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March 14, 2003


The opinion of the court was delivered by: John G. Koeltl, District Judge:


This case arises out of the failed multi-billion dollar merger between the plaintiff and counterclaim defendant Consolidated Edison, Inc. ("Con Edison") and the defendant — Northeast Utilities ("NU"). Pursuant to the Merger Agreement between the parties, Con Edison was to pay $3.6 billion for the outstanding shares of NU.*fn1 The merger did not proceed amid mutual recriminations. Central to this lawsuit are Con Edison's claims that NU fraudulently induced it to enter into the Merger Agreement and thereafter breached various provisions of that Agreement, particularly the representation that there had been no material adverse change to NU's condition or prospects. NU in turn charges that Con Edison failed to proceed with the merger as it was required to do under the terms of the Merger Agreement and thereby breached that Agreement. NU claims that Con Edison did not proceed with the merger, not because there had been any material adverse change, but rather because Con Edison believed that the price required by the Merger Agreement was no longer warranted and because NU refused to negotiate a substantially lower price than that set forth in the Merger Agreement.

In the Amended Complaint ("Complaint"), Con Edison sues NU on claims for breach of contract, failure of conditions precedent, fraudulent inducement, and negligent misrepresentation. NU has filed a counterclaim for breach of contract. Con Edison now moves for partial summary judgment pursuant to Fed.R.Civ.P. 56 on its First, Third, Fifth and Sixth claims for relief in the Complaint, as well as on NU's Counterclaim including certain affirmative defenses to the Counterclaim. NU has filed a motion for summary judgment on Con Edison's First, Second, Third, Fourth Sixth and Seventh claims for relief.


The standard for granting summary judgment is well established. Summary judgment may not be granted unless "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Gallo v. Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994). "The trial court's task at the summary judgment motion stage of the litigation is carefully limited to discerning whether there are genuine issues of material fact to be tried, not to deciding them. Its duty, in short, is confined at this point to issue-finding; it does not extend to issue — resolution." Gallo, 22 F.3d at 1224.

The moving party bears the initial burden of "informing the district court of the basis for its motion" and identifying the matter that "it believes demonstrate[s] the absence of a genuine issue of material fact." Celotex, 477 U.S. at 323. The substantive law governing the case will identify those facts which are material and "only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (citing United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)); see also Gallo, 22 F.3d at 1223.

If the moving party meets its burden, the burden shifts to the nonmoving party to come forward with "specific facts showing that there is a genuine issue for trial." Fed.R.Civ.P. 56(e). With respect to the issues on which summary judgment is sought, if there is any evidence in the record from any source from which a reasonable inference could be drawn in favor of the nonmoving party, summary judgment is improper. Chambers v. TRM Copy Ctrs. Corp., 43 F.3d 29, 37 (2d Cir. 1994).


The following facts are undisputed or are matters of public record.

Con Edison, a New York corporation with its principal place of business in New York, New York, is one of the nation's largest investor — owned electric and gas utilities; it serves the greater New York metropolitan area. (Def.'s Rule 56.1 St. ¶ 1; Pl.'s Resp. Rule 56.1 St. ¶ 1; Compl. ¶ 10.) Con Edison has extensive knowledge and experience in the field of electric generation, transmission, and distribution. (Def.'s Rule 56.1 St. — 2; Pl.'s Resp. Rule 56.1 St. ¶ 2.) Con Edison is also a sophisticated commercial entity with experience in merger and acquisition transactions, including the associated due diligence. (Def.'s Rule 56.1 St. ¶ 2; Pl.'s Resp. Rule 56.1 St. ¶ 2.)

