The opinion of the court was delivered by: STERN
An expensive and bitter proxy contest for control of New Jersey Resources Corporation is the backdrop for the renewed warring in this Court. Faced today with a number of motions from all parties, we hold that plaintiff, whose slate of nominees was defeated in the election following the proxy battle, is entitled to a new election. We base our decision on our finding that a recently enacted state statute affecting proxy solicitation, lobbied for and promoted by New Jersey Resources Corporation, is unconstitutional.
NUI Corporation ("NUI") and New Jersey Resources Corporation ("NJR") are publically-owned exempt public utility holding companies organized under the laws of New Jersey, whose stocks are traded on the New York Stock Exchange. NUI, engaged primarily in the discovery, development and distribution of natural gas, has as its principal subsidiary Elizabethtown Gas Company. NJR, engaged in similar activities with respect to natural resources, has as one of its principal subsidiaries New Jersey Natural Gas Company. The shareholders of these two corporations reside in various states and foreign countries. NUI owns approximately 155,488 shares of NJR's common stock, which represents less than 5% of NJR's outstanding stock.
On November 16, 1983, NUI proposed a merger to the management and Board of Directors of NJR, which offer was rejected one week later. NUI made another offer on November 30 to negotiate a merger, on terms it deemed to be more favorable to NJR, but this too was turned down by NJR on December 1. On this same day, NUI announced its intention to solicit proxies for the election of seven NUI nominees to the eleven-member NJR Board at the annual shareholders meeting of NJR scheduled for January 6, 1984 (subsequently rescheduled to February 2, 1984). NUI states that its express purpose for soliciting proxies was to elect a majority of NJR Directors favoring an NUI-NJR merger.
The proxy battle that began on December 1, 1983, perhaps the costliest in New Jersey history, was fiercely contested. It is plaintiff's contention that during the two-month course of this contest, two interrelated series of events ultimately caused NUI to lose its bid for control of NJR. First, NUI alleges that from the time it announced its intention to solicit proxies through the election date, NJR engaged in a pattern of conduct that was designed to, and did in fact, materially confuse and mislead NJR shareholders, in an effort to defeat NUI's attempt to elect a majority of directors in favor of a merger. Second, NUI asserts that N.J. Stat. Ann § 48:2-51.1, titled "An Act concerning the acquisition of control of public utilities, and supplementing Title 48 of the Revised Statutes" ("the statute"), passed on January 31, 1984, is unconstitutional, and that its enactment contributed to NUI's defeat in the election held two days later. Even if the statute is constitutional, NUI contends that the election must be invalidated due to NJR's failure to comply with its terms.
B. December 1, 1983 - January 29, 1984
Following NUI's announcement that it would solicit proxies to elect a pro-merger slate of NJR directors, NJR filed a petition with the New Jersey Board of Public Utilities ("BPU") on December 7, 1983, in which NJR alleged that NUI's proxy solicitation was illegal and should not be permitted without BPU approval. It appears that NJR based its petition upon two existing statutes -- N.J. Stat. Ann. §§ 48:3-7, 3-10 -- which provide that no public utility shall merge its property or franchise with any other public utility, nor transfer on its books a change in majority ownership of its stock to any corporation without approval by the BPU.
On December 20, 1983, NJR filed an emergent petition with the BPU seeking to restrain NUI from continuing its proxy solicitation in the absence of BPU permission. After a hearing held on January 17, 1984, at which NUI argued, among other things, that § 48:3-10 did not require BPU approval of NUI's proxy solicitation, NJR withdrew its request that the BPU restrain NUI from further proxy solicitation. By order of January 27, 1984, the BPU denied NJR's request that the shareholder meeting be delayed until the BPU passed on the merits of a proposed merger of the holding companies and their utility subsidiaries. The BPU ruled that it had jurisdiction to approve or disapprove a merger at a time following the scheduled February 2, 1984 election.
