Month: June 2023

on being cited by opinions in today’s Student for Fair Admissions case: Randy and Gail were cited in Justice Thomas’s concurrence, and David was cited several times in Justice Gorsuch’s concurrence.

The post Congratulations to Our Own Randy Barnett, David Bernstein, and Gail Heriot, appeared first on Reason.com.

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None of America’s public transit agencies covered their operating costs (not to mention capital costs) with farebox revenue, parking charges, and other “user fees” before the pandemic. On the other side of COVID, fewer are even trying.

As the last of the $69 billion in pandemic-era federal transit aid is spent, transit agencies and advocates have gone clamoring for more taxpayer subsidies they say are necessary to avoid a “doom loop,” “death spiral,” or some other self-perpetuating apocalyptic vortex of ever-falling service, ridership, and revenue.

Earlier this week, California Gov. Gavin Newsom and leaders of the state’s Democratic-controlled Legislature agreed to a budget deal that will provide transit agencies with $5.1 billion in state aid. That represents an increase of $1.1 billion, reports the San Francisco Chronicle, plus additional flexibility to spend capital funds on day-to-day operations.

This money will be particularly helpful for San Francisco Bay Area Rapid Transit (BART), which breathed a huge sigh of relief after details of the then-pending budget agreement were announced earlier this month.

“It’s not yet clear how much money BART will receive and when it will receive it, but the budget agreement is a significant development to help avoid drastic cuts to service,” said BART General Manager Bob Powers.

BART has been the most affected by pandemic-era trends that have generally proved disastrous for the country’s largest fare-dependent transit agencies designed to funnel workers to and from downtown job centers.

No other city has seen a greater COVID-era out-migration of jobs and people from dense urban centers than San Francisco. It’s also the nation’s capital for telework. Fewer people traveling each day to work has blown a hole in the agency’s fare revenue, which once was covering 70 percent of its nearly $800 million annual operating budget. Another 26 percent came from local funding.

Fares and other user fees fell to cover only about 10 percent of the agency’s budget during COVID, and federal relief—once a minuscule part of its operating budget—has risen to account for almost 50 percent. But that aid is drying up, and ridership remains stuck at about a third of its pre-pandemic levels.

With additional taxpayer funding, the agency had said it will face a $92 million deficit in FY 2025. In FY 2026, when the last of the federal aid money runs out, its deficit is projected to balloon to $313 million.

BART had said even if it adopts its list of financial stability strategies—which includes “increase revenue and decrease expenses”—rail’s high fixed costs relative to marginal costs will leave it deep in the red. Without additional aid, the agency says riders would be facing 60-minute headways and an end to weekend service.

Other agencies have sounded a similar note as they’ve gone hunting for additional subsidies.

Last week, staff at the long-troubled Washington Metropolitan Area Transit Authority (WMATA) told the agency’s board of directors that it was facing a $750 million deficit come FY 2025 when federal aid (which currently covers about a quarter of its budget) is exhausted.

“The severity of these cuts would devastate this region, yet still not eliminate the funding deficit and would trigger a transit death spiral,” said the agency.

Rail ridership on WMATA has been steadily declining since before COVID, as persistent maintenance problems resulted in accidents and frequently disrupted service. Still, in 2019, the agency was able to cover almost half its rail operations (and 40 percent of its combined bus and rail operations) with fare revenue and other user fees.

No longer.

WMATA’s rail ridership is only about 50 percent of what it was pre-pandemic.

The stickiness of remote work in the D.C. region has played a big part in that. So has non-pandemic-related service cuts that the agency has undertaken to repair its tracks and fix derailment-causing safety flaws on its rail cars.

Subsidy-dependent bus ridership has rebounded to 88 percent of pre-pandemic levels. That’s still left WMATA covering only about 20 percent of its operations with fares and other user fees.

WMATA’s board presentation notes that BART and New York’s Metropolitan Transportation Authority (MTA)—which runs subway and bus service in the New York City area—have “avoided fiscal collapse” with state subsidies in the former case and state subsidies plus a big payroll tax increase in the latter.

Baruch Feigenbaum, a transportation policy expert for the Reason Foundation (which publishes this website), argues that transit agencies are often overhyping their projected revenue losses in order to shore up subsidies.

