Opinion ID: 2381868
Heading Depth: 2
Heading Rank: 1

Heading: Disinterest and Independence

Text: In order to satisfy Aronson's first prong involving director disinterest, see Aronson, 473 A.2d at 812, plaintiffs must plead particularized facts demonstrating either a financial interest or entrenchment on the part of the GM directors. Plaintiffs plead no facts demonstrating a financial interest on the part of GM's directors. The only averment permitting such an inference is the allegation that all GM's directors are paid for their services as directors. However, such allegations, without more, do not establish any financial interest. See, e.g., In re E.F. Hutton Banking Practices Litigation, S.D.N.Y., 634 F.Supp. 265, 271 (1986) (construing Delaware law); Moran v. Household Internat'l, Inc., Del.Ch., 490 A.2d 1059, 1074-75, aff'd, Del.Supr., 500 A.2d 1346 (1985). Having failed to plead financial interest with any particularity, plaintiffs' complaints must raise a reasonable doubt of director disinterest based on entrenchment. Plaintiffs attempt to do so mainly through reliance on Unocal Corp. v. Mesa Petroleum Co., Del.Supr., 493 A.2d 946 (1985); Unocal, however, is distinguishable. The enhanced duty of care that the Unocal directors were found to be under was triggered by a struggle for corporate control and the inherent presumption of director self-interest associated with such a contest. See id. at 954-55. Here there was no outside threat to corporate policy of GM sufficient to raise a Unocal issue of whether the directors' response was reasonable to the threat posed. Id. at 955. Plaintiffs also do not plead any facts tending to show that the GM directors' positions were actually threatened by Perot, who owned only 0.8 percent of GM's voting stock, nor do plaintiffs allege that the repurchase was motivated and reasonably related to the directors' retention of their positions on the Board. See Cheff v. Mathes, Del.Supr., 199 A.2d 548, 554 (1964). Plaintiffs merely argue that Perot's public criticism of GM management could cause the directors embarrassment sufficient to lead to their removal from office. Such allegations are tenuous at best and are too speculative to raise a reasonable doubt of director disinterest. Speculation on motives for undertaking corporate action are wholly insufficient to establish a case of demand excusal. Cf. Sinclair Oil Corp., 280 A.2d at 722. Therefore, we agree with the Vice Chancellor that plaintiffs' entrenchment theory is based largely on supposition rather than fact. Plaintiffs' remaining allegations bearing on the issue of entrenchment are: the rushed nature of the transaction during a period of GM financial difficulty; the giant premium paid; [7] and the criticism (after the fact) of the repurchase by industry analysts and top GM management. Plaintiffs argue that these allegations are sufficient to raise a reasonable doubt of director disinterest. We cannot agree. Not one of the asserted grounds would support a reasonable belief of entrenchment based on director self-interest. The relevance of these averments goes largely to the issue of due care, next discussed. Such allegations are patently insufficient to raise a reasonable doubt as to the ability of the GM Board to act with disinterest. Thus, we find plaintiffs' entrenchment claim to be essentially conclusory and lacking in factual support sufficient to establish excusal based on director interest. To otherwise qualify for demand excusal under Aronson's first prong, a derivative complaint must raise a reasonable doubt of director independence. This would require plaintiffs to allege with particularity that the GM directors were dominated or otherwise controlled by an individual or entity interested in the transaction. Aronson, 473 A.2d 815-16. Such allegations are not to be found within plaintiffs' complaints. Thus, the plaintiffs cannot satisfy Aronson's first prong for excusal based on lack of director independence.