Opinion ID: 1996638
Heading Depth: 1
Heading Rank: 16

Heading: Whether the GM Board's Refusal of Levine's Demand was Wrongful

Text: We turn to Levine's final argument: that the Court of Chancery erred in finding his Amended Complaint to fail to allege particularized facts sufficient to overcome the business judgment rule presumption accorded the GM Board's refusal of his pre-suit demand. The standing of shareholder Levine to exercise legal managerial power and assert a derivative claim hinges upon his ability to establish that the GM Board's rejection of his demand was wrongful. Zapata, 430 A.2d at 784-85. As we stated in Spiegel, [t]he effect of a demand is to place control of the derivative litigation in the hands of the board of directors; and therefore, the board's refusal is subject to judicial review according to the traditional business judgment rule. Spiegel, 571 A.2d at 775-76. Levine, by electing to make demand upon the GM Board before filing suit, tacitly conceded the independence of a majority of the GM Board to respond to his demand. Spiegel, 571 A.2d at 777; see supra IV-C. Levine also does not challenge the GM Board's good faith in rejecting his demand. Therefore, under the traditional business judgment rule, the only issue remaining to be resolved is the reasonableness of the GM Board's investigation of Levine's demand. Spiegel, 571 A.2d at 777. Reasonableness implicates the business judgment rule's requirement of procedural due care; that is, whether the GM Board acted on an informed basis in rejecting Levine's demand. See Grobow I, 539 A.2d at 189-90; Aronson, 473 A.2d at 812-813. Levine's complaint may be summarized as asserting essentially three allegations in support of his claim that the GM Board failed to exercise due care and to reach an informed business judgment in refusing his demand. Levine asserts: (1) that the Board declined to permit plaintiff's counsel to make an oral presentation to the Board concerning his demand; (2) that the Board failed to undertake any investigation of his demand for rescission of the Perot buy-out; and (3) that GM's Board did nothing following receipt of his demand. [7] Levine contends that these allegations are sufficient to create a reasonable doubt that the GM Board acted in an informed manner in refusing Levine's demand. [8] The Court of Chancery, in a carefully considered decision, found Levine's allegations insufficient to create a reasonable doubt that the GM Board's rejection of his demand was the product of an informed business judgment. The Court ruled that Levine's complaint failed to plead particularized facts sufficient to create a reasonable doubt that the GM Board acted in an informed manner in rejecting Levine's demand. On appeal, Levine argues, as he did below, that he has complied with Court of Chancery Rule 23.1 by sufficiently pleading that the GM Board's refusal of his demand for action with regard to GM's hushmail payment to Perot was an uninformed decision and therefore wrongful. This Court's standard of review of a Court of Chancery ruling upon the sufficiency of a derivative complaint to plead a claim of wrongful refusal of demand is no different than review of a claim premised upon demand futility. We will reverse a Court of Chancery Rule 23.1 ruling only on a showing of abuse of discretion, assuming no legal error led to an erroneous holding. Grobow I, 539 A.2d at 186; Pogostin, 480 A.2d at 624. We have previously determined that the Court of Chancery applied the proper reasonable doubt pleading standard to Levine's claim of wrongful refusal of demand; and the parties' only dispute is whether the trial court has properly construed the complaint as insufficient to raise a reasonable doubt that the GM Board acted in an informed manner. Thus, our standard of review of the trial court's finding on the issue is for abuse of discretion in the context of a predominantly factual question. Grobow I, 539 A.2d at 186. While a board of directors has a duty to act on an informed basis in responding to a demand such as Levine's, there is obviously no prescribed procedure that a board must follow. We find no abuse of discretion in the Vice Chancellor's rejection of Levine's contention that the GM Board's failure to permit Levine to make an oral presentation to the Board evidenced a lack of due care or unreasonable conduct. Indeed, the court found the argument insufficient as a matter of law, stating: A board of directors is not legally obligated to permit a demanding shareholder to make an oral presentation at a meeting. Corporate directors normally have only limited available time to deliberate, and a determination of what matters will (and will not) be considered must necessarily fall within the board's discretion. See Manning, The Business Judgment Rule and the Director's Duty of Attention, 39 Bus.Law. 1477, 1485 (1984). A ruling that, as a practical matter, would require GM's Board to hear the plaintiff's oral presentation, would place directors in the untenable position of having to entertain presentations by any shareholder who threatens to file a derivative action. It would also be an unwarranted intrusion upon the board's authority to govern the corporation's affairs conferred by 8 Del.C. § 141. We fully agree. Plaintiff's remaining allegations, that GM's Board, after receiving Levine's demand letter did not undertake an investigation and did nothing, represent conclusory allegations that are in fact contrary to the pleading record. Levine's allegation that the Board did nothing is contradicted by the Board's letter of reply rejecting Levine's demand. The letter, attached to plaintiff's Amended Complaint, states, following review of the matters set forth in your December 11, 1986 letter, the Board... unanimously determined that an attempt to rescind, or litigation ... concerning [the repurchase agreement] is not in the best interests of the Corporation. As the trial court points out, GM's letter reply is inconsistent with, and thus diminishes the force of, plaintiff's allegation that the Board `did nothing.' Further, the Board's letter response refusing Levine's demand following review of the matters which were the subject of Levine's demand letter of December 11, 1986 reflects on its face the GM Board's consideration of Levine's demand. [9] The only reasonable inference to be drawn from this document is that the GM Directors did act in an informed manner in addressing Levine's demand. The business judgment rule accords directors the presumption that they acted on an informed basis. Grobow I, 539 A.2d at 187. The trial court was clearly correct in dismissing Levine's Amended Complaint for failure to plead particularized facts sufficient to create a reasonable doubt that the GM Board's rejection of Levine's demand was wrongful because reached in an uninformed manner.