Service cuts are appropriate when demand for rides has fallen, he adds. “There has been a major downturn in San Francisco. If they need to cut headways because there are fewer people, they need to cut headways.”

Service cuts that reflect falling demand, service redesigns that reflect changes in post-pandemic travel patterns, and finding more efficiencies (including through privatizing operations) could help shore up budgets while minimizing the need for taxpayer subsidies, says Feigenbaum.

It’s notable that while demand for transit ridership has fallen in America’s dense urban cities, demand for living and working within these cities remains high—as evidenced by the post-COVID rebounds in rents and home prices.

In that context, falling transit ridership comes with a silver lining. The Niskanen Center’s Alex Armlovich has argued that lower ridership, born of hybrid work arrangements, has drastically increased the effective capacity of existing rail systems.

Each individual using subway infrastructure less means the current infrastructure can service more people’s needs generally, he argued in an August 2022 op-ed for New York Daily News.

In the New York context, argues Armlovich, this is “an immense capacity windfall that would have cost untold billions to achieve by other means.” A happy consequence is that the city can comfortably add population without straining its existing transit infrastructure.

“Housing growth versus subway capacity is no longer a policy trade off,” he wrote. “Indeed, the city now needs new residents to keep MTA afloat!”

New York City, much like San Francisco, D.C., Boston, and other cities where transit systems are staring down fiscal cliffs, has any number of policies and regulations that limit housing growth.

Removing those limits on housing construction would see developers add more units and cities add more people. A growing population would mean growing transit ridership and fare revenue.

In other words, zoning reform could reverse transit agencies’ “death spirals” into a virtuous cycle of more private development bringing more fare-paying transit riders. Transit systems would become less dependent on subsidies, not more.

That sounds like a brighter future than the one policy makers and transit agencies are committing to now of permanent taxpayer subsidies to make up for permanently depressed ridership.

The post Transit Agencies Demand Taxpayer Subsidies To Stave Off ‘Death Spirals.’ There’s a Better Way. appeared first on Reason.com.

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From Judge Lewis Kaplan’s opinion today in Carroll v. Trump (S.D.N.Y.):

This is a defamation case brought by writer E. Jean Carroll against President Donald Trump, as he then was, for statements Mr. Trump made in June 2019 shortly after Ms. Carroll publicly accused him of sexual assault. In those statements, Mr. Trump denied Ms. Carroll’s accusation, stated that he “has no idea who this woman is,” and suggested that she fabricated her accusation for ulterior and improper purposes, including to increase sales of her then-forthcoming book in which she discusses having been sexually assaulted by Mr. Trump and other men.

In a second and very closely related case (“Carroll II“), Ms. Carroll sued Mr. Trump for the alleged sexual assault itself and for defamation based on a statement that Mr. Trump published on his social media platform in October 2022 that was substantially similar to his June 2019 statements. That case was tried in April and May 2023. The jury unanimously found that Mr. Trump had sexually abused Ms. Carroll and defamed her in his October 2022 statement. It awarded Ms. Carroll a total of $5 million in compensatory and punitive damages: $2.02 million for her sexual assault claim, and $2.98 million for her defamation claim.

In this case (“Carroll I“), Ms. Carroll seeks damages and other relief for defamation for Mr. Trump’s June 2019 statements only. The matter now is before me on Mr. Trump’s motion for summary judgment dismissing the action on four grounds:

1. Trump is entitled to absolute presidential immunity
2. Trump’s statements were not defamatory per se and Ms. Carroll cannot establish special damages
3. the majority of Trump’s statements were nonactionable opinion
4. Carroll consented to Mr. Trump’s allegedly defamatory statements. He argues also that punitive damages in any case would be unwarranted on Ms. Carroll’s defamation claim.

His arguments are without merit….

Roberta Kaplan, Michael Ferrara, Shawn Crowley, Trevor W. Morrison, Matthew J. Craig, and Joshua Matz (all of Kaplan Hecker & Fink LLP) represent Carroll.

The post Jean Carroll’s Libel Lawsuit Against Donald Trump for His 2019 Statements Can Go Forward appeared first on Reason.com.

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The Supreme Court has stuck down race-based affirmative action in college admissions. In a 6–3 decision today, the Court ruled that both Harvard and the University of North Carolina’s admissions policies engaged in unlawful racial discrimination, violating the 14th Amendment’s Equal Protection Clause. The decision effectively ends almost 50 years of legalized racial discrimination in the college admissions process.

