Grimes v. Donald case brief

Grimes v. Donald (Del.Sup.Ct.1996)

FACTS
Case of excess executive compensation, Board relinquishing its power to remove
executive, and failure of Board to exercise fiduciary duties.
There were two possible sets of claims: abdication of power by Board (a direct claim)
and lack of due care, waste, etc. (derivative claim).

HOLDING
Holding that Board hasn’t abdicated its power to fire, even though they have made it
difficult.

ANALYSIS
The derivative claim raises the question of “demand.” Demand requirement is
intended to reflect the fundamental priority of the Board in management of the
corporation.

RULES
-Delaware law says demand requirement can be excused if plaintiff shows:
o Majority of the board has a material financial or familial interest
o There is reasonable doubt that majority of the board is capable of acting
independently (because of domination or control)
o Reasonable doubt that underlying transaction is the product of a valid exercise
of business judgment.


-If demand is rejected by the Board, Board is given presumption of business judgment
rule. Plaintiff must make particularized claims that raise a reasonable doubt that the
-Board should be allowed this presumption.
-A plaintiff cannot both make demand and ask for excuse – one or the other only.