## Facts

- General Motors Corp. (GM) acquired Electronic Data Systems Corp. (EDS) in 1984; EDS founder H. Ross Perot received GM Class E stock and contingent notes and became GM’s largest individual shareholder and a GM director while remaining EDS chairman.
- Management and governance conflicts developed between Perot and GM’s officers and directors, and Perot publicly criticized GM management.
- GM’s board decided to end its relationship with Perot; a special committee of outside directors recommended a transaction in which GM repurchased Perot’s GM Class E stock and contingent notes at a substantial premium.
- The repurchase included covenants, including an agreement by Perot to stop publicly criticizing GM management.
- GM shareholders filed consolidated derivative actions alleging the repurchase (approximately $745 million) was corporate waste and served no valid business purpose, asserting the primary purpose was to silence Perot.
- Plaintiffs did not make a presuit demand on the board under Court of Chancery Rule 23.1 and instead sought to plead demand futility under Aronson v. Lewis.

## Issues

1. Whether the Court of Chancery applied an overly demanding interpretation of Aronson’s “reasonable doubt” standard by requiring particularized facts sufficient for an actual judicial finding of director interest, lack of independence, or invalid business judgment.
2. Whether the complaints alleged particularized facts creating a reasonable doubt that (a) a majority of directors were disinterested and independent, or (b) the repurchase was the product of a valid exercise of business judgment, thereby excusing demand.

## Decision

- The Delaware Supreme Court held the Court of Chancery misstated Aronson by treating “reasonable doubt” as requiring facts sufficient for a judicial finding, and by implying fairness was central to demand-futility analysis.
- Applying the correct Aronson standard, the court held plaintiffs still failed to plead particularized facts raising reasonable doubt as to director disinterest/independence or the validity of the board’s business judgment.
- The dismissal under Rule 23.1 for failure to make presuit demand was affirmed; the Chancery Court’s legal error was harmless.

## Legal Principles

- To excuse demand in a derivative suit challenging a board decision, a plaintiff must plead particularized facts creating a reasonable doubt that (1) the directors are disinterested and independent, or (2) the challenged transaction was the product of a valid exercise of business judgment.
- “Reasonable doubt” at the demand-futility stage is a pleading threshold; it does not require allegations sufficient to support a final judicial finding of misconduct.
- The business judgment rule presumes directors act on an informed basis, in good faith, and in the honest belief that the action serves the corporation’s best interests; unless that presumption is rebutted by well-pleaded facts, fairness review does not enter the demand-futility analysis.
- Conclusory assertions of entrenchment or improper motive, without particularized facts showing material self-interest, lack of independence, domination, bad faith, fraud, or self-dealing, are insufficient to excuse demand.
- A board decision to pay a premium and obtain non-disparagement-type covenants may fall within business judgment absent particularized facts supporting an inference of waste (i.e., a transaction so one-sided that no rational business person could view the consideration as adequate).

## Conclusion

The court clarified that Aronson’s demand-futility test requires particularized allegations raising reasonable doubt, not proof-level pleadings, and it affirmed dismissal because the shareholders did not plead facts rebutting the presumption that the GM directors validly exercised business judgment in buying out Perot and securing related covenants.


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