Delaware Business Litigation Report

Chancery Applies Schnell and Blasius Review and Upholds Deadlock-Breaking Stock Issuance

Coster v. UPI Companies, Inc., C.A. No. 2018-0440-KSJM (Del. Ch. May 2, 2022)
This case involved a control dispute of the defendant corporation, UPI Companies. After disputes arose between two fifty percent co-owners, one caused the company to issue long promised equity to an executive, which broke the deadlock. When the other co-owner challenged the transaction, the Court of Chancery found the stock sale satisfied the entire fairness standard and declined to invalidate it. On appeal, the Delaware Supreme Court found the trial court should have examined the sale under Schnell or Blasius. In this decision on remand, the Court of Chancery engaged in a thorough discussion of the Schnell and Blasius standards and the state of Delaware law on those tests. Applying its reading of those standards, the Court found the stock sale was not approved for inequitable purposes and had some good faith basis, and therefore was not invalid under Schnell. The Court also found that the stock sale was not primarily motivated by thwarting the co-owner’s vote, but, instead, was motivated by the best interests of the company and a desire to moot litigation that threatened it in the circumstances. The Court further found that, in any event, the company had a compelling justification for its action and an appropriately tailored response, and thus satisfied Blasius. 

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