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Grimes v. Donald

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


The board of directors of DSC Communications (DSC) (defendant) approved a compensation agreement for DSC’s CEO, James Donald (defendant), that promised him employment until his seventy-fifth birthday, and provided that if he lost his job without cause, he would be entitled to the same salary he would have earned until the contract would otherwise have expired. The contract also included further incentive bonuses, lifetime medical coverage for Donald and his family, and other benefits. Grimes (plaintiff), made a demand to the board that it abrogate the contract with Donald. The board refused. Grimes filed a derivative suit alleging that the board abdicated its responsibility to oversee the management of the company. Grimes alleged that by granting Donald a contract 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. In his derivative action, Grimes alleged that he never had to make a demand of the board, because the demand would have been futile in the first place. The chancery court dismissed Grimes’ case, and Grimes appealed.

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