Coster v. UIP Companies, Inc.
Annotate this CaseMarion Coster and Steven Schwat – the two UIP Companies stockholders who each owned fifty percent of the company – deadlocked after attempting several times to elect directors. In response to the director election deadlock, Coster filed a petition for appointment of a custodian for UIP. The UIP board responded by issuing stock to a long-time employee representing a one-third interest in UIP. The stock issuance diluted Coster’s ownership interest, broke the deadlock, and mooted the custodian action. Coster countered by requesting that the Delaware Court of Chancery cancel the stock issuance. After trial, the Court of Chancery found that the stock sale met the most exacting standard of judicial review under Delaware law – entire fairness. On appeal, the Delaware Supreme Court concluded that the court erred by evaluating the stock sale solely under the entire fairness standard of review, reasoning that even though the stock sale price might have been entirely fair, issuing stock while a contested board election was taking place interfered with Coster’s voting rights as a half owner of UIP. Therefore, the court needed to conduct a further review to assess whether the board approved the stock issuance for inequitable reasons. If not, the court still had to decide whether the board, even if it acted in good faith, approved the stock sale to thwart Coster’s leverage to vote against the board’s director nominees and to moot the custodian action. To uphold the stock issuance under those circumstances, the board had to demonstrate a compelling justification to interfere with Coster’s voting rights. On remand, the Court of Chancery found that the UIP board had not acted for inequitable purposes and had compelling justifications for the dilutive stock issuance. Upon return, the Supreme Court agreed with the court’s assessment and "appreciate[d] its work to address the issues remanded for reconsideration."
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.