Martion Coster v. UIP Companies, Inc.

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
MARION COSTER, )
)
Plaintiff, )
)
v. ) C.A. No. 2018-0440-KSJM
) CONSOLIDATED
UIP COMPANIES, INC., STEVEN )
SCHWAT, and SCHWAT REALTY )
LLC, )
)
Defendants. )
MEMORANDUM OPINION
Date Submitted: October 25, 2019
Date Decided: January 28, 2020
Max B. Walton, Kyle Evans Gay, CONNOLLY GALLAGHER LLP, Wilmington,
Delaware; Michael K. Ross, Thomas Shakow, Serine Consolino, Sean Roberts,
AEGIS LAW GROUP LLP, Washington, D.C.; Counsel for Plaintiff Marion Coster.
Stephen B. Brauerman, Elizabeth A. Powers, BAYARD, P.A., Wilmington,
Delaware; Deborah B. Baum, PILLSBURY WINTHROP SHAW PITTMAN LLP,
Washington, D.C.; Counsel for Defendants Steven Schwat, Schwat Realty, LLC,
Peter Bonnell, Bonnell Realty, LLC, and Stephen Cox.
Neal C. Belgam, Kelly A. Green, Jason Z. Miller, SMITH KATZENSTEIN &
JENKINS LLP, Wilmington, Delaware, Counsel for Defendant UIP Companies,
Inc.
McCORMICK, V.C.
This post-trial decision resolves a dispute over the control and ownership of
Defendant UIP Companies, Inc. (“UIP” or the “Company”). Prior to the events that
led to this litigation, UIP was owned equally by two of its founding principals,
Defendant Steven Schwat and the late husband of Plaintiff Marion Coster. After
inheriting her fifty percent interest in UIP, Coster first pushed for a buyout of her
interest. When those efforts failed, she called a special stockholders meeting to elect
directors to fill vacant board seats. When Coster and Schwat could not agree on
director nominees, Coster commenced this litigation seeking the appointment of a
custodian to break the deadlock.
In response to Coster’s first lawsuit, Schwat caused UIP to sell a third of UIP’s
outstanding but unissued voting equity to Defendant Peter Bonnell, a UIP employee
to whom equity had been long-promised. Although Bonnell’s stock ownership
resolved the stockholder voting deadlock between the plaintiff and Schwat, it raised
other concerns for the plaintiff. To invalidate the sale of stock to Bonnell, Coster filed
a second lawsuit that was then consolidated with the first one.
At trial, Coster proved facts sufficient to trigger entire fairness as the standard
of review applicable to the sale of stock. This post-trial decision finds, however, that
the defendants met their burden under that standard. That finding has ripple effects
on Coster’s other claims, requiring judgment on all counts in favor of the defendants.
1
I. FACTUAL BACKGROUND
Trial took place over two days. As reflected in the Schedule of Evidence
submitted by the parties,1 the record comprises 336 trial exhibits, live testimony from
eight fact and three expert witnesses,2 deposition testimony from ten fact and three
expert witnesses, and twenty-nine stipulations of fact.3 These are the facts as the
Court finds them after trial.
A. UIP
UIP is a real estate investment services company formed under Delaware law
in 2007 by Wout Coster, Cornelius Bruggen, and Schwat.4 UIP comprises three
subsidiaries—UIP Asset Management, Inc., UIP General Contracting, Inc., and UIP
Property Management, Inc.—that provide property management, general
contracting, and asset management services, respectively, to properties in the
Washington, D.C. metropolitan area.5
1
See C.A. No. 2018-0440-KSJM, Docket (“Dkt.”) 155, Joint Schedule of Evid. Ex. A.
2
Of these eleven trial witnesses, one, Heath Wilkinson, was introduced exclusively by
video excerpts from his deposition.
3
The Factual Background cites to: docket entries (by docket “Dkt.” number); trial exhibits
(by “JX” number); the trial transcript (Dkts. 123, 124) (“Trial Tr.”); and stipulated facts set
forth in the Parties’ Revised Joint Pre-trial Order (Dkt. 116) (“PTO”). The parties called
Pete Bonnell, Marion Coster, Steve Cox, Dr. Brett Margolin, Steve Schwat, Iver Scott,
Andrew Smith, Heath Wilkinson, and Jeffrey Zell by deposition. The transcripts of their
respective depositions are cited using the witnesses’ last names and “Dep. Tr.”
4
PTO ¶ 6.
5
Id. ¶ 4.
2
The Company primarily serves the real estate investments of special purpose
entities (“SPEs”), sometimes referred to as “promotes,” in which UIP principals
invest their own capital alongside third-party equity sponsors.6 The SPEs are high
risk, high reward investments, typically requiring the UIP principals to tie up their
own capital for long periods of time and to personally guarantee the investment to
their lenders.7 These risks were justified by the rewards of investing in the SPEs,
which one principal characterized as “the golden ring.”8 In order to mitigate the
risks of the SPE investments while still chasing the reward, UIP principals formed
UIP and its subsidiaries to control the management and development of the SPE
properties.9 The principals did not envision that UIP would independently create
value, but rather that it would “create[] promote interests to the owner that are [a]
multiple value of the operating companies.”10
6
Trial Tr. at 306:9–308:18 (Schwat); id. at 25:23–26:16 (Pace).
7
Id. at 308:7–18 (Schwat describing how sponsors required principals to put “skin in the
game” and “secur[e] the bank debt”); Zell Dep. Tr. at 33:14–35:14.
8
Trial Tr. at 321:7–322:12 (Schwat).
9
Id. at 309:5–311:18 (Schwat); see also id. at 495:23–496:19 (Zell).
10
JX-3 (Wout emailing in 2014 that “the only real value of UIP [Asset Management] is
that it creates promote interests to the owner that are a multiple value of the operating
companies”).
3
Defendants11 introduced an industry expert, Jeffrey Zell, who credibly
testified that this type of structure is typical for the real estate industry. 12 With
respect to UIP in particular, Zell testified that “with this family of services of
businesses being provided up into the SPE through the operating company, those
[operating] companies fully rely on the principals getting more buildings to continue
the operations of the companies down below. The reality behind that is if for some
reason [the principals] stopped providing opportunities, the three operating
companies down below would ultimately run out of business and actually not be able
to continue.”13
Upon UIP’s formation in 2007, the Company issued 33 1/3 shares of UIP
stock each to entities respectively controlled by Wout,14 Bruggen, and Schwat.15 In
2011, Bruggen left UIP, tendered his shares back to UIP at no cost, and resigned his
directorship.16 Bruggen’s departure left Wout and Schwat each controlling one-half
of UIP’s outstanding shares.17
11
“Defendants” means Schwat, Schwat Realty LLC, Peter Bonnell, Bonnell Realty, LLC,
Stephen Cox, and the Company.
12
Trial Tr. at 495:1–14 (Zell).
13
Id. at 492:6–14 (Zell).
14
This decision refers to Mr. Coster by his first name, Wout, for clarity only. No disrespect
is intended.
15
PTO ¶ 6.
16
Id. ¶ 8.
17
Id.
4
Upon UIP’s formation, UIP’s five-member Board of Directors (the “Board”)
comprised the three principals—Wout, Bruggen, and Schwat—and two UIP
employees—Bonnell and Cox.18 As an employee of UIP, Bonnell’s original position
was “office and project manager.”19 Over the years, Bonnell grew under the
mentorship of the principals, in particular Wout,20 and acquired additional
responsibilities in the Company.21 He is currently Principal of UIP Asset
Management.22 Cox began at UIP as a “real estate analyst.”23 His responsibilities
also grew, and he is currently the Chief Financial Officer at UIP Asset
Management.24 At trial, Cox testified that as the owner of over twenty pizza shop
franchises and a diversified investment portfolio of stocks and real estate holdings,
he is independently wealthy outside of the earnings he derives from his role at UIP.25
18
Id. ¶ 7.
19
Trial Tr. at 415:6–9 (Bonnell).
20
See id. at 417:6–420:5 (Bonnell).
21
Id. at 416:7–417:5 (Bonnell).
22
Bonnell Dep. Tr. at 11:20–12:1.
23
Trial Tr. at 182:23 (Cox).
24
Id. at 181:5–10 (Cox).
25
Id. at 183:1–9 (Cox).
5
B. Failed Efforts to Buy Out Wout
In late 2013, Wout informed Schwat and Bonnell that he had been diagnosed
with leukemia.26 Around this same time, Heath Wilkinson, then-president of UIP
General Contracting, threatened to resign.27 Bonnell testified at trial that he was
exploring opportunities with other real estate investment firms at that time.28 To
retain talent and in light of Wout’s condition, the UIP principals began formulating
a succession plan that included de-equitizing Wout.29
In early 2014, Wout began negotiations with Schwat for an eventual buyout
of his shares by Bonnell and Wilkinson.30 In emails around the time of the
negotiations, Schwat expressed a concern that there was no market for Wout’s shares
and that the operating companies were only valuable to UIP executives like Bonnell
and Wilkinson.31 Schwat seemed in a rush to reach a compromise in view of these
factors.32
26
Id. at 323:13–19 (Schwat); id. at 334:13–22 (Schwat); id. at 428:5–23 (Bonnell).
27
Id. at 428:17–23 (Bonnell).
28
Id. at 428:5–23 (Bonnell); see JX-10 at 1–2 (Schwat explaining his belief that if Bonnell
were to leave UIP, “it’s over as far as [he is] concerned”).
29
Trial Tr. at 323:11–325:10 (Schwat).
30
See JX-6; JX-3; JX-10; JX-98; Trial Tr. at 325:11–328:22 (Schwat); id. at 332:19–335:4
(Schwat); id. at 460:9–461:11 (Bonnell).
31
JX-98 at 5 (Schwat explaining that UIP “is only worth something to those that want to
own it and that is limited to Heath and Pete.”).
32
See id. at 3 (Schwat writing to Wout: “Now is not the time to slow things down or we
will lose the whole thing”); id. at 5 (Schwat adding: “Feel free to call you[r] guy and get
6
The negotiations resulted in a term sheet (the “Term Sheet”) dated April 11,
2014, executed by Wout, Schwat, Bonnell, and Wilkinson.33 The Term Sheet
contemplated that Wout would wind down his role at the company and take a
decreased salary.34 It further stated that “the value of the UIPCos is $4,250,000 on
today’s date,” and provided for the gradual transfer of Wout’s fifty percent
ownership in UIP, as well as portions of his promote interests, to Bonnell and
Wilkinson for a note worth $2.125 million.35 Schwat would also transfer part of his
UIP stock and promote interests in exchange for a note in the same amount.36
The Term Sheet further provided that Wout’s wife, Coster (or “Plaintiff”),
would receive lifelong health insurance and an undetermined future salary.37 The
Term Sheet remained subject to “definitive agreement[s]” and review by tax
counsel.38 The Term Sheet set a deadline of May 31, 2014, for reaching a final
agreement and closing the contemplated transactions.39
some numbers but either way, we do not have the time to wait. We need to sign a deal
with [Wilkinson] (and [Bonnell]) this week.”).
33
JX-11.
34
Id. at 3.
35
Id. at 1–3.
36
Id.
37
Id. at 4.
38
Id. at 1.
39
Id. at 1–2.
7
The parties forwarded the Term Sheet to UIP’s then-in-house accountant,
Michael Rinaldi, and UIP’s outside counsel, Michael Sloan of the law firm Davis
Wright Tremaine LLP.40 As Schwat testified at trial, Rinaldi and Sloan viewed the
Term Sheet as unworkable.41 The parties quickly abandoned the initial terms in
search of a “simpler deal” that was more tax efficient.42 The parties scheduled a
meeting to continue negotiations with the aid of Rinaldi and Sloan on May 2, 2014.43
Wout expressed additional reasons for abandoning the initial terms. On
April 21, 2014, Wout told his counterparts that he did not believe the Term Sheet
captured the essence of their deal and that he planned to seek advice from his
personal legal counsel, Robert Gottlieb of the law firm Venable LLP.44 After
meeting with Gottlieb on April 30, Wout advised Schwat, Bonnell, and Wilkinson
that he had “serious issues” with the Term Sheet.45 Sloan attempted to reassure Wout
that a deal could be structured “in a way that is best for everyone.”46
40
Trial Tr. at 336:4–14 (Schwat). Neither Rinaldi nor Sloan is a tax attorney, and the deal
remained subject to review by “tax counsel.” JX-11 at 1; see JX-14 at 1 (Sloan stating: “I
am not tax counsel.”)
Trial Tr. at 336:16–18 (Schwat testifying that Rinaldi and Sloan “were just shocked that
41
we could have assembled something so tax inefficient”).
