IN THE SUPREME COURT OF THE STATE OF DELAWARE 

MARION COSTER, 

Plaintiff Below, 

Appellant, 

 v. 

UIP COMPANIES, INC., STEVEN 

SCHWAT, and SCHWAT REALTY 

LLC, 

Defendants Below, 

Appellees.

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No. 49, 2020

 Court Below – Court of Chancery 

 of the State of Delaware 

 Consolidated 

 C.A. No. 2018-0440 

Submitted: April 7, 2021 

Decided: June 28, 2021 

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR, and 

MONTGOMERY-REEVES, Justices, constituting the Court en Banc.

Upon appeal from the Court of Chancery. REVERSED and REMANDED. 

Max B. Walton, Esquire (argued), Kyle Evans Gay, Esquire, CONNOLLY 

GALLAGHER LLP, Wilmington, Delaware; Michael K. Ross, Esquire, Thomas 

Shakow, Esquire, Serine Consolino, Esquire, Sean Roberts, Esquire, AEGIS LAW 

GROUP LLP, Washington, D.C.; Attorneys for Plaintiff-Appellant Marion Coster. 

Stephen B. Brauerman, Esquire, Elizabeth A. Powers, Esquire, BAYARD, P.A., 

Wilmington, Delaware; Deborah B. Baum, Esquire (argued), PILLSBURY 

WINTHROP SHAW PITTMAN LLP, Washington, D.C.; Attorneys for DefendantsAppellees UIP Companies, Inc., Steven Schwat, and Schwat Realty, LLC.

SEITZ, Chief Justice: 
2 

The two equal stockholders of UIP Companies, Inc. were deadlocked and 

could not elect new directors. One of the stockholders, Marion Coster, filed suit in 

the Court of Chancery and requested appointment of a custodian for UIP under 8 

Del. C. § 226(a)(1) (the “Custodian Action”). In response, the three-person UIP 

board of directors—composed of the other equal stockholder and board chairman, 

Steven Schwat, and the two other directors aligned with him—voted to issue a onethird interest in UIP stock to their fellow director, Peter Bonnell, who is also a friend 

of Schwat and long-time UIP employee (the “Stock Sale”). It is not seriously 

disputed that the defendants issued the stock to Bonnell to dilute Coster’s UIP 

ownership interest below 50%, block her attempts to elect directors, and avoid a 

possible court-appointed custodian. 

Coster filed a second action in the Court of Chancery, claiming that the board 

breached its fiduciary duties by approving the Stock Sale. She asked the court to 

cancel the Stock Sale. After consolidating the two actions, the Court of Chancery 

found what was apparent given the timing of the Stock Sale—the conflicted UIP 

board issued stock to Bonnell to dilute Coster’s UIP interest below 50%, break the 

stockholder deadlock for electing directors, and end the Custodian Action. 

Ultimately, however, the court decided not to cancel the Stock Sale. According to 

the court, the UIP board approved the Stock Sale at a fair price and set that price 

through a fair process. It declined to consider any other aspects of the transaction, 
3 

reasoning that it was unnecessary to review the Stock Sale under any less rigorous 

standard of review if the stock issuance passed the most rigorous entire fairness 

review. Having satisfied entire fairness, the court held that the board did not breach 

any fiduciary duty owed to Coster. 

In this decision, we reverse the Court of Chancery on the conclusive effect of 

its entire fairness review and remand for the court to consider the board’s 

motivations and purpose for the Stock Sale. In a vacuum, it might be that the price 

at which the board agreed to sell the one-third UIP equity interest to Bonnell was 

entirely fair, as was the process to set the price for the stock. But “inequitable action 

does not become permissible simply because it is legally possible.”1 If the board 

approved the Stock Sale for inequitable reasons, the Court of Chancery should have 

cancelled the Stock Sale.2 And if the board, acting in good faith, approved the Stock 

Sale for the “primary purpose of thwarting” Coster’s vote to elect directors or reduce 

her leverage as an equal stockholder, it must “demonstrat[e] a compelling 

justification for such action” to withstand judicial scrutiny.3 

After remand, if the court decides that the board acted for inequitable purposes 

or in good faith but for the primary purpose of disenfranchisement without a 

1 Schnell v. Chris-Craft Indus., Inc., 285 A.2d 437, 439 (Del. 1971). 

2

Id.

3 Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651, 661–62 (Del. Ch. 1988). 
4 

compelling justification, it should cancel the Stock Sale and decide whether a 

custodian should be appointed for UIP. 

I. 

A. 

We rely on the facts as found at trial.4 Wout Coster,5 Cornelius Bruggen, and 

Schwat formed UIP Companies, Inc. (“UIP” or the “Company”) in 2007. UIP is a 

Delaware real estate investment services company composed of three subsidiaries: 

UIP Asset Management, Inc., UIP General Contracting, Inc., and UIP Property 

Management, Inc. Part of UIP’s business involves the principals and third-party 

equity sponsors investing their own capital into the real estate investments of special 

purpose entities (“SPEs”).6 SPEs are high-risk, high-reward investments that 

sometimes require prolonged tie-ups of capital and UIP’s principals’ personal 

guarantees to lenders. To mitigate risk, UIP’s principals created UIP and its 

subsidiaries to control management and develop SPE properties. During trial, the 

Court of Chancery heard expert testimony that “[t]he reality behind [UIP’s structure] 

is if for some reason [the principals] stopped providing opportunities, the three 

4

 Unless otherwise stated, facts are drawn from the Court of Chancery’s January 28, 2020 opinion, 

Coster v. UIP Cos., Inc., 2020 WL 429906 (Del. Ch. Jan. 28, 2020). 