Northeast Utilities is a holding company or business trust organized and existing under the laws of the Commonwealth of Massachusetts, with its principle place of business in Massachusetts. (Def.'s Rule 56.1 St. ¶ 3; Pl.'s Resp. Rule 56.1 St. ¶ 3; Agreement and Plan of Merger dated Oct. 13, 1999 as amended Nov. 1, 2000 ("Merger Agreement") § 3.01(a) attached as Ex. 1 to Declaration of Douglas M. Kraus Supp. NU Mot. Summ J. dated May 8, 2002 ("Kraus Decl. Supp.").) NU owns three regulated electric utility subsidiaries, including Connecticut Light & Power Company ("CL&P"), as well as a regulated gas subsidiary. (Def.'s Rule 56.1 St. ¶ 4; Pl.'s Resp. Rule 56.1 St. ¶ 4.) NU also owns several unregulated businesses, including Select Energy, Inc. ("Select"), an energy marketing company that principally sells electricity to large energy users on a wholesale basis. (Def.'s Rule 56.1 St. ¶ 4; Pl.'s Resp. Rule 56.1 St. ¶ 4.) Two of Select's competitors, Con Ed Energy and Con Ed Solutions, are unregulated subsidiaries owned by Con Edison. (Def.'s Rule 56.1 St. ¶ 5; Pl.'s Resp. Rule 56.1 St. ¶ 5.)

In June 1999, Con Edison approached NU about acquiring the latter company and NU agreed to further discussions. (Def.'s Rule 56.1 St. ¶ 6; Pl's Resp. Rule 56.1 St. ¶ 6.) On July 29, 1999, Con Edison and NU executed a written Confidentiality Agreement. (Def.'s Rule 56.1 St. ¶ 7; Pl's Resp. Rule 56.1 St. ¶ 7; Confidentiality Agreement ("Confid. Agr.") attached as Ex. 3 to Declaration of John Gueli Supp. Con Edison Mot. Summ. J. dated May 10, 2002 ("Gueli Decl. Supp.").) The Confidentiality Agreement governed the due diligence period during which Con Edison could learn more about NU and further evaluate the potential merger.

NU contends that Con Edison conducted an "extensive due diligence investigation of NU's regulated and unregulated businesses" between July 29 and October 13, 1999. (Def.'s Rule 56.1 St. ¶ 9.) Con Edison allegedly organized its due diligence into two categories, or "tiers": Tier 1 consisted of information concerning NU's regulated utility businesses which were "value impacting" and thus of greatest importance to Con Edison. (Def.'s Rule 56.1 St. ¶ 10.) Tier 2 comprised information about other matters, including NU's unregulated businesses such as Select. (Def.'s Rule 56.1 St. ¶ 10.) Con Edison takes issue with NU's characterization of the Tier 2 information as non-value impacting. (Pl.'s Resp. Rule 56.1 St. ¶ 10.) Con Edison Chief Financial Officer Joan Freilich ("Freilich") testified in her deposition that, "[o]bviously subsidiary operations were value impacting, very high value impacting." (Deposition of Joan Freilich dated Dec. 18, 2001 ("Freilich Dep. Kraus") at 56 attached as Ex. 63 to Kraus Deci. Supp.)

The due diligence process involved a large number of Con Edison's officers and employees, as well as in-house and outside counsel, experts in due diligence investigations, and the investment banking firm Salomon Smith Barney ("SSB"). (Def.'s Rule 56.1 St. ¶ 11; Pl.'s Resp. Rule 56.1 St. ¶ 11.) Con Edison requested and received numerous documents from NU and conducted a series of meetings between representatives of both parties. (Def.'s Rule 56.1 St. ¶ 12.) NU claims that at no time during due diligence did NU refuse to provide Con Edison or its advisors with any information that Con Ed requested. (Def.'s Rule 56.1 St. ¶ 13.)

Con Edison presents a different version of due diligence. Con Edison claims that NU limited the documents provided to Con Edison because of confidentiality concerns about sharing competitively sensitive information. (Pl.'s Resp. Rule 56.1 St. ¶ 9.) Instead, Con Edison contends, NU insisted that Con Edison rely upon discussions and presentations by senior NU representatives in order to obtain requested information about Select. (Pl.'s Resp. Rule 56.1 St. ¶¶ 9, 12-13.)

