Lately, several media and news organizations have “settled” somewhat frivolous lawsuits filed by President Trump, raising suspicions in at least some minds that the settlements were a rather unsubtle form of bribery, intended to win Trump’s favor with respect to other aspects of their businesses.
I am not particularly knowledgeable about bribery laws but let us assume, for the moment, that if these settlements were, in fact, shams to funnel money to Trump in exchange for regulatory favors, that would be illegal under some law somewhere. And, given that Trump is, you know, president, I also assume that, to the extent those laws are federal, charges are unlikely to be pursued by federal authorities.
But Disney/ABC, and Meta – not X – are incorporated in Delaware. And Delaware makes it a breach of fiduciary duty for corporate managers to intentionally break the law. I’ve blogged about the doctrinal difficulties that Caremark creates for Delaware (and they’re discussed extensively in my new paper, The Legitimation of Shareholder Primacy, now forthcoming in the Journal of Corporation Law), but whatever the doctrine’s flaws, there remains the intriguing possibility that an enterprising shareholder might bring a lawsuit – or even just a books and records action – alleging that these corporate boards transferred valuable assets out of their companies for a corrupt purpose, in violation of their obligations to shareholders.
Now, that might be a tough claim to make, and there wouldn’t be much in it for the shareholders because the dollar figures themselves, at least in the Disney and Meta cases, are relatively small.
But now we have reporting that Paramount executives are angsting over whether to settle another one of Trump’s suits, and this situation has a little more meat. The claims are, to put it mildly, weak (that CBS deceptively edited an interview with Kamala Harris, which somehow caused $20 billion of damages to Trump in Texas, in part because of a diversion of attention from Truth Social. In 2023, Truth Social reported $300 million in assets, with a $21 million loss, so man, that interview did a number on it).
(I will also point out that Trump is currently arguing that he cannot be named as a defendant in lawsuits involving Truth Social, because it would distract him from his duties as President. Being a plaintiff, apparently, poses no such threat).
Anyhoo, Trump brings these claims right as Paramount is seeking FCC permission to be bought out by Skydance, and, reportedly, Paramount has been mulling a settlement just to get the deal done. But this settlement might be a large one, and the merger itself contemplates leaving a number of public shareholders in place. Several such shareholders have already expressed dissatisfaction with the merger, and at least two are suing for books and records. For these shareholders, it would certainly be a sweetener if they could demonstrate that executives violated the law in connection with the transaction, and, in so doing, transferred money out the door that might otherwise have increased the company’s valuation.
That possibility is, according to WSJ, weighing heavily on the minds of Paramount executives, who fear insurance might not cover their liability.
But may I venture an alternative interpretation? Many, both inside and outside of Paramount, have warned that settling this type of claim erodes press freedom. The prospect of Caremark liability – however dim – may actually function as an excuse for executives to reject a settlement they don’t want anyway. That’s a point that was made when Trump announced he’d be pulling back on FCPA enforcement: executives doing business abroad may like being able to say that American law prohibits bribery because it gives them an excuse not to bend to extortion. Right now, Caremark could serve a similar function for Delaware-incorporated firms.
(Trump could, I suppose, pardon everyone, which does raise the question whether Caremark liability attaches for pardoned criminal acts.)
And another thing: New Shareholder Primacy podcast is up! This week, Mike Levin and I talk about companies staying private longer, and about rational shareholder apathy. Available here at Spotify, here at Apple, and here at YouTube.