42
Id. at 337:1–2 (Schwat).
43
JX-109.
44
JX-103 at 2.
45
JX-109 at 1.
46
Id.
8
After continued negotiations through early May, Sloan circulated a memo on
May 12 summarizing revised terms, but he cautioned that the terms were not “prime-
time yet.”47 On May 25, 2014, Sloan sent a revised draft of the terms that he prepared
with Rinaldi.48 The terms had still not been reviewed by tax counsel.49
Wout rejected the May 25 terms because he perceived them as granting him
only a non-recourse note in exchange for his interests.50 Schwat grew increasingly
frustrated.51 Revised term sheets and conference calls peppered the summer
months.52
On July 11, 2014, prior to a conference call, Schwat emailed Wout, Bonnell,
Wilkinson, Rinaldi, and Sloan a spreadsheet hoping to clarify various economic
terms of the negotiation.53 Sloan responded that he did not have time to fill out the
spreadsheet as requested but expressed concern regarding the stated valuation of
UIP.54 The parties originally valued UIP at $4.25 million.55 By July, the parties all
47
JX-14 at 1.
48
JX-15.
49
Id. at 1.
50
JX-138 at 1.
51
Id. (Schwat writing to Bonnell: “[Wout is] going to tank this deal. . . . I am over this
crap.”).
52
JX-18; JX-157.
53
JX-157 at 2.
54
Id. at 1.
55
JX-11 at 1; JX-157 at 1.
9
agreed that figure was “way too high” given an estimated $2 million book value of
the operating companies.56 Sloan explained that “[a]ny increment above book value
is personal good will.”57 Sloan suggested a valuation of $2.5 million in an “attempt[]
to reconcile competing objectives.”58
The parties continued their back and forth, with Wout remaining skeptical of
the deal terms.59 Come early August 2014, the principals seemed to have again
reached a deal in principle but argued further over who should paper the terms.60
By August 21, 2014, Rinaldi had papered the terms and delivered them to the
parties.61 Wout again derailed consensus. On August 23, he described his payout
terms as a “non starter.”62 As of September 30, Wout continued to express “there is
56
JX-157 at 1.
57
Id.
58
Id. The notes to be paid to Schwat and Wout were “a function of the value of the
company.” Id. The higher the value of the company, “the more pressure it puts on the
business to satisfy future obligations to Wout (and [Schwat]).” Id.
59
JX-22 at 2 (Wout stating in an email to Schwat, Bonnell, and Wilkinson: “To be very
clear, I still don’t know what I get from this deal.”).
60
JX-336 at 4 (Sloan emailing the parties: “I haven’t heard from you all in a while, but I
understand from [Schwat] that we are good-to-go on the basic structure . . . and I know
Wout wants to see a deal memo that he can take to this personal lawyer.”); id. at 2 (Schwat
renewing suggestion that Bonnell draft a term sheet); id. at 1 (Wout objecting to Schwat’s
suggestion because “Bonnell is a beneficiary in the deal, hence he has a conflict writing
these”); id. (Schwat disagreeing with Wout and Wout standing firm in his belief that they
were “better off having a neutral third party” draft the terms).
61
See JX-23 at 7.
62
Id. at 1.
10
nothing in it for me.”63 Bonnell continued to attempt to get the parties on the “same
page,” attributing Wout’s misunderstanding to the tax treatment of his payout.64
By October 10, 2014, Sloan had concluded that “the deal is still just a concept
at this point, at best.”65 Through the end of the year, Wout continued to disagree
with various aspects of this round of terms.66 On January 4, 2015, Wout emailed
that the terms were “no longer a palatable deal.”67 No deal was ever finalized.
C. Plaintiff Inherits UIP Stock
Wout became increasingly ill over the course of 2014. He passed away on
April 8, 2015.68 After Wout’s death, Plaintiff inherited ownership of both Wout’s
interests in UIP and certain promote entities.69 Prior to Wout’s death, Plaintiff was
minimally aware of Wout’s business dealings.70
63
JX-173 at 2.
JX-174 (Bonnell explaining the tax benefits and asking: “Are we on the same page now?
64
Can we start having the documents drafted?”).
65
JX-177 at 1.
66
JX-178; JX-25; JX-181; JX-183; JX-189; JX-187; JX-188.
67
JX-26 at 1.
68
PTO ¶ 9.
69
Id.
70
Trial Tr. at 130:3–11 (Plaintiff testifying that she never had any conversations with Wout
about business or the value of UIP); id. at 155:5–18 (Plaintiff testifying that she had no
recollection of whether Wout received profit sharing from UIP or whether any of the
operating companies ever made a profit); Coster Dep. Tr. at 13:8–13 (Plaintiff testifying
that she “never looked into it” when asked if she had “access to tax information and other
financial information from [UIP]” when Wout was alive); id. at 18:8–13 (Plaintiff
testifying that in her capacity as a 50% stockholder, she “[didn’t] know anything about this
business”); id. at 34:1–10 (Plaintiff testifying that she chose not to participate in additional
11
The day after Wout’s death, Schwat emailed Gottlieb about purchasing
Plaintiff’s then-fifty percent interest in the Company.71 He inquired about taking the
necessary steps to “complete the deal the way we all envisioned (assuming [Plaintiff]
agrees).”72 Much was made in Plaintiff’s briefing concerning the seemingly callous
timing of this email, but the record reflects that it was Wout himself, through
Gottlieb, who initiated this last attempt at reaching a deal. Just before his death,
Wout met with Gottlieb in Plaintiff’s presence.73 On the day before Wout died,
Gottlieb reached out to Schwat, Bonnell, Wilkinson, and Sloan by email to inform
them that “as some or all of you may know, Wout consulted with me almost a year
ago with respect to your discussions addressing the transitioning of his ownership in
UIP. . . . With Wout’s health on the decline, he has reached out to me to see if we
can accelerate the process of completing the necessary documentation.”74 Schwat
forwarded that email to Plaintiff to keep her “in the loop.”75 Thus, Plaintiff was
SPE investments because she “[did] not know anything about this business”); id. at 96:20–
22 (Plaintiff testifying that she never spoke with Wout about “being paid for his goodwill
in the companies”); id. at 99:3–8 (Plaintiff testifying that she never discussed with Wout
how to value the 50% interest in UIP).
71
JX-33 at 2.
72
Id. at 3.
73
Trial Tr. at 150:24–151:15 (Plaintiff testifying that she was present at the meeting
between Gottlieb and Wout).
74
JX-29 at 2.
75
Id. at 1; Trial Tr. at 348:4–22 (Schwat testifying that “I was there on Monday. And Wout
had been home from the hospital on hospice care, you know, for a week or two, and . . .
looking back, Wout was bedridden, and I knew not to send this to Wout. I had no idea he
12
aware of Wout’s last-minute attempts to effectuate a transfer of his UIP stock, and
Schwat was not exploiting her vulnerabilities in the days after Wout’s death.
The conversation picked up again in June 2015 when Gottlieb indicated to
Schwat that “[t]he Estate is prepared to move forward with the reorganization—can
you suggest the next steps?”76 Schwat responded inquiring whether the Term Sheet
should be modified to effect the deal in a more “tax advantaged way” for Wout’s
estate.77 In a separate email, Gottlieb forwarded Schwat’s response to Rinaldi and
asked “whether Wout’s passing suggests any additional restructuring.”78 Rinaldi
responded with an idea to simplify the buyout proposal.79 On June 4, 2015, Bonnell
sent to Plaintiff the Term Sheet and suggested that they meet along with Gottlieb.80
At some point between June and October 2015, Gottlieb met with Schwat and
Bonnell, although the record does not reflect precisely when this meeting occurred.
was going to die that day or that evening or the next day. But I got that email from Robert
Gottlieb and, in a good faith gesture, had sent it out to [Plaintiff]. We had tried to have
conversations with [Plaintiff] prior to Wout dying, and Pete and I visited Wout in the
hospital and also visited him a lot at home. And so. . . we were just keeping [Plaintiff] in
the loop and letting her know we had received this email and that we were ready to move
forward as well.”).
76
JX-35 at 2. Before that time, there were intermittent emails between UIP principals and
attorneys handling Wout’s estate. See, e.g., JX-33; JX-208; JX-328; JX-34.
77
JX-35 at 1.
78
Id.
79
JX-209 at 1 (“I think . . . that a simple stock purchase transaction for the S corps works
and is much simpler.”).
80
JX-210.
13
On October 2, 2015, Gottlieb emailed Rinaldi a summary of that meeting, during
which the parties discussed the Term Sheet and Schwat’s belief that it had been
superseded by future agreements.81 Gottlieb requested proof of the future
agreements and sought to better understand the proposal then contemplated.82
In December 2015, Plaintiff sought assistance from Michael Pace, a retired
attorney and friend of Plaintiff. Pace’s wife, Anne, was the executor of Wout’s
estate,83 and Pace and his wife had been helping Plaintiff navigate the complicated
process of sorting through her late husband’s affairs.84 Pace emailed Gottlieb to
explain that Plaintiff was “very distressed about her financial situation and now must
sell her home.”85
During early 2016, Gottlieb met with Bonnell and Schwat to negotiate and try
to understand the terms of any buyout of Plaintiff’s stake.86 Schwat emailed Plaintiff
directly in March 2016 to persuade to her to accept his terms.87
81
JX-213 at 1 (Gottlieb stating: “[Schwat’s] view is that [the Term Sheet] has been
superseded by the 6/16 and 6/18 restructuring memos.”).
82
Id. (Gottlieb writing to Rinaldi: “I could not understand how the math worked and
explicitly told him that.”).
83
Trial Tr. at 16:7–23 (Pace).
84
Id.
85
JX-214 at 1.
86
See JX-217 at 2 (Schwat writing: “Pete and I have met with Robert Gottlieb several
times.”); JX-331 at 2 (Gottlieb’s Venable counsel writing: “I just met with Robert Gottlieb.
He has had several ‘frustrating conversations’ with Steve Schwat about the ‘Agreement.’”).
87
JX-217 at 1–5.
14
By May 2016, Plaintiff seemed primarily interested in a lump-sum buyout or
an arrangement that would provide her with a steady income stream. 88 But
negotiations stalled due to what Pace described as a “personality conflict” between
Gottlieb and Schwat.89 Pace suggested that Plaintiff and the Paces meet separately
with Bonnell, and Plaintiff arranged that meeting.90 They first met in July 2016 and
then twice subsequently in September and October.91 These meetings were “very
cordial discussions” and according to Pace, Bonnell was interested in achieving a
globally amicable solution.92
In the July meeting, Bonnell identified “three possible avenues” for buying
out Plaintiff’s interests in UIP.93 Pace forwarded these options to Rinaldi, who was
by then no longer employed by UIP and was serving Plaintiff in his individual
capacity.94 Rinaldi advised Pace to “push for accounting records on [the operating]
companies and exercise all rights as a shareholder.”95 Pace then requested
88
Trial Tr. at 142:9–16 (Plaintiff).
89
Id. at 29:5–8 (Pace).
90
Id. at 29:9–21 (Pace).
91
Id. at 29:23–30:1 (Pace); id. at 38:16–24 (Pace).
92
Id. at 30:16–17 (Pace); id. at 40:1–11 (Pace).
93
JX-36 at 1; id. at 4 (identifying a “[d]raw option,” a “straight lump sum buyout at a
discounted value,” and a “buyout at a discounted value spread out in yearly installment
payments”).
94
Id. at 1.
95
Id. at 3.
15
information on the profitability of the operating companies from Bonnell.96 Bonnell
responded that “these companies operate close to even” and “there hasn’t been much
positive revenue generated” since Wout had passed.97 Pace did not believe that
Bonnell was forthcoming about the operating companies’ true profitability.98
Discussions paused while Bonnell was on vacation in August 2016.99 On
September 25, 2016, Bonnell emailed Plaintiff a spreadsheet and three proposals that
he had developed with Schwat to buy out her stake in the Company. 100 Bonnell
prefaced the proposals by explaining his belief that it was in Plaintiff’s best interest
not to walk away from UIP entirely, but to “stay[] in the projects for the full ride, to
earn the promotes and thus capture the greatest cash flow.”101 Plaintiff sought
Rinaldi’s advice on the proposals102 before Plaintiff, Bonnell, and the Paces, met in
person in September 2016.103
96
JX-38 at 2.
97
Id. at 1.
98
Id.; JX-39 at 1; JX-219 at 1.
99
See JX-40.
100
JX-221 at 2.
101
Id.
102
JX-42.
103
Trial Tr. at 38:14–39:12 (Pace); see JX-222 at 2.