Con Edison's claims in this case rely substantially on a four-year fixed price contract between Select and CL&P, known as the CL&P Standard Offer Contract ("CL&P Contract" or "Standard Offer Contract"), pursuant to which Select was obligated to supply electricity to CL&P for half of the total electricity needed for CL&P's retail customers for four years at a fixed price. The parties do not dispute that Con Edison knew that Select intended to enter into the four-year supply commitment months before signing the Merger Agreement in October 1999. (Def.'s Rule 56.1 St. ¶ 14, 62; Pl.'s Resp. Rule 56.1 St. ¶ 14, 62.) Both parties also agree that Select's prior experience in managing large standard offer contracts was extremely limited and was characterized by Joan Freilich as "quite negative." (Def.'s Rule 56.1 St. ¶¶ 71-73; Pl.'s Resp. Rule 56.1 St. ¶¶ 71-73; Deposition of Joan Freilich dated Dec. 10, 2001 ("Freilich Dep. Gueli") at 40 attached as Ex. 71 to Declaration of John Gueli Opp. NU Mot. Summ. J. ("Gueli Decl. Opp.") sworn June 7, 2002.)

Under a fixed price contract, the buyer (CL&P) agrees to pay the seller (Select) a predetermined fixed amount for electricity to be supplied at a future date. Thus, in order to make a profit, Select had to secure supply below the price that it negotiated with CL&P. The seller is at risk of significant financial losses if the market price of energy increases to such a level that the contractual commitment can no longer be met profitably.

According to Con Edison, the parties discussed Select's risk management policies and expected profit margins during meetings on August 26-27, 1999 in Hartford, Connecticut, including the risk policies as they applied to the CL&P Standard Offer Contract. (Deposition of Luther Tai dated Nov. 20, 2001 ("Tai. Dep. Nov. 20") at 31, 35-38, 40-41, 65-66 attached as Ex. 93 to Gueli Decl. Opp.; Tai Notes and Observations of August 26-27 Meeting dated Aug. 28, 1999 attached as Ex. 10 to Gueli Decl. Opp.; Deposition of Charles Weliky dated Nov. 2, 2001 ("Weliky Dep.") at 41, 45-48, 248, 254-55 attached as Ex. 97 to Gueli Decl. Opp.) A subsequent meeting took place on September 23, 1999 among Gary Simon ("Simon"), NU Senior Vice President of Enterprise Development and Analysis, Charles Weliky ("Weliky"), President of Con Ed Energy and Con Ed Development, and Timothy Frost ("Frost"), a Director in Con Edison's Corporate Planning Department. (Pl.'s Rule 56.1 St. ¶ 2; Def.'s Resp. Rule 56.1 St. ¶ 2) The parties disagree about the degree to which Simon, Weliky, and Frost discussed NU's risk management policies, particularly with respect to Select. (Pl.'s Rule 56.1 St. ¶¶ 2-3; Def.'s Resp. Rule 56.1 St. ¶¶ 2-3.)

Con Edison claims that over the course of due diligence NU represented that it had covered the CL&P Contract, specifically that Select had purchased enough energy to meet its obligations over the four years of the contract. (Pl.'s Resp. Rule 56.1 St. ¶¶ 62, 70). In fact, when NU signed the CL&P Contract on November 2, 1999, after Con Edison and NU signed the Merger Agreement, Select had acquired sufficient electricity to cover only its obligations during the first two years of the contract (2001-2002). (Def.'s Rule 56.1 St. ¶¶ 68-69; Pl.'s Resp. Rule 56.1 St. ¶¶ 68-69.) Select was thus "uncovered" for 2002-2003. (Def.'s Rule 56.1 St. ¶ 69; Pl.'s Resp. Rule 56.1 St. ¶ 69.) Select maintained the open position believing that it could acquire the necessary electricity to supply the latter half of the contract at a lower price because a large number of new power plants were set to open in New England which would drive down prices. (Def.'s Rule 56.1 St. ¶ 70.)

Con Edison contends that at the September 23, 1999 meeting between Simon, Weliky, and Frost, NU's Simon represented that "Select had supplied to cover the standard offer contract for Connecticut Light and Power . . . that locked down the profit margins for that part of the business." (Deposition of Timothy Frost dated Oct. 15, 2001 ("Frost Dep.") at 109 attached as Ex. 61 to Gueli Decl. Supp.) Simon denies saying that the Standard Offer Contract was fully covered and claims that, to the contrary, it was clear to him "from [the] conversation on September 23, 1999 that Messrs. Weliky and Frost understood very well that Select had not secured sufficient power for the last two years of the CL&P Standard Offer Contract." (Declaration of Gary Simon sworn June 6, 2002 ("Simon Decl.") ¶¶ 10-11.) Moreover, Simon directed the Con Edison representatives to John Forsgren ("Forsgren"), NU's Chief Financial Officer and Chairman of Select's Risk Oversight Council ("ROC") for any further questions about risk management. (Simon Decl. ¶ 6.)

