Spurning a shareholder challenge to Kenneth Cole’s efforts to take his clothing and footwear company private, a New York state appellate court has ruled for the first time that judges should apply the the management-friendly business judgment rule to assess such transactions, provided that certain protections are in place for minority shareholders. In a concise four-page ruling, the New York Appellate Division’s First Department rejected the plaintiff’s argument that it should use the more stringent and complicated “entire fairness” test.
The Nov. 20 ruling comes seven months after the Delaware Supreme Court held in Kahn v. M&F Worldwide that courts should use the business judgment rule to review going-private deals, provided that they contain the same features to protect minority shareholders. Thursday’s ruling is the first by a New York court to reach that conclusion.
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