Also known as: gross abuses of discretion · abuse of discretion
Written by attorneys · grounded in primary & secondary sources — see below
A high threshold for judicial intervention in directors' discretionary decisions such as dividend declarations. Courts will not override board action unless the directors acted with fraud or in a manner so egregious that it constitutes a gross abuse of discretion.
Gary Goldman offered an expert whose conclusions rested on an untested internal script and large extrapolations from laptop data. The district court excluded the testimony after finding an impermissible analytical gap. On appeal the circuit court affirmed because the exclusion did not rise to a gross abuse of discretion.
Greenleaf Farms reported large profits yet its board declined to declare a dividend to fund expansion. Shareholder Gareth Glover sued claiming the refusal was improper. The court refused to intervene because the plaintiff failed to prove fraud or gross abuse of discretion.
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Gloria Green, a minority shareholder in Gateway Bank, demanded a dividend from accumulated surplus. The board instead retained earnings for regulatory reserves. The court upheld the decision absent any showing of fraud or gross abuse of discretion.
Great Lakes Steel's board adopted defensive measures during a hostile bid. Greta Goldstein sued alleging the measures wasted corporate assets. The court declined to second-guess the board because no fraud or gross abuse of discretion appeared.
Sinclair Oil Corp. caused its subsidiary to pay dividends only to the parent. Minority shareholder Gina Griffin challenged the policy as unfair. The court sustained the decision because the record showed neither fraud nor gross abuse of discretion.
Trustee Gretchen Graham refused further distributions from a discretionary trust despite a support judgment against the beneficiary. The former spouse sought to compel payment. The court denied relief because the trustee's choice did not constitute a gross abuse of discretion.
A plaintiff must demonstrate fraud or gross abuse of discretion by the board. Mere existence of a surplus or profits is insufficient to compel a dividend.
Gross abuse of discretion requires a showing far beyond simple negligence. Delaware cases describe it as bad faith or a gross and palpable overreaching that justifies judicial interference.
No. Courts will not compel a dividend on a mere showing that funds exist. Interference requires proof of fraud or gross abuse of discretion even when a lawful fund is available.
…(1969) (“gross and palpable overreaching”); Warshaw v. Calhoun , Del.Supr., 221 A.2d 487, 492-93 (1966) (“bad faith ... or a gross abuse of discretion”); Moskowitz v. Bantrell , Del.Supr., 190 A.2d 749, 750 (1963) (“fraud or gross abuse of discretion”); Penn Mart Realty Co. v. Becker , Del.Ch., 298 A.2d 349, 351 (1972) (“directors may…