Grobow v. Perot - 539 A.2d 180 (Del. 1988)

Rule:

The standard or test for determining whether a derivative complaint states a demand futility claim under Del. Ch. Ct. R. 23.1 is: whether taking the well-pleaded facts as true, the allegations raise a reasonable doubt as to (i) director disinterest or independence or (ii) whether the directors exercised proper business judgment in approving the challenged transaction.

Facts:

Plaintiff shareholders brought suit against defendants, members of the board of directors, alleging that the directors breached their fiduciary duties when the directors repurchased, for a high price, the stock of dissident shareholders. The lower court entered judgment in the directors' favor dismissing the shareholders' complaint for failure to make pre-suit demand under Del. Ch. Ct. R. 23.1. The shareholders appealed.

Issue:

Did the lower court properly dismiss shareholders’ complaint for failure to make pre-suit demand? 

Answer:

Yes.

Conclusion:

The court affirmed, holding that pursuant to Rule 23.1, the shareholders' derivative complaint failed to meet the standard for demand futility because the shareholders failed to create a reasonable doubt either of director disinterest or independence or that the transaction was other than a product of the directors' valid exercise of business judgment. According to the court, in the absence of evidence of fraud or unfairness, a corporation's repurchase of its capital stock at a premium over market from a dissident shareholder was entitled to the protection of the business judgment rule.