Disney Shareholders Seeking Books and Records Inspection of Documents Related to Jimmy Kimmel Suspension

A skeptical assessment

Semafor reported that:

In a letter to Disney first shared with Semafor, lawyers representing the American Federation of Teachers, Reporters Without Borders, Inc. and other groups, all of which say they are Disney shareholders, requested the Hollywood entertainment giant turn over board records related to Kimmel’s suspension.

The group criticized the decision to suspend the comedian after comments about the conservative reaction to the alleged shooter of Charlie Kirk, and said that investors were entitled to investigate whether the company’s leaders “did not properly discharge their fiduciary duties” in deciding to bench Kimmel amid threats from the FCC. …

The letter was organized in conjunction with the Democracy Defenders Fund, a nonprofit watchdog group founded by Norman Eisen, a former Obama aide and the author of the anti-Trump Substack The Contrarian.

In a press release, Democracy Defenders Fund announced that:

“Disney shareholders deserve the truth about exactly what went down inside the company after Brendan Carr’s threat to punish ABC unless action was taken against Jimmy Kimmel,” said AFT President Randi Weingarten. “The Disney board has a legal responsibility to act in the best interests of its shareholders—and we are seeking answers to discover if that bond was broken to kowtow to the Trump administration.”

“Pulling Jimmy Kimmel off the air was a mistake: one that betrayed principles of free speech and American democracy,” said DDF’s executive chair Norm Eisen, counsel for AFT and RSF. “And while it was great to have him back on most ABC affiliates, about 25% of them did not carry his return. We are seeking answers about all of this, including whether Disney bowed down to illegal government demands in order to facilitate approval of the Nexstar-Tegna merger currently before the FCC.”

The letter sent Disney by DDF and the lawyers working with it is available here.

In it, DDF’s counsel opine that:

There is a credible basis to suspect that the Board and executives may have breached their fiduciary duties of loyalty, care, and good faith by placing improper political or affiliate considerations above the best interests of the Company and its stockholders. The Company’s response to the books and records demands set forth below will allow AFT and RWB to assess the ability of the Board to impartially consider a demand for action, including a request for permission to file a derivative lawsuit on Disney’s behalf in the event that members of the Board or Disney executives did not properly discharge their fiduciary duties.

It then lays out a list of the categories of documents it is requesting that extends almost to two pages.

All of which raises two questions:

1. Disney is a Delaware corporation. Under Delaware General Corporation Law § 220, the books and records provision, is DDF and its allies entitled to the books and records they seek?

2. Is it true, as the demand letter claims, that DDF has “a credible basis to suspect that the Board and executives may have breached their fiduciary duties of loyalty, care, and good faith”?

As to the first question, regular readers will recall that back in June I posted a series of newsletters on the books and records request National Center for Public Policy Research (NCPPR) submitted to United Airlines seeking books and records related to the airline’s decision to suspend flights to Tel Aviv. In that series, I discussed a number of issues, including NCPPR’s clever decision to sue United in Illinois under Illinois law even though United is a Delaware corporation:

NCPPR v. United Airlines: Choice of Law and Books and Records Inspections

I also discussed whether NCPPR would be entitled to the books and records it wanted if they had sued under DGCL § 220 as it was amended by SB 21.

NCPPR v. United Airlines: Books and Records Inspections Post-SB 21

In light of that discussion, I will not rehash the state of the law under § 220. Instead, I will simply note that DDF’s request strikes me as a mixed bag. There are some categories to which they are pretty clearly entitled., such as board of directors meeting minutes, materials provided to the board concerning the Kimmel suspension, and director independence questionnaires. But there are also a lot of categories that, under § 220(g), they will need to prove that they have “made a showing of a compelling need for an inspection of such records to further the stockholder’s proper purpose” have also “demonstrated by clear and convincing evidence that such specific records are necessary and essential to further such purpose.”

In my June post, I opined that:

I believe the Chancery Court is going to be very hesitant to provide access to those sorts of documents. The clear intent behind SB 21’s amendments to § 220 was to make it much harder for shareholders to obtain access to books and records below the board level. As Eric Talley, Sarath Sanga, and Gabriel Rauterberg observed, the amendments signal “to the Court of Chancery that Delaware wants to tighten stockholder access, which could change how courts approach 220 disputes going forward.”

So I think DDF is facing an uphill battle with respect to requests for such items as “Any written correspondence, including emails, involving any Disney directors (including director Bob Igor in his capacity as CEO) regarding any of the issues listed above.”

I’ll leave the interested reader to check out my earlier posts and switch gears to the substantive question:

Let’s assume Disney management caved to political and business pressure in suspending Kimmel. Would that be a breach of the board and management’s fiduciary duties?