During the course of these BPU proceedings, plaintiff alleges that NJR engaged in a campaign of misleading proxy solicitation, focused primarily on the attempt to create the impression among shareholders that NUI's efforts to elect its nominees, and ultimately to effect a merger, were illegal. Plaintiff points to a proxy solicitation letter dated January 5, 1984, which stated in bold print: "DON'T BE MISLED -- NUI HAS NOT AND CANNOT LEGALLY MAKE AN OFFER TO BUY YOUR STOCK AND MAY NEVER BE ABLE TO." In smaller print the letter noted that NUI could only make its definitive merger offer if a number of conditions were met, including BPU approval, shareholder ratification, and antitrust clearance from the Department of Justice and Federal Trade Commission. The letter also noted that NJR had petitioned the BPU to consider whether NUI could proceed with its proxy solicitation.
On January 23, 1984, NJR broadcast an advertisement on WINS radio station in New York, in which NJR President Dolan stated:
NUI Corporation has launched a costly proxy contest to take control of New Jersey Resources. NUI says that it wants to merge the two companies, but the fact is that NUI has not made a legal offer to buy your stock, and may never be able to.
The rest of the statement was devoted not to explaining the basis for doubting the legality of the merger, but instead to outlining NJR's position that the business prospects of the company would be brighter in the absence of a merger.
NUI charges that NJR, in addition to creating the false spectre of NUI's unlawfulness, openly campaigned for the passage of N.J. Stat. Ann. § 48:2-51.1, and, moreover, actively promoted to its shareholders the fact that the legislation was pending and that such legislation might preclude NUI's participation in the proxy contest. NUI cites a January 27, 1984 press release issued by NJR that purportedly conflates the BPU's January 27 ruling and the existence of the pending legislation in a way that would mislead shareholders with respect to NUI's proxy activities.
As further examples of misleading proxy material issued by NJR, NUI cites NJR's December 21, 1983 proxy solicitation letter quoting a Standard & Poor's announcement which placed Elizabethtown Gas Company and New Jersey Natural Gas Company on its "Credit Watch" due to "negative credit implications" resulting from the proposed NUI-NJR merger. NUI claims that the proxy letter was misleading in that it failed to include the additional statement in the Standard & Poor's announcement that "the combined entity would benefit from a more diversified long-term gas supply position."
Plaintiff also alleges that NJR, in proxy material placed in newspaper advertisements, made reference to a January 13, 1984 Value Line Investment Survey report which stated, "NUI's stock has little appeal at the present time in our opinion" and that NUI's "prospects to 1986-88 are far from clear." On January 27, however, Value Line issued a supplemental report on NUI, concluding in part that NUI stock was expected to be "an above-average performer over the next 12 months." NUI argues that NJR's failure to correct its prior advertisements, and NJR's practice of continuing to run advertisements quoting the initial Value Line report after the supplemental report was issued, were misleading to shareholders.
C. January 30 - February 2, 1984
On January 30, 1984, the New Jersey legislature passed Assembly Bill A-826, which was signed into law on January 31 by the Governor of New Jersey. The Bill, now codified at N.J. Stat. Ann. § 48:2-51.1, provides as follows:
AN ACT concerning the acquisition of control of public utilities, and supplementing Title 48 of the Revised Statutes.
BE IT ENACTED by the Senate and General Assembly of the State of New Jersey:
1. No person shall acquire or seek to acquire control of a public utility directly or indirectly through the medium of an affiliated or parent corporation or organization, or through the purchase of shares, the election of a board of directors, the acquisition of proxies to vote for the election of directors, or through any other manner, without requesting and receiving the written approval of the Board of Public Utilities. Any agreement reached, or any other action taken, in violation of this act shall be void. In considering a request for approval of an acquisition of control, the board shall evaluate the impact of the acquisition on competition, on the rates of ratepayers affected by the acquisition of control, on the employees of the affected public utility or utilities, and on the provision of safe and adequate utility service at just and ...