Power Players / Power Struggle: First Department Affirms Dismissal Of Shareholder Class Action Challenging Energy Company’s Take-Private Merger

Let’s say you are a minority interest holder facing a squeeze-out merger. If someone else controls the process, the price, and the paperwork, how do you know the deal was fair? Can a minority shareholder that also holds a meaningful stake in the controller really be counted among the “disinterested” minority? How much independence is independent enough when a controlling shareholder takes a company private? Those questions and concerns sit at the center of today’s case, In re Avangrid, Inc. Shareholder Litigation, 250 AD3d 650 (1st Dept 2026).

Avangrid, Inc.

Avangrid, Inc. is a New York-based utility holding company operating in electric transmission, natural gas, and renewable energy. Its controlling shareholder, Iberdrola, S.A.—a Spanish energy multinational—owned roughly 81.6% of its stock.

Among the 18.4% minority is DeKalb County Employees’ Retirement System and AQR Capital Management (the lead plaintiffs in the shareholder class action). Among the minority is also Qatar Investment Authority (“QIA”), which held approximately 8.7% of Iberdrola and 3.7% of Avangrid.

The Take-Private Merger

In early 2024, Iberdrola proposed to acquire the remaining 18.4% of shares in a squeeze-out merger.

A 2015 Shareholder Agreement between Avangrid and Iberdrola required that any going-private transaction be conditioned on (a) approval by a committee of independent directors unaffiliated with Iberdrola, and (b) a majority-of-the-minority shareholder vote.

Iberdrola initially proposed $34.25 per share.

The Committee then met seventeen times, retained Moelis & Company as its financial advisor (after contacting eight firms and interviewing four), and engaged Paul Weiss as its legal counsel. Moelis delivered a fairness opinion that the $35.75 per-share consideration was fair from a financial point of view to unaffiliated shareholders.

The Committee accepted the final price of $35.75 per share plus continued regular dividends.

The shareholders voted to approve in the majority-of-the-minority vote, and the merger closed on Christmas Eve-Eve, December 23, 2024.

The Lawsuit

DeKalb County Employees’ Retirement System and AQR Capital Management, led the charge on behalf of a class of minority shareholders, filing suit to challenge the merger. The heart of their case rested on two beats.

First, they targeted the majority-of-the-minority vote. QIA (which, again, owned about 8.7% of Iberdrola and 3.7% of Avangrid) voted in favor of the merger. Plaintiffs argued that QIA’s significant economic interest in Iberdrola effectively aligned it with the controller, and that Iberdrola’s refusal to exclude QIA from the minority vote rendered the entire majority-of-the-minority condition a sham.

Second, they challenged the Committee’s independence. The complaint alleged that Iberdrola dominated Avangrid’s Board, and therefore it was critical that the Committee function independently so that the minority shareholders received fully informed material disclosures in connection with their voting rights. Plaintiffs claim that the Committee members, however, had personal and professional ties to Iberdrola’s CEO, citing political relationships, public praise, and, in one case, a described “friendship”.

Plaintiffs also took aim at the Committee’s mandate, which they said required the committee to consider Iberdrola’s interests while negotiating against Iberdrola—a structural conflict. And they alleged that Moelis itself had ties to Iberdrola.

Ultimately, Plaintiffs allege that Iberdrola acquired the remaining minority interest in Avangrid at an unfairly low price and the transaction should be viewed under the “entire fairness” standard rather than the deferential business judgment rule.

Justice Borrok Dismisses the Complaint In Its Entirety.

The case landed on the desk of New York Commercial Division Justice Andrew Borrok. Defendants moved to dismiss.

The court applied the framework established in In re Kenneth Cole Prods., Inc., S’holder Litig., 27 NY3d 268 (2016) (applying the seminal Delaware case Kahn v M & F Worldwide Corp., 88 A.3d 635 (Del. 2014)), and held that under Kenneth Cole / MFW, interested-controller going-private mergers are generally subject to entire fairness review but may receive business judgment rule protection if and only if six enumerated safeguards are present:

1. The controller conditions the procession of the transaction on the approval of both a Special Committee and a majority of the minority stockholders;
2. The Special Committee is independent;
3. The Special Committee is empowered to freely select its own advisors and to say no definitively;
4. The Special Committee meets its duty of care in negotiating a fair price;
5. The vote of the minority is informed; and
6. There is no coercion of the minority.

Justice Borrok went through each of the factors and found that Plaintiffs failed to adequately allege the absence of these safeguards.