The parties disagree about whether Con Edison pursued further information on Select and its risk management strategies, as well as whether NU provided such information in a forthright and complete manner. Con Edison claims that employees with relevant expertise reviewed the risk management policies and discussed Select's risk management policies with senior NU management, including Simon and Forsgren. (Pl.'s Resp. Rule 56.1 St. ¶¶ 81-83.) The parties do agree that prior to signing the Merger Agreement, Con Edison requested a copy of Select's risk management policies in response to which NU provided a copy of such a policy dated August 5, 1999 ("August Policies"). (Pl.'s Rule 56.1 St. ¶¶ 5-6; Def.'s Resp. Rule 56.1 St. ¶¶ 5-6; August Policies attached as Ex. 4 to Gueli Decl. Supp.) It is clear that Mr. Weliky only reviewed the August Policies after the September 23, 1999 meeting with Mr. Simon. (Weliky Dep. at 72, 267.)

Con Edison contends that the August Policies were already "the subject of review" and "in the process of undergoing major revision" although no such changes were disclosed to Con Edison. (Pl.'s Rule 56.1 St. ¶ 11.) For example, Con Edison argues, NU and Select senior management considered the volumetric limits in the August Polies "unrealistic," "obsolete," "too constraining," "not feasible," and lacking "good business sense." (Pl.'s Rule 56.1 St. ¶ 12.)

NU, however, asserts that NU constantly reviews, evaluates and upgrades Select's risk management policies and that in September 1999, when the August Policies were turned over, Select was merely contemplating making appropriate revisions to meet the growth in Select's portfolio. (Def.'s Resp. Rule 56.1 St. ¶ 11; Forsgren Dep. at 168.) NU also claims that Con Edison never inquired into whether Select was or would be making changes to its risk management policies despite the fact that Con Edison should have been aware of the possibility because NU informed Con Edison that it was going to be Select's business practice to hold substantial open positions in order to build its business, thereby requiring at minimum an exception to the August Policies. (Def.'s Resp. Rule 56.1 St. ¶ 12.) John Forsgren, the person with primary responsibility for risk management at Select and to whom Simon had referred Weliky and Frost for additional questions, stated under oath that "[a]t no time during the due diligence period did anyone at Con Ed ask me any questions regarding Select's risk management policies." (Declaration of John H. Forsgren sworn May 1, 2002 ("Forsgren Decl.") ¶¶ 13, 14.)

NU also contends that during due diligence, Con Edison never discussed the August Policies or any aspect of risk management with any officer or employee of Select. (Def.'s Rule 56.1 St. ¶ 83.) Nor did Con Edison request or review any of the written reports that Select prepared about its open, uncovered positions on its supply contracts or any of the minutes or reports of Select's ROC. (Def.'s Rule 56.1 St. ¶ 83.) Moreover, documents existed from which Con Edison could have verified whether Select's expected supply obligations under the Standard Offer Contract were fully matched, or "covered." (Def.'s Rule 56.1 St. ¶¶ 75-77.) NU claims that Con Edison in fact ignored the advice of one of its own employees to review the way in which Select implemented its policies in practice, because they appeared appropriate on paper. (Def.'s Rule 56.1 St. ¶¶ 81-82.) Nor did Con Edison attempt to place any restrictions in the Merger Agreement on NU's right to grant exceptions to or otherwise modify the August Policies. (Def.'s Rule 56.1 St. ¶ 82.)

The parties entered into an Agreement and Plan of Merger (the "Merger Agreement") on October 13, 1999. The terms of the document were negotiated by officers and employees from both parties as well as their respective legal and financial advisors. (Def.'s Rule 56.1 St. ¶ 15; Pl.'s Resp. Rule 56.1 St. ¶ 15.) On or about February 29, 2000 Con Edison and NU issued a Joint Merger Proxy Statement ("Joint Proxy") through which they sought shareholder approval of the merger. (Def.'s Rule 56.1 St. ¶ 16; Pl.'s Resp. Rule 56.1 St. ¶ 16; Joint Proxy attached as Ex. 2 to Kraus. Decl. Supp.)