5

 This decision refers to Mr. Coster as “Wout” and Marion Coster as “Coster” to avoid name 

confusion. 

6

 SPEs are sometimes referred to a “promotes.” 
5 

operating companies down below would ultimately run out of business and actually 

not be able to continue.”7

At formation, Wout, Bruggen, and Schwat each received one-third of the 

stock. Bruggen ultimately left UIP and tendered his stock to UIP, leaving Wout and 

Schwat each with a one-half interest in UIP. UIP had a five-member board of 

directors composed of Wout, Bruggen, and Schwat plus two UIP employees, 

Bonnell and Stephen Cox. Bonnell, under the tutelage of UIP’s principals, rose 

through UIP’s ranks to become the principal of UIP Asset Management. Cox also 

rose through the ranks to become chief financial officer at UIP Asset Management. 

In late 2013, Wout told the other UIP principals that he had been diagnosed 

with leukemia. The UIP principals began succession planning, which included deequitizing Wout. By early 2014, Wout began negotiations with Schwat for a buyout 

of his UIP stake by Bonnell and Heath Wilkinson, then-president of UIP General 

Contracting.8 Emails at the time show that Schwat expressed concerns about a lack 

of liquidity to repurchase Wout’s stock. Schwat was also concerned that the 

operating companies were only valuable to UIP executives, such as Bonnell and 

Wilkinson. 

7 Coster, 2020 WL 429906, at *2 (second alteration in original). 

8

 Around the time of Wout’s diagnosis, Wilkinson threatened to leave UIP. 
6 

On April 11, 2014, Wout, Schwat, Bonnell, and Wilkinson signed a term sheet 

(the “Term Sheet”) whereby Wout would wind down his role at UIP with a decreased 

salary. The Term Sheet valued UIP at $4,250,000. The Term Sheet memorialized 

a gradual transfer of Wout’s one-half interest in UIP and portions of Wout’s promote 

interests to Bonnell and Wilkinson in exchange for a $2.125 million note. Schwat 

would also transfer part of his UIP and promote interests for the same amount. 

Further, the Term Sheet provided that Wout’s wife, Marion Coster—the plaintiff— 

would receive lifetime health insurance and an undetermined future salary. 

Ultimately, however, the parties abandoned the Term Sheet. Though negotiations 

continued and the parties exchanged revisions, the parties never reached an 

agreement.9 

Wout passed away on April 8, 2015. Coster inherited ownership of Wout’s 

UIP stock and certain promote entities. Buyout discussions resumed in June 2015 

but did not lead to an agreement. In December 2015, Coster sought assistance from 

Michael Pace—a retired attorney and friend of Coster.10 Pace sent an email to 

Robert Gottlieb, Wout’s personal legal counsel, explaining that Coster was “very 

distressed about her financial situation and now must sell her home.”11 In early 2016, 

9

 During subsequent negotiations, “the parties all agreed that [the $4.25 million] figure was ‘way 

too high’ given an estimated $2 million book value of the operating companies.” Coster, 2020 

WL 429906, at *4 (quoting the record). 

10 Pace’s wife, Anne, was the executor of Wout’s estate. 

11 Coster, 2020 WL 429906, at *6 (quoting the record). 
7 

Gottlieb met with Bonnell and Schwat to negotiate and try to understand the terms 

of buying out Coster’s stake in the Company. In March 2016, Schwat emailed 

Coster directly to convince her to accept his terms. By May, Coster appeared 

primarily interested in a lump-sum buyout or arrangement that would provide her 

with a consistent stream of income, but negotiations stalled again. 

At the suggestion of Pace, Coster and Anne Pace—Pace’s wife—met 

separately with Bonnell in July 2016. More meetings occurred in September and 

October. The meetings were “very cordial discussions” and, according to Pace, 

Bonnell was interested in a resolution agreeable to all.12 During the July meeting, 

Bonnell identified three avenues for the buyout, which Pace forwarded to Michael 

Rinaldi—UIP’s previous in-house accountant who had at that time left UIP and 

served Coster in his individual capacity. Rinaldi told Pace to “push for accounting 

records on [the operating] companies and exercise all rights as a shareholder.”13 

Pace then requested from Bonnell information on the operating companies’ 

profitability. Bonnell replied that the companies were operating “close to even” 

without “much positive revenue generated” since Wout’s passing.14 Pace was 

skeptical whether this reflected the operating companies’ profitability. 

12 Id. (quoting the record). 

13 Id. (alteration in original) (quoting the record). 

14 Id. (quoting the record). 
8 

In September 2016, Coster met with Bonnell and Pace.15 Bonnell offered to 

buy Coster’s UIP interest while Coster would retain her interest in the promotes. 

