Levine v. Smith
Supreme Court of Delaware
591 A.2d 194 (1991)
Ross Perot, a GM director and its largest shareholder, publicly clashed with GM's management over a subsidiary's operations, prompting a committee of outside directors to negotiate a roughly $743 million buyback of Perot's shares in exchange for his agreement not to compete with or criticize GM, which the full board approved. Several shareholders sued derivatively to challenge the buyback: one group, the Grobow plaintiffs, sued without first demanding the board act, while another shareholder, Morton Levine (plaintiff), made a written demand that the directors rescind the deal, which the board unanimously rejected. Both the Grobow and Levine suits were dismissed under Chancery Rule 23.1 for failing to satisfy the pleading requirements around demand, and the Delaware Supreme Court consolidated the appeals.
Whether a shareholder may file a derivative lawsuit without first making a demand on the board only if demand would be futile, and whether a shareholder challenging a board's wrongful refusal of demand must allege particular facts creating a reasonable doubt that the board's action was entitled to business-judgment protection.