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LONG ISLAND LIGHTING CO. v. BARBASH

November 8, 1985

LONG ISLAND LIGHTING COMPANY, Plaintiff
v.
MAURICE BARBASH, NORMAN E. BLANKMAN, NORA BREDES, ELAINE BENSON, LEON CAMPO, BILL CHALEFF, FRAZER DOUGHERTY, JACK HOHENBERGER, DAN GLUCK, LEONARD GOLDSCHMIDT, LOU GRASSO, JOSEPH KAUFMAN, NANCY KELLY, IRVING LIKE, SHARON LUSCOMBE, WILLIAM MARRAN, WILLIAM MASSINO, EDWARD McGOVERN, ARTHUR METZGER, DEBORAH PERRY, NATHAN PITT, CLAIR SIEGAL, ALEX SNEDDON, JUDITH SNEDDON, ROBERT SNYDER, TOM TWOMEY, DAVE WILLMOTT, JOHN W. MATTHEWS, and ISLAND INSULATION CORP., Defendants.



The opinion of the court was delivered by: WEINSTEIN

WEINSTEIN, Ch. J.

PRELIMINARY MEMORANDUM DISMISSING COMPLAINT

 Plaintiff, the Long Island Lighting Company, seeks to enjoin defendants from publishing a newspaper advertisement advocating public ownership of plaintiff's property. LILCO contends that the advertisement constitutes an improper proxy solicitation within the meaning of Securities and Exchange Commission regulations. The utility alleges that continued publication threatens to affect a proxy fight for control of the company in a way that will cause irreparable harm to its standing within the financial community.

 As indicated below, the case must be dismissed. SEC regulations do not prevent such advertisements, nor could they without violating fundamental First Amendment rights of free speech.

 I. FACTS

 Plaintiff LILCO, a New York corporation engaged in the generation, transmission and distribution of electrical power to some three million residents and many commercial, industrial and governmental establishments in three New York counties, seeks to enjoin the publication of an advertisement (Appendix A) sponsored by Citizens to Replace LILCO. The named defendants in this suit, with the exception of Matthews and Island Insulation Corp., are all members of Citizens' steering committee. Defendant Matthews was, until November 5, a candidate for Nassau County Executive; he is the president and sole shareholder of Island Insulation Corp. and the self-styled leader of a proxy fight being waged against LILCO's current management. Matthews personally holds 100 shares of LILCO preferred stock and controls the common shares held by Island Insulation. There is no dispute that these shares were properly used to initiate the proxy contest.

 Citizens was created before this controversy began as one response to the growing dissatisfaction by some segments of the community with LILCO's construction of the Shoreham atomic energy plant, its service and its rates. Federal, state, and local government officials have participated in this energetic public debate. See, e.g., Newsday, Nov. 1, 1985, at 3, 27. Citizens is dedicated to converting LILCO into a publicly-owned utility. Through its advertisements Citizens has urged that conversion to public ownership be accomplished by securing legislation to abolish LILCO and to replace it with a Long Island Power Authority.

 Converting LILCO to a publicly-owned utility was a central plank of Matthews' election platform. To help accomplish this conversion Matthews on about October 9, 1985 demanded that LILCO hold a special meeting for the purpose of electing a majority of LILCO's board of directors. On October 10 Island Insulation demanded that LILCO allow it to make copies and extracts of LILCO's stock ledgers and lists of stockholders. On October 20, 1985, pursuant to Matthews' demand, LILCO scheduled a special stockholders meeting for November 29, 1985. On October 21, 1985, Matthews, pursuant to SEC regulations, filed proxy materials with the SEC.

 LILCO alleges that Matthews and Citizens conspired to influence the outcome of the proxy fight in favor of a management favoring public ownership of LILCO's property. There is no dispute that Matthews did meet with members of Citizens, including defendants Barbash and Like. The first occasion was a telephone call made about September 25, 1985 by Matthews to Like to arrange a meeting with Citizens members to discuss the group's objectives. On October 15 one of the

 advertisements appeared in Newsday. The next day, in a second conversation with Like, Matthews reiterated his interest in meeting with Citizens. The third and final occasion was an October 17, 1985 meeting attended by Barbash, Like, and Matthews and the latter's press spokesman and counsel.

 Plaintiff contends that these meetings resulted in the publication of the Citizens-sponsored advertisement critical of LILCO's management and service record in several New York area newspapers. A redacted form of the printed advertisement was also aired on New York area radio stations. Defendants, in their affidavits, attest that Matthews was specifically told that a political endorsement would not be forthcoming and that his plans for LILCO were divergent from Citizens' strategy.

 Although LILCO concedes that the advertisement does not purport to be a proxy solicitation, it nevertheless urges that it is, in effect, an illegal proxy solicitation. LILCO also alleges the advertisement contains several false and misleading statements that constitute a violation of SEC regulations governing proxy solicitation. Pursuant to SEC regulations, LILCO seeks to enjoin further publication or broadcast of the advertisement until such time as the alleged misleading statements are corrected.

 II. PROCEDURAL HISTORY

 This action was initially brought to a judge's attention in the form of an appeal from a Magistrate's decision to deny plaintiff's motion for expedited discovery. Defendants then moved to dismiss for failure to state a claim.

 In light of the impending election, and mindful of the serious First Amendment issues raised by the controversy, the motion was adjourned by the court to the morning after Election Day. Pursuant to Rule 12(b) of the Federal Rules of Civil Procedure, defendants' motion to dismiss for failure ...


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