Thereafter, Coster asked Rinaldi to estimate UIP’s value. Rinaldi thought that a 

reasonable starting point was the $2.125 million from the Term Sheet, though the 

Term Sheet included promote interests. Coster then requested that Rinaldi perform 

a valuation of UIP. Rinaldi engaged Iver Scott to do so.16 While the valuation was 

under way, Bonnell and Coster continued to negotiate. In March 2017, Bonnell 

shared financial data with Coster and tried to persuade her to take the original deal 

from the Term Sheet. On June 9, 2017, Coster wrote that she would be willing to 

sell her UIP interest for the valuation price reached by Scott. 

Scott finalized his valuation in June 2017. Coster’s counsel sent a letter to 

Schwat, Bonnell, and Wilkinson enclosing the Scott valuation. In August 2017, 

Coster sent a letter with the Scott valuation attached and demanded to inspect UIP’s 

books and records. After much back and forth about the adequacy of the documents 

provided, on April 4, 2018, Coster called for a UIP stockholders special meeting to 

elect new board members. UIP’s bylaws permit special meetings of stockholders 

“for any purpose or purposes” upon the written request of stockholders comprising 

15 “Discussions paused while Bonnell was on vacation in August 2016.” Id. at *7. 

16 See App. to Opening Br. at A442 (Trial Tr. 146) (“Q. And why did you hire Mr. Scott to provide 

a calculation of value? [Coster]: Because there was constantly mention of there was no money in 

the business.”). 
9 

more than 25% of the Company’s voting stock.17 UIP had not held an election of 

directors or annual stockholder meeting since 2007. The stockholders never filled 

the board seats previously held by Bruggen and Wout. Thus, those seats were open. 

UIP issued a notice of special meeting of stockholders “t[o] vote on the election of 

directors of the Corporation.”18 

On May 22, 2018, the two stockholders and their representatives gathered for 

the meeting. Thomas Shakow, Coster’s counsel, represented her by proxy. Serine 

Consolino, another attorney from the same law firm as Shakow, also attended for 

Coster. Schwat attended as the representative of Schwat Realty, LLC, through 

which Schwat holds UIP stock. Jeffrey B. Grill, an attorney, attended as counsel to 

UIP and served as secretary and inspector of elections. Shakow raised three motions 

on Coster’s behalf at the meeting. First, Coster moved to reduce board seats from 

five to four. Schwat voted against the motion guaranteeing its failure. Next, Coster 

moved to fill the seats formerly held by Bruggen and Wout with two of Coster’s 

designees. This likewise failed. Third, Coster raised a motion to vote on the entire 

five-member board, nominating Coster, Schwat, Bonnell, and Coster’s two 

designees. Schwat adjourned the meeting prior to considering the third motion 

because “correspondence from [Coster’s law firm] suggested two proposals to be 

17 Coster, 2020 WL 429906, at *8. 

18 Id. (alteration in original). 
10 

taken at the special meeting.”19 Schwat “noted that the Company would be happy 

to consider a request for another special meeting.”20 That same day, Coster called 

another special meeting to vote on the holdover director seats. UIP agreed to the 

meeting, but informed Coster’s attorneys that the board had reduced the number of 

board seats to three through unanimous written consent. 

The two stockholders convened another meeting on June 4, 2018. Shakow, 

Consolino, and Schwat again attended as representatives for the two UIP 

stockholders. Grill served as secretary and inspector of elections. Schwat first 

proposed approval of the elections of Schwat, Bonnell, and Cox to serve as directors 

until UIP’s next annual meeting or until their successors are duly elected and 

qualified. Coster voted against this proposal by proxy, so it failed. Shakow then 

proposed a vote to increase the board to five seats, electing Coster, Schwat, Bonnell, 

and Coster’s two designees to serve as directors until UIP’s next annual meeting or 

until their successors are duly elected and qualified. Schwat opposed, so it failed. 

Third, Shakow proposed approval of Schwat and Coster’s two designees to serve as 

directors until UIP’s next annual meeting or until their successors are duly elected 

and qualified. Schwat again opposed and the proposal failed. Leaving the June 4, 

2018 stockholder meeting, Schwat, Bonnell, and Cox remained holdover directors. 

19 Id. at *9 (quoting the record). 

20 Id. (quoting the record). 
11 

Coster filed this litigation on June 15, 2018 as a statutory proceeding under 8 

Del. C. § 226(a)(1)21 to appoint a custodian to break the stockholder deadlock. The 

complaint “mainly sought to impose a neutral tie-breaker to facilitate director 

elections,” and alleged that Schwat “prevented Mrs. Coster from gaining a 

meaningful view into the Company’s financial affairs.”22 The defendants obtained 

an extension to respond to the complaint until July 27, 2018. 

On July 16, 2018, the defendants hired Andy Smith of McLean Group LLC 

to value UIP. The defendants pushed Smith to prepare the valuation prior to the July 

27 extended deadline for responding to Coster’s complaint.23 Then, on advice of 

counsel, the defendants changed course and decided to answer the complaint while 

they worked on the Stock Sale. The defendants answered the complaint on July 27, 

2018, opposing appointment of a custodian. 