“Eliminating racial discrimination means eliminating all of it,” wrote Chief Justice John Roberts in the Court’s majority opinion. “In other words, the student must be treated based on his or her experiences as an individual—not on the basis of race.” 

The ruling in Students for Fair Admissions v. President and Fellows of Harvard College marks a decisive victory for those who had long hailed the practice as unjust and unconstitutional. It also reaffirms a reading of the 14th Amendment as prohibiting racial discrimination in all but the narrowest of circumstances, even when such discrimination is done in service of an otherwise “noble” goal.

The Reason Foundation (the nonprofit that publishes this website) wrote an amicus brief last year urging the Court to rule against Harvard and UNC.

The evidence that both universities engaged in racial discrimination, particularly against Asian applicants, is staggering. According to the ruling, “over 80% of all black applicants in the top academic decile were admitted to UNC, while under 70% of white and Asian applicants in that decile were admitted.” At Harvard, an Asian American applicant in the top academic decile has a lower chance of being admitted than a black student in the fourth-lowest academic decile.

“While the dissent would certainly not permit university programs that discriminated against black and Latino applicants, it is perfectly willing to let the programs here continue,” wrote Roberts. “In its view, this Court is supposed to tell state actors when they have picked the right races to benefit.”

While the ruling has attracted strong condemnation from supporters of race-conscious college admissions, polling suggests that a majority of Americans of all racial groups disapprove of these policies. A 2019 Pew Research poll found that 73 percent of all Americans, including 62 percent of black Americans and 65 percent of Hispanic Americans, did not think that colleges should be able to consider an applicant’s race or ethnicity when making decisions about student admissions.

As reflected in the Court’s ruling, the best argument against affirmative action in college admissions is a simple one: All people are created equal and should be treated equally before the law. Treating individuals differently based on their race is an unacceptable affront to this idea, even if it is in the service of a well-intentioned goal. Taking this idea further, treating college applicants differently based on any demographic trait—including legacy status—offends this same principle.

It’s possible to believe these principles while also acknowledging that many racial minority groups—black Americans in particular—are affected by past and present racial discrimination. As Justice Clarence Thomas wrote in a concurring opinion, “While I am painfully aware of the social and economic ravages which have befallen my race and all who suffer discrimination, I hold out enduring hope that this country will live up to its principles so clearly enunciated in the Declaration of Independence and the Constitution of the United States: that all men are created equal, are equal citizens, and must be treated equally before the law.”

The post Supreme Court on Affirmative Action: ‘Eliminating Racial Discrimination Means Eliminating All of It’ appeared first on Reason.com.

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“Why not solve the future problem of gene doping and the current problem of steroid use in professional sports by creating two kinds of sports leagues?” I asked way back in 2005. “One would be free of genetic and pharmacologic enhancements—call them the Natural Leagues. The other would allow players to use gene fixes and other enhancements—call them the Enhanced Leagues.”

Welcome, finally, to the Enhanced Games! The basic idea: sports without drug testing.

“We believe that science is real and has an important place in supporting human flourishing. There is no better way to highlight the centrality of science in our modern world than in elite sports,” said Aron D’Souza, the president of the Enhanced Games. Planned for 2024, the Enhanced Games aims to be the first international sports event that fully supports performance enhancements. Consequently, the Enhanced Games will not adhere to the World Anti-Doping Agency (WADA) rules with respect to track and field, swimming, weightlifting, gymnastics, and combat sports competitions. As the event plan states, “Athletes will not be tested for performance enhancements, and are under no obligation to declare their enhanced status in order to compete.”

D’Souza, an Australian entrepreneur and Oxford-educated lawyer, among other things, led tech investor Peter Thiel’s successful invasion-of-privacy litigation against Gawker Media. The Enhanced Games Athletes Advisory Commission consists of elite athletes including Cayman Islands Olympic swimmer Brett Fraser, Canadian Olympic bobsleigher Christina Smith, and South African Olympic swimmer Roland Schoeman. The Scientific and Ethical Advisory Commission includes Harvard biomedical researcher George Church and biotech entrepreneur Julia Cooney.

