Ron DeSantis’ Legal Threats Against Bud Light’s Parent Company are Dumb and Bad for Florida

Florida Gov. Ron DeSantis’ odd threats to investigate and possibly sue Bud Light’s parent company on behalf of Florida’s pension fund are both confused and entirely meritless.

In a recent Fox News appearance, he claimed that his investigation could lead “to a derivative lawsuit filed on behalf of the shareholders of the Florida pension fund” to impose penalties on Bud Light for giving a transgender influencer a custom beer can.

As most Americans are not corporate lawyers, the ordinary person may not immediately smell the bull in DeSantis’ bluster. After all, Gov. DeSantis graduated from Harvard Law and knows enough to use the words “fiduciary” and “derivative.” Thankfully, corporate law has largely solved the problem of litigious and value-destroying shareholders like Gov. DeSantis.

Any large, publicly-traded corporation will have many shareholders with different views. Some of them, like Gov. DeSantis, will be armchair quarterbacks eager to attack corporate leaders for making a different decision than they would have. If shareholders could litigate every business decision that turned out to be unprofitable, large corporations could not function. Corporate leaders would become timid and afraid to take business risks lest some shareholder sue them.

To solve this problem, corporate law limits the ability of shareholders to litigate a corporation’s business decisions. The right to sue for harm to the corporation ordinarily belongs to the corporation, not to shareholders. A corporation’s board of directors decides how to manage a corporation’s affairs—including whether or not to file any lawsuits.

A shareholder derivative lawsuit is an exception to this general rule. These lawsuits allow shareholders to assert claims that the existing board of directors should not manage on their own. Usually, shareholder derivative lawsuits involve claims against directors for somehow breaching their duties to the corporation. For example, a shareholder derivative lawsuit would be appropriate if a board of directors stole money from the corporation. As they are not likely to sue themselves, courts may permit shareholders to bring these claims against directors on the corporation’s behalf to recover the stolen funds.

American corporate law generally protects directors from being second guessed for their business decisions through the business judgment rule. Although states apply it in different ways, it generally means that courts will abstain from reviewing a corporation’s business decisions and presume that a corporation’s officers or directors acted in good faith unless some evidence exists that the board had some disabling conflict when making the decision at issue.

Gov. DeSantis’ proposed litigation against AB InBev, Bud Light’s parent company, appears entirely frivolous. It could expose Florida’s pension fund to sanctions and monetary penalties for bringing baseless litigation.

At the outset, a plaintiff filing a shareholder derivative lawsuit must name some defendants. Here, that would presumably be AB InBev’s board of directors. There is no evidence that AB InBev’s board approves every marketing decision for every brand within the corporation’s enormous portfolio. To make the claim work, Florida would have to argue that AB InBev’s board should have created some policy to ensure that brand managers discriminated against transgender persons when making marketing decisions.

If AB InBev had put this type of policy in place, it might have generated its own liability for discriminating on the basis of gender identity.

But the lawsuit is also dumb.

Functionally, Florida cannot litigate a shareholder derivative lawsuit “on behalf of the shareholders of the Florida pension fund” alone. In the highly unlikely event that Florida actually secured any recovery, it would be split between all of the shareholders because it would resolve a claim that belongs to the corporation. According to recent news reports, Florida’s pension fund owns approximately 682,000 out of a total of roughly 2,019,241,973 AB InBev shares.

This means that Florida’s pension would get about .03 percent of any recovery. For perspective, if Florida somehow won or settled the case for $50 million, which it will not, Florida’s pension fund would recover about 15 grand.

But there are many more reasons why this lawsuit lacks any merit. AB InBev is a Belgian corporation. This means that Belgian law governs shareholder disputes. Although I am not an expert on Belgian corporate law, I understand that an entirely different process exists to initiate shareholder derivative claims under Belgian law. Belgian law even imposes costs and damages on shareholders for filing frivolous derivative actions.

Functionally, this means that Florida’s highly unlikely upside for this sort of litigation is about 0.03 percent of any recovery. Its downside is likely millions in court costs, fees, and penalties for filing frivolous litigation.

If DeSantis files this derivative lawsuit, Bud Light’s parent company will open a can on him.