Court battle escalates in Disney feud with DeSantis over special district

The Walt Disney Company’s lawsuit against Florida Gov. Ron DeSantis is unlikely to be decided soon, and claims about its First Amendment right to free speech will join the firm’s special district arrangement with the state as legal arguments.

Last month, the Disney filed a suit in federal court, saying that DeSantis and the state of Florida punished it and violated its First Amendment rights when it singled Disney out to take away control of a special district that it had run since 1967. It then escalated that legal battle after the Legislature moved to take further actions against it.

The fight began last year after Disney became an opponent of the “Parental Rights in Education Act,” called the “Don’t Say Gay” law by its critics. The law banned Florida public school instruction for children through the third grade about sexual orientation or gender identity.

The Legislature then approved a bill to dissolve all independent special districts created before 1968, which affected the Reedy Creek Improvement District, which built and maintains the basic infrastructure supporting the Disney theme parks and resorts in the Orlando area.

The governor and his supporters made it clear it was intended to punish Disney for its foray into state politics.

“Allowing a corporation to control its own government is bad policy, especially when the corporation makes decisions that impact an entire region,” DeSantis said at the time. “This legislation ends Disney’s self-governing status, makes Disney live under the same laws as everybody else, and ensures that Disney pays its debts and fair share of taxes.”

DeSantis, a Republican, is seen as one of the top contenders for the GOP presidential nomination in 2024, although he has not yet declared his candidacy. Both houses of the state Legislature are dominated by the GOP.

“This recent escalation of the Disney-DeSantis fight is unnerving, but it doesn’t make that fight any more consequential for the municipal market,” said Justin Marlowe, research professor in the University of Chicago Harris School of Public Policy.

“Municipal market participants understand that local special districts are, at the end of the day, creatures of the state,” he told The Bond Buyer. “The Disney-DeSantis fight is disconcerting because it suggests the risk of state interference in local special district affairs is not fully priced into special district bonds.”

But the risk is unlikely to spread to the more mundane special districts such as those that fund streets and sewers for residential tracts, said Marlowe, who is also editor-in-chief of Public Budgeting & Finance.

“Disney’s special district arrangement with Florida is unique. Few companies have enjoyed the autonomy that Disney’s enjoyed on land use or the scope of public investment it’s enjoyed on infrastructure,” he said. “That’s why it’s no surprise that the Disney-DeSantis fight is uniquely acrimonious, and no surprise that it’s escalated.”

But the key word there is unique, he stressed.

“Most local special districts operate quietly and with broad public support. Most state policymakers have no desire to interfere in local special district affairs,” he said.

The Reedy Creek district was created in 1967 to help Disney develop its 39-acre property into a theme park. It was a special tax and governing taxing district for the land owned by Disney World in Orlando. It had the same authority as a county government and includes land in Orange and Osceola counties.

The district was mostly funded by property taxes, with Disney accounting for 88% of its tax base. The state takeover law was specifically written to include protection for holders of the special district’s almost $1 billion of outstanding municipal bond debt.

The district had been governed by a board of supervisors selected by the district’s landowners, according to the official statement for a 2020 bond sale. As Disney and its affiliates own most of the land, it effectively controlled the board.

In February, lawmakers passed and the governor signed a law that renamed the district as the Central Florida Tourism Oversight District and gave the governor the power to appoint its board members.

Then outgoing Disney-backed RCID board approved last-minute agreements with the company that would limit the powers of the incoming DeSantis-picked board by restricting its decision-making powers.

The new CFTOD board responded by voting to nullify the previous agreements.

State lawmakers then passed Senate Bill 1604 to include a provision that voids any agreements made by the RCID board in the three months before the CFTOD board took over.

“Disney’s corporate kingdom is over — despite their repeated and futile attempts to circumvent the Legislature and the will of the people,” DeSantis said at the time. “Their cheerleaders in the media thought that Disney ‘outsmarted’ the state, but the new control board uncovered their sloppy scheme and the agreements will be nullified by new legislation.”

Disney expanded its lawsuit after the action, saying that “at the governor’s bidding, the state’s oversight board has purported to ‘void’ publicly noticed and duly agreed development contracts, which had laid the foundation for billions of Disney’s investment dollars and thousands of jobs.

“This government action was patently retaliatory, patently anti-business, and patently unconstitutional. But the governor and his allies have made clear they do not care and will not stop,” the filing says. 

“This lawsuit is yet another unfortunate example of [Disney’s] hope to undermine the will of the Florida voters and operate outside the bounds of the law,” Taryn Fenske, DeSantis’ communications director, said in a statement emailed to Bloomberg News. “We are unaware of any legal right that a company has to operate its own government.”

According to Disney’s court filing, the company has made an “immeasurable impact” on the state’s economy for more than 50 years and established Central Florida as a top global tourist destination which attracts tens of millions of visitors each year.

“A targeted campaign of government retaliation — orchestrated at every step by Gov. DeSantis as punishment for Disney’s protected speech — now threatens Disney’s business operations, jeopardizes its economic future in the region, and violates its constitutional rights,” the filing says.

“Disney finds itself in this regrettable position because it expressed a viewpoint the governor and his allies did not like.  Disney wishes that things could have been resolved a different way,” the company said.

“But Disney also knows that it is fortunate to have the resources to take a stand against the state’s retaliation — a stand smaller businesses and individuals might not be able to take when the State comes after them for expressing their own views,” the company said. “In America, the government cannot punish you for speaking your mind.”

Some of Disney’s claims could be considered as long shots, one legal authority said.

“Many of the plaintiff’s claims are dubious long shots that would likely require the Supreme Court to modify or overturn long-standing precedent to succeed,” said Michael Morley, the Sheila M. McDevitt Professor at Florida State University School of Law.

“The First Amendment claims raise more substantial issues, but they also face important obstacles,” Morley told The Bond Buyer on Tuesday. “It appears unclear under existing precedent whether a plaintiff can state a valid First Amendment retaliation claim based on the Legislature’s apparent motive for enacting a facially neutral law that governs its non-speech activities.”

He also noted some doubts about what standards and scrutiny to which the state could be held accountable.

“The plaintiff’s allusions to the rational basis standard in their First Amendment counts may suggest uncertainty about whether the state would face heightened scrutiny in a situation like this,” he said. “If the court winds up applying a rational basis standard, the state will win easily.”

Others think that the First Amendment argument may hold some water with the court, especially as it relates to environmental, social and governance ideas.

“While there’s been a lot of press on this fight, attention is just being given to the strength of Disney’s First Amendment claims in the lawsuit,” according to an article in the Climate Capitalist. “The reality is states can’t discriminate, as Florida is doing here, against companies that take political positions they don’t like. The U.S. Supreme Court in the famous Citizens United case said corporations have the same free speech rights as individuals.”

The article claims that many anti-ESG laws violate the commerce clause of the U.S. Constitution, which gives Congress the exclusive right to regulate interstate commerce.

“States are free to enact either pro- or anti-ESG laws, but only so long as they don’t violate the U.S. Constitution,” the article states. “But these laws … violate the free speech rights of pro-ESG companies who are penalized by anti-ESG states.”

The case is Walt Disney Parks and Resorts v. DeSantis, 23-cv-00163, U.S. District Court, Northern District of Florida, Tallahassee.