Proponents of the Enhanced Games say that they embrace liberty, arguing that “adults, with free and informed consent, have full autonomy over their bodies and minds.” In addition, they reject the current model of “not-for-profit” international sports competition as “corrupt.” Funded privately, the Enhanced Games will cost taxpayers nothing and will use already-built sporting facilities. Proponents point out that the International Olympic Committee (IOC) generates billions in revenue while many of the world’s best athletes, under the IOC’s rules, are barely able to eke out their livings. “We embrace capitalism as central to everything we do and strive to be maximally efficient in our operations,” declares its value statement. “Excellence, particularly athletic excellence, deserves to be rewarded.”

As an inclusive competition, the Enhanced Games will be open to both natural and enhanced athletes. “We want natural and we welcome enhanced athletes,” D’Souza told the Associated Press. “And I hope that the bold, natural athlete shows up to the games and says, ‘Hey guys I’m natural, I’m still WADA compliant and I’m going to beat all you guys’—that is going to be great television.” It would be, indeed.

As I wrote back in 2005, “Let fans decide which play they prefer.”

The post The Enhanced Olympics: Drugs Welcome! appeared first on Reason.com.

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Election season is getting into gear, and that means politicians of all stripes making promises about what they’ll do for the American people if elected or reelected. I’d like to hear promises to get government out of the way and allow entrepreneurship and market competition to spur genuine and sustainable economic growth, including in the energy and housing sectors.

This may be what America needs most, but I will settle for a promise to ensure that the national debt stays smaller than the size of the economy. A committed president just might be able to deliver.

I never thought I’d be happy with keeping the debt no higher than 100 percent of gross domestic product (GDP). I’m more of a “cut the hell out of all this everything” kind of girl. Compromise is particularly hard to swallow considering that way back in 2007, before the Great Recession and long before all the pandemic spending, the U.S. debt-to-GDP ratio was about 60 percent, and I thought that was too high.

However, age has taught me the value of perspective. At the end of 2022, the U.S. national debt stood at 97 percent of GDP. Prior to that, it touched triple digits. In 10 years’ time, the number is expected to grow to 115 percent. The fiscal beast reaches 200 percent in 30 years. Even this projection is too optimistic since it assumes undisturbed prosperity, low interest rates, no new programs, no emergencies, and low inflation. It also assumes that the Department of the Treasury will find buyers, at low interest rates, for $114 trillion in extra debt. Yeah, right.

Keeping debt no higher than GDP is a better and more realistic objective than the usual Republican sound bite promise of balancing the budget—not counting entitlement and defense spending—in 10 years. This would require the implementer to cut non-excluded appropriations by 15 percent, 20 percent, or 30 percent relatively quickly, a remarkably unrealistic idea considering most government programs are supported by powerful interest groups who fight tooth and nail against any proposed cuts. Such political promises don’t end up happening.

So here we are. I would be impressed if any of the politicians hitting the campaign trail promise what I’m asking for. The Cato Institute’s Chris Edwards calculated that staying under a 100 percent debt-to-GDP ratio would require a $6 trillion reduction in spending over the coming decade, or about 8 percent of what’s projected. While politicians will claim this will eviscerate the budget, in reality, it would merely slow the growth rate of federal outlays, which would still rise from $6.4 trillion this year to about $8.6 trillion in 2033. As Edwards noted to me, “That would be an aggressive cut from an Establishment perspective, but a nice goal for congressional reformers.”

The politics will be harder than the reductions. Think about the hardship it was for Republicans and Democrats to reach a debt ceiling deal that will, at best, reduce the growth trend of spending by around $2 trillion over 10 years. (That’s assuming the caps placed on spending hold and a spending-addicted Congress doesn’t abuse the emergency loophole built into the plan. I wouldn’t bet my house, or even my garden hose, on that.) Democrats aren’t interested in fiscal discipline while Republicans’ understanding of it mostly focuses on big tax cuts paid with public debt.

Still, we can hope that a president with a mandate and a lot of political willpower takes advantage of the many ways to go about delivering on this plan.

The literature on austerity reveals that the most effective way to reduce the debt-to-GDP ratio without affecting the economy too much or for long is to adopt fiscal adjustment packages that consist mostly of spending cuts. Packages based on entitlement reforms are more politically challenging but also yield much better results. Considering that Medicaid, Medicare, and Social Security are the drivers of debt growth, reforming these programs must play a significant role.