The merger price to be paid by Con Edison, half in cash and half in Con Edison stock, was expected to be $26.50 per share of NU common stock assuming that the merger closed on December 31, 2000, by which time the parties anticipated receipt of the remaining regulatory approvals. (Def.'s Rule 56.1 St. ¶ 17; Pl.'s Resp. Rule 56.1 St. ¶ 17.; Joint Proxy at 6.) The merger price comprised three parts: 1) a $25 base price; 2) an additional $1 to be paid if, as expected (and as actually occurred), NU entered into a binding agreement to sell its Millstone nuclear power station to an unaffiliated third party; and 3) an "adjustment" payment of $0.0034 per day (or about $.10 per month) for each day from August 5, 2000 until the merger closed. (Def.'s Rule 56.1 St. ¶ 18; Pl.'s Resp. Rule 56.1 St. ¶ 18; Merger Agr. §§ 2.01(b)(ii)(A), 2.05.)

The $26.50 anticipated merger price represented a premium of more than 40 percent over the "unaffected" $18.56 price at which NU's shares were trading prior to the time that rumors of the transaction began circulating in the marketplace. (Def.'s Rule 56.1 St. ¶ 19; Pl.'s Resp. Rule 56.1 St. ¶ 19.) The premium constituted more than $1 billion of the total $3.6 billion that Con Edison expected to pay for NU's 137 million then outstanding shares. (Def.'s Rule 56.1 St. ¶ 20; Pl.'s Resp. Rule 56.1 St. ¶ 20.) By the time Con Edison cancelled the merger on March 5, 2001, the $0.0034 per NU share, per day, adjustment payment rendered the merger price over $26.70 per share, and the premium had grown to over $1.1 billion. (Def.'s Rule 56.1 St. ¶ 21; Pl.'s Resp. Rule 56.1 St. ¶ 21.)

The parties dispute the reasons why Con Edison agreed to pay this premium and the degree to which Con Edison sought to downplay the price of the transaction when making the merger public. (Def.'s Rule 56.1 St. ¶¶ 22-23; Pl.'s Resp. Rule 56.1 St. ¶¶ 22-23.) As evidence of Con Edison's desire to make the price of the merger appear low, NU cites an e-mail from Freilich to a group of Con Edison employees in which she wrote, "[NU] can be expected to want [various factors] expressed in a way that makes the price sound higher — and we will want it to sound lower . . . I know you all know how to lie in front of a truck this is one on which we may have to go through this exercise. Just remember who is buying whom . . . ." (E-mail from Joan S. Freilich dated Oct. 12, 1999 attached as Ex. 46 to Kraus Decl. Supp.)

NU claims that Con Edison was willing to pay the substantial premium because the companies' similar businesses and adjacent service areas promised a smooth integration of their respective operations. (Def.'s Rule 56.1 St. ¶ 23.) Thus, NU and Con Edison made a good "fit". (Def.'s Rule 56.1 St. ¶ 23; Pl.'s Resp. Rule 56.1 St. ¶ 23.) Moreover, NU claims, because Con Edison viewed NU as an attractive acquisition target, offering a full price at the outset could preempt competing bidders. (Def.'s Rule 56.1 St. ¶ 24; Pl.'s Resp. Rule 56.1 St. ¶ 24.)

Con Edison contends that it offered only what it thought NU was worth in combination with Con Edison. (Def.'s Rule 56.1 St. ¶ 24.) Con Edison also disputes NU's characterization of the premium as "substantial", and notes that it perceived the parties to be a good match in the fall of 1999 because synergies would be readily achievable and because Con Edison believed that NU had a similar risk tolerance to Con Edison. (Pl.'s Resp. Rule 56.1 St. ¶ 23.) Both parties agree that no other bidders emerged after Con Edison and NU announced their proposed merger. (Def.'s Rule 56.1 St. ¶ 25; Pl.'s Resp. Rule 56.1 St. ¶ 25.)