16
At the September meeting, Bonnell offered to buy out Plaintiff’s interests in
UIP while Plaintiff would retain her interests in the promotes.104 After the meeting,
Plaintiff asked Rinaldi to estimate the value of UIP.105 Rinaldi responded that a
reasonable starting point would be $2.125 million since it was his belief that is what
was used in the original Term Sheet, even though the Term Sheet included promote
interests.106 Plaintiff later asked Rinaldi to perform a valuation of UIP in
November 2016,107 and Rinaldi engaged Iver Scott for that purpose.108
UIP was aware that Plaintiff and Rinaldi had engaged Scott to perform a
valuation. Pace testified that UIP cooperated with Rinaldi, who then liaised with
Scott.109 As the parties awaited Scott’s valuation, Bonnell continued to engage
Plaintiff in negotiations. In March 2017, Bonnell sent to Plaintiff financial data and
again tried to persuade her to take the original deal papered on the Term Sheet.110
On June 9, 2017, Plaintiff wrote to Bonnell that she would be willing to sell her UIP
104
JX-222 at 3.
105
Id. at 1.
106
Id. The actual value used in the original term sheet was $4.25 million, which Sloan later
revised downward to $2.5 million. See supra note 58 and accompanying text.
107
Trial Tr. at 44:22–45:19 (Pace).
108
Id. at 48:11–22 (Pace).
109
Id. at 51:18–24 (Pace).
110
JX-43 at 1 (Bonnell writing: “This is very uncomfortable for me, as I am sure it is for
you, but I must say that as I think about all this, I am beginning to get upset. I begin to feel
that you are searching for something that does not exist.”).
17
interests at 50% of the valuation price arrived at by Scott.111 On July 10, 2017,
Bonnell emailed Rinaldi asking for an update.112
Scott finalized his valuation in June 2017.113 On August 17, 2017, Plaintiff’s
counsel, Michael Ross of Aegis Law Group, LLP (“Aegis”), sent a letter to Schwat,
Bonnell, and Wilkinson enclosing Scott’s valuation of UIP and refuting the repeated
assertions that the Term Sheet constituted an enforceable agreement.114
D. Plaintiff Demands Information.
Plaintiff signaled her intent to begin exercising her rights as a UIP stockholder
as a point of leverage as early as November 2016,115 but she did not implement that
strategy until August 2017. In the August 2017 letter attaching the Scott valuation,
Plaintiff demanded to inspect UIP books and records.116
It is unclear whether the Company responded timely, or at all, to Plaintiff’s
initial demand to inspect books and records. The record reflects that Bonnell and
Schwat exchanged a draft of a response to Plaintiff’s letter in September 2017, but
111
JX-227.
112
JX-228.
113
JX-227; Trial Tr. at 54:14–16 (Pace).
114
JX-45.
115
JX-223 at 1 (Pace explaining to Bonnell that Plaintiff sought from her counsel “a listing
of her full 50% shareholders rights . . . , rights she and the estate will fully intend to
exercise”).
116
JX-45.
18
nothing in the record informs whether it was ever sent.117 On October 11, 2017,
Plaintiff, through counsel, sent another demand to inspect UIP’s books and
records.118
UIP replied to Plaintiff’s second demand through counsel on October 18,
2017, requesting time to gather profit-and-loss statements for each UIP entity for
2015, 2016, and 2017.119 The parties then engaged in settlement discussions,120 but
they remained at an impasse as of March 2018.121
In March 2018, Plaintiff’s counsel, Ross, stated that he would appear at UIP’s
office to inspect documents at a date certain unless he heard otherwise from UIP.122
That spurred a further letter exchange.123 On April 11, 2018, UIP’s counsel, Deborah
Baum of the law firm Pillsbury Winthrop Shaw Pittman LLP (“Pillsbury”),
transmitted documents in response to the books and records request with a promise
that additional documents would be coming soon.124 Through counsel, the parties
117
JX-229.
118
JX-46; JX-231.
119
JX-232.
120
See JX-233 at 3.
121
Id. at 1.
122
JX-234.
123
See JX-233; JX-234; JX-48.
124
JX-49 at 1; JX-236 at 1.
19
continued to dispute the sufficiency of UIP’s response to the demand for
inspection.125
E. Plaintiff Calls for a Special Meeting of Stockholders.
On April 4, 2018, in the midst of counsel’s letter exchange concerning
Plaintiff’s inspection demands, Plaintiff called for a special meeting of the
stockholders of UIP to elect new members of the Board.126 No election of directors
or annual stockholder meetings had been held since December 2007, and the
Company had not acted to fill the vacant Board seats.127 Thus the director seats once
held by Bruggen and Wout remained unoccupied.128
Plaintiff was within her rights to call the special meeting. The UIP bylaws
provide that special meetings of the stockholders, “for any purpose or purposes,”
may be called upon the written request of stockholders holding more than 25% of
the voting stock of the Company.129 Accordingly, on May 11, 2018, UIP issued a
125
On April 18, 2018, Ross wrote to Baum explaining that UIP’s production was still
incomplete and insisting on an in-person inspection of books and records at the UIP offices.
JX-236 at 1. Baum did not respond. On April 27, 2018, after not receiving a response to
their April 18 letter, representatives of Aegis appeared at the UIP offices to inspect books
and records. JX-237 at 1. Schwat turned them away. Id. Later that same day, Baum
responded to Ross disputing his characterization of events and claiming that UIP had
responded adequately to the inspection demand. JX-82 at 2–3. Ross replied to Baum on
May 4, 2018, attaching a chart identifying the deficiencies in UIP’s response. Id. at 6–22.
126
PTO ¶ 13.
127
Id. ¶ 10.
128
Id.
129
JX-83 at 1–2.
20
notice of special meeting of stockholders “[t]o vote on the election of directors of
the Corporation.”130 The stockholders meeting was held on May 22, 2018.131
F. The May 22 Stockholders Meeting
The May 22, 2018 meeting was noticed “[t]o vote on the election of directors
of the Corporation.”132 Plaintiff’s attorney, Thomas Shakow of Aegis, attended the
meeting as Plaintiff’s proxy.133 Attorney Serine Consolino of Aegis also attended
for Plaintiff.134 Schwat attended as a representative of the entity through which he
holds his UIP stock, Schwat Realty, LLC.135 Attorney Jeffrey B. Grill of Pillsbury
attended as counsel to the Company and served as secretary and inspector of
elections.136
At the meeting, Shakow raised three motions on behalf of Plaintiff.137 In the
first motion, Shakow moved to reduce the Board seats from five to four.138 Schwat
voted against the motion, so it failed.139
130
PTO ¶ 14.
131
Id.
132
Id.
133
JX-50 at 1.
134
Id.
135
Id.
136
Id.
137
PTO ¶¶ 15–17; JX-50.
138
PTO ¶ 15; JX-50.
139
PTO ¶ 15; JX-50.
21
In the second motion, Shakow moved to fill the seats formerly held by
Bruggen and Wout with two of Plaintiff’s designated representatives, Brian
Henderson and Dr. Veronica Hall.140 Henderson is Plaintiff’s son-in-law and has a
background in insurance sales.141 Hall is Plaintiff’s daughter-in-law and has a
background in medical research.142 Schwat believed that Plaintiff’s two nominees
“knew nothing about [UIP’s] business.”143 Schwat voted against the motion, and so
it failed.144
In the third motion, Shakow moved to vote on the entire five-member board,
nominating Henderson, Hall, Plaintiff, Schwat, and Bonnell.145 Schwat objected to
consideration of the third motion because “correspondence from Aegis Law Group
suggested two proposals to be taken at the special meeting.”146 Schwat ultimately
adjourned the meeting after voting on the second motion, but he “noted that the
Company would be happy to consider a request for another special meeting.”147
140
PTO ¶ 16; JX-50.
141
JX-295; Trial Tr. at 146:18–147:21 (Plaintiff).
142
JX-296; Trial Tr. at 147:22–148:13 (Plaintiff).
143
Trial Tr. at 356:16–20 (Schwat).
144
PTO ¶ 16; JX-50.
145
PTO ¶ 17; JX-50.
146
JX-50 at 2.
147
Id.
22
That same day, Plaintiff called for another special meeting to vote on the hold-
over director seats.148 While agreeing to the meeting, the Company informed
Plaintiff’s attorneys that the Board had acted by unanimous written consent to reduce
the number of seats to three.149 Plaintiff did not challenge this decision through this
lawsuit.
G. The June 4 Stockholders Meeting
The next stockholders meeting occurred on June 4, 2018.150 Shakow and
Schwat again attended as representatives for the Company’s stockholders.151 Grill
again served as secretary and inspector of elections.152 Consolino again attended.153
Three votes were taken at the meeting. Schwat proposed the first vote, which
sought approval of the election of Schwat, Bonnell, and Cox to serve as directors
until UIP’s next annual meeting or until their successors are duly elected and
qualified.154 Plaintiff, by proxy, voted against, so it did not pass.155
148
PTO ¶ 18.
149
Id.; JX-51.
150
PTO ¶ 19.
151
JX-52 at 2.
152
Id.
153
Id.
154
PTO ¶ 20; JX-52 at 3.
155
PTO ¶ 20; JX-52 at 3.
23
Shakow proposed the second vote, which sought approval to increase the size
of the Board to five seats and to elect Henderson, Hall, Plaintiff, Schwat, and Bonnell
to serve as directors until UIP’s next annual meeting or until their successors are
duly elected and qualified.156 Schwat voted against, so it did not pass.
Shakow proposed the third vote, which sought approval to elect Henderson,
Hall, and Schwat to serve as directors until UIP’s next annual meeting or until their
successors are duly elected and qualified.157 Schwat voted against, so it failed to
pass.158
Following the June 4 stockholders meeting, the Board continued to comprise
three holdover directors appointed in 2007: Schwat, Bonnell, and Cox.159
H. Plaintiff Commences Litigation Seeking the Appointment of a
Custodian.
On June 15, 2018, Plaintiff filed a complaint in this Court naming Schwat,
Schwat Realty LLC, and the Company as defendants and seeking the appointment
of a custodian pursuant to 8 Del. C. § 226(a)(1) (the “Custodian Action”).160
156
PTO ¶ 21; JX-52 at 3.
157
PTO ¶ 22; JX-52 at 3.
158
PTO ¶ 22; JX-52 at 3.
159
PTO ¶ 23; JX-52 at 3.
160
PTO ¶ 24; Dkt. 1, Verified Compl. for Appointment of a Custodian Pursuant to 8 Del.
C. § 226(a)(1) (“Custodian Compl.”).
24
Plaintiff requested the appointment of a custodian to break the stockholder
deadlock between her and Schwat.161 The complaint mainly sought to impose a
neutral tie-breaker to facilitate director elections, but it also lodged allegations
against Schwat. Plaintiff asserted that Schwat “ha[d] received a generous salary
from the Company and [was] enjoying significant benefit from his 50% stake.”162
Plaintiff alleged that Schwat “prevented Mrs. Coster from gaining a meaningful view
into the Company’s financial affairs” and “barred her from any representation on the
Board.”163 Plaintiff desired representation on the Board because, according to her,
Schwat was “making decisions . . . in which [she] ha[d] a right to participate.”164 As
relief, Plaintiff sought the appointment of a custodian with broad oversight and
managerial powers.165
I. Defendants Moot the Custodian Action by Selling Stock to
Bonnell.
Almost a month after Plaintiff commenced the Custodian Action, on July 10,
2019, Defendants reached out to Andy Smith of McLean Group LLC to perform a
161
Custodian Compl. ¶¶ 1, 16, 51–68, 72.
162
Id. ¶ 2.
163
Id.
164
Id. ¶ 71.
165
Id. ¶¶ 73–74 (requesting a custodian with the power to “exercise full authority and
control over the Company, its operations, and management”).
25
valuation of UIP.166 McLean was engaged as of July 16, 2019.167 To conduct a
conflicts check, Smith requested names of the parties.168 In response, counsel for
Defendants replied that “[t]he adverse party is Marion Coster and a related entity,
Coster Realty.”169
Defendants in the Custodian Action obtained an extension of the deadline for
responding to the complaint to July 27, 2018,170 and they initially pushed Smith to
prepare the valuation prior to that date.171 In a July 25, 2018 email to the McLean
Group, Schwat emphasized that he was “in a rush for the valuation.”172 Then, on the
advice of counsel, Defendants in the Custodian Action determined to answer the
complaint and then subsequently amend the answer after the sale of stock to Bonnell
166
PTO ¶ 25; JX-241 at 1–2.
167
JX-57; Trial Tr. at 540:5–9 (Smith).