There are other ways, too. The Committee for a Responsible Budget, for instance, has a plan to stabilize the debt by cutting $7 trillion—including interest savings—over 10 years. Sixty percent of the reduction comes from the spending side, including entitlement reform, while the rest comes from revenue increases (including closing special interest tax breaks). Others will have more plans. It’s not my preferred path, but it’s a path.

Setting a debt level that doesn’t exceed GDP is a realistic and doable goal. That’s exactly what we should want from someone seeking to be our president.

COPYRIGHT 2023 CREATORS.COM.

The post The Next President Needs To Cut Spending appeared first on Reason.com.

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From Simeone v. Walt Disney Co., decided Tuesday:

This books and records action originates from The Walt Disney Company’s response to Florida House Bill 1557. Disney initially took no public position on the bill, which limits instruction on sexual orientation or gender identity in Florida classrooms. After facing criticism from its employees, Disney reversed course and spoke out against the legislation. Florida’s Governor took issue with Disney’s stance and Florida’s legislature voted to dissolve a special tax district encompassing the Walt Disney World Resort.

Afterwards, the plaintiff—a longtime Disney stockholder—was solicited by counsel to serve a books and records demand. The demand asserts that Disney’s directors and officers may have breached their fiduciary duties to the company and its stockholders by opposing HB 1557. The plaintiff’s theory of wrongdoing is that Disney’s fiduciaries either put their own beliefs ahead of their obligations to stockholders or flouted the risk of losing rights associated with the special district.

Disney told the plaintiff that he lacked grounds to obtain books and records because its directors and officers had not engaged in mismanagement. Nevertheless, Disney produced certain board minutes and corporate policies to the plaintiff. The plaintiff was unsatisfied and filed litigation.

Weighty public policy questions surround the margins of this lawsuit. But when they are stripped away, the case becomes quite simple. The court must determine whether the plaintiff has demonstrated a proper purpose to inspect books and records. He decidedly has not.

Delaware law vests directors with significant discretion to guide corporate strategy—including on social and political issues. Given the diversity of viewpoints held by directors, management, stockholders, and other stakeholders, corporate speech on external policy matters brings both risks and opportunities. The board is empowered to weigh these competing considerations and decide whether it is in the corporation’s best interest to act (or not act).

This suit concerns such a business decision by the Disney board—a decision that cannot provide a credible basis to suspect potential mismanagement irrespective of its outcome. 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.

The plaintiff and his counsel may disagree with Disney’s position on HB 1557. But their disagreement is not evidence of wrongdoing. Regardless, the plaintiff has all necessary and essential documents relevant to his purpose. Judgment must be entered for Disney….

Section 220 of the Delaware General Corporation Law provides stockholders with a qualified right to inspect corporate books and records. To obtain inspection, a stockholder must satisfy the statute’s form and manner requirements. The stockholder must also prove, “by a preponderance of the evidence, a proper purpose entitling the stockholder to an inspection of every item sought.” The stockholder must further “demonstrate by a preponderance of the evidence that ‘each category of books and records is essential to accomplishment of the stockholder’s articulated purpose for the inspection.’ “

The plaintiff does not meet the standard for a Section 220 inspection for three independent reasons. First, the purposes described in the demand are not the plaintiff’s own purposes. Second, the plaintiff has not provided a credible basis from which to infer possible wrongdoing. Third, the defendant has provided the plaintiff with all necessary and essential documents….

[1.] The “propriety of the stockholder’s purpose” is the “paramount factor in determining whether a stockholder is entitled to inspection of corporate books and records.” Section 220 defines a proper purpose as one “reasonably related to such person’s interest as a stockholder.” In rare circumstances, a defendant can prove that a stockholder lacks a proper purpose where “the purposes for the inspection belong to [the stockholder’s counsel]” rather than the stockholder himself. Disney has prevailed in making that showing here.

Simeone testified that he did not consider pursuing litigation or making an inspection demand after learning about HB 1557. His reaction to Disney’s opposition to HB 1557 and the subsequent legislation rescinding the RCID was concern that his property tax bill would increase. Simeone was later “contacted by a lawyer” in his family—Brian McCall—who knew he was a Disney stockholder and solicited him to serve a demand. After speaking to McCall, Simeone was contacted by Paul Jonna. Jonna is Special Counsel to the Thomas More Society, a “public interest law firm championing Life, Family, and Freedom.” The plaintiff’s verified interrogatory response states that the Thomas More Society is advancing costs for this litigation.

