Disney’s ‘Don’t Say Gay’ Lawsuit Sparks Backlash and Copycats

There is an inherent risk in investing in a company. As an investor, you have a limited say in how that Company is run, the Company’s business practices, or the Company’s public relations decisions. If an investor disagrees with something the Company does, the easiest thing to do is simply sell the stock.

But in recent months, investors have decided to take a different approach. Rather than selling, they’re suing. This is clogging up Delaware’s Court of Chancery and, despite some high-profile investor losses, has spawned numerous copycats. And it started with Disney being sued in Delaware.

Related: Disney in Court Over Response To ‘Don’t Say Gay’ Law

First, though, some quick background. Why Delaware? The nation’s smallest state is where many of its largest companies are incorporated. Again, why Delware? According to Harvard Business Services, Delaware does not impose state income taxes on businesses that do not operate in the state, and businesses do not have to list the Company’s owners when incorporating. It makes it the perfect state to incorporate and why the Delaware Court of Chancery is hearing all of these cases.

This summer, the Walt Disney Company was sued by an investor who claimed the Company’s response to Florida’s Parental Rights in Education Act, known by its critics as the “Don’t Say Gay” bill, caused the Company’s stock to fall and adversely affected Disney’s reputation. Judge Lori Will ruled in favor of Disney, saying:

Perhaps the board could have avoided political blowback by remaining silent. Doing so could have damaged the company’s corporate culture and employee morale.

But since the Disney decision, Judge Will has seen dozens of other cases involving investors suing companies for making political decisions. Will described it as an example of how “supercharged” politics swirl around boardrooms.

Related: Architect of Florida’s ‘Don’t Say Gay’ Law That Started Disney/DeSantis Feud Is Headed to Prison

Will said: 

We’re just seeing more and more of those and it’s really putting some pressure on what types of risks boards in Delaware corporations need to be thinking about. I’ve combed over I’d say all of the Caremark cases that have come out that have dealt with these issues and when the board can potentially be liable. That said, like we saw in the Disney case, there’s always some new twist and iteration that can create a wrinkle.

According to Bloomberg Law, the Caremark case laid out conditions for directors’ oversight liability if they either fail to implement controls or ignore red flags of risks that would jeopardize companies’ financial health.

Since the Disney case, Judge Lori Will has heard lawsuits against McDonald’s and Segwway, with more high-profile cases coming to her courtroom soon. Most of these cases involve ESG, Environmental, Social, and Governance. It is a set of standards companies put forth to show investors they are socially and environmentally conscious. To its detractors, ESG is just “woke” investing.

This summer, Walt Disney Company stockholder Kenneth Simeone sued, seeking emails and records related to Disney’s response to the Parental Rights in Education Law. Florida Governor Ron DeSantis stripped Walt Disney World of the Reedy Creek Improvement District and replaced it with the Central Florida Tourism Oversight District after former Disney CEO Bob Chapek spoke out against the law.

In testimony before Vice Chancellor Lori Will of the Delaware Chancery Court, Simeone’s attorney, Sean Bellew, argued that Governor DeSantis warned Chapek that Disney could wind up in an “untenable position” if the Company publically opposed the law. Bellew said that the warning from the Governor should have made the board consider what losing its special district would have meant to shareholders.

In her ruling, Judge Will said that there was no evidence presented that showed the Board of Directors let their personal opinions influence the direction of the Company. Disney will not have to turn over years of records, including internal emails between the directors, and Disney’s decision-making process will remain secret.

But little did Judge Will know that her Delaware Court would see more of these types of lawsuits as stockholders seek more control over corporate governance.

We will continue to update this story at Disney Fanatic.