During the due diligence, the parties jointly retained the accounting firm of Deloitte & Touche LLP ("Deloitte & Touche") to estimate the amount of savings, or "synergies", that might be achieved by combining Con Edison and NU. (Def.'s Rule 56.1 St. ¶ 28; Pl.'s Resp. Rule 56.1 St. ¶ 28.) Deloitte & Touche projected that if the companies combined they could save $1.3 billion and $180 million in their regulated and unregulated businesses respectively over a 10-year period. (Def.'s Rule 56.1 St. ¶¶ 29-30; Pl.'s Resp. Rule 56.1 St. ¶¶ 29-30.) After the parties signed the Merger Agreement, a joint transition team comprising personnel from both companies revised the estimated savings for the merged regulated businesses to $1.574 billion over ten years. (Def.s' Rule 56.1 St. ¶ 31; Pl.'s Resp. Rule 56.1 St. ¶ 31.) Con Edison Expert Kenneth Lehn estimates that the present value (as of April 13, 2001) of the combined regulated and unregulated synergies is $707 million. (Def.'s Rule 56.1 St. ¶ 33; Pl's Resp. Rule 56.1 St. ¶ 33; Expert Report and Disclosures of Kenneth M. Lehn ("Lehn Report") ¶ 37 n. 14 attached as Ex. 61 to Gueli Decl. Opp.) The parties disagree as to the percentage of synergies that they would actually retain. (Def.'s Rule 56.1 St. ¶¶ 34-35; Pl.'s Resp. Rule 56.1 St. ¶¶ 34-35.)

The Merger Agreement itself contains a series of representations and warranties by NU, (Merger Agr. § 3.01), as well as numerous covenants circumscribing NU's conduct between the execution of the Merger Agreement and closing. (Merger Agr. § 4.01.) Included in the Merger Agreement is NU's commitment that "[e]xcept as otherwise expressly contemplated by this Agreement or as consented to in writing by [Con Edison], during the period from the date of this Agreement to the [time of closing], NU shall, and shall cause the NU Subsidiaries to, carry on their respective businesses in the ordinary course consistent with past practice . . . ." (Merger Agr. § 4.01.) The Merger Agreement's representations, warranties, and covenants do not mention Select's risk management policies that Con Edison claims NU misrepresented during due diligence. (Def.'s Rule 56.1 St. ¶ 27; Pl.'s Resp. Rule 56.1 St. ¶ 27.)

Con Edison argues that on May 4, 2000, Select adopted new risk management policies ("May Policies"), which Select's President, William v. Schivley, described as "substantially modif[ying] the requirements that we had in the previous policies and procedures." (Deposition of William v. Schivley dated Nov. 1, 2001 ("Schivley Dep.") at 159 attached as Ex. 80 to Gueli Decl. Supp.) Con Edison claims that NU never told Con Edison about the new policies until December 2000. (Pl.'s Rule 56.1 St. ¶ 19.) The May Policies no longer required a hedge ratio, no longer set a one million megawatt limit on fixed price energy commitments, and no longer required that Value at Risk ("VaR") not exceed $20 million. (Schivley Dep. at 159-61; Pl.'s Rule 56.1 St. ¶¶ 17-18.) Con Edison argues that if the merger had actually been consummated, Con Edison's own risk management policies would have required Con Edison to close Select's open position at a cost of $400 million, a fact and figure that NU contests. (Pl.'s Rule 56.1 St. ¶ 22; Def.'s Resp. Rule 56.1 St. ¶ 22.)

NU objects to characterizing the May Policies as "new", and instead describes the May Policies as revising the August Policies and deems the changes "replacements" rather than wholesale eliminations of portions of the August Policies. (Def.'s Resp. Rule 56.1 St. ¶¶ 14, 17-18.) NU also argues that Simon, Frost, and Weliky discussed the fact that Select was short on the CL&P Contract and that it "should have been obvious to anyone who [subsequently] read the policies that, at a minimum, an exception would be required for the Standard Offer Contract [with CL&P] and that other revisions would be required to accommodate the growth and changing nature of Select's business." (Def.'s Resp. Rule 56.1 St. ¶ 19.)

