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Grobow v. Perot

539 A.2d 180 (1988)

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Grobow v. Perot

Delaware Supreme Court

539 A.2d 180 (1988)

Facts

H. Ross Perot was a member of the board and the largest shareholder of the General Motors Corporation (GM). Perot disagreed with how GM was managing a subsidiary that Perot had founded before joining GM’s board and often aired his grievances in public. GM sought to sever its relationship with Perot and negotiated a purchase of all of his GM stock and his contingent notes. Under the agreement, Perot sold to GM all of his stock and GM notes. Perot also agreed to certain commitments, including a commitment to stop criticizing GM’s management (a hush-mail or hush-money provision). Under the agreement, GM paid Perot an amount substantially higher than the market value of Perot’s GM shares. Several GM shareholders (plaintiffs) filed derivative suits against Perot and several of GM’s officers and directors (defendants), alleging that in arranging the transaction, the negotiating parties were acting in their own interests and not those of GM. The complaining shareholders cited the premium that GM paid for the shares and the hush-mail provision. The complaining shareholders had not made a demand to GM to initiate a lawsuit before filing their derivative actions. The chancery court dismissed the action, finding that the complaining shareholders had not shown that their failure to make a demand was excused. The complaining shareholders appealed.

Rule of Law

Issue

Holding and Reasoning (Horsey, J.)

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