168
JX-244 at 1.
169
Id.
170
JX-257 at 1–2.
171
JX-58 at 1 (July 25, 2018 email from Baum to Schwat, Bonnell, and the McLean Group
explaining that “if the share issuance and purchase isn’t complete by [July 27, 2017],” the
parties would need to respond to the complaint in the Custodian Action).
172
Id.
26
was completed.173 On July 27, 2018, Defendants answered the complaint, objecting
to the appointment of a custodian.174
The McLean Group transmitted its valuation on July 27, 2018.175 By the time
the McLean Group transmitted this initial report, Defendants to the Custodian Action
were in less of a rush, having determined to file and then amend their answer.
Schwat thus replied to the email attaching the valuation instructing the McLean
Group not to hurry the project “in any way,” even if it meant taking additional time
to arrive at “the value [they] think is truly fair.”176 He then further suggested adding
additional commentary to the report that could justify a lower valuation.177
Schwat and the McLean Group participated in a call on the morning of
July 27, 2018 to discuss the report.178 The McLean Group then had a follow-up call
with counsel for Custodian Defendants that same day.179 Smith testified that he
173
JX-59 at 2 (Baum advising: “[W]e need to be prepared to file an answer on Friday.
Under the DE rules we can amend as of right within 20 days. So we can amend as soon as
the transaction is done. . . . I don’t want you to have to hire separate counsel to represent
the company if we are just going to fix the problem via stock issuance.”).
174
PTO ¶ 26; Dkt. 11, Answer to Verified Compl. for Appointment of a Custodian.
175
JX-62 at 2.
176
Id. at 1.
177
JX-262 at 2 (“I think there could be more editorial about the company and some of the
details that limit using certain types of valuations and affect the value from a qualitative
aspect.”).
178
JX-265.
179
JX-62.
27
incorporated “some additional comments” from these calls and issued a “follow-up
report” where “[t]he numbers didn’t change” but “some of the language in the report
changed.”180
On August 14, 2018, the McLean Group sent to Schwat a final valuation, and
for simplicity this decision refers to the final valuation as the McLean Valuation.181
The McLean Valuation determined the fair market value of a 100-percent,
noncontrolling equity interest in UIP to be $123,869.182 That same day, Schwat
forwarded the final valuation to Bonnell and offered to sell him one-third of UIP’s
authorized but unissued shares at a price equal to one-third of the valuation.183
Bonnell agreed, and on August 15, the Board acted by unanimous written consent to
sell 33 1/3 shares of UIP stock to Bonnell Realty LLC for $41,289.67 (the “Stock
Sale”).184 With this purchase, Bonnell became a one-third owner of UIP alongside
Schwat and Plaintiff.
180
Trial Tr. at 511:6–14 (Smith). In briefing, Plaintiff points out that the earlier draft of
the valuation contained the following language that did not appear in the final draft: “Based
on information provided by management, [the UIP] business structure is designed to
provide breakeven profits at the UIP Companies level in order for the underlying real estate
investments to realize more profits.” JX-67 at 7. Plaintiff failed to prove that Schwat
suggested this revision or that even if he did, the revision was of consequence. Indeed,
Plaintiff also failed to elicit testimony regarding the nature of Schwat’s comments or
whether any were incorporated into the final valuation report.
181
JX-288.
182
JX-66 at 4.
183
JX-288.
184
PTO ¶ 27.
28
Also on August 15, 2018, Defendants in the Custodian Action filed 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.185
The parties debate the purpose of the Stock Sale. To argue that such purpose
triggers and fails under enhanced scrutiny, Plaintiff contends that the Stock Sale’s
primary purpose was to disenfranchise her. Defendants deny that enhanced scrutiny
applies or that disenfranchisement was their primary purpose. Because this decision
applies the entire fairness standard, the issue is largely moot. Yet because it was a
focal point of many pages of briefing, this decision digresses briefly to render factual
findings.
Defendants offered many justifications for the Stock Sale throughout the case.
Defendants obviously desired to eliminate Plaintiff’s ability to block stockholder
action, including the election of directors, and the leverage that accompanied those
rights. Yet the timing of the sale, emails from counsel to Defendants during that
time period,186 trial testimony reflecting that Defendants viewed the appointment of
185
Id. ¶ 28; Dkt. 12, Amended Answer to Verified Compl. for Appointment of a Custodian
(“Amended Answer”).
186
Compare JX-58 at 1 (Baum requesting an update on the status of the McLean Group
valuation because “[Defendants] need to respond (and probably should have a second
counsel answer for the company) if the share issuance and purchase isn’t complete by
Friday”), with JX-59 at 2 (Baum advising Schwat and Bonnell that there was no need to
hire separate counsel to represent UIP because the stock issuance would “fix the problem”).
29
a custodian as deleterious to UIP,187 and Defendants’ own Amended Answer188 make
clear that the Stock Sale was significantly motivated by a desire to moot the
Custodian Action. Defendants effectively admitted this much in post-trial
briefing.189 And Defendants further demonstrate that the Custodian Action was
deleterious to UIP for reasons unrelated to Plaintiff. Schwat testified and Bonnell
corroborated that the appointment of a custodian constituted an event of default
under various SPE contracts.190 Thus, the appointment of a custodian threatened to
187
Trial Tr. at 358:2–5 (Schwat testifying that his own concerns were that “if somebody
were to appoint a custodian to come in and manage the company in place of [Bonnell] and
I, our JV partners would likely terminate the agreements they have with us”). Bonnell
corroborated this testimony. Id. at 456:13–17 (Bonnell testifying that “many of the
operating agreements are specific that the appointment of a custodian is a default”).
188
PTO ¶ 28 (Amended Answer stating that “UIP has issued the remaining 33 1/3 shares
of its stock and sold it at fair market value to Mr. Bonnell’s entity, Bonnell Realty, LLC”
and that “Defendants expect to move for judgment on the pleadings” on account of the
affirmative defense that “[t]he Complaint is moot”).
189
Dkt. 142, Individual Defs.’ Opening Post-trial Br. (“Defs.’ Post-trial Opening Br.”)
at 21 (summarizing concerns “about keeping the Company together, in terms of the
potential impact of the custodian action on the Company’s operations, the need to keep
Mr. Bonnell motivated to continue to stay at the Company . . . , and the potential for a
devastating exodus of approximately 100 employees due to fears surrounding this
litigation”).
190
Trial Tr. at 358:2–5 (Schwat testifying that “if somebody were to appoint a custodian
to come in and manage the company in place of Pete and I, our [equity] partners would
likely terminate the agreements they have with [UIP]”); id. at 457:10–19 (Bonnell
testifying that “the primary investor . . . has broad authority to terminate . . . those
agreements”). Defendant’s expert, Zell testified that such termination provisions are
typical within the real estate industry. Id. at 496:20–497:19 (Zell). Plaintiff does not
dispute the existence of broad termination rights and clauses identifying the appointment
of a custodian as a default in various of the Company’s services contracts with SPEs.
Plaintiff argues instead that this is not a real threat because Defendants did not show that
their lending parties would actually exercise their termination rights, but it is not
30
cut off a substantial amount of UIP’s revenue streams, justifying Defendants’ efforts
to moot the Custodian Action.
Also at trial, Schwat and Cox testified that, as much as anything, the Stock
Sale was motivated by their desire to keep their promise to Bonnell. Cox testified
that he approved the Stock Sale because it “effectuated the purpose of the [T]erm
[S]heet,”191 and Schwat testified that they agreed to the Stock Sale because they “had
promised” Bonnell that they would do so.192 This testimony also rang true, as
Bonnell was viewed as essential to the Company’s survival.193
unreasonable for a party to believe that a counterparty would exercise its contractually
granted rights and thus harm the Company.
191
Trial Tr. at 201:8 (Cox).
192
Id. at 359:11–13 (Schwat).
193
As far back as 2014, prior to any litigation, Schwat wrote to Wout that retaining Bonnell
was crucial to UIP’s business model: “Without Heath we can survive but without Pete; it’s
over as far as I am concerned.” JX-10 at 1–2. Zell’s trial testimony confirmed that both
principals, Schwat and Bonnell, were critical to the survival of UIP’s business model
because they were the sole originators of the investment deals from which UIP derived its
revenue. Trial Tr. at 500:9–501:12 (Zell testifying that if Schwat or Bonnell were to “leave
or if anything happens, [the operating companies] have no value”). The McLean Valuation
corroborates Zell’s observation that SPE equity investors, and in some cases the lenders,
could cut ties with UIP in the event Schwat or Bonnell is no longer with UIP. JX-66 at 54.
Further, the Stock Sale incentivized Bonnell to remain at UIP because his 33% voting rights
afford him incrementally greater influence at UIP. This control is important to Bonnell
because the directors manage the affairs of the operating companies, which exist to service
the SPEs that generate the lion’s share of Bonnell’s revenue. Trial Tr. at 310:20–311:5
(Schwat explaining that “third-party property management clients are not going to get
treated as well as if I own it. And so really, the goal is control.”).
31
Thus, although the issue is somewhat beside the point in light of the legal
framework applied in the below legal analysis, Plaintiff did not succeed in proving
her theories regarding Defendants’ purposes or justifications.
J. Plaintiff Files New Litigation Seeking to Cancel the Stock Sale.
On August 22, 2018, Plaintiff, individually and derivatively on behalf of UIP,
filed a Verified Complaint for Cancellation of Stock Issue or Imposition of
Constructive Trust (the “Cancellation Action”) against Schwat, Bonnell, Bonnell
Realty, LLC, and Cox.194 Upon stipulation of the parties, the Court consolidated the
Cancellation Action with the previously-filed Custodian Action.195 Trial took place
on April 17 and 18, 2019.196 Post-trial briefing concluded on August 26, 2019.197
The Court held post-trial arguments on October 17, 2019.198
194
PTO ¶ 29.
195
Id. The consolidation order adopted the caption of the first-filed case, the Custodian
Action, which did not name Bonnell or Bonnell Realty, LLC as a defendant. See Dkt. 16,
Stipulation and Order to Consolidate Cases ¶ 3. To be clear, Bonnell and Bonnell Realty,
LLC are defendants in this consolidated action despite the absence of their names in the
caption.
196
Dkt. 117.
197
Dkt. 99, Individual Defs.’ Pre-trial Br. (“Defs.’ Pre-trial Br.”); Dkt. 100, Pl. Marion
Coster’s Pre-trial Br. (“Pl.’s Pre-trial Br.”); Defs.’ Post-trial Opening Br.; Dkt. 143,
Corrected Pl.’s Post-trial Br. (“Pl.’s Post-trial Opening Br.”); Dkt. 148, Individual Defs.’
Post-trial Answering Br. (“Defs.’ Post-trial Answering Br.”); Dkt. 149, Pl.’s Post-trial
Answering Br.
198
Dkt. 156.
32
II. LEGAL ANALYSIS
In post-trial briefing, the parties focused their arguments on Plaintiff’s claim
to cancel the Stock Sale. Plaintiff contends that in the event the Stock Sale is
cancelled, the Court should appoint a custodian pursuant to Section 226(a)(1) of the
Delaware General Corporation Law, which empowers the Court to appoint
custodians to break stockholder deadlock. Plaintiff further argues that any custodian
appointed by the Court should have broad powers in view of what she describes as
“numerous financial irregularities that have been uncovered in discovery” relating
to Schwat’s management of UIP.199 Defendants respond that because the Stock Sale
did not constitute a breach of fiduciary duty, no relief is warranted.200 This decision
follows the parties’ lead, focusing first on Plaintiff’s challenges to the Stock Sale,
and then addressing the ramifications of those rulings on the remaining claims and
issues.
A. The Stock Sale
At the threshold, the parties dispute the standard of review that the Court
should apply to the Stock Sale. “[I]dentification of the correct analytical framework
199
Pl.’s Post-trial Opening Br. at 45.
200
In making these arguments, the parties cut to the heart of the matter, glossing over
numerous legal defenses often raised in response to claims challenging stock issuances.
For example, Defendants do not argue that Plaintiff lacks standing to pursue what is in
essence a derivative claim. For the most part, this decision joins the parties on the
battlefield they have selected, resolving the issues they have raised, and ignoring the issues
they have avoided.
