A New York appellate court has upheld the dismissal of a lawsuit filed by former minority shareholders of Avangrid, Inc. The case, known as Matter of Avangrid, Inc., Shareholder Litig., was decided on June 30, 2026, by the Appellate Division of the Supreme Court of the State of New York. The court's ruling affects shareholders who alleged that the company's directors and financial advisors breached their fiduciary duties during a buyout.
The lawsuit arose after Iberdrola, S.A., Avangrid's parent company, initiated a buyout of the remaining outstanding shares of Avangrid. The former minority shareholders claimed that the directors and CEO of Avangrid, along with the financial advisor Moelis & Company LLC, failed to act in the best interests of the shareholders. They argued that the court should have applied a stricter standard of review to the transaction, as they believed the defendants did not meet certain procedural safeguards.
The plaintiffs contended that the court should have used the entire fairness standard of review, as outlined in the case of Kahn v. M & F Worldwide Corp. and adopted by the New York Court of Appeals in the case of Matter of Kenneth Cole Prods., Inc., Shareholder Litig. They alleged that the defendants did not adhere to the necessary conditions for applying the business judgment rule, which would allow the court to defer to the decisions made by the company's board.
The Appellate Division, which included judges Scarpulla, González, Rodriguez, Higgitt, and Hagler, unanimously affirmed the lower court's decision to dismiss the complaint. The court ruled that the plaintiffs did not sufficiently demonstrate that the defendants failed to meet the requirements for the business judgment rule to apply. The court stated, "the transaction was conditioned on the approval of the Unaffiliated Committee and a majority of the minority shareholders, and the minority vote was not coerced." This ruling indicates that the court found the procedural safeguards were adequately followed.
The court also addressed the independence of the Unaffiliated Committee, which was responsible for overseeing the buyout process. The plaintiffs argued that the committee members were not independent due to their connections with Iberdrola. However, the court found that the plaintiffs did not allege that the committee lacked the ability to reject the buyout offer or that they failed to negotiate a fair price. The court emphasized that the independence of committee members is determined by whether their discretion is compromised by the controlling party.
Judge Scarpulla noted, "the question is whether a director is beholden to the controlling party or so under that party's influence that the director's discretion would be compromised." The court concluded that the committee members' continued presence on Avangrid's board after the buyout did not strip them of their independence. The court also dismissed concerns about the committee's mandate to consider Iberdrola's interests, stating that it did not affect their independence.
This ruling has significant implications for shareholders and corporate governance. It reinforces the application of the business judgment rule in corporate buyouts, which allows company boards to make decisions without court interference as long as certain conditions are met. The decision suggests that courts may be reluctant to intervene in corporate transactions if the procedural safeguards are followed, providing a level of protection for directors and companies against shareholder lawsuits.
The outcome of this case may also influence future shareholder litigation involving buyouts and fiduciary duties. It highlights the importance of establishing clear and independent processes during such transactions to avoid legal challenges. Shareholders may need to be more vigilant in ensuring that their interests are adequately represented during corporate buyouts.
Looking ahead, it is unclear whether the plaintiffs will seek to appeal this decision to a higher court. The ruling has set a precedent for how similar cases may be handled in the future, particularly regarding the application of the business judgment rule and the independence of corporate committees. Details were not available in the court filing regarding any related cases or potential appeals.