The parties dispute the degree to which rumors and the announcement of the proposed merger caused a subsequent decline in Con Edison's stock price. (Def.'s Rule 56.1 St. ¶¶ 36-38; Pl's Resp. Rule 56.1 St. ¶¶ 36-38.) However, in January 2000, Salomon Smith Barney, Con Edison's financial advisor, recommended to Con Edison potential modifications to the Merger Agreement. (Def.'s Rule 56.1 St. ¶¶ 39-40; Pl.'s Resp. Rule 56.1 St. ¶¶ 39-40.) The parties disagree about whether Con Edison sought out that advice or whether it came unsolicited. (Def.'s Rule 56.1 St. ¶ 39; Pl.'s Resp. Rule 56.1 St. ¶¶ 39-40.)

The parties filed a Joint Application for Approval of Change of Control by Connecticut Department of Public Utility Control with the Connecticut Department of Public Utility ("DPUC") on or about January 20, 2000. (Def.'s Rule 56.1 St. ¶ 41; Pl's Resp. Rule 56.1 St. ¶ 41.) The DPUC issued a Draft Decision approving the proposed merger on or about September 22, 2000, and issued a final approval approximately one month later. (Def.'s Rule 56.1 St. ¶¶ 42-43; Pl's Resp. Rule 56.1 St. ¶¶ 42-43.) In mid — February 2001, the United States Department of Justice granted the last of the principal regulatory approvals required to consummate the merger. (Def.'s Rule 56.1 St. ¶ 44; Pl.'s Resp. Rule 56.1 St. ¶ 44.) Both parties expected the Securities and Exchange Commission ("SEC") to approve the merger as required by the Public Utility Holding Company Act of 1935. (Def.'s Rule 56.1 St. ¶ 44; Pl.'s Resp. Rule 56.1 St. ¶ 44.)

On February 16, 2001, Con Edison's Chairman and Chief Executive Officer ("CEO") Eugene McGrath ("McGrath") advised Michael Morris ("Morris"), Chairman and CEO of NU, that Con Edison would not proceed with the merger on the terms set forth in the Merger Agreement and would only go forward at a substantial, unquantified discount to the previously agreed upon price. (Def.'s Rule 56.1 St. ¶ 47; Pl.'s Resp. Rule 56.1 St. ¶ 47.) During the meeting and subsequently, Con Edison identified several "material adverse changes" ("MACs") under the Merger Agreement that allegedly warranted the discount. (Def.'s Rule 56.1 St. ¶ 48; Pl.'s Resp. Rule 56.1 St. ¶ 48.) NU disputed Con Edison's entitlement to renegotiate the merger price. (Def.'s Rule 56.1 St. ¶ 49; Pl.'s Resp. Rule 56.1 St. ¶ 49). NU contends that by mid-February of 2001, worsening market conditions meant that there was virtually no chance that a competing bidder would emerge who would pay close to the price agreed to by Con Edison. (Def.'s Rule 56.1 St. ¶¶ 45-46.) Moreover, NU claimed that it was a stronger company in 2001 than it was in October 1999 when the parties executed the Merger Agreement. (Def.'s Rule 56.1 St. ¶ 49.) Con Edison disputes this assertion. (Pl.'s Resp. Rule 56.1 St. ¶ 49.)

On February 27, 2001, one of NU's financial advisors, Morgan Stanley Dean Witter ("Morgan Stanley") made a presentation to NU's Board of Trustees. (Pl's Rule 56.1 St. ¶ 23; Def.'s Resp. Rule 56.1 St. ¶ 23; Morgan Stanley February 27, 2001 Presentation to NU ("MS Feb. Presentation") attached as Ex. 39 to Gueli Decl. Supp.) Con Edison claims that Morgan Stanley's presentation showed that NU's current forecasted earnings for 2001-2005 had fallen to $1.094 billion from a total of $1.458 billion in earnings forecasted in October 1999 for that same period. (Pl.'s Rule 56.1 St. ¶ 24.) Morgan Stanley also presented a discounted cash flow analysis that Con Edison claims showed a drop in NU's value between October 1999 and February 2001 from a range of $18.25-$23.50 per share to $15.25-$18.50. (Morgan Stanley Presentation to NU Board of Trustees dated Oct. 11, 1999 ("MS Oct. Presentation") at 33 attached as Ex. 12 to Gueli Decl. Supp.; MS Feb. Presentation at 4.) NU argues that the earnings forecasts cannot be compared as Con Edison has done because of differences in the ways that the figures were calculated. (Def.'s Resp. Rule 56.1 St. ¶¶ 24-25.) NU also contends that Morgan Stanley's discounted cash flow analysis was based on an inaccurate and unrealistic projection of NU's future earnings. (Def.'s Resp. Rule 56.1 St. ¶ 25.)