The purposes stated in the demand are pretextual. Simeone testified that his only purpose for inspection was to “know the person or persons who were responsible for making th[e] political decision” at Disney to publicly oppose HB 1557. He said that he “hope[s] it becomes public and the other shareholders find out about” these identities. He confirmed that he has no other purpose. The only evidence indicating that the purposes listed in the demand might belong to Simeone is the testimony his counsel elicited through leading redirect questions.

The plaintiff’s limited and non-substantive involvement in the demand and litigation further reveals the lawyer-driven nature of this action. Simeone 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’s counsel and the Thomas More Society are entitled to their beliefs. They are also entitled to pursue litigation in support of those beliefs. But a Section 220 suit, which is designed to address the plaintiff’s interests as a stockholder, is not a vehicle to advance them. …

[The plaintiff’s demand identifies four purposes; al2.] l center around the same desire to investigate wrongdoing. The second and fourth purposes—to determine whether Disney’s opposition to HB 1557 was harmful to the company and to “explore possible remedial measures”—are derivative of and dependent upon whether there was mismanagement in the first place. The third purpose of assessing the impartiality of the Board if presented with a litigation demand—though proper in the abstract—similarly focuses on whether the Board is interested in the alleged underlying wrongdoing. Consequently, I focus on the first stated purpose: “[t]o investigate potential wrongdoing, mismanagement and breaches of fiduciary duties … in connection with the Company’s decision to publicly oppose the Parental Rights Act.”

“It is well established that a stockholder’s desire to investigate wrongdoing or mismanagement is a ‘proper purpose.’ ” But “a bare allegation of possible waste, mismanagement, or breach of fiduciary duty, without more, will not entitle a stockholder to a Section 220 inspection.” “[A] stockholder seeking to investigate wrongdoing must show, by a preponderance of the evidence, a credible basis from which the court can infer there is ‘possible mismanagement as would warrant further investigation.’ ” This burden, though the lowest standard of proof in our law, is neither “a formality” nor “inconsequential.” A stockholder must present “some evidence to suggest a credible basis for wrongdoing.” Simeone has failed to do so.

The plaintiff’s theory is that Disney’s “decision to express public opposition” to HB 1557 despite “the [G]overnor’s warning” amounts to a possible breach of fiduciary duty by the Board and certain Disney officers. As a result of these actions, the plaintiff avers that Disney lost (or at least risked the loss of) rights and powers associated with the RCID. He alleges that Disney’s stock price dropped and that Disney “continues to suffer” financial harm because of its “aggressive position” on HB 1557.

The plaintiff is not describing potential wrongdoing. He is critiquing a business decision. “A stockholder cannot obtain books and records simply because the stockholder disagrees with a board decision, even if the decision turned out poorly in hindsight.”

Although choosing to speak (or not speak) on public policy issues is an ordinary business decision, this case exemplifies the challenges a corporation faces when addressing divisive topics—particularly ones external to its business. Individual investors have diverse interests—beyond their shared goal of corporate profitability—and viewpoints that may not align with the company’s position on political, religious, or social matters. Yet stockholders invest with the understanding that the board is empowered to direct the corporation’s affairs. The board may delegate implementation to management, but it alone bears the ultimate responsibility for establishing corporate policy.

Far from suggesting wrongdoing, the evidence here indicates that the Board actively engaged in setting the tone for Disney’s response to HB 1557. The Board did not abdicate its duties or allow management’s personal views to dictate Disney’s response to the legislation. Rather, it held the sort of deliberations that a board should undertake when the corporation’s voice is used on matters of social significance.

As Chapek told stockholders during Disney’s 2022 annual meeting, the company’s original approach to HB 1557 “didn’t quite get the job done.” The company, facing widespread backlash from its staff and creative talent, changed course after the full Board held a special meeting about “Political Engagement and Communications.” The Board discussed “the communications plan, philosophy and approach regarding Florida legislation and employee response.” Only then did Chapek announce that Disney opposed the bill.

The Board’s consideration of employee concerns was not, as the plaintiff suggests, at the expense of stockholders. 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. Indeed, the plaintiff acknowledges that maintaining a positive relationship with employees and creative partners is crucial to Disney’s success. It is not for this court to “question rational judgments about how promoting nonstockholder interests—be it through making a charitable contribution, paying employees higher salaries and benefits, or more general norms like promoting a particular corporate culture—ultimately promote stockholder value.”