On July 27, 2018, McLean provided the board with its preliminary valuation 

of UIP. Having filed the answer to the Custodian Action complaint with an intent 

to amend, Schwat informed McLean via email “not to hurry the project ‘in any way,’ 

even if it meant taking additional time to arrive at ‘the value [they] think is truly 

21 The statute permits the Court of Chancery to “appoint 1 or more persons to be custodians” where, 

among other situations, “(1) [a]t any meeting held for the election of directors the stockholders are 

so divided that they have failed to elect successors to directors whose terms have expired or would 

have expired upon qualification of their successors[.]” 8 Del. C. § 226(a)(1). 

22 Coster, 2020 WL 429906, at *10. 

23 Schwat emphasized that he was “in a rush for the valuation” in a July 25, 2018 email to McLean. 

Id. 
12 

fair.’”24 Schwat “then further suggested adding additional commentary to the report 

that could justify a lower valuation.”25 McLean issued its final valuation (the 

“McLean Valuation”) on August 14, 2018. The McLean Valuation valued a 100-

percent, noncontrolling equity interest in UIP at $123,869. 

On the same day, Schwat forwarded the McLean Valuation to Bonnell and 

offered to sell him one-third of UIP’s authorized—but unissued—stock at one-third 

the value of the McLean Valuation. Bonnell accepted. On August 15, 2018, the 

board, by unanimous written consent, sold the one-third interest to Bonnell Realty 

LLC for $41,289.67. On August 15, 2018, equipped with Bonnell’s one-third 

interest in UIP, the defendants filed an amended answer in the Custodian Action and 

stated an intention to move for judgment on the pleadings because the Custodian 

Action was moot. On August 22, 2018, the plaintiff filed a second action, 

individually and on behalf of UIP, to cancel the Stock Sale and to impose a 

constructive trust. Coster alleged that the dilutive Stock Sale interfered with her 

voting rights and impeded her statutory right to seek court appointment of a 

custodian. The parties stipulated to consolidation of the two actions, and the Court 

of Chancery held a trial in April 2019. 

24 Id. at *11 (alteration in original). 

25 Id. 
13 

B. 

Before its substantive analysis, the Court of Chancery made factual findings 

relevant to this appeal. The court found that the defendants “obviously desired to 

eliminate [Coster]’s ability to block stockholder action, including the election of 

directors, and the leverage that accompanied those rights.”26 The court also found 

that the timing of the Stock Sale and the defendants’ amended answer in the 

Custodian Action “make clear that the Stock Sale was significantly motivated by a 

desire to moot the Custodian Action.”27 Further, the court found that Schwat and 

Bonnell were interested in the transaction.28 The court tempered its findings, 

however, by noting that the defendants were also concerned about the effects a 

custodian appointment might have on UIP. According to the court, the board felt 

that court appointment of a custodian might trigger UIP’s default under its SPE 

contracts. And the court found that the stock issued to Bonnell was meant to fulfill 

a longstanding commitment to give a valuable employee an equity interest. 

The court set aside these factual findings, however, and reviewed the Stock 

Sale under an entire fairness standard of review.29 In the court’s view, if the Stock 

Sale passed entire fairness review, the board’s motives were “beside the point.”30 

26 Id. at *12. 

27 Id. (“Defendants effectively admitted this much in post-trial briefing.”). 

28 Id. at *15–17. 

29 Id. at *14–15. 

30 Id. at *13. 
14 

Looking first at whether entire fairness was the right standard of review, the Court 

of Chancery concluded that Bonnell and Schwat—a majority of the board—were 

interested in the transaction. Bonnell conceded interestedness “because he received 

a benefit as the recipient of the stock that was approved.”31 Schwat viewed the 

Custodian Action as “invasive” and “wished to avoid” the prospect of a custodian.32 

Moreover, the court noted Schwat and Bonnell’s friendship and that “from the 

inception of Wout’s transition planning negotiation, Schwat and Bonnell appeared 

to be aligned in negotiations against Wout.”33 Schwat and Bonnell “worked together 

to develop the plan to moot the Custodian Action and neutralize the threat of [Coster] 

controlling the Company.”34 Thus, the court concluded that Schwat was interested 

in the Stock Sale because the Stock Sale placed stock in friendly hands to “quash[] 

any risk, however minimal, of th[e] Court [of Chancery] ordering the expansive 

relief [Coster] sought in the Custodian Action and mitigated any pressure from 

[Coster] at the Board level.”35 Having found a majority of the board interested in 

the Stock Sale, the court held that the defendants had to prove that the Stock Sale 

was entirely fair to Coster. 

31 Id. at *15. 

32 Id. at *16. 

33 Id. 

34 Id. 

35 Id. at *17. 
15 

The court found that, although the process behind the Stock Sale “was by no 

means optimal,”36 the McLean Valuation and Smith’s testimony were credible, 

which led the court to conclude that the price had been set after a fair process. The 

court also found the lack of a board meeting did not taint the process because “[i]t is 

doubtful that a meeting of a majority of conflicted directors would have cured any 

defects in the process.”37 As to fair price, the court similarly found that the McLean 

Valuation was the most reliable indicator of UIP’s fair value, satisfying entire 

fairness review. Having decided that the price of the Stock Sale was entirely fair, 

the Court of Chancery held that the present stockholders of UIP were no longer 

deadlocked, declined to appoint a custodian, and dismissed the action. 

