## Facts

- A Waste Management, Inc. shareholder filed a derivative action alleging certain officers and directors traded ChemLawn stock using inside information before Waste Management’s tender offer for ChemLawn.
- The shareholder sought to recover the managers’ alleged trading profits for the corporation.
- The suit was initially filed without a pre-suit demand on the board, alleging demand was excused as futile.
- After the board raised failure to make demand as a defense, the shareholder made a demand that the board pursue the claims, while still asserting demand futility.
- The board appointed a special litigation committee (SLC) of outside directors and delegated to it full authority to investigate and decide what action, if any, the corporation should take.
- The SLC recommended against pursuing the claims; the board adopted that recommendation and refused the demand.
- The Court of Chancery dismissed the action, treating it as a demand-refused case reviewed under the business judgment rule.

## Issues

1. Whether a shareholder who makes a litigation demand on the board may still argue that demand was excused as futile.
2. What standard of review applies to a board’s refusal of a shareholder’s demand, including when the board acts through an SLC.
3. What showing is required to overcome deference to the board’s demand refusal (e.g., independence, good faith, and adequacy of investigation).

## Decision

- The Delaware Supreme Court affirmed dismissal of the derivative action.
- By making demand, the shareholder waived the right to litigate demand futility and was bound to a demand-refused posture.
- The board’s refusal of demand, including refusal based on an SLC recommendation, was reviewed under the business judgment rule.
- The shareholder failed to rebut the business judgment presumption by showing lack of independence, bad faith, or an unreasonable investigation.

## Legal Principles

- Making a demand constitutes a concession that a majority of the board can consider the demand; the shareholder cannot later claim demand futility.
- In a demand-refused derivative action, the court reviews the refusal under the business judgment rule, focusing on decision-making process rather than the merits of the underlying claim.
- A board may delegate investigation and decision-making authority regarding a demand to an independent SLC; absent proof of bad faith, lack of independence, or grossly inadequate investigation, the refusal is protected by business judgment deference.
- The burden rests on the shareholder to plead and prove facts sufficient to rebut the presumption that the demand refusal was a good-faith, informed decision by disinterested decision-makers.

## Conclusion

The court held that a shareholder who elects to make demand cannot later assert demand futility, and that a board’s refusal of demand—including a refusal reached through an SLC—is presumptively protected by the business judgment rule unless the shareholder shows defects in independence, good faith, or the reasonableness of the investigation.


Spiegel v. Buntrock, 571 A.2d 767 (Del. 1990)