## Facts

- A stockholder challenged employment agreements between a corporation and its CEO that assigned the CEO responsibility for “general management of the affairs of the Company.”
- The agreements included a “constructive termination” provision allowing the CEO, in his good-faith judgment, to resign and receive substantial severance if the board or a substantial stockholder “unreasonabl[y] interfere[d]” with his duties.
- The stockholder alleged the severance package created a financial deterrent that effectively prevented the board from exercising its statutory authority to manage the corporation.
- Before filing suit, the stockholder made a written demand that the board rescind or modify the agreements; the board refused.
- The stockholder then sued asserting (i) a direct claim that the board had abdicated its statutory duties and (ii) derivative claims for waste and breach of fiduciary duty.
- The Court of Chancery dismissed for failure to state a claim and for failure to satisfy derivative demand pleading requirements, and the stockholder appealed.

## Issues

1. Whether an alleged board “abdication” of statutory duties may be asserted as a direct stockholder claim rather than solely as a derivative claim.
2. Whether the challenged CEO agreements plausibly alleged an actual abdication of the board’s statutory authority to manage or direct management of the corporation.
3. What consequences follow when a stockholder makes a pre-suit demand and the board refuses, including whether the stockholder may later assert demand futility for other theories arising from the same challenged transaction.
4. Whether the complaint pleaded particularized facts showing that the board’s refusal of the demand was wrongful.

## Decision

- The Delaware Supreme Court affirmed dismissal.
- The court held that a stockholder may, in principle, assert a direct claim that directors abdicated their statutory role, but the complaint did not plead facts showing an actual abdication.
- The court held that, after a stockholder makes demand and it is refused, the stockholder may not claim demand is excused for other legal theories supporting the same claim.
- Because demand was made, the stockholder had to plead particularized facts showing wrongful refusal; the complaint did not do so.

## Legal Principles

- A direct claim may lie where directors have truly surrendered or disabled their statutory authority under 8 Del. C. § 141(a), but ordinary delegation of operational authority to officers does not constitute abdication.
- Executive employment terms, including substantial severance and constructive-termination protections, are not invalid per se and do not alone establish board abdication.
- In derivative litigation, making a pre-suit demand constitutes an election to proceed in the demand-made posture and generally concedes that a board majority can consider the demand.
- After demand is refused, the plaintiff must plead with particularity that the refusal was wrongful; the plaintiff cannot revert to demand-futility pleading for alternative theories based on the same underlying corporate act.

## Conclusion

The court upheld dismissal because the CEO agreements did not plausibly show a board-level surrender of statutory authority, and because the stockholder’s decision to make demand foreclosed later reliance on demand futility and required particularized allegations that the board wrongfully refused the demand.


Grimes v. Donald, 673 A.2d 1207 (Del. 1996)