II. 

Coster argues on appeal that the Court of Chancery erred when it found that 

the UIP board did not breach its fiduciary duty to Coster by approving the Stock 

Sale. According to Coster, the court erred by limiting its inquiry to entire fairness. 

Instead, the court should have reviewed not just the fairness of the price and process 

to reach that price, but also the context in which the Stock Sale occurred—a 

conflicted board approved the Stock Sale to defeat Coster’s voting rights and the 

leverage that came from the exercise of those rights, entrench the existing board, and 

36 Id. at *20. 

37 Id. at *18. 
16 

interfere with her statutory right to petition for court appointment of a custodian. As 

Coster claims, in the context of stalled buyout negotiations, a contested director 

election and request to appoint a custodian, even though the board had the legal 

authority to issue UIP stock, the board could not act inequitably by approving the 

Stock Sale in order to dilute her ownership interest, defeat her voting and statutory 

rights, and entrench themselves in office. And even if the board had innocent 

reasons for the Stock Sale, it is undisputed that the Stock Sale interfered with 

Coster’s statutory and voting rights. Under these conditions, the board had to prove 

that it had a compelling justification for the stock issuance, which it failed to do. 

The defendants respond that entire fairness review was the appropriate lens to 

review the Stock Sale because, as the court held, it is the most rigorous standard of 

review of board action. If the Stock Sale met this standard, the board could not 

breach its fiduciary duty to Coster under a less rigorous standard of review. They 

also contend that, even if the Stock Sale interfered with Coster’s voting and statutory 

rights, the board had compelling reasons to do so. The directors needed to head off 

a possible default if the court appointed a custodian, and the board was simply 

following through on a long-standing promise to reward Bonnell for his service to 

UIP and retain him as a key UIP employee. 
17 

Whether the Court of Chancery applied the correct standard of review is a 

question of law we review de novo.

38 We review the Court of Chancery’s factual 

findings for clear error.39 

A. 

Even though Coster attacks the court’s entire fairness analysis, the Court of 

Chancery fully supported its factual findings and legal conclusion that the board sold 

UIP stock to Bonnell at a price and through a process that was entirely fair. Thus, 

we will not disturb this aspect of the court’s decision. But the court also held that 

its entire fairness analysis was the end of the road for judicial review. In the court’s 

words, “[b]ecause the Stock Sale satisfies Delaware’s most onerous standard of 

review, this decision does not reach Plaintiff’s alternative arguments.”40 

In our view, the court bypassed a different and necessary judicial review 

where, as here, an interested board issues stock to interfere with corporate 

democracy and that stock issuance entrenches the existing board. As explained 

below, the court should have considered Coster’s alternative arguments that the 

board approved the Stock Sale for inequitable reasons, or in good faith but for the 

38 GXP Capital, LLC v. Argonaut Mfg. Servs., Inc., --- A.3d ----, 2021 WL 2010348, at *2 (Del. 

May 20, 2021). 

39 DV Realty Advisors LLC v. Policemen’s Annuity & Benefit Fund of Chi., Ill., 75 A.3d 101, 109 

(Del. 2013). 

40 Coster, 2020 WL 429906, at *14. 
18 

primary purpose of interfering with Coster’s voting rights and leverage as an equal 

stockholder without a compelling reason to do so. 

As early as Schnell v. Chris-Craft Industries, Inc., we recognized that a board 

of directors could not escape judicial review of its actions by pointing to the legal 

authorization to undertake a given act.41 In Schnell, the incumbent board took 

admittedly legal action to move up the annual meeting date and change the location 

from New York City to a remote destination. These moves prevented a dissident 

slate from waging an effective election campaign. We held that the board’s 

purposeful manipulation of the election machinery to entrench themselves violated 

the board’s duty to act equitably toward stockholders. In a recent decision, we 

captured the essence of Schnell and the twice-tested judicial review of director action 

affecting the stockholder franchise: 

This Court has long recognized that “inequitable action does not 

become permissible simply because it is legally possible.” Under 

Delaware law, “director action[s] [are] ‘twice-tested,’ first for legal 

authorization, and second [for] equity.” “Stockholders can entrust 

directors with broad legal authority precisely because they know that 

that authority must be exercised consistently with equitable principles 

of fiduciary duty.”42

41 285 A.2d at 439. 

42 Bäcker v. Palisades Growth Capital II, L.P., 246 A.3d 81, 96–97 (Del. 2021) (alteration in 

original) (emphasis in original) (first quoting Schnell, 285 A.2d at 439; then quoting In re Invs. 

Bancorp., Inc. S’holder Litig., 177 A.3d 1208, 1222 (Del. 2017); and then quoting Sample v. 

