Hart v. General Motors Corp.

General Motors Corporation (GM) (defendant) was a Delaware company with its principal place of business in Michigan. In 1984, GM bought Electronic Data Systems Corporation (EDS) for approximately $2.5 billion. In connection with that acquisition, H. Ross Perot (defendant), EDS’s chairman, became GM’s largest individual shareholder. Perot remained EDS’s chairman and became a GM director after the deal. However, on November 30, 1986, GM purchased Perot’s GM stock for $750 million. As part of the deal, Perot resigned as EDS chairman and as a GM director. Perot also agreed not to publicly criticize GM or GM’s management or attempt to gain control of GM for five years upon pain of a substantial penalty. On December 5, Milledge Hart (plaintiff), a GM shareholder and Texas resident, filed a shareholder derivative suit against GM, Perot, and GM’s directors (defendants) in the New York supreme court, alleging that GM’s directors breached their fiduciary duties because GM paid Perot a premium over the stock’s fair market value to induce Perot to resign his positions and that Perot effectively sold his positions for personal gain. The day before Hart filed suit, two shareholders brought derivative actions challenging the transaction in Delaware Chancery Court; several additional Delaware suits were filed over the next several months, and GM shareholders filed nine similar suits in federal court. GM and Perot moved to dismiss Hart’s New York action on two bases, including forum non conveniens. Per GM and Perot, Delaware had a stronger interest in deciding the case because Delaware law should govern the dispute. The supreme court denied the motion, ruling that director liability properly could be determined on a state-by-state basis, that New York had a greater interest in deciding the dispute, and that it was merely fortuitous that GM was incorporated in Delaware. GM and Perot appealed.