## Facts

- General Motors Corporation (GM) repurchased H. Ross Perot’s GM Class E shares and contingent notes, and those of certain associates, for over $700 million.
- Perot agreed to resign from GM’s board, refrain from competing with GM, and limit public criticism of GM and its subsidiary, Electronic Data Systems.
- GM shareholders filed derivative actions alleging the repurchase was corporate waste and an improper “greenmail”-type payment.
- In one action, shareholders (Grobow plaintiffs) did not make a pre-suit demand and attempted to plead demand futility through a second amended complaint based on asserted new facts.
- In a separate action, Morton Levine made a pre-suit demand that GM sue to unwind or redress the transaction; GM’s outside directors considered and unanimously refused the demand.
- The Court of Chancery dismissed both matters under Court of Chancery Rule 23.1 for failure to plead with required particularity.

## Issues

1. Whether the Grobow plaintiffs pleaded particularized facts sufficient to excuse demand under Rule 23.1 by raising a reasonable doubt as to director independence/disinterest or the validity of the board’s business judgment regarding the transaction.
2. Whether, after making demand, Levine pleaded particularized facts creating a reasonable doubt that the board’s refusal was an informed, good-faith exercise of business judgment.
3. Whether the asserted newly discovered facts justified reopening the earlier Grobow dismissal and altered the demand-futility analysis.

## Decision

- The Delaware Supreme Court affirmed dismissal of the Grobow action because the second amended complaint still failed to plead demand futility with the particularity required by Rule 23.1.
- The court affirmed denial of relief from the earlier Grobow judgment because the alleged new evidence did not materially change the futility analysis.
- The court affirmed dismissal of Levine’s action because, having made demand, Levine conceded director independence and disinterest and failed to plead particularized facts showing wrongful refusal under the business judgment rule.
- The court held that conclusory allegations that directors were manipulated, misled, or uninformed were insufficient without specific supporting facts.

## Legal Principles

- In a demand-futility case, Rule 23.1 requires particularized facts raising a reasonable doubt that (a) the directors are disinterested and independent or (b) the challenged transaction was a valid exercise of business judgment (the Aronson framework).
- A shareholder who makes a pre-suit demand tacitly concedes the independence and disinterest of a majority of the board for purposes of responding to that demand.
- In a demand-refused case, the only relevant inquiry is whether directors acted on an informed basis, with due care, and in good faith belief that refusal was in the corporation’s best interests; review is under the traditional business judgment rule.
- Labels such as “waste” or “greenmail,” without concrete facts showing conflicted decision-making, an inadequate investigation, bad faith, or irrationality, do not satisfy Rule 23.1.

## Conclusion

The court affirmed dismissal of both derivative actions, clarifying that plaintiffs who forgo demand must plead specific facts excusing demand under Aronson, while plaintiffs who make demand concede board independence and may proceed only by pleading particularized facts showing the demand refusal was not protected by the business judgment rule.


Levine v. Smith, 591 A.2d 194 (Del. 1991)