
- On March 10, 2022, Florida Governor Ron DeSantis publicly criticized companies like Disney for their “woke” stances, stating Florida policy should be based on the best interest of its citizens, not 'woke corporations'.
- On March 28, 2022, Governor DeSantis signed HB 1557 into law, and Disney issued a public statement reiterating its opposition and commitment to supporting efforts to repeal it.
- Disney's opposition to HB 1557 prompted Florida politicians, including Governor DeSantis, to consider and eventually vote to dissolve the Reedy Creek Improvement District (RCID), a special tax district encompassing the Walt Disney World Resort that granted Disney self-governing authority.
Procedural Posture:
- On July 8, 2022, plaintiff Kenneth T. Simeone sent Disney a demand pursuant to 8 Del. C. § 220 to inspect corporate books and records.
- On July 15, 2022, Disney's outside counsel sent Simeone a written response explaining that he failed to state a proper purpose and that the requested documents were not necessary and essential.
- Between July 15 and October 28, 2022, the parties negotiated the scope of a production of Disney books and records.
- On October 28, 2022, Disney produced 73 pages of documents to Simeone, including board minutes and corporate policies, while reserving all rights to challenge whether the demand satisfied the threshold requirements for an inspection.
- On December 5, 2022, Simeone filed a Verified Complaint Pursuant to 8 Del. C. § 220 to Compel Inspection of Books and Records in the Court of Chancery of the State of Delaware.
- Disney answered the Complaint on December 27, 2022.
- Simeone served discovery requests on Disney, including document requests, interrogatories, requests for admission, and a notice of a Rule 30(b)(6) deposition for a corporate representative.
- Disney refused to produce a Rule 30(b)(6) witness without a court order, but subsequently produced additional board policies and a privilege log.
- Disney served discovery on Simeone, and deposed him on February 10, 2023.
- A trial on a paper record was held on March 15, 2023, and the matter was taken under advisement.
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Issue:
Does a stockholder establish a proper purpose under 8 Del. C. § 220 for inspecting corporate books and records by alleging mismanagement based solely on disagreement with the company's public stance on a political issue and its resulting economic consequences, when that purpose is primarily driven by their counsel and the company has already provided formal board-level documents?
Opinions:
Majority - Will, Vice Chancellor
No, a stockholder does not establish a proper purpose for inspecting corporate books and records under 8 Del. C. § 220 by alleging mismanagement based solely on disagreement with the company's public stance on a political issue and its resulting economic consequences, especially when that purpose is primarily driven by their counsel and the company has already provided formal board-level documents. The court found three independent reasons why plaintiff Kenneth T. Simeone failed to meet the standard for a Section 220 inspection. First, Simeone's stated purposes in the demand were pretextual and not his own, but rather those of his counsel, who solicited him. His sole genuine purpose was to identify decision-makers, which either was not a proper purpose or he already had the relevant information. Second, Simeone failed to provide a credible basis from which to infer possible wrongdoing or mismanagement, instead merely critiquing a business decision. Disagreement with a board’s decision, even if it led to negative outcomes, does not constitute evidence of wrongdoing. The Board actively engaged in setting Disney’s response to HB 1557, demonstrating deliberation rather than abdication of duties or gross negligence. The Board’s consideration of employee interests was a rational business judgment aimed at building long-term value, not evidence of conflicted interests. Third, Simeone failed to prove that he lacked essential information, as Disney had already produced all formal board-level documents related to HB 1557, its response, the RCID, and relevant policies. Requests for emails and three years of documents were deemed overbroad and unnecessary, as formal board minutes are generally sufficient for such investigations. The court also denied the request for a Rule 30(b)(6) deposition, stating it was not a matter of right in Section 220 actions and disproportionate to the needs of the case.
Analysis:
This case reaffirms the high bar for stockholders seeking to inspect corporate books and records under Section 220, particularly when challenging a board's business judgment. It emphasizes that a mere disagreement with a company's public stance on social or political issues, or the financial repercussions of that stance, does not constitute a 'proper purpose' for investigation without credible evidence of a breach of fiduciary duty. The ruling reinforces the deference given to boards in managing corporate affairs, including navigating complex social and political issues, as long as their decisions are rationally related to promoting long-term stockholder value and are made without disabling conflicts or gross negligence. This decision is significant for corporate governance, especially concerning Environmental, Social, and Governance (ESG) initiatives, by limiting judicial intervention into board-level strategic decisions unless there's a credible basis for a breach of fiduciary duty.