Morgan, 914 A.2d 647, 664 (Del. Ch. 2007)). 
19 

Delaware law recognizes that the stockholder franchise is the “‘ideological 

underpinning’ upon which the legitimacy of the directors managerial power rests.”43 

Keeping “a proper balance in the allocation of power between the stockholders’ right 

to elect directors and the board of directors’ right to manage the corporation is 

dependent upon the stockholders’ unimpeded right to vote effectively in an election 

of directors.”44 “Accordingly, careful judicial scrutiny will be given [to] a situation 

in which the right to vote for the election of successor directors has been effectively 

frustrated and denied . . . .”45 

Delaware courts “have remained assiduous in carefully reviewing any board 

actions designed to interfere with or impede the effective exercise of corporate 

democracy by shareholders, especially in an election of directors.”46 We have been 

clear that “where boards of directors deliberately employ[] various legal strategies 

43 MM Cos., Inc. v. Liquid Audio, Inc., 813 A.2d 1118, 1126 (Del. 2003) (citation omitted); see 

also EMAK Worldwide, Inc. v. Kurz, 50 A.3d 429, 433 (Del. 2012) (“Shareholder voting rights are 

sacrosanct. The fundamental governance right possessed by shareholders is the ability to vote for 

the directors the shareholder wants to oversee the firm. Without that right, a shareholder would 

more closely resemble a creditor than an owner.”). 

44 Liquid Audio, 813 A.2d at 1127. 

45 Giuricich v. Emtrol Corp., 449 A.2d 232, 239–40 (Del. 1982) (finding an abuse of discretion 

where the court did not appoint a custodian because the company was in a perpetual deadlock that 

entrenched existing directors, and it was “admitted by counsel for the defendants that their primary 

purpose in perpetuating their control of the board of directors [was] to give the defendants the 

governing hand in forthcoming executive compensation contract negotiations with their 50–50 

partners, the plaintiffs”). 

46 Liquid Audio, 813 A.2d at 1127. 
20 

either to frustrate or completely disenfranchise a shareholder vote. . . . [t]here can be 

no dispute that such conduct violates Delaware law.”47 

For instance, in Condec Corp. v. Lunkenheimer Co.,

48 the Court of Chancery 

cancelled a hastily put together stock issuance where the “primary purpose” was to 

thwart a majority stockholder’s control.49 The court emphasized the need to protect 

the stockholder’s franchise: 

the transaction here attacked . . . was clearly unwarranted because it 

unjustifiably strikes at the very heart of corporate representation by 

causing a stockholder with an equitable right to a majority of corporate 

stock to have his right to a proportionate voice and influence in 

corporate affairs to be diminished by the simple act of an exchange of 

stock which brought no money into the Lunkenheimer treasury . . . and 

which was obviously designed for the primary purpose of reducing 

Condec’s stock holdings in Lunkenheimer below a majority.50

In Canada Southern Oils, Ltd. v. Manabi Exploration Co., Inc.

51 even though 

the corporation was in “dire financial plight,” the court considered the circumstances 

surrounding the stock issuance and held that “the primary purpose behind the sale of 

these shares was to deprive plaintiff of the majority voting control” and enjoined the 

transaction.52 And in Packer v. Yampol,

53 the court enjoined a preferred stock 

47 Stroud v. Grace, 606 A.2d 75, 91 (Del. 1992). 

48 230 A.2d 769 (Del. Ch. 1967). 

49 Id. at 777. 

50 Id. 

51 96 A.2d 810 (Del. Ch. 1953). 

52 Id. at 812–14. 

53 1986 WL 4748 (Del. Ch. Apr. 18, 1986). 
21 

issuance meant to defeat a proxy contest.54 Although the company needed to raise 

capital, and raising capital might have been one purpose for issuing stock, “their 

primary purpose was to obstruct plaintiffs’ ability to wage a meaningful proxy 

contest in order to maintain themselves in control.”55

Chancellor Allen summarized the import of these cases in Glazer v. Zapata 

Corp.: 

These cases stand for the proposition that directors may not act to 

frustrate the efforts of stockholders to elect new directors by engaging 

in transactions that are designed and pursued for the primary purpose 

of diluting the votes held by the insurgent stockholders. As such they 

are articulations of the principle which was old and well established 

when articulated in Schnell v. Chris–Craft Industries, . . . that “the 

subversion of corporate democracy by manipulation of corporate 

machinery will not be countenanced under Delaware law.”56

54 Id. at *18. 

55 Id. at *15. 

56 658 A.2d 176, 186 (Del. Ch. 1993) (quoting Moran v. Household Int’l, Inc., 490 A.2d 1059, 

1080 (Del. Ch. 1985), aff’d, 500 A.2d 1346 (Del. 1985)); see Portnoy v. Cryo-Cell Int’l, Inc., 940 

A.2d 43, 82 (Del. Ch. 2008) (ordering new special meeting presided over by a special master for 

director elections where the incumbents “tainted the election”); State of Wis. Inv. Bd. v. Peerless 

Sys. Corp., 2000 WL 1805376, at *15 (Del. Ch. Dec. 4, 2000) (expressing doubt that the defendants 

could provide a “compelling justification” for meeting adjournment done for “the primary purpose 

of interfering with the shareholder vote”); WNH Invs., LLC v. Batzel, 1995 WL 262248, at *6–7 

