The Detroit Police and Fire Retirement System sued WWE executive chairman Vince McMahon last Thursday seeking a declaration that would effectively prevent the 77-year-old billionaire from regaining control of WWE’s board of directors and from hastening a sale. The retirement system has asked that its complaint, filed in Delaware’s Court of Chancery, be recognized as a class action on behalf of all WWE stockholders. According to Sportico, the complaint could stymie a potential sale of WWE, which has an enterprise value of $8.6 billion.
According to the complaint, McMahon violated his fiduciary duties as a controlling stockholder by attempting to “impose his personal will on WWE and its [board] by purporting to adopt a package of invalid and inequitable bylaw amendments that would hamstring the Board from making critical business decisions.”
Despite owning approximately 39% of WWE’s equity, McMahon wields far more stockholder power due to the company’s financial configurations. According to the complaint, McMahon owns approximately 92% of the outstanding Class B shares, which have 10 votes per share, while Class A shares have only one vote per share. According to the complaint, “McMahon controls 81% of WWE’s total voting power.”
McMahon has been labelled a serial sexual harasser. McMahon resigned as chairman of the board, chair of the executive committee, and CEO last year following reports of more than $12 million in “secret settlements to his accusers.”
According to the complaint, McMahon’s return was the result of corrupt—and illegal—dealing. McMahon was denied reinstatement by the 11-member board in December. The board of directors explained the denial to McMahon in a letter. “Your return to the Company at this time,” the board wrote, “would not be prudent from a shareholder value perspective [given that] government investigations into your conduct by the U.S. Attorney’s Office and SEC are still pending.”
However, in January, McMahon signed a written consent to remove and replace three directors with himself and “two cronies,” according to the complaint, and to change WWE bylaws to require stockholder approval for (among other things) transactions involving media rights. WWE’s media rights contracts will expire in 2024. McMahon is accused of threatening to “withhold support” for media rights negotiations and “hold [WWE] hostage” unless he was reinstalled.
According to the Police and Fire System, McMahon’s actions violate both Section 141 of the Delaware General Corporation Law and WWE’s charter.
The system claims that changing the company’s governance structure in the absence of negotiated exchange between WWE and McMahon “usurps the power of the Board over critical corporate management functions and vests it solely in McMahon in his capacity as a stockholder.” Neither Delaware law nor WWE’s charter permit the kind of power transfer the system claims occurred, and the system seeks a declaration that the consent is null and void.
The complaint filed by the system follows a nearly identical complaint filed on Jan. 10 by a WWE stockholder named Scott Fellows. The Police and Fire Fund and Fellows are represented by attorneys from Labaton Sucharow, Friedlander & Gorris, and Kaskela Law.
What do you think of this new complaint? Sound off in the comments.