The Delaware Supreme Court has recognized that the stockholder franchise is the “ideological underpinning upon which the legitimacy of the directors managerial power rests.” A proper balance between the stockholders’ right to elect directors and the board’s right to manage the company is dependent on the stockholders’ unimpeded right to vote in an election of directors. Accordingly, Delaware courts carefully scrutinize board actions that are designed for the primary purpose of interfering with or impeding the effective exercise of a stockholder vote, especially board actions designed to dilute an insurgent stockholder’s vote in an election of directors.
In Coster v. UIP Companies, No. 49, 2020, — A.3d —- (Del. June 28, 2021) (Seitz, C.J.), the Delaware Supreme Court reversed the Delaware Court of Chancery’s decision, which had found that the board’s approval of a stock sale satisfied entire fairness review, to address whether the board’s approval of the sale was for the primary purpose of interfering with the plaintiff stockholder’s voting rights, and even if the board had acted in good faith, whether the board had a compelling justification for the sale necessary to survive judicial scrutiny under its seminal decision in Blasius Industries v. Atlas, 564 A.2d 651 (Del. 1988).