KARINA LEITER—On October 5, 2017, The New York Times published a story that unveiled several sexual harassment accusations against well-known American film producer and co-founder of The Weinstein Company, Harvey Weinstein (“Weinstein”). Since that story broke, over forty women have come forward alleging that they too were victims of Weinstein’s inappropriate conduct. Many of these women, including Gwyneth Paltrow, Angelina Jolie, and Rosanna Arquette, are notable actors who have kept these experiences a secret for decades. Alleged incidents “extend as far back as 1984,” and four women have reported that Weinstein raped them. Quoted in The New York Times tell-all was actress Ashley Judd, who later publicly stated that “women have been talking about Harvey amongst ourselves for a long time, and it’s simply beyond time to have the conversation publicly.”
The Weinstein Company
The Weinstein Company Holdings LLC is a privately held limited-liability company incorporated in Delaware. The Weinstein Company produced renowned films such as “Silver Linings Playbook,” “The King’s Speech,” and “Django Unchained.” Shortly after the allegations against Weinstein came to light, the company fired him for violating the company’s code of conduct. The decision to fire him was made by the company’s four members of the Board, Lance Maerov, Bob Weinstein (Weinstein’s brother), Richard Koenigsberg, and Tarak Ben Ammar. Weinstein and his brother owned a combined 42% of the company. The Board has stated that they had no knowledge of Weinstein’s conduct prior to the story being released, and that “the allegations of sexual assault and harassment came as an utter surprise to its directors.”
On October 12, 2017, TMZ wrote that Weinstein’s 2015 employment contract provided that if Weinstein:
“treated someone improperly in violation of the company’s Code of Conduct,” he must reimburse TWC for settlements or judgments. Additionally, “[Weinstein] will pay the company liquidated damages of $250,000 for the first such instance, $500,000 for the second such instance, $750,000 for the third such instance, and $1,000,000 for each additional instance.”
The TMZ article, if true, suggests that The Weinstein Company may have known of Weinstein’s sexual misconduct and that as long as he reimbursed the company for settling claims, Weinstein would not be fired. (The Weinstein Company has not disclosed the terms of Weinstein’s contact.) Furthermore, if Weinstein’s contract did contain the above mentioned language, it could be argued that the contract is illegal and unenforceable under American common law because it appears to condone the possibility of his illegal behavior. A contract that intentionally permits one of the signing parties to engage in illegal acts constitutes an illegal document.
Are the Company’s Board Members Liable?
It depends. The Delaware Supreme Court has held that “absent cause for suspicion there is no duty upon the directors to install and operate a corporate system of espionage to ferret out wrongdoing which they have no reason to suspect exists.” Although the Board’s members deny having any knowledge of Weinstein’s wrongdoings, if the TMZ article proves to be true, it would be reasonable to assume that the Board at least had suspicions of Weinstein’s actions. By including such a clause in Weinstein’s contract, the Board was apparently attempting to mitigate damages for actions that were reasonably foreseeable. Additionally, it has been reported that employees’ of Weinstein’s company who have sued Weinstein for harassment have been forced to sign confidential settlement agreements. It seems implausible that the Board’s members had no knowledge of the top executive’s behavior when so many people were affected by it. The Weinstein scandal has been coined as “Hollywood’s biggest open secret.” So while the Board may have had no duty to monitor Weinstein’s personal affairs, the Board’s members did have a legal and fiduciary duty to try and stop sexual harassment from occurring or continuing within the company. If it is determined that the Board’s members knew of the confidential settlement agreements with various women, the company could be liable for Weinstein’s sexual misconduct.
Duty to Investors
Additionally, the Board members have a fiduciary duty to the company’s investors. Whether or not it is proven that the members knew of Weinstein’s misconduct, the members still negligently exposed investors to unreasonable financial risk. After countless stories have been shared to news sources and social media, the company’s reputation has potentially been ruined beyond repair. While the company’s current outside investors are not publicly known, some of the company’s past investors have included Goldman Sachs and Mark Cuban. The company’s current investors may be able to seek millions of dollars’ worth of damages from Board members for their failure to address Weinstein’s conduct. The effort to keep Weinstein’s actions hidden may end up costing the Weinstein Company both its reputation and all it financial resources.
At the very least, The Weinstein Company had a duty to protect its financial investors, and it seems that they failed in this regard. While the Delaware Supreme Court may have held that there is no duty to “ferret out [suspicionless] wrongdoing,” Weinstein’s conduct appears to have been no secret within the Hollywood community. Further, it should have been foreseeable that once one figure spoke out others would follow. Weinstein’s misconduct now leaves a once powerful company in a fragile state.