(Del. Ch. Apr. 28, 1995) (granting relief from dilutive stock issuance designed to thwart challenges 

to board control); Commonwealth Assocs. v. Providence Health Care, Inc., 1993 WL 432779, at 

*7–9 (Del. Ch. Oct. 22, 1993) (enjoining stock issued into friendly hands in order to block 

stockholders’ consent rights from being counted as valid for voting and right to consent purposes); 

Aprahamian v. HBO & Co., 531 A.2d 1204, 1208–1209 (Del. Ch. 1987) (enjoining further 

postponement of annual meeting by incumbent directors who postponed the meeting “upon 

learning that they might be turned out of office”); Lerman v. Diagnostic Data, Inc., 421 A.2d 906, 

914 (Del. Ch. 1980) (invalidating bylaw provisions that permitted the board to “prevent the 

plaintiff and his group from placing the names of their candidates in nomination”); Canada S. Oils, 

96 A.2d at 814 (enjoining stock issuance that would dilute a 51% shareholder where the stock was 

issued for the primary purpose of depriving the plaintiff of voting power.); see also Freedman v. 

Rest. Assocs. Indus., Inc., 1987 WL 14323, at *9 (Del. Ch. Oct. 16, 1987) (“I take it to be 

established in our law that it would ordinarily be found to constitute an abuse of power for a board 
22 

The Court of Chancery in Blasius Industries, Inc. v. Atlas Corp.

57 held that, 

even though Schnell did not apply when the board acts in good faith, if the board 

nonetheless acts for the primary purpose of impeding stockholders’ franchise rights, 

the board must prove a “compelling justification” for its actions. Our Court 

approved of the Blasius standard of review in MM Cos., Inc. v. Liquid Audio, Inc.

58

 

In Liquid Audio, we held that when directors are faced with a threat to corporate 

control and act with the primary purpose to thwart the stockholders’ franchise rights, 

the Blasius “compelling justification” test must be met before the Court will apply 

the reasonableness and proportionality test of Unocal Corp. v. Mesa Petroleum Co.

59

to the board’s defensive actions. We also explained in Liquid Audio that the board’s 

actions “need not actually prevent the shareholders from attaining any success in 

seating one or more nominees in a contested election for directors and the election 

contest need not involve a challenge for outright control of the board of directors.”60 

Rather, to invoke Blasius the challenged board action “only need[s] to be taken for 

of directors to issue stock, not for the principal purpose of raising necessary or desirable capital, 

but for the sole or primary purpose of diluting the voting power of an existing block of stock. 

Surely this would be the result if the intention in diluting the existing shareholders’ voting power 

was to preserve the existing board in office.”). 

57 564 A.2d 651 (Del. Ch. 1988). 

58 813 A.2d 1118 (Del. 2003). 

59 493 A.2d 946 (Del. 1985). 

60 Liquid Audio, 813 A.2d at 1132. 
23 

the primary purpose of interfering with or impeding the effectiveness of the 

stockholder vote in a contested election for directors.”61

 Delaware courts will also closely scrutinize transactions that impede a 

stockholder’s exercise of a statutory right relating to the election of directors. In 

Phillips v. Insituform of North America, Inc.,

62 the Class B stockholders sought to 

enjoin a merger because the board issued new stock to deprive a receiver of the 

ability to act by written consent to replace the board. The court concluded that, when 

the corporation acts “solely or primarily for the express purpose” to deprive a 

stockholder of “effective enjoyment of a right conferred by law,” “the board [must] 

demonstrate that the action taken was fair or justified given the particular business 

purpose sought to be achieved and the circumstances of the firm.”63

 In the Court of Chancery and this Court, Coster framed the dispute as one 

calling for Schnell/Blasius review. Coster alleged that an interested board approved 

the Stock Sale intending to interfere with her voting rights as a 50% stockholder and 

to entrench themselves in office by thwarting the Custodian Action. If that is the 

case, under Schnell, the court need not go any further to find a breach of fiduciary 

61 Id. (finding invalid a bylaw adopted “for the primary purpose of impeding and interfering with 

the efforts of the stockholders’ power to effectively exercise their voting rights in a contested 

election for directors”). 

62 1987 WL 16285 (Del. Ch. Aug. 27, 1987). 

63 Id. at *6. 
24 

duty.64 And under Blasius, even if the court finds that the board acted in good faith 

when it approved the Stock Sale, if it approved the sale for the primary purpose of 

interfering with Coster’s statutory or voting rights, the Stock Sale will survive 

judicial scrutiny only if the board can demonstrate a compelling justification for the 

sale.65 That the court found the Stock Sale was at an entirely fair price did not 

substitute for further equitable review when Coster alleged that an interested board 

approved the Stock Sale to interfere with her voting rights and leverage as an equal 

stockholder.66 

64 See Blasius, 564 A.2d at 658 (finding that if it were shown to be “factually true” that board 

actions “were pretexts for entrenchment for selfish reasons” then “one would not need to inquire 

further” because such an action “would constitute a breach of duty”). In Blasius, the Chancellor 

found that “even if [the board] is acting with subjective good faith” the court still had to decide 

whether the board “may validly act for the principal purpose of preventing the shareholders from 

electing a majority of new directors.” Id. (emphasis in original). It was not a question “of 

intentional wrong (or even negligence), but one of authority as between the fiduciary and the 

beneficiary (not simply legal authority, i.e., as between the fiduciary and the world at large).”). Id.

at 658–59 (emphasis in original). 

