May 24, 2022

Coster v. UIP: It Didn’t Have to be This Hard

Earlier this month, I blogged about Chancellor McCormick’s decision in Coster v. UIP, (Del. Ch.; 5/22), in which she held that a board satisfied the Blasius standard by demonstrating a “compelling justification” to issue shares in order to resolve a shareholder deadlock.  Weil’s Glenn West recently blogged about the same case, and he closed with a point that’s worth remembering:

How much easier would this have been if there had been a stockholders’ agreement in place that dictated a process for a buyout in the case of the death or divorce of a stockholder or otherwise provided for a buy-sell arrangement in the case of a deadlock. In the private equity world, the idea that there was no pre-agreed exit mechanic or a specific means of resolving deadlocks is almost inconceivable. But it does happen. Planning for death, divorce or changed business plans of your founder, who is retaining significant ownership in a portfolio company, should always be front of mind.

That’s good advice, and in hindsight, I think the parties to this lawsuit, who have been litigating the share issuance since 2018, would agree.

John Jenkins