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Grimes v. Donald

Delaware Supreme Court
673 A.2d 1207 (Del. 1996)



The board of directors of DSC Communications (DSC) (defendant) approved contracts with DSC’s CEO, James Donald (defendant), that promised him employment until his seventy-fifth birthday. The contracts provided that if Donald lost his job without cause, he would be entitled to the same salary he would have earned until the contracts would otherwise have expired. The contracts also included further incentive bonuses, lifetime medical coverage for Donald and his family, and other benefits. Grimes (plaintiff) demanded that the board abrogate the contracts with Donald. The board refused. Grimes filed a suit alleging that the board abdicated its responsibility to oversee the management of the company. Grimes alleged that by granting Donald contracts that allowed him to collect compensation even if the board chose to reject the course of action he chooses as CEO, the board had given up its responsibility to oversee the future of DSC. Additionally, Grimes alleged that the contracts constituted waste and excessive compensation and were the product of the board's failure to exercise due care. Although Grimes did not raise these issues in his demand to the board, he claimed that demand was excused because it would have been futile. The chancery court dismissed Grimes’s complaint for failure to state a claim upon which relief could be granted. Grimes appealed.

Rule of Law


Holding and Reasoning (Veasey, C.J.)

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