The plaintiff has not put forth any legitimate basis to question the Board’s impartiality in responding to the legislation. He argues that Disney’s directors were motivated by personal beliefs because “several Board members are actively involved with ‘political organizations such as the Human Rights Campaign’ ” that “adamantly opposed” HB 1557. That some directors may be involved with a non-profit organization does not itself create a conflict of interest—much less undermine the full Board’s deliberative process. In any event, there are no facts in the record to infer that the directors’ personal beliefs caused them to act contrary to the interests of Disney and its stockholders. The plaintiff cannot obtain books and records to search for hypothetical conflicts.

I also find deficient the plaintiff’s argument that the Board “ignored a known risk” of negative consequences from opposing the legislation. 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.

Moreover, even if a board’s defiance of a political threat could provide a credible basis to suspect wrongdoing, there is no factual support for that conclusion here. Neither the Complaint nor any of the sources relied on by the plaintiff demonstrate that Disney was warned of financial repercussions or dissolution of the RCID before Chapek’s March 9 announcement. According to the Complaint, it was not until March 30—three weeks after Disney first publicly opposed HB 1557 and two days after its March 28 statement—that the specter of dissolving the RCID was explicitly raised.

At bottom, the plaintiff disagrees with Disney’s opposition to HB 1557. He has every right to do so. But “disagreement with [a] business judgment” is not “evidence of wrongdoing” warranting a Section 220 inspection. Such an inspection would not be reasonably related to the plaintiff’s interests as a Disney stockholder; it would intrude upon the “rights of directors to manage the business of the corporation without undue interference.”

[3.] Even if the plaintiff had demonstrated a proper purpose, no further inspection would be warranted. The plaintiff has not met his “burden of proving that the information [in the records sought] is essential to that purpose, taking into account the books and records [the company] has previously furnished.”

“Formal board-level documents are often the beginning and end of a Section 220 production where a plaintiff aims to investigate” potential mismanagement. Disney has repeatedly represented that it produced all Board-level materials related to HB 1557, Disney’s response to the legislation, the potential loss or modification of the RCID, and Disney’s policies on charitable and political giving. Still, the plaintiff maintains that he needs three years of email and correspondence “between and among Board members and CEO Chapek” about the same topics.

The Delaware Supreme Court has instructed that “the Court of Chancery should not order emails to be produced when other materials (e.g., traditional board-level materials, such as minutes) would accomplish the petitioner’s proper purpose.” A deviation from this typical approach is not merited here. The Board maintained formal records of its actions, and the relevant records were provided to the plaintiff.

The request for three years of documents is also “vastly overbroad.” The plaintiff wishes to investigate Disney’s response to one piece of legislation that was introduced and passed in 2022. That aside, the point is moot. Disney has confirmed that no other Board-level documents on these subjects exist.

The plaintiff also contends that Disney’s production is incomplete because the Board minutes it produced were redacted. The parties agreed that Disney could redact portions of documents that were not responsive to the demand. Irrespective of this agreement, irrelevant information cannot be “essential” to the purpose of the demand.

Disney’s redactions for responsiveness covered text that was also withheld as attorney-client privileged. At the plaintiff’s request, Disney provided a log detailing its privilege redactions. This privilege log not only substantiates Disney’s privilege assertions. It also reflects that the redacted entries concern irrelevant matters: discussions about stockholder correspondence, ongoing litigation or regulatory matters that predate the passage of HB 1557, or privileged discussions concerning the directors’ duties and rules as a general matter.

The plaintiff therefore has all necessary and essential information. He would not be entitled to additional books and records had he prevailed on the other elements of his claim.

I can’t speak to the merits of the decision (which turns on the underlying corporate law principles, and how they have been interpreted in the precedents), but I thought it was interesting enough to pass along.

Blake Rohrbacher & Morgan R. Harrison (Richards Layton & Finger, P.A.) and Kevin J. Orsini, Rory A. Leraris & Andrew D. Huynh (Cravath, Swaine & Moore LLP) represent Disney.

The post Court Rejects Disney Shareholder’s Demand for Corporate Documents Related to Controversy over Florida Law appeared first on Reason.com.

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