Once upon a time, there was a magic kingdom named the Reedy Creek Improvement District. It was the stuff of fairy tales: a realm where the Walt Disney Company could exercise a variety of local government powers from an enchanted castle in central Florida. Everyone prospered under this arrangement, bringing joy and mirth to all visitors and creating employment and tax revenue at the same time.
Then came Ron DeSantis. The evil governor cast a magic spell with the Florida legislature to strip the Reedy Creek Improvement District of its special powers for defying him. Now Disney is teaming up with a band of intrepid adventurers—namely, Wilmer Hale and other prestigious white-shoe law firms—to break the spell and restore peace to the Magic Kingdom.
Like all great adventures, this one takes place in federal court. Disney sued DeSantis and his allies this week in a wide-ranging federal lawsuit. Some of its contentions, like the First Amendment retaliation claim, are so obvious that it will be hard to see how the state of Florida will mount a competent argument against them. Others, like the alleged contract clause violation, are highly esoteric and could lead to strange legal results. Disney movies often follow a typical hero’s journey arc. But this lawsuit could take audiences to unexpected places.
The Mouse, for its part, cast the dispute in terms of disappointment and frustration. “Disney regrets that it has come to this,” the company said in its complaint. “But having exhausted efforts to seek a resolution, the company is left with no choice but to file this lawsuit to protect its cast members, guests, and local development partners from a relentless campaign to weaponize government power against Disney in retaliation for expressing a political viewpoint unpopular with certain state officials.”
Disney’s clash with DeSantis began brewing last year when the state legislature passed a bill to restrict discussions of sexual orientation and gender identity in public schools, a measure described by its opponents as the “Don’t Say Gay” bill. The legislative push came as part of a broader push against LGBTQ rights in Republican-led states. Florida’s bill came under criticism from major companies and activist groups. DeSantis ultimately signed the bill into law in March.
One of the companies that criticized the bill was Disney. In a statement released the same day that DeSantis signed the bill into law, Disney said it remained committed to supporting organizations that would help repeal the law or challenge it in court. The following day, DeSantis claimed that Disney’s statement had “crossed the line” and said he would be “fighting back” against the company. In a recently released memoir quoted by Disney in court filings, DeSantis recounted that Disney “was pledging a frontal assault on a duly enacted law of the State of Florida” and that, as a result, “things got worse for Disney.”
Disney, from Florida’s perspective, is no ordinary company. Thanks to its sprawling Walt Disney World resort in the central part of the state, Disney is among Florida’s largest employers and taxpayers. The Reedy Creek Improvement District that governs the resort is a blandly named local government body that effectively functions as a private city-state for Disney. The district’s creation in 1967 allowed Disney to manage its own water, power, and waste utilities, draft its own building codes, issue its own infrastructure bonds, and supervise its own police and fire departments.
In retaliation for Disney’s opposing the bill, DeSantis and Florida lawmakers moved to strip the company of its self-governance powers and dissolve the RCID. (They later changed tactics and opted to strip it of its Disney-aligned board and replace it with a new, DeSantis-aligned one.) Florida officials did not deny that the move was retaliation for Disney’s political speech; they bragged about it. “You kick the hornet’s nest, things come up,” one state representative remarked. “And I will say this: You got me on one thing, this bill does target one company. It targets The Walt Disney Company.” A state senator explained after voting for the measure that Disney “is learning lessons and paying the political price of jumping out there on an issue.” DeSantis himself later remarked that Disney “had clearly crossed a line in its support of indoctrinating very young schoolchildren in woke gender identity politics.”
In Disney’s eyes, all of this amounts to a violation of the First Amendment, which generally forbids government officials from punishing private actors for expressing a political viewpoint. “The retaliatory reconstitution of Disney’s governing body’s structure through the enactments of Senate Bill 4C and House Bill 9B have chilled and continue to chill Disney’s protected speech,” the company said in its lawsuit. “This unconstitutional chilling effect is particularly offensive due to the clear retaliatory and punitive intent that motivated the Governor’s and the Legislature’s actions.” It is hard to dispute the retaliatory nature of Florida’s actions when so many state officials have been so unambiguous about it.
The Disney-DeSantis feud escalated over the last two months when the company effectively outmaneuvered the governor’s attempts to wrest control of the district away from it. A new agreement between Disney and its original board strips the Central Florida Tourism Oversight District, DeSantis’s new creation, of many of its powers by requiring it to obtain permission from Disney before making any changes. The agreement also authorized Disney to construct an additional theme park on the undeveloped land it already owns within the jurisdiction. Though the board gave public notice of the proposed changes in the proper forums, DeSantis’s office did not know about it until the agreement had already been signed.
One portion that received the most public attention was its duration. Disney and the board agreed that the new contract would last indefinitely. Such provisions in contracts are often forbidden by what’s known as the rule against perpetuities, which is supposed to forbid eternal contracts. So the board and the company added a special workaround: They declared that the agreement would alternatively last until the “death of the last survivor of the descendants of King Charles III, King of England living as of the date of this Declaration.” Betting against the British royal family’s endurance has never proven to be wise.
After assuming power, the DeSantis-aligned board sought to reverse the agreement. That, in turn, prompted Disney’s complaint that the new board had violated one of the most esoteric provisions of the Constitution: the contract clause. The clause is tucked away in a series of restrictions on state governmental powers in Article IV. States cannot “grant Letters of Marque and Reprisal,” nor can they sign treaties with foreign powers, nor can they “grant any Title of Nobility.” They also cannot pass any law “impairing the Obligation of Contracts.” Courts generally held until the end of the nineteenth century that this clause meant states could not break contracts and relieve debtors of their obligations to their creditors.
The provision is largely moribund these days, subsumed by state governments’ inherent police powers to pass a variety of economic regulations. A sign of the clause’s modern scarcity can be found in the sources cited by Disney as part of its argument: Most of them date from the 1800s or the first decade of the 1900s. The rare exception is United States Trust Co. v. New Jersey, a 1977 case where the Supreme Court dinged New Jersey and New York for each passing state laws that broke a 1962 covenant with the Port Authority on railroad subsidies. Since the repeal unilaterally undermined the Port Authority’s bondholders, the court ruled that it had run afoul of the contract clause.
Disney’s legal strategy isn’t without its critics. Slate’s Mark Joseph Stern, for example, wrote earlier this week that Disney could simply sue Florida to enforce the RCID contract. He warned that revisiting the contract clause under the Roberts court could lead to chaos in other areas of the law. “Hotels cite the clause to battle severance pay for workers and rehire … laid-off employees,” he wrote. “Delivery apps used it to combat caps on the amount of ‘commission’ cash they can extract from restaurants. Corporations deployed it to fight data privacy laws. Police unions have seized upon it to hobble disciplinary procedures and conceal records of misconduct from the public.”
It’s not impossible that the Supreme Court, if it eventually takes up the Disney-DeSantis case, could use the opportunity to revive the contract clause as part of a broader push toward the heady libertarian days of Lochnerism in the early twentieth century. Then again, the court’s own precedents appear to treat contracts struck between the state and private entities—as in the 1977 Port Authority case—differently from those between private companies and persons. Whether Disney prevails on the First Amendment claim, the contract clause claim, both of them, or none at all, the case could be an interesting one—and maybe even its latest blockbuster.
