Grimes v. Donald
362 A.2d 1207 (Del.Sup.Ct.1996).

Facts:
Grimes wrote to the Board of Directors of DSC Communications and demanded that it abrogate Donald’s (CEO) employment contract. The Board carefully considered the demand, but refused. Grimes then filed this action, seeking to invalidate the agreement.

Issue:
Did Grimes’ pre-suit demand to the board waive his right to contest the independence of the board?

Holding:
Yes.

Reasoning:

  • Since Grimes made a pre-suit demand with respect to all claims arising out of the Agreements, he was required to plead with particularity why the Board’s refusal to act on the derivative claims was wrongful.
  • The business judgment rule is then applied.

Rule: When a plaintiff makes a demand, he waives his right to contest that demand was futile.

Delaware Standard for Demand Futility:

(1) The majority of the board has a material financial or familial interest;
(2) The majority of the board lacks independence – domination and control by wrongdoers;or
(3) The directors failed to exercise their business judgment in approving the transaction.