65 Peerless, 2000 WL 1805376, at *8 (“Under [Blasius], first the plaintiff must establish that the 

board acted for the primary purpose of thwarting the exercise of a shareholder vote. Second, the 

board has the burden to demonstrate a compelling justification for its actions. Under this second 

prong, even where the Court finds that the action taken by the board was made in good faith, it 

may still constitute a violation of the duty of loyalty.”). 

66 Although Coster relied on this Court’s decision in Liquid Audio, she did not argue that a Unocal

analysis should follow after review under Blasius. Thus, we will not consider the impact of Unocal 

review on this case. We also decide this appeal on how the parties have framed it—a 

Schnell/Blasius review. Further, the parties have not asked us to revisit how Schnell/Blasius and 

Unocal should fit together in future cases. 
25 

B. 

 On appeal we believe the following undisputed facts or facts found by the 

court support the conclusion, under Schnell, that the UIP board approved the Stock 

Sale for inequitable reasons: 

 The Stock Sale occurred while buyout negotiations stalled between 

UIP’s two equal stockholders; 

 The stockholders could not elect a new board because of the deadlock, 

which led to the Custodian Action; 

 A majority of the board members approving the sale were interested in 

the Stock Sale; 

 Schwat and Bonnell were friends and “from the inception of Wout’s 

transition planning negotiation, Schwat and Bonnell appeared to be 

aligned in negotiations against Wout;”67

 Schwat and Bonnell “worked together to develop the plan to moot the 

Custodian Action and neutralize the threat of [Coster] controlling the 

Company;”68

 The defendants were “in a rush for the [McLean] [V]aluation”69 until the 

defendants “determined to answer the [plaintiff’s] complaint and then 

subsequently amend the answer after the sale of stock to Bonnell was 

completed[,]”70 which permitted them to “file[] an amended answer, 

which stated an intention to move for judgment on the pleadings because 

the Custodian Action had been mooted by the Stock Sale;”71

 The Stock Sale put UIP stock in the hands of fellow board member 

Bonnell, who was aligned with the holdover board; 

67 Coster, 2020 WL 429906, at *16. 

68 Id.

69 Id. at *10. 

70 Id.

71 Id. at *11. 
26 

 The Stock Sale entrenched the existing board in control of UIP; and 

 “Defendants obviously desired to eliminate Plaintiff’s ability to block 

stockholder action, including the election of directors, and the leverage 

that accompanied those rights.”72

We recognize, however, that the court made other findings inconsistent with 

this conclusion.73 Given our deferential standard of review on appeal for the Court 

of Chancery’s factual findings, the court should have an opportunity to review all of 

its factual findings in any manner it sees fit in light of its new focus on a 

Schnell/Blasius review. 

III. 

The judgment of the Court of Chancery is reversed, and the case is remanded 

for further proceedings. Jurisdiction is not retained. We note that, if the Court of 

Chancery on remand considers appointment of a custodian, under 8 Del. C. 

§ 226(a)(1) the court “may”—not “must”—appoint a custodian when deadlock 

occurs.74 The court will have to consider several factors, including whether on a 

72 Id. at *12. 

73 Coster “did not succeed in proving her theories regarding Defendants’ purposes or 

justifications;” “Schwat testified and Bonnell corroborated that the appointment of a custodian 

constituted an event of default under various SPE contracts;” “the appointment of a custodian 

threatened to cut off a substantial amount of UIP’s revenue streams;” “Schwat and Cox testified 

that, as much as anything, the Stock Sale was motivated by their desire to keep their promise to 

Bonnell;” and “Bonnell was viewed as essential to the Company’s survival.” Id. 

74 8 Del. C. § 226(a) (“The Court of Chancery, upon application of any stockholder, may appoint 

1 or more persons to be custodians . . . .”); see Shawe v. Elting, 157 A.3d 152, 166 (Del. 2017) 

(“[T]he remedy to address the deadlock is ultimately within the Court of Chancery’s discretion.”); 

Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160, 175 (Del. 2002) (“This 
27 

more complete record the appointment of a custodian will breach agreements or 

otherwise harm the corporation.75 

Court reviews the Court of Chancery’s fashioning of remedies for abuse of discretion.”); 

Yiannatsis v. Stephanis by Sterianou, 653 A.2d 275, 281 (Del. 1995) (“[T]he appointment of a 

custodian is discretionary under [8 Del. C.] § 226(a)(1).”) (alteration in original) (citation omitted). 

75 See Miller v. Miller, 2009 WL 554920, at *5 n.19 (Del. Ch. Feb. 17, 2009) (recognizing that 

“[d]eadlock, itself, is not an injustice” but “remedying [a]n ‘injustice’ informs the Court’s 

discretion”). The court on remand can review the agreements in question, the default provisions, 

and decide whether the appointment of a custodian would be an event of default under those 

agreements.