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Grobow v. Perot

Supreme Court of Delaware

November 3, 1987, Submitted ; March 15, 1988, Decided

No. 133, 1987

Opinion

 [*183]  In these consolidated shareholder derivative suits, plaintiffs-shareholders appeal the Court of Chancery's dismissal of their suits for failure of plaintiffs to make presuit demand under Court of Chancery Rule 23.1. The Court of Chancery held that plaintiffs' complaints as amended failed to allege particularized facts which, if taken as true, would excuse demand under the  [**3]  demand futility test of Aronson v. Lewis, Del. Supr., 473 A.2d 805 (1984). The Court interpreted Aronson's "reasonable doubt" standard for establishing demand futility as requiring plaintiffs to plead particularized facts sufficient to sustain "a judicial finding" either of director interest or lack of director independence, or whether the directors exercised proper business judgment in approving the challenged transaction, placing the transaction beyond the protection of the business judgment rule. Grobow v. Perot, Del. Ch., 526 A.2d 914, 921 (1987). We find the Vice Chancellor to have erred in formulating an excessive criterion for satisfying Aronson's reasonable doubt test. Moreover, the Vice Chancellor erred in his statement that fairness is a "pivotal" question under an Aronson analysis. See 526 A.2d at 927. Unless the presumption of the business judgment rule is overcome by the pleadings, questions of fairness play no part in the analysis. Aronson, 473 A.2d at 812. However, applying the correct standard, we conclude that the complaints (singly or collectively) fail to state facts which, if taken as true, would create a reasonable doubt either of director  [**4]  disinterest or independence, or that the transaction was other than the product of the Board's valid exercise of business judgment. Therefore, we affirm the decision  [*184]  below, finding the Court's error to have been harmless.

The well-pleaded facts of these proceedings come principally from the complaints, as amended, and are fully set forth in the Court of Chancery Opinion. See Grobow, 526 A.2d at 918-20. They will thus be repeated here in summary fashion and only as necessary.

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539 A.2d 180 *; 1988 Del. LEXIS 79 **; Fed. Sec. L. Rep. (CCH) P93,683

David Grobow, Shelly Kostrinsky, Joyce L. Thomas, Drexel Home, Inc., Adelle Brody, Jerrold Schaffer, Phyllis Greenfogel, Martin Besen, Joseph Lieberman, Blanche Silverberg, Irving Kas, Beatrice L. Russ and Bronson Murray, Plaintiffs Below, Appellants, v. H. Ross Perot, Roger B. Smith, F. James McDonald, Howard H. Kehrl, F. Alan Smith, Donald J. Atwood, Lloyd E. Reuss, Robert C. Stempel, Thomas A. Murphy, Anne L. Armstrong, Catherine B. Cleary, James H. Evans, Walter A. Fallon, Charles T. Fisher III, Marvin L. Goldberger, John J. Horan, Edmund T. Pratt, Jr., James D. Robinson III, John G. Smale, Leon H. Sullivan, Dennis Weatherstone, Thomas H. Wyman, Morton H. Meyerson, J. Thomas Walter, Jr., and William K. Gayden, Defendants Below, Appellees, and General Motors Corporation and Electronic Data Systems Corporation, Nominal Defendants Below, Appellees

Prior History:  [**1]  Court of Chancery of the State of Delaware in and for New Castle County.

Disposition: Affirmed.

CORE TERMS

repurchase, complaints, reasonable doubt, business judgment, plaintiffs', stock, excusal, business judgment rule, due care, particularity, allegations, futility, premium, terms, well-pleaded, disinterest, board of directors, entrenchment, contingent, judicial finding, presuit, outside director, negotiations, shareholder, criterion, financial interest, motion to dismiss, derivative, pleadings, buy

Business & Corporate Law, Standing, Demands, Futility, Civil Procedure, Appeals, Standards of Review, Reversible Errors, Directors & Officers, Management Duties & Liabilities, General Overview, Actions Against Corporations, Unincorporated Associations, Class Actions, Derivative Actions, Shareholder Actions, Judicial Officers, Judges, Discretionary Powers, Responses, Defenses, Demurrers & Objections, Motions to Dismiss, Abuse of Discretion, Fiduciary Duties, Business Judgment Rule, Causes of Action, Self-Dealing, Corporate Finance, Dividends & Reacquisition of Shares, Cancellation & Redemption