33
is essential to a proper judicial review of challenges to the decision-making process
of a corporation’s board of directors.”201 “Delaware has three tiers of review for
evaluating director decision-making: the business judgment rule, enhanced scrutiny,
and entire fairness.”202 Plaintiff argues that entire fairness or enhanced scrutiny
ought to apply. Defendants argue that they are entitled to the presumption of the
business judgment rule and, alternatively, that the transaction passes entire fairness
review and enhanced scrutiny.203
Delaware’s default standard of review, the business judgment rule, “posits a
powerful presumption in favor of actions taken by directors in that a decision made
by a loyal and informed board will not be overturned by the courts unless it cannot
be attributed to any rational business purpose.”204 If “the business judgment rule
attaches to protect corporate officers and directors and the decisions they make, our
courts will not second-guess these business judgments.”205 “Only when a decision
201
MM Cos. v. Liquid Audio, Inc., 813 A.2d 1118, 1127 (Del. 2003) (citing Unitrin, Inc. v.
Am. Gen. Corp., 651 A.2d 1361, 1374 (Del. 1995)).
202
Reis v. Hazlett Strip–Casting Corp., 28 A.3d 442, 457 (Del. Ch. 2011).
203
Defs.’ Post-trial Opening Br. at 31–42; Defs.’ Post-trial Answering Br. at 17–37.
204
Cede & Co. v. Technicolor, Inc., 634 A.2d 345, 361 (Del. 1993) (citing Sinclair Oil
Corp. v. Levien, 280 A.2d 717, 720 (Del. 1971)).
205
Id. (citing Citron v. Fairchild Camera & Instrument Corp., 569 A.2d 53, 64 (Del. 1989);
Smith v. Van Gorkom, 488 A.2d 858, 872 (Del. 1985)).
34
lacks any rationally conceivable basis will a court infer bad faith and a breach of
duty.”206
A plaintiff can negate the presumption of the business judgment rule and shift
the burden of proving entire fairness to the defendants if the plaintiff can show that
the action in question was not “taken by a board majority comprised of disinterested
and independent directors.”207 Entire fairness “is the highest standard of review in
corporate law”208 and requires the defendants to establish that the underlying
transaction was “the product of both fair dealing and fair price.”209
In between these standards lies enhanced scrutiny, or the Unocal210 doctrine,
which “rests in part on an ‘assiduous . . . concern about defensive actions designed
to thwart the essence of corporate democracy by disenfranchising shareholders.’”211
“The Unocal standard is a flexible paradigm that jurists can apply to the myriad of
‘fact scenarios’ that confront corporate boards.”212 Unocal applies where “the record
206
In re Trados Inc. S’holder Litig., 73 A.3d 17, 43 (Del. Ch. 2013).
207
In re Crimson Expl. Inc. S’holder Litig., 2014 WL 5449419, at *9 (Del. Ch. Oct. 24,
2014) (citing Aronson v. Lewis, 473 A.2d 805, 814 (Del. 1984)).
208
Kahn v. M & F Worldwide Corp., 88 A.3d 635, 644 (Del. 2014).
209
Cede & Co. v. Technicolor, Inc., 634 A.2d at 361 (citing Nixon v. Blackwell, 626 A.2d
1366, 1376 (Del. 1993)).
210
Unocal Corp. v. Mesa Petroleum Co., 493 A.2d 946 (Del. 1985).
In re Santa Fe Pac. Corp. S’holder Litig., 669 A.2d 59, 67 (Del. 1995) (quoting Unitrin,
211
651 A.2d at 1378).
212
Unitrin, 651 A.2d at 1374 (citing Paramount Commc’ns, Inc. v. Time, Inc., 571 A.2d
1140, 1153 (Del. 1990)).
35
reflects that a board of directors took defensive measures in response to a perceived
threat to corporate policy and effectiveness which touches upon issues of control.”213
Under Blasius,214 where the challenged defensive measures were for the “primary
purpose of impeding or interfering with the effectiveness of a shareholder vote,” the
Unocal analysis ratchets up to require defendants to demonstrate a “compelling
justification” for such action.215
This decision first concludes that entire fairness applies to the Stock Sale, and
that the Stock Sale passes entire fairness review. Because the Stock Sale satisfies
Delaware’s most onerous standard of review, this decision does not reach Plaintiff’s
alternative arguments.216
213
Id. at 1372 n.9 (Del. 1995) (citing Stroud v. Grace, 606 A.2d 75, 82 (Del. 1992)).
214
Blasius Indus., Inc. v. Atlas Corp., 564 A.2d 651 (Del. 1988).
215
Liquid Audio, 813 A.2d at 1128 (citing Blasius, 564 A.2d at 659–60).
216
See Unitrin, 651 A.2d at 1377 n.18 (holding that a director can pass Unocal review by
demonstrating that the challenged transaction meets entire fairness because “the directors’
failure to carry their initial burden under Unocal does not, ipso facto, invalidate the board’s
actions” and “once the Court of Chancery finds the business judgment rule does not apply,
the burden remains on directors to prove ‘entire fairness’” (emphasis added)); In re
Gaylord Container Corp. S’holders Litig., 753 A.2d 462, 476 (Del. Ch. 2000) (noting that
“a board that fails to meet its Unocal burden may still prevail by demonstrating that its
actions satisfied the exacting entire fairness test”); Chesapeake Corp. v. Shore, 771 A.2d
293, 333 (Del. Ch. 2000) (noting that “under Unocal, it putatively remains open to the
defendants to demonstrate that the [board action] was ‘entirely fair’ even though their threat
analysis . . . was inadequate”).
36
1. The Stock Sale Is Subject to Entire Fairness Review.
To invoke entire fairness review of the Stock Sale, Plaintiff argues that a
majority of the Board that approved the transaction was interested or lacked
independence from a party who was interested in the transaction.
The concept of “interestedness” encompasses a wide variety of personal
motivations. A personal financial benefit derived from the transaction can certainly
give rise to an improper interest.217 The personal financial benefit must be of
“sufficiently material importance, in the context of the director’s economic
circumstances, as to have made it improbable that the director could perform her
fiduciary duties to the [company] shareholders without being influenced by her
overriding personal interest.”218 But the concept of interestedness is not limited to
financial considerations. “Human relations and motivations are complex,”219 or to
use a millennial generation catch phrase, “it’s complicated.” As this Court explained
in RJR Nabisco, “[g]reed is not the only human emotion that can pull one from the
path of propriety; so might hatred, lust, envy, revenge, or, as is here alleged, shame
217
A “director is interested in a transaction if ‘he or she will receive a personal financial
benefit from a transaction that is not equally shared by the stockholders’ or if ‘a corporate
decision will have a materially detrimental impact on a director, but not on the corporation
and the stockholders.’” In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *6 (Del.
Ch. July 24, 2009) (quoting Rales v. Blasband, 634 A.2d 927, 936 (Del. 1993)).
218
In re Gen. Motors Class H S’holders Litig., 734 A.2d 611, 617 (Del. Ch. 1999).
219
In re S. Peru Copper Corp. S’holder Deriv. Litig., 52 A.3d 761, 778 (Del. Ch. 2011).
37
or pride.”220 “Indeed any human emotion may cause a director to place his own
interests, preferences or appetites before the welfare of the corporation.”221 “A
special case arises when the claimed financial interest is not in the transaction itself,
but is an interest in maintaining the present board in power.”222 Specifically, this
Court has reasoned that it is reasonable to infer that incumbents would not place
effective control of a company in the hands of a third party “without having some
confidence that [the third party] would support their bid for continued
incumbency.”223
“Independence means that a director’s decision is based on the corporate
merits of the subject before the board rather than extraneous considerations or
influences.”224 “This inquiry may include the subject of whether some or all
directors are ‘beholden’ to or under the control, domination or strong influence of a
party with a material financial interest in the transaction under attack, which interest
is adverse to that of the corporation.”225
220
In re RJR Nabisco, Inc. S’holders Litig., 1989 WL 7036, at *15 (Del. Ch. Jan. 31, 1999).
221
Id.
222
Id. at *14.
223
Packer v. Yampol, 1986 WL 4748, at *10 (Del. Ch. Apr. 18, 1996).
224
Aronson, 473 A.2d at 816.
225
Friedman v. Beningson, 1995 WL 716762, at *4 (Del. Ch. Dec. 4, 1995) (citing Rales,
634 A.2d at 936).
38
The board that approved the Stock Sale comprised Schwat, Bonnell, and
Cox.226 Defendants concede that Bonnell was interested because he received a
benefit as the recipient of the stock that was approved.227 Thus, if either Schwat or
Cox was interested or lacked independence from an interested person, the entire
fairness standard applies.
As to Schwat, Plaintiff’s primary theory is that he was interested in the Stock
Sale because it allowed him to preserve his managerial control over the Company.228
By “neutralizing the Custodian Action that was pending against [Schwat]
personally,” Schwat eliminated that concern.229 Defendants respond that Schwat
gained no disabling benefit from the Stock Sale, which diluted Schwat’s own
holdings, harmed his financial interests, and weakened his ability to block
stockholder action.230
While Defendants’ arguments are true in form, the facts reveal that Schwat in
fact had reasons to support the transaction beyond the beneficial business effects
discussed supra Section I.I. This reasoning starts with an obvious observation: the
226
PTO ¶ 27.
227
Defs.’ Pre-trial Br. at 31.
228
Pl.’s Post-trial Opening Br. at 28 (“By definition, all three of the Board members were
interested in the issuance of stock to Mr. Bonnell: the custodian lawsuit threatened to
extinguish their complete control over the Company.”).
229
Id. at 28–29.
230
Defs.’ Post-trial Opening Br. at 37; Defs.’ Post-trial Answering Br. at 26.
39
relief sought in the Custodian Action was invasive from Schwat’s perspective. At
the time Plaintiff filed the Custodian Action, Plaintiff could not reduce Schwat’s
control, terminate his employment, or effect change to any member of Schwat’s
team. The original complaint in the Custodian Action sought to change that by
requesting, among other things, the appointment of a custodian to “exercise full
authority and control over the Company, its operations, and management” and
“continue or terminate the services to the Company of anyone, including present
employees, agents, officers, and directors, as he or she deems appropriate.”231 Put
differently, Plaintiff wanted to give an unknown person all of Schwat’s management
power along with the power to fire Schwat and any UIP employee. Schwat wished
to avoid that.
The next observation is equally uncontroversial: Schwat and Bonnell are good
friends. Schwat testified that “[Bonnell] and I have a relationship that can only be
described as being similar to my marriage.”232 He further testified that he takes
“huge pleasure in [his] ability to leave for three weeks” because he trusts Bonnell’s
stewardship in his absence.233 Bonnell confirmed that their relationship had evolved
231
Custodian Compl. at 13–14.
232
Trial Tr. at 361:7–8 (Schwat).
233
Id. at 320:16–22 (Schwat).
40
from employer-employee to “partner[s].”234 At the June 4 stockholder meeting,
Schwat included Bonnell on his slate of proposed directors.235 Further, from the
inception of Wout’s transition planning negotiation, Schwat and Bonnell appeared
to be aligned in negotiations against Wout.236 They also worked together to develop
the plan to moot the Custodian Action and neutralize the threat of Plaintiff
controlling the Company.237
In the end, Schwat faced a choice between the lesser of evils. He could dilute
his economic and voting power by placing stock in Bonnell’s friendly hands or risk
surrendering power over UIP to an unknown custodian.238 The Stock Sale most
effectively served his personal interest. By placing stock in the hands of his friend,
Schwat quashed any risk, however minimal, of this Court ordering the expansive
234
Id. at 423:4–15 (Bonnell); see also id. at 423:16–425:23 (Bonnell describing co-
management style with Schwat).
235
PTO ¶ 20; JX-52 at 3.
236
See, e.g., JX-6 (Schwat emailing Wout in April 2014 that “[Bonnell] and [Wilkinson]
and I are the best buyers of your shares, and [i]f you wait too long, no one will buy them”);
JX-138 at 1 (Schwat emailing Bonnell separately in June 2014 complaining that Wout was
“going to tank this deal”); JX-23 at 1 (Schwat emailing Bonnell in August 2014 that Wout’s
complaints were “a real problem”).
237
See, e.g., JX-58 (Schwat emailing Bonnell, Smith, Baum and other counsel to discuss
timeline for McLean Valuation); JX-59 at 2 (Baum emailing Schwat and Bonnell, copying
her Pillsbury colleagues, regarding strategy for filing amended answer).
238
See Packer, 1986 WL 4748, at *10 (“[H]uman experience makes it unlikely that [a
company’s] current directors . . . would have conferred significant voting and ‘transaction
blocking’ rights upon [a third party], without having some confidence that [the third party]
would support their bid for continued incumbency.”)
41
relief Plaintiff sought in the Custodian Action and mitigated any pressure from
Plaintiff at the Board level. For these reasons, the Court finds that Schwat was
interested in the Stock Sale.
