## Facts

- Kenneth Cole Productions, Inc. (KCP) was a New York corporation with dual-class stock: publicly traded Class A shares (one vote each) and Class B shares (ten votes each) held entirely by Kenneth D. Cole.
- Cole held approximately 89% of KCP’s voting power, making him the controlling shareholder.
- In February 2012, Cole informed KCP’s board that he intended to pursue a going-private transaction to acquire the publicly held Class A shares.
- After Cole left the meeting, the board formed a special committee of directors to evaluate and negotiate the transaction.
- Cole made a written proposal to buy the Class A shares for $15.00 per share, conditioned on (i) approval by the special committee and (ii) approval by a majority of the minority shareholders.
- After negotiations, the special committee recommended a deal at $15.25 per share; the merger was approved, including by a majority-of-the-minority vote (about 99.8% of minority shares voting).
- Minority shareholders brought a class action alleging breaches of fiduciary duty by Cole and the directors, challenging the committee’s independence and the fairness of the process (including alleged failures to seek other bids).
- The trial court dismissed for failure to state a claim, applying the business judgment rule; the Appellate Division affirmed.

## Issues

1. What standard of review governs a controlling-shareholder going-private merger when, from the outset, the controller conditions the deal on both special committee approval and a majority-of-the-minority vote.
2. Whether plaintiffs stated a claim sufficient to avoid business judgment deference at the pleading stage and require entire fairness review.

## Decision

- The Court of Appeals affirmed dismissal of the complaint.
- It adopted Delaware’s MFW framework for New York law governing controller going-private mergers.
- When specified shareholder-protective conditions are present from the beginning of the process, the business judgment rule applies; otherwise, entire fairness applies.
- On the pleadings and incorporated materials, plaintiffs did not allege particularized facts showing failure of the MFW conditions (including committee independence, committee authority and care, or an uninformed or coerced minority vote).

## Legal Principles

- New York applies business judgment review (rather than entire fairness) to a controlling-shareholder going-private merger if, from the outset, the transaction is conditioned on both:
  - Approval by an independent, disinterested special committee with real bargaining power; and
  - An informed, uncoerced majority-of-the-minority vote.
- For business judgment review to apply, the following must be satisfied:
  - The controller requires both protections ab initio.
  - The special committee is independent.
  - The committee may retain its own advisors and can definitively say no.
  - The committee meets its duty of care in negotiating.
  - Minority stockholders receive adequate information.
  - Minority approval is not coerced.
- At the motion-to-dismiss stage, conclusory allegations are insufficient to trigger entire fairness; plaintiffs must plead specific facts showing the protective conditions were absent or defective.
- Prior New York precedent requiring fairness scrutiny in other freeze-out settings did not control a single-step controller merger structured with these dual protections.

## Conclusion

The Court of Appeals held that a controlling-shareholder buyout conditioned from the outset on both independent special committee approval and an informed, uncoerced majority-of-the-minority vote is reviewed under the business judgment rule, and it upheld dismissal because the complaint did not plead specific facts showing those protections failed.


In re Kenneth Cole Prods., Inc. S'holder Litig., 27 N.Y.3d 268, 52 N.E.3d 214 (N.Y. 2016)