Some highlights:

Majority-of-the-Minority Vote / QIA. The court rejected plaintiffs’ argument that QIA’s inclusion invalidated the vote, noting that the merger would have passed even excluding QIA (albeit by a narrow margin), that QIA had initially publicly objected to Iberdrola’s offer as too low, and that Moelis opined the transaction was fair.

Committee Independence. The court found that allegations regarding the Committee members—including political relationships, prior public praise of Iberdrola’s CEO, personal friendships, receipt of ordinary board compensation, and post-merger board service—were insufficient to establish that any Committee member’s discretion was compromised or that the member was beholden to Iberdrola.

Advisor Selection. The court found that the Committee’s extensive process—contacting eight financial firms, interviewing four, and engaging Moelis only after considering independence, qualifications, experience, and potential conflicts—established that the Committee was empowered to freely select advisors. Likewise, the selection of Paul Weiss was only after considering each interviewed firm’s “independence, expertise, qualifications, experience, and potential conflicts.”

Coercion. Relying on Baltic Trading Ltd. v. Genco Shipping & Trading Ltd., the court framed the coercion question as whether voting shareholders could reject the deal and maintain the status quo. QIA’s inclusion thus did not render the vote coercive.

Having concluded that Plaintiffs failed to allege facts showing that any of the six Kenneth Cole / MFW procedural safeguards were not satisfied, and in the absence of allegations of fraud or bad faith, the business judgment rule applied. The court therefore dismissed the complaint in its entirety.

Plaintiffs appealed.

First Department Unanimously Affirms Dismissal.

Plaintiffs fared no better before the First Department, which unanimously affirmed dismissal with costs.

Like the Motion Court, the First Department held that Plaintiffs did not sufficiently allege noncompliance with Kenneth Cole/MFW. The court held that QIA could be included in the majority-of-the-minority vote without coercing the minority; that alleged friendships and personal relationships were insufficient to demonstrate that the directors was “beholden to the controlling party or so under [its] influence that [the director’s] discretion would be sterilized”; that Plaintiffs did not allege that the Committee lacked the power to say no or otherwise failed to satisfy its duty of care; and that the Committee’s advisor-selection process supported the conclusion that it freely selected its advisors.

Plaintiffs Seek Leave to Appeal.

Plaintiffs now seek leave to appeal to the New York Court of Appeals.

Plaintiffs frame the following questions for the Court of Appeals:

1. Whether the first Kenneth Cole condition is satisfied when the controller refuses to exclude from the majority-of-the-minority vote a large shareholder with significant economic ties to the controller;
2. Whether the sixth Kenneth Cole condition is satisfied where the disclosed vote structure allegedly requires a supermajority of unaffiliated public shareholders to block the merger; and
3. Whether the second Kenneth Cole condition is satisfied where plaintiffs allege the majority of the Committee and its financial advisor were financially aligned with Iberdrola and the Committee was required to consider Iberdrola’s interests.

Plaintiffs argue these issues are novel and of significant public importance, characterizing the QIA ownership question as one of first impression in New York and contending that the absence of appellate guidance leaves courts and practitioners without a clear framework for shareholder-vote independence in controller transactions.

Will the Court of Appeals Bite?

If I had to guess, my money is on no.

First, unless you were handed a split appellate decision (with the accompanying the golden ticket of an appeal as of right), getting a foot in the door of New York’s court of last resort is tough. According to the Court of Appeals’ published 2025 Annual Report, the Court granted leave to just about 5% of cases (119), 79 of which were civil appeals.

Plaintiffs have a genuinely interesting question, and my ears always perk up when I hear “issue of first impression.” Do I personally think that the Committee was truly truly independent and unaffected? Eh. But that intersection of relationship building and deal-making is an inevitable, inextricable part of doing business, and rarely reflects a platonic ideal. The question for the courts is not whether the process was perfect, but whether the safeguards were sufficient to warrant judicial deference.

Interesting does not always mean leave-worthy. Here, the Motion court and the Appellate Court were aligned in their reasoning and result. The case was decided on the facts / allegations, and not on unsettled law.

Procedural safeguards, like those articulated in Kenneth Cole/MFW, are designed protect minority shareholders while allowing business decisions to move forward, even if imperfect or a little messy. Here, at least in the eyes of the court, Avangrid and Iberdrola did enough to earn that deference, even if some minority interest holders were left unhappy with the outcome.

Plaintiffs’ motion for leave is returnable on August 31, 2026, so we will find out soon enough if the Court of Appeals will weigh in.

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