Whether Cox was interested for the same reasons as Schwat presents a closer
call. He, too, was an officer and an employee of UIP and thus was inclined to favor
the status quo threatened by the Custodian Action. Yet, Cox was not a founder of
UIP, so his desire to maintain power within the Company differed from Schwat’s by
degrees. Further, Plaintiff did not prove that Cox’s personal assets were tied up in
the SPEs serviced by UIP such that control over the operating companies mattered
as much to him. And at trial, Defendants elicited testimony to show that Cox is
independently wealthy such that his financial interests in UIP might not be material
to him, undercutting Plaintiff’s arguments that Cox was beholden to Schwat.239 In
the end, the record is clear as to the conflict of Bonnell and Schwat, and thus, this
decision need not reach a conclusion as to Cox.
Because a majority of the Board was interested in the Stock Sale, Defendants
bear the burden of proving that the Stock Sale passes muster under the entire fairness
standard of review.
239
Trial Tr. at 183:1–9 (Cox describing ownership of 22 Papa John’s pizza stores and a
diversified investment portfolio of stocks and other real estate ventures).
42
2. The Stock Sale Passes Entire Fairness Review.
“The concept of fairness has two basic aspects: fair dealing and fair price.”240
The fair dealing inquiry “embraces questions of when the transaction was timed,
how it was initiated, structured, negotiated, disclosed to the directors, and how the
approvals of the directors and the stockholders were obtained.”241 While “the test
for fairness is not a bifurcated one as between fair dealing and price . . . in a non-
fraudulent transaction we recognize that price may be the preponderant
consideration outweighing other features of the merger.”242 A finding that the
directors “did not follow a fair process does not constitute a separate breach of duty,”
and thus does not compel a finding of fiduciary breach because the inquiry is unitary
in nature.243
a. Fair Process
Plaintiff identifies several defects in the process that she argues compel a
finding of unfairness.244 Certain of these criticisms are more straightforward than
the rest. First, Plaintiff takes issue with the timing of the McLean Valuation because
240
Weinberger v. UIP, Inc., 457 A.2d 701, 711 (Del. 1983).
241
Id.
242
Id.
243
Trados, 73 A.3d at 78 (finding post-trial that transaction ascribing zero value to common
stock was entirely fair despite unfair process). Cf. Kahn v. Tremont Corp., 694 A.2d 422,
432 (Del. 1997) (holding that process was “so intertwined with price” that a finding of fair
price would not allow the defendants to prevail).
244
Pl.’s Post-trial Opening Br. at 30–35.
43
Smith arrived at his valuation over a span of approximately two weeks. To recap,
Defendants engaged Smith and the McLean Group to value UIP on July 16, 2019.245
Smith first issued his valuation of the Company on July 27, 2019, 246 before issuing
an updated report on August 14, 2019.247 Other than unsubstantiated assertions by
Margolin that a forensic accounting was essential to valuing UIP,248 Plaintiff has not
cited to evidence that the timing alone detracted from the McLean Valuation’s
accuracy.
Next, Plaintiff points out that the stock was offered only to a single buyer and
that UIP did not conduct a market check. But Zell credibly summarized the effects
of UIP’s corporate structure: “Given the lack of certainty of income flow and the
short-term, terminable status of the contracts, the service companies have little or no
value to an independent investor or potential purchaser.”249 Given this reality,
Plaintiff’s failure to conduct a “market check” is not a process defect.
245
JX-57; Trial Tr. at 540:5–12 (Smith).
246
JX-262; JX-67.
247
JX-288; JX-66.
248
Margolin opines that a forensic accounting is essential for all fair value determinations,
Trial Tr. at 243:19–244:15 (Margolin), but that overstates Delaware law. Instead, as
discussed below, Plaintiff bears the burden of demonstrating an evidentiary basis from
which the Court can conclude that normalizing adjustments to the cash flow model’s inputs
are necessary. See, e.g., Laidler v. Hesco Bastion Envtl., Inc., 2014 WL 1877536, at *10–
11 (Del. Ch. May 12, 2014) (adopting capitalized cash flow methodology in absence of
forensic accounting).
249
JX-78 at 4; accord id. at 4 (“The UIP Companies owns service companies that were
formed to provide services to investment properties in which UIP’s principals have
44
Further, Plaintiff criticizes that there was no official Board meeting held to
consider the Stock Sale.250 Although this is a genuine concern, it is one with little
heft here. It is doubtful that a meeting of a majority of conflicted directors would
have cured any defects in the process.
Last, Plaintiff attacks Smith’s credibility, arguing that he viewed Plaintiff as
an adversary from the outset, which caused him to issue a results-driven valuation
that artificially suppresses the value of the Company.251 Because the fair price
interests and do not typically provide such services to third-party owners.”); JX-66 at 47,
54 (explaining extent of key person risk inherent in UIP’s business model); Trial Tr. at
495:23–496:19 (Zell testifying: “The issue here is you want to create the most value for
your real estate investment, and so people want to control the property management people
so that they rent the units at the highest possible value. They want the people doing it to
be the people they choose to do it, versus third parties. . . . [UIP] chose to do it themselves,
because they believe that if they could perform better and utilize their [operating]
companies to perform better, what it does is it creates additional value in the SPE.”); id. at
310:20–311:5 (Schwat explaining that the principals operate UIP because “third-party
property management clients are not going to get treated as well” if he does not service
them); id. at 311:6–18 (Schwat explaining that having a “general contractor under our own
roof in our offices gives us the ability to budget projects very early on” which is “the most
valuable aspect of having the construction company under the same roof”); id. at 338:8–11
(Schwat testifying that the value of UIP corresponded to “putting a value on the goodwill
of the two partners”).
250
Plaintiff also argues that one of the directors that approved the Stock Sale, Cox, did so
not because it was in the best interests of stockholders, but because it “effectuate[d] the
spirit of the [T]erm [S]heet.” Trial. Tr. at 202:7–13 (Cox). “A director’s failure to
understand the nature of his duties can be evidence of unfairness.” Trados, 73 A.3d at 62.
But this theory is subsumed by Plaintiff’s general argument that the Board was not an
effective negotiator due to the directors’ disabling conflicts, which the Court has addressed.
251
Cede & Co. v. Technicolor, Inc., 2003 WL 23700218, at *7 (Del. Ch. Dec. 31, 2003)
(describing concerns with valuations based on projections developed after litigation
commences because they are tainted by “hindsight bias and other cognitive distortions”
(quoting Agranoff v. Miller, 791 A.2d 880, 892 (Del. Ch. 2001)), rev’d on other grounds,
884 A.2d 26 (Del. 2005).
45
analysis conducted below relies heavily on the McLean Valuation, Plaintiff’s
arguments regarding Smith’s alleged bias warrant discussion.
It is true that Smith ran Plaintiff’s name as an adversary for conflicts purposes,
but that ministerial best practice hardly impugns his opinion.
It is also true that after Smith issued his original valuation report, he
participated in calls with Schwat, Bonnell, and Defendants’ counsel,252 and
subsequently issued a revised report.253 The revisions, however, did not change the
valuation. The only change brought to light by the parties was Smith’s removal of
language summarizing his belief that the purpose of the UIP corporate structure was
“to provide breakeven profits at the UIP Companies level in order for the underlying
real estate investments to realize more profits.”254
252
JX-265; JX-62.
253
JX-288 (Smith clarifying that “[t]he attached report is our final draft and supersedes the
prior report in order to incorporate . . . some additional language related to the description
of the business”).
254
Compare JX-67 at 7 (“UIP Companies and its subsidiary primarily serve the realty
businesses of its owners, as the majority of the Company’s revenue (over 95%) comes from
SPEs that have Schwat Realty LLC and Coster Realty LLC as equity members. Based on
information provided by management, this business structure is designed to provide
breakeven profits at the UIP Companies level in order for the underlying real estate
investments to realize more profits.”), with JX-66 at 7 (“UIP Companies and its subsidiaries
primarily serve the realty businesses of its owners, as nearly all of the Company’s revenue
comes from SPEs in which the owners are investors. Based on information provided by
management, the vast majority of profits to the owners have been generated through the
SPEs and not UIP Companies, which is not unusual in the industry for tax and other
reasons.”). Unfortunately, neither party elicited trial testimony regarding the reasons for
this change. At his deposition, Smith could not recall the specific changes made as a result
of his call with Schwat. Smith Dep. Tr. (Feb. 14, 2019) at 64:12–22.
46
It is further true that only three days after Smith first corresponded with
Schwat, Smith wrote to a third party and expressed his belief that “there is no value”
to the operating companies of UIP.255 One could view this fact cynically, concluding
that any analysis taken thereafter was results-driven window-dressing on an
uninformed gut reaction. But such a conclusion is not warranted here. Smith is a
senior managing director and holds a number of professional licenses: he is a
certified public accountant, a member of the American Society of Appraisers, a
certified valuation analyst, and a holder of an accredited business valuation from the
American Institute of Certified Public Accountants.256 Smith has extensive
professional experience valuing real estate entities.257 He is exceptionally
knowledgeable about the industry.258 He held informed beliefs concerning UIP’s
type of corporate structure, which he later confirmed at trial.259 Smith’s extensive
knowledge on the profitability of corporations structured like UIP is not a process
defect.
255
JX-56; Trial Tr. at 538:16–23 (Smith).
256
Trial Tr. at 504:2–3 (Smith); id. at 505:6–13 (Smith).
257
Id. at 508:9–21 (Smith).
258
Id. at 506:9–508:21 (Smith explaining how McLean Group conducts “about 300
valuations a year” for clients in the “lower middle-market,” including “a variety of
companies in the real estate sector”).
259
Id. at 539:6–10 (Smith on cross examination, confirming his perspective that “there’s
no material value when you have an SPE structure and property management companies
that serve it, you typically don’t have significant value to the stand-alone operating
company behind it”); id. at 539:13–22 (Smith).
47
Further, Smith’s perspective on UIP’s profitability is not unique. Wout
himself opined in 2014 that “the only real value of UIP [Asset Management, Inc.] is
that it creates promote interests to the owner that are a multiple value of the operating
companies.”260 Wilkinson testified to similar effect,261 and Schwat echoed these
sentiments in 2014 well before any litigation arose.262
Thus, Plaintiff’s attempts to impugn the process by portraying Smith as biased
miss the mark. The Court credits Smith’s valuation and testimony. Although the
procedural process was by no means optimal, Plaintiff’s fair dealing arguments
standing alone do not prove that the price reached was unfair. While “process can
infect price,” Delaware law is clear that “the test for fairness is not a bifurcated one”
and “price may be the preponderant consideration outweighing other features of the
[transaction].”263 With that in mind, the Court moves to evaluating the fair price
inquiry.
b. Fair Price
The fair price inquiry as to the Stock Sale considers “the economic and
financial considerations of the proposed [transaction], including all relevant factors:
260
JX-3 at 1.
261
Trial Tr. at 171:2–9 (Wilkinson noting “the ownership SPE was where the money
was . . . to be made”).
262
JX-6 at 1; see also Trial Tr. at 326:17–22 (Schwat).
263
Weinberger, 457 A.2d at 711.
48
assets, market value, earnings, future prospects, and any other elements that affect
the intrinsic or inherent value of a company’s stock.”264 “The value of a corporation
is not a point on a line, but a range of reasonable values.”265 “[T]he court asks
whether the transaction was one ‘that a reasonable seller, under all of the
circumstances, would regard as within a range of fair value; one that such a seller
could reasonably accept.’”266
“[T]he ‘fair price’ aspect of the unitary entire fairness standard is widely
regarded as requiring a valuation analysis equivalent to the ‘fair value’ inquiry in an
appraisal.”267 “‘The underlying assumption in an appraisal valuation is that the
dissenting shareholders would be willing to maintain their investment position had
the merger not occurred.’ Accordingly, the corporation must be valued as a going
concern based upon the ‘operative reality’ of the company as of the time of the
264
Id.; see Applied Energetics, Inc. v. Farley, 2019 WL 334426, at *7 (Del. Ch. Jan. 23,
2019) (applying Weinberger fair value principles to self-dealing sale of stock); In re Nine
Sys. Corp. S’holders Litig., 2014 WL 4383127, at *38 (Del. Ch. Sept. 4, 2014) (applying
Weinberger fair value principles to a recapitalization where controllers caused company to
issue new classes of stock for inadequate consideration); Union Illinois v. Korte, 2001
WL 1526303, at *7 (Del. Ch. Nov. 28, 2001) (applying fair value principles from appraisal
context to calculate value of stock “which the directors caused to be sold to themselves”).
265
Reis, 28 A.3d at 465 (citing Cede & Co. v. Technicolor, Inc., 2003 WL 23700218, at
*2).