On February 28, 2001, NU made a formal written demand on Con Edison to provide reasonable assurances that Con Edison would comply with its contractual obligations and consummate the merger in accordance with the terms of the Merger Agreement. (Def.'s Rule 56.1 St. ¶ 51; Pl.'s Resp. Rule 56.1 St. ¶ 51.) Con Edison responded by letter dated March 2, 2001 that, "Con Edison fully intends to abide by its obligations under the Merger Agreement and believes that it is and at all times has been in compliance with the terms of the Merger Agreement. Con Edison therefore is ready, willing, and able to close the transaction provided Northeast Utilities is able to satisfy all of the conditions precedent to closing." (Letter from Eugene McGrath to Michael Morris dated Mar. 2, 2001 attached as Ex. 51 to Gueli Decl. Opp.) Mr. McGrath of Con Edison subsequently advised Mr. Morris of NU on March 5, 2001 that Con Edison would not proceed on the terms set forth in the Merger Agreement, and that it would not pay NU more than $22.50 per share. (Def.'s Rule 56.1 St. ¶ 52; Pl.'s Resp. Rule 56.1 St. ¶ 52.) Con Edison contends that it could not agree to the previously offered price because NU had suffered a MAC that dramatically lowered NU's valuation. (Pl.'s Resp. Rule 56.1 St. ¶ 52.)

NU's Board of Trustees considered the $22.50 offer and unanimously rejected it, concluding, based on the advice of their financial and legal advisors, that Con Edison had no grounds to renegotiate the merger terms. (Def.'s Rule 56.1 St. ¶ 53; Pl.'s Resp. Rule 56.1 St. ¶ 53.) NU announced thereafter that Con Edison had rejected its request for reasonable assurances and that NU was treating this rejection as an anticipatory repudiation of the Merger Agreement. (Def.'s Rule 56.1 St. ¶ 54; Pl.'s Resp. Rule 56.1 St. ¶ 54.) NU declared that it would take appropriate action to recover the benefits of the merger for its shareholders. (Def.'s Rule 56.1 St. ¶ 54; Pl.'s Resp. Rule 56.1 St. ¶ 54.)

Con Edison filed its original Complaint in this action on March 6, 2001 seeking a declaratory judgment that NU had breached the Merger Agreement and that, consequently, Con Edison was excused from performing its obligations thereunder. NU filed a separate action in this Court on March 12, 2001 asserting a claim for breach of the parties' Merger Agreement but later withdrew the action and asserted the claim as a counterclaim in this litigation.

Con Edison subsequently filed its Amended Complaint (the "Complaint") that asserts the following seven claims for relief: First, breach of contract based on NU's alleged breach of the covenants in Section 4.01 of the Merger Agreement; Second, breach of contract based on NU's alleged breach of the representation in Section 3.01(i) concerning the absence of certain material adverse changes or events; Third, failure of condition precedent under Section 6.02(b) of the Merger Agreement that NU had performed in all material respects all its obligations required to be performed under the Merger Agreement, specifically NU's obligations under Section 4.01 of the Merger Agreement; Fourth, alleged failure of condition precedent under Section 6.02(a) of the Merger Agreement that NU's representations and warranties were correct when made and as of the closing date; Fifth, alleged failure of condition precedent under Section 6.02(d) of the Merger Agreement based on NU's having suffered a "Material Adverse Change"; Sixth, fraudulent inducement; and Seventh, negligent misrepresentation. NU's Counterclaim charges Con Edison with breach of contract because Con Edison allegedly repudiated its obligation under the Merger Agreement by refusing to proceed with the merger as it was required to do.

This Court has jurisdiction based on the complete diversity of citizenship of the parties. See 28 U.S.C. § 1332(a).

The Merger Agreement is governed by New York law, (Merger Agr. § 8.07), and the parties agree that New York law governs all claims in this action.

Both parties have now moved for summary judgment on ...

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