266
Id. at 466 (citing Cinerama, Inc. v. Technicolor, Inc., 663 A.2d 1134, 1143 (Del. Ch.
1994)).
267
Id. at 461; see also Basho Techs. Holdco B, LLC v. Georgetown Basho Invs., LLC, 2018
WL 3326693, at *36 & n.405 (Del. Ch. July 6, 2018) (collecting cases across various
contexts that equate entire fairness inquiry with fair value standard in appraisal).
49
[transaction].”268 “‘Fair value’ should be determined on the basis of future free cash
flows associated with the going concern, including the agency costs inherent in the
enterprise prior to the merger.”269
Defendants argue that the McLean Valuation accurately values the stock.
Plaintiff does not offer her own valuation and instead presents an expert, Dr. Brett
Margolin, to discredit the McLean Valuation.270 Margolin did not review any
materials or evidence in the record other than the McLean Valuation itself.271
i. The McLean Valuation
In undertaking its valuation, the McLean Group interviewed management and
reviewed historical company financial statements, analyzed the state of the real
estate industry and broader national economy, and analyzed any available peer
268
M.G. Bancorporation, Inc. v. Le Beau, 737 A.2d 513, 525 (Del. 1999) (quoting Cede &
Co. v. Technicolor, Inc., 684 A.2d 289, 298 (Del. 1996)).
269
Reis, 28 A.3d at 471 (quoting Lawrence A. Hamermesh & Michael L. Wachter, The
Fair Value of Cornfields in Delaware Appraisal Law, 31 J. Corp. L. 119, 154 (2005));
Gonsalves v. Straight Arrow Publ’rs, Inc., 701 A.2d 357, 363 (Del. 1997) (“[W]here the
corporation’s going forward business plan is to retain the same management, a dissenting
shareholder seeking appraisal may not seek to attribute value to an alternative cost pattern
which may occur post-merger.” (citing Cede & Co. v. Technicolor, Inc., 684 A.2d at 298–
99)).
270
Plaintiff offers Iver Scott, who conducted a valuation of the Company in 2016, as a fact
witness only. Trial Tr. at 50:14–16 (Ross explaining that Plaintiff is “not relying on [Scott]
or his report as an expert report in any fashion” and that Scott is “strictly a fact witness”);
Pl.’s Post-trial Opening Br. at 27, 31–42; Pl.’s Post-trial Answering Br. at 24.
271
Trial Tr. at 548:7–9 (Margolin testifying that his analysis in this case “was much more
of an academic exercise for [him] when [he] wrote [his] report. The only thing [he] looked
at was the McLean [Valuation]”); id. at 550:8–22 (Margolin).
50
companies and comparable company transactions.272 The McLean Group
considered three different valuation approaches: market-based, asset-based, and
income-based.273 It rejected the first two. Smith eschewed a market-based approach
because “none of the selected guideline public companies were directly comparable,
primarily due to their significantly larger size, greater probability, wider geographic
area of operations, more diversified customer base, and breadth of offerings.”274
Smith dismissed the asset-based approach because it resulted in book value of
negative $910,344.275
The McLean Valuation ultimately relies on an income-based approach, the
capitalized cash flow method. A near-cousin of a discounted cash flow analysis,276
the capitalized cash flow method uses “a company’s historical and/or near term
earnings to estimate the future income that will be produced by operations” instead
of relying strictly on projected future income. 277 The model relies on calculating a
normalized EBITDA that a company can reasonably achieve indefinitely,
272
JX-66 at 6.
273
Id. at 8.
274
Id.; Trial Tr. at 518:6–14 (Smith).
275
JX-66 at 8; Trial Tr. at 518:1–5 (Smith testifying that a negative book value was “not
relevant”).
276
JX-66 at 50 (“Capitalized cash flow is an income-based valuation approach and suggests
that a company’s value lays primarily in the future income it produces.”).
277
Id.
51
subtracting out taxes and expected capital expenditures to arrive at free cash flows,
and then applying an appropriate discount rate to those cash flows to determine the
enterprise value of the company.278 After calculating enterprise value, the model
requires subtracting a working capital deficiency and any balance of interest-bearing
debt to arrive at equity value.279
Applying this methodology, the McLean Valuation begins by assuming that
UIP’s steady-state yearly revenue is approximately $30 million, assuming it can
“achieve a revenue level similar to the Company’s [last-twelve-month]
performance.”280 From there, Smith assumes an “implied profit margin of 1%,
which is consistent with market expectations based on the nature of the Company’s
business operations.”281 This leads to a normalized yearly EBITDA of $300,000.282
From this, Smith subtracts depreciation expenses and expected taxes to arrive at an
annual free cash flow figure of $201,320.283
278
Id. at 56.
279
Id.
280
Id. at 51. The Company’s LTM revenue at the time of valuation was approximately $32
million. Id.
281
Id.
282
Id.
283
Id. at 56. Smith enlarges this value to $225,083 using a mid-period adjustment factor,
which assumes that the cash flows are not recognized solely at the end of the year. Id.; see
Laidler v. Hesco Bastion Envtl., Inc., 2014 WL 2873977, at *2 (Del. Ch. June 25, 2014)
(concluding that the Court undervalued the company at issue “in failing to use the mid-
year convention”).
52
The McLean Valuation calculates the capitalization rate by calculating UIP’s
weighted average cost of capital (WACC) and subtracting from that a reasonable
long-term growth rate.284 The WACC calculation allocates 100% of the weight to
equity because according to Smith, any Company debt is personally guaranteed by
Schwat and Bonnell, which causes it to “take on attributes of equity because the risk
of personal loss to the owner.”285 Smith calculates UIP’s cost of equity using three
inputs derived from the Duff & Phelps Cost of Capital Navigator286: a normalized
risk-free rate (3.50%),287 an equity and size risk premium (14.14%),288 and a specific
company and industry risk premium (7.50%).289 The total cost of equity is 25.14%,
which Smith rounds to an even 25%.290 The long-term annual growth rate of 4.0%
is extrapolated from a June 2018 Federal Reserve ten-year forecast, which forecasts
284
JX-66 at 52.
285
Id. at 55 (citing Gary Trugman, Understanding Business Valuation: A Practical Guide
to Valuing Small to Medium Sized Businesses (2002)).
286
This source is not in evidence, but the Court recognizes that Duff & Phelps sources are
routinely relied upon in this Court and the valuation community. See, e.g., In re Appraisal
of Jarden Corp., 2019 WL 3244085, at *44–48 (Del. Ch. July 19, 2019).
287
Smith uses a normalized value because “the current 20-year U.S. Treasury yields are
considered to be abnormally low.” JX-66 at 52.
288
Id. at 53.
289
Smith explains that this risk premium accounts for UIP’s reliance on related-party
transactions for 95% of its revenue; UIP’s reliance on “key person relationships with
[Schwat and Bonnell]”; UIP’s geographic concentration in the Washington, D.C. market;
and UIP’s stable future growth due to the structure of its business. Id. at 54.
290
Id. at 55.
53
average yearly nominal GDP growth of 4.6%.291 Smith calculates an ultimate
capitalization rate of 21%.292
Smith discounts the free cash flows using the capitalization rate to arrive at an
enterprise value of $1,071,822.293 To calculate equity value, he subtracts the
Company’s working capital deficiency ($452,220) and interest-bearing debt
($495,733).294 The McLean Valuation reports a final equity value of $123,869.295
ii. Plaintiff’s Attempts to Discredit the McLean
Valuation
Plaintiff’s chief criticism of the McLean Valuation is that it does not make
normalizing adjustments for what Margolin terms “sub-market pricing” of UIP’s
contracts with the SPEs.296 This Court has recognized that normalizing adjustments
to valuation models might be necessary to correct for “expenses that reflect
controller self-dealing where the plaintiff/petitioner provides an adequate
evidentiary basis for adjustment.”297 “[I]n terms of ensuring that minority
291
Id. at 51.
292
Id. at 56.
293
Id.
294
Id.
295
Id.
296
Trial Tr. at 246:3–248:17 (Margolin); id. at 249:12–21 (Margolin); see also JX-80 at 6–
7. This “sub-market pricing” critique is best viewed as a challenge to the inputs in the cash
flow model.
297
Reis, 28 A.3d at 472 & n.21 (collecting cases where this Court adjusted inputs to cash
flow models to correct for controller self-dealing).
54
stockholders receive their aliquot share of the going concern value of the firm,
interested transactions of this type present difficulties.”298
Smith addressed the reasons why he declined to make normalizing
adjustments to “the revenue stream of the business in the contracts that the company
has with the SPEs.”299 From his perspective, the SPE contracts were part of the
operating reality of UIP, which this Court must consider when determining what a
willing buyer would pay for the Company.300 Smith cited to Schwat’s deposition
testimony that Schwat never sought to minimize revenue flowing to the operating
companies during contract negotiations.301 Schwat explained that any below-market
prices resulted from negotiations against “large investors” who “expect you to
298
Id. at 472.
299
Id. at 528:5–7 (Smith). Smith considered additional adjustments for “nonrecurring or
one-time expense, . . . personal or discretionary expenses, . . . [or] personal expenses going
through the business or charitable contributions or things that a hypothetical willing buyer
would not incur.” Id. at 519:11–18 (Smith). The McLean Valuation makes one
normalizing adjustment for life insurance policies of the principals. Id. at 520:2–10
(Smith).
300
Id. at 528:19–529:3 (Smith); see also Reis, 28 A.3d at 470–71 (declining to apply
normalizing adjustments to expenses that “represent[ed] the operative reality of the
enterprise” and not self-dealing because “a reduction in [those] expense[s] only could be
made by a new controller” and “adjustments to reflect those changes would generate a
third-party sale value, not going concern value”).
301
Schwat Dep. Tr. at 54:20–55:3 (“I think what you’re asking is do I . . . charge lower
fees to a venture to benefit the venture at the expense of the fee company, the property
management or the general contracting, and the answer to that is certainly not.”).
55
charge a competitive rate,”302 and that investors who were repeat clients did entertain
higher service fees charged by UIP.303
Margolin responds that “sub-market pricing” allows UIP “to record at the SPE
level the economic benefits generated by UIP’s activities,” which “artificially
inflat[es] the profit recorded at the SPE level and artificially decreas[es] the profit
recorded by UIP.”304 Margolin claims that a hypothetical investor would not invest
in UIP “for its token cash flows, but for the ability to recognize those higher cash
flows at the SPE level.”305 Thus, he believes that some value of the SPEs should be
attributed to UIP.306
Although Margolin’s criticisms might have some basis in theory, they fail on
the facts because Plaintiff did not demonstrate that the SPE contracts were at sub-
market prices due to the principals’ ownership interests in the SPEs or otherwise.307
302
Id. at 52:1–8.
303
Id. at 52:9–14.
304
Id. (describing “pricing of UIP’s services at below-market rates, as well as intercompany
loans and leases, consulting agreements, compensation and perquisites, and other related-
party transactions”).
305
Trial Tr. at 242:5–9 (Margolin); see also id. at 255:7–17 (Margolin) (“I mean, first of
all, fair market value demands those normalizing adjustments. Secondly, we’re asking
about what somebody would buy into this company if there were a pure financial investor
– if they were purchasing from a pure financial investor and the company was being run at
arm’s length. . . . You must normalize that market ideal.”).
306
Id. at 242:9–10 (Margolin testifying: “Therefore, I’m willing to pay based on the
combined cash flows.”).
307
See Reis, 28 A.3d at 472 (remarking that courts are empowered to “make normalizing
adjustments to account for expenses that reflect controller self-dealing when the
56
In fact, Wilkinson testified in part that Schwat lacked input in the negotiations
concerning a large category of the supposedly sub-market contracts, undermining
any argument that Schwat improperly offered influenced the negotiations of those
contract.308 Plaintiff did elicit on cross examination a concession from Gerard
Heiber, president of UIP General Contracting,309 that the market could bear a higher
fee from an operating company on a single project, the “Boathouse” in Washington,
D.C.310 Heiber testified that UIP General Contracting’s management fee on that
plaintiff/petitioner provides an adequate evidentiary basis for the adjustment.” (emphasis
added)); Montgomery Cellular Hldg. Co., Inc. v. Dobler, 880 A.2d 206, 224 (Del. 2005)
(“To reiterate, where, as here, one side of the litigation presents no competent evidence to
aid the Court in discharging its duty to make an independent valuation, we will defer to the
Vice Chancellor’s valuation approach unless it is manifestly unreasonable, i.e., on its face
is outside a range of reasonable values.”); Zutrau v. Jansing, 2014 WL 3772859, at *39
(Del. Ch. July 31, 2014) (normalizing for controller’s compensation after plaintiff
presented evidence that bonus payments were excessive); see also Laidler, 2014
WL 1877536, at *9 (finding that “the best predictor of future cash flows is past cash flow”
and declining to make normalizing adjustments when the parties did not attempt to quantify
their effects); Hodas v. Spectrum Tech, Inc., 1992 WL 364682, at *4 (Del. Ch. Dec. 8,
1992) (declining to adjust allegedly excessive compensation expense because expert failed
to present market evidence and failed to show that he was otherwise qualified to opine on
the subject). Margolin did not review any evidence in the record except for the McLean
Valuation itself. Trial Tr. at 548:7–9 (Margolin); id. at 550:8–22 (Margolin).
308
Trial Tr. at 168:2–10 (Wilkinson testifying that Schwat “did not have input into the UIP-
GC side of [the] contract negotiation”). Wilkinson was not called as a trial witness in light
of his acrimonious departure from UIP; thus the Court does not have the benefit of a live
credibility assessment. Compare id. at 166:8–12 (Wilkinson testifying he did not believe
his departure from UIP was caused by his “poor performance”), with id. at 351:4–23
(Schwat describing Wilkinson’s alleged poor performance).
309
Id. at 285:5–8 (Heiber).
310
Id. at 291:8–19 (Heiber).
57
project is “2 percent” but that the market could bear a fee of “3 to 4 percent.”311 But
when Heiber attempted to explain why the fee was discounted, Plaintiff’s counsel
did not allow him to elaborate.312 Defendants did not address this line of questioning
on re-direct. In any event, this de minimis correction on a single contract does not
provide an adequate evidentiary basis to support that every SPE contract was a
product of self-dealing.
Plaintiff also criticizes Smith’s chosen expense inputs and claims that they
should be normalized downward. Specifically, Margolin takes issue with the
McLean Valuation for not adjusting salary expenses that are based solely on
“information provided by management.”313 Margolin’s critique amounts to an
assertion that Schwat and Bonnell, as de facto controllers, are paying themselves
above-market salaries and that a hypothetical buyer would correct for this. Smith,
however, did analyze general market compensation trends and interviewed specific
companies regarding their own compensation practices.314 He found that “a
hypothetical buyer would not consider the compensation to be outside of a
311
Id. at 291:14–19 (Heiber).
312
Id. at 293:23–294:3 (Heiber testifying “there is another portion to the fee that [Plaintiff’s
counsel is] not acknowledging” and asking to explain before Plaintiff’s counsel replies “I’d
rather move on to other things, actually”).
313
JX-80 at 6.
314
JX-81 at 6.
58
reasonable range.”315 Again, Plaintiff does not present any evidence to discredit the
reliability of Smith’s market survey.316 Thus, the Court adopts the salary expense as
calculated by the McLean Valuation.
Plaintiff further takes issue with Smith’s application of a specific company
risk premium in his calculation of UIP’s cost of equity. Margolin calls the specific
company risk premium “arbitrary and subjective, unsupported in its magnitude by
any analysis, research, or data.”317 Smith agrees that adjusting for company-specific
risk “is one of the most judgmental areas of business valuation” but claims that his
conclusions are a result of “analytical processes” that evaluated risks related to “key
person, dependency on related projects, 30-day termination clauses, lack of long-
term contracts, lack of infrastructure (and track record) to market and win third party
opportunities, performance risks, among other factors.”318 Margolin opines that the
McLean Valuation overstates key person risk by first “reduc[ing] cash flows to
almost zero” and then “appl[ying] a specific-company risk premium to its cost of
capital.”319 Smith disputes this, reasoning that Schwat and Bonnell “play an active
315
Id.
316
Hodas, 1992 WL 364682, at *4.
317
JX-80 at 9.
318
JX-81 at 11.
319
JX-80 at 9.
59
role in managing the business and without them, the Company’s contracts would
have significant risk of continuing.”320
“A so-called ‘specific-company risk premium’ (SCRP) is added to a discount
rate when valuing an asset ‘to the extent that the company has risk factors that have
not already been reflected in the general equity risk premium as modified by beta
and the small company size premium.’”321 This Court has approached the
application of a specific-company risk premium with skepticism,322 requiring the
proponent to produce evidence on which the Court can base the discount.323 That
said, this Court “recognizes that some level of subjectivity is inherent in the
calculation of SCRP.”324 In this case, Smith studied UIP’s business model and
concluded that it “represents greater risk to potential investors than a company of
similar size.”325 The risk factors warranting this conclusion include:
 The Company was founded to be an operating
company for the owners’ realty businesses, Schwat
Realty LLC and Coster Realty LLC. The vast
320
JX-81 at 12.
321
Gesoff v. IIC Indus., Inc., 902 A.2d 1130, 1157–58 (Del. Ch. 2006) (citing Pratt, The
Lawyer’s Business Valuation Handbook 125 (2000)).
322
See, e.g., Del. Open MRI Radiology Assocs., P.A. v. Kessler, 898 A.2d 290, 339 (Del.
Ch. 2006) (“To judges, the company specific risk premium often seems like the device
experts employ to bring their final results into line with their clients’ objectives, when other
valuation inputs fail to do the trick.”).
323
Gesoff, 902 A.2d at 1159.
324
Id.
325
JX-66 at 54.
60
majority of the Company’s revenue (over 95%)
comes from this related party relationship.
 The entities’ client relationships are also based on
underlying key person relationships with the
principals.
 Management confirmed that multiple lending banks
are contracted with Mr. Schwat and Mr. Bonnell in
joint venture agreements that relate to their real
estate holdings. . . . . If Mr. Schwat and Mr. Bonnell
are not active in the business, the equity
investors . . . can change the firm(s) engaged to
provide the aforementioned services in relation to
the underlying investments.
 The Company is geographically concentrated in
Washington, D.C., and as such, is subject to the
risks specific to that location and fluctuations in its
real estate market.326
Given UIP’s unique circumstances as almost wholly dependent on the SPEs
and Schwat and Bonnell for its revenue, the Court finds that Defendants have met
their burden of showing that a specific-company risk premium is necessary in this
case.
Margolin additionally attacks other aspects of the McLean Valuation in a
theoretical dart throwing exercise that seemed untethered to any real world
considerations, including the practical effect of these criticisms on the fairness of the
price.327 Plaintiff abandoned these additional criticisms in post-trial briefing by
326
Id.
327
JX-80 at 8–9.
61
failing to address them. This decision declines to adopt Margolin’s additional
criticism for these reasons, but catalogues them below toward the goal of
completeness.
First, Margolin argues that Smith’s decision to use a normalized risk-free rate
instead of a spot 20-year Treasury rate overstates the cost of equity.328 Margolin
asserts that the spot 20-year Treasury rate is “literally the only way to measure the
risk-free rate.”329 Smith responds by citing Duff & Phelps’ explanation that when
“risk-free rates appear to be abnormally low . . . , valuation analysts may want to
consider normalizing the risk-free rate.”330
Second, Margolin argues that Smith used a historical equity risk premium and
should have used a supply-side equity risk premium in order to have an “apples-to-
apples comparison.”331 Smith responds that the Duff & Phelps dataset on which he
relies does incorporate a supply-side equity risk premium, mooting Margolin’s
concerns.332
328
Id. at 8; Trial Tr. at 258:14–260:22 (Margolin).
329
Trial Tr. at 260:19–20 (Margolin).
330
JX-81 at 10; Trial Tr. at 532:16–20 (Smith) (“The underlying economic theory is that
our economy, since the financial crisis, has – interest rates have been supported by the
Federal Reserve. It’s an unusual financial market that we are in.”).
331
Trial Tr. at 261:7–15 (Margolin).
332
JX-81 at 9. See In re Appraisal of SWS Gp., Inc., 2017 WL 2334852, at *16 (Del. Ch.
May 30, 2017) (adopting supply-side equity risk premium and commenting “there is no
basis in the factual record to deviate from what this Court has recently recognized as
essentially the default method in these actions”).
62
Third, Margolin complains that Smith used a normalized risk-free rate but did
not normalize the equity-risk premium.333 Smith responds that Margolin
misunderstands the methodology and that his calculation is in fact an “apples-to-
apples calculation” prescribed by Duff & Phelps.334 Margolin testified that he
performed cursory research of the Duff & Phelps data to verify his criticisms, but he
did not testify to any exact corrections he would make to Smith’s model.335
Although each of these three additional criticisms might carry weight in other
circumstances, the Court declines to adopt them here, and is satisfied that in the
circumstances of this case, Smith’s approach generated a reliable indicator of UIP’s
value.
Notwithstanding the weight of the McLean Valuation, Plaintiff argues that
contemporaneous conflicting valuations cast doubt on the validity of the McLean
Valuation. In June 2018, in order to obtain financing for one of his real estate
development projects, Schwat submitted to his lender a signed statement of assets
that valued his interest in UIP at $2.125 million.336 This, coupled with the figure
used in the Term Sheet, would imply that Schwat believed the value of the Company
333
Trial Tr. at 261:20–262:11 (Margolin).
334
Id. at 533:3–10 (Smith).
335
Id. at 261:20–262:11 (Margolin testifying that he “went through a simple Google of
information just to make sure I am right” and concluding from there that “it is exactly what
my understanding was, it’s exactly what I thought I read in the Duff & Phelps book”).
336
JX-53; Trial. Tr. at 410:2–411:1 (Schwat).
63
was $4.25 million at that time. Plaintiff argues that Schwat only updated this value
with his bank on November 29, 2018, three days after Plaintiff had served a
subpoena on the bank.337 At trial, Schwat did not recall the timeline on which he
updated his personal balance sheet, but he did testify that the $4.25 million valuation
was from April 2014.338 He also testified that he and Wout calculated this value
themselves rather than hire a valuation professional, and that they did so not by
examining the fundamentals of the business, but by projecting their combined
salaries out over six years.339 This approach was idiosyncratic to UIP’s principals at
the time and unmoored from any valuation principles relevant to this proceeding.
Thus, this decision declines to rely on it as evidence of UIP’s fair value.
c. The Stock Sale Is Entirely Fair.
To summarize, despite Plaintiff’s attacks on the credibility and accuracy of
the McLean Valuation, the Court finds that it is the most reliable indicator of the fair
value of UIP as of the date of the Stock Sale. In light of all the evidence, Defendants
have carried their burden of proving that the price of the Stock Sale based on the
McLean Valuation falls within a range of reasonable values. Thus, Defendants have
337
Dkt. 41, Notice of Subpoena Duces Tecum to BMO Capital Markets Corp.; see Dkt. 42
at 5 (indicating subpoena was served on Nov. 26, 2018); see also Trial Tr. at 411:8–18
(Schwat).
338
Trial Tr. at 410:21–411:1 (Schwat).
339
Id. at 331:15–332:9 (Schwat).
64
met their burden to show that the Stock Sale satisfies the entire fairness standard.
Because Defendants have met their burden, “they have demonstrated that they did
not commit a fiduciary breach.”340
B. The Court Declines to Appoint a Custodian.
Plaintiff requests the appointment of a custodian under Section 226(a)(1),
which presumes stockholder deadlock.341 Plaintiff has not made the requisite
showing to justify the expansive relief she requests.342 Because this decision holds
that the Stock Sale satisfies entire fairness and must stand, it may not assume that
the stockholders are currently deadlocked. Thus, the Court declines to appoint a
custodian pursuant to Section 226(a)(1).
At times, Plaintiff appears to argue that Defendants’ conduct warrants the
appointment of a custodian even absent a stockholder deadlock. Plaintiff has failed
to prove that Defendants committed any act justifying the imposition of a custodian
340
Trados, 73 A.3d at 78; see id. (“Under the circumstances of this case, the fact that the
directors did not follow a fair process does not constitute a separate breach of duty.”).
341
See 8 Del. C. § 226(a)(1).
342
Custodian Compl. at 13–14 (praying for custodian to “exercise full authority and control
over the Company, its operations, and management; exercise all other rights, powers, and
privileges of a Director of the Company; retain advisors as the Custodian deems necessary
in carrying out his or her duties; command and receive full and unrestricted access to any
and all books and records of the Company; create a current consolidated financial statement
for the Company; create a retrospective financial statement for the Company; and continue
or terminate the services to the Company of anyone, including present employees, agents,
officers, and directors, as he or she deems appropriate”).
65
over UIP. Fairness and justice do not compel the appointment of a custodian,
particularly one with such broad authority sought by Plaintiff.
III. CONCLUSION
For the foregoing reasons, the Court enters judgment in favor of Defendants.
Plaintiff’s request for attorneys’ fees is therefore denied.
66