In re Long Island Lighting Co.

• Decision Date: 10 February 1950
• Docket Number: Civ. No. 10413.
• Citation: 89 F. Supp. 513
• Parties: In re LONG ISLAND LIGHTING CO. et al.
• Court: U.S. District Court — Eastern District of New York

89 F. Supp. 513

In re LONG ISLAND LIGHTING CO. et al.

Civ. No. 10413.

United States District Court E. D. New York.

February 10, 1950.

Harry G. Slater, Chief Counsel, Division of Public Utilities, and Solomon Freedman, Washington, D. C., for Securities & Exchange Commission.

Charles G. Blakeslee, General Counsel, and David K. Kadane, New York City, for applicant companies, Long Island Lighting Co., Queens Borough Gas & Electric Co., and Nassau & Suffolk Lighting Co.

Harold G. Aron, Washington, D. C., Lynne A. Warren and Charles B. McGroddy, Jr., New York City, for Common Stockholders' Committee of Long Island Lighting Co.

Percival E. Jackson, New York City, for Langley Preferred Stockholders' Group.

McLaughlin & Stern, New York City, for certain holders of the preferred stock of Nassau & Suffolk Lighting Co. (Stephen S. Bernstein, New York City, of counsel).

Boehm & Fischman, New York City, for Protective Committee for Holders of Queens Borough Gas & Electric Co. Preferred Stock (Bernard D. Fischman, New York City, of counsel).

Graustein & Kormendi, New York City, for Louis W. Gordon, owner of 50,000 shares of the Common Stock of Long Island Lighting Co. (Laszlo Kormendi, New York City, of counsel).

Milton Pollack, New York City, for Long Island Preferred Stockholders' Committee.

Maurice B. & Daniel W. Blumenthal, New York City, for Common Stockholders (Daniel Blumenthal, New York City, of counsel).

KENNEDY, District Judge.

This is a proceeding in which the petitioner prays for an order enforcing and carrying out the terms and provisions of an amended plan, subsequently modified, for the consolidation and recapitalization of three utility companies operating on Long Island. The companies are: (1) the Long Island Lighting Company (called Long Island), (2) its wholly owned subsidiary Queens Borough Gas and Electric Company (called Queens), and (3) the latter's wholly owned subsidiary Nassau and Suffolk Lighting Company (called Nassau). The plan was filed under Public Utility Holding Company Act of 1935, § 11(e), 15 U.S.C.A. § 79 et seq., called the Act.

Corporations Involved.

Long Island was incorporated on December 31, 1910 under the Transportation Corporations Law to produce, purchase and sell electricity. It is engaged in the generation and purchase of electric energy, the manufacture and purchase of gas, and the sale and distribution thereof for light, heat and power to consumers in the counties of Nassau and Suffolk, on Long Island, in the State of New York. It is a public utility company as defined in sec. 2(a) (5) of the Act and is a holding company within the meaning of sec. 2(a) (7) of the same statute. As of March 31, 1949, its outstanding securities were as follows: first mortgage bonds, $42,035,000; sinking fund debentures, $5,974,000; notes payable to banks, $10,000,000; 7% cumulative preferred stock (74,750 shares) having a par value of $100; 6% cumulative preferred stock (179,050 shares) having a par value of $100; and common stock (3,000,000 shares) with no par value, but having a stated value of $1 per share. The two series of preferred stock having priority over the common stock as to cumulative dividends and upon dissolution, voluntary or involuntary, they are entitled to receive par value plus all accumulated dividends. These preferred shares are redeemable, in whole or in part, at 110% of their par value plus accumulated dividends. Long Island has not met its full preferred dividend requirements since 1936. As of March 31, 1949 (forgetting what I shall later call the "1944 plan") arrears were on the books at $77 per share on the 7% series ($17,573,050) and $66 per share on the 6% series. There have been no dividends on the common stock since 1933. Despite its arrearages the preferred stock does not vote in the election of directors.

Queens, a public utility corporation, was incorporated on December 31, 1910 under New York law. It generates and buys electric energy, manufactures gas, and sells and distributes it for light, heat and power to consumers in the Borough of Queens, City of New York, and in Nassau County, Long Island. On March 31, 1949, its outstanding securities were as follows: bonds, $10,858,000; debentures, $3,393,000; notes payable to banks, $1,500,000; 6% cumulative preferred stock (66,860 shares), having a par value of $100; and common stock (200,000 shares) having no par value, but a stated value of $10 per share. The preferred stock has priority over the common stock as to cumulative dividends and is entitled to receive, in the event of liquidation or dissolution, voluntary or involuntary, par value plus accumulated dividends. That same stock is redeemable in whole or in part at 110% of its value plus accumulated dividends. Full preferred dividend requirements have not been paid since 1936. No dividends have been paid on the common stock since 1933. The dividend arrears on the preferred stock as of March 31, 1949 amounted to $67.50 per share ($4,513,050). The preferred stock does not vote in the election of directors.

Nassau, a public utility corporation, was organized May 13, 1905, under the New York law. It manufactures and buys gas and sells and distributes it to consumers in Nassau County. It also engages in the purchase and sale of electricity to consumers in the same county. As of March 31, 1949, its outstanding securities were as follows: first mortgage bonds, $2,820,000; face value of notes payable to banks, $700,000; 7% cumulative preferred stock (27,262 shares) having a par value of $100; common stock (10,000 shares) having a par value of $100. The preferred stock has a priority over the common stock as to cumulative dividends, and, on dissolution, it is entitled to receive par value plus accumulated dividends. That preferred stock is redeemable at $112 per share plus accumulated dividends. Nassau has not met its full preferred dividend requirements since 1933, and no dividends have been declared on the common stock since the same year. The dividend arrearage on the preferred stock as of March 31, 1949 was $94.75 per share ($2,583,074.50).

The three companies, together with Long Beach Gas Company, Inc. (Long Beach) are and have been operated with respect both to gas and electric service as a single co-ordinated unit. The electric properties are interconnected by high voltage transmission lines. Long Island buys and sells electricity to Queens; Queens supplies Nassau with all its electric requirements. All the gas properties of the companies are interconnected by high pressure transmission mains. Long Beach gets its gas requirements from Queens and so does Nassau. Moreover, Nassau and Long Island sell gas to each other.

The foregoing facts have been taken from the petition in part, and in part from Holding Company Act Release No. 9473 dated November 2, 1949 (the findings and opinions of the commission on the amended plan submitted by the companies). To a very large extent I have merely set forth these facts in the very same words used in the documents mentioned. They do, however, reflect four very significant indisputable features of the present condition of the companies, namely: (1) that all three are hopelessly in arrears to the preferred stockholders, (2) that all three are dominated and controlled by the common stock alone, (3) that all three are so interconnected physically, as well as otherwise, that the feasibility of consolidation is apparent, and (4) that the necessity for recapitalization and reorganization is pressing.

History of Administrative Proceedings.

But before discussing the specific plan which I am asked to enforce it will, I think, be helpful if I mention, even briefly, the history of the efforts which have been made to evolve a remedy for this condition.

Prior to April 21, 1945, Long Island was not under the jurisdiction of the commission: it and each of its subsidiary companies had received an exemption. On December 16, 1944, Long Island filed in the office of the Secretary of the State of New York, with the approval of the Public Service Commission of the State of New York (the state commission) a certificate of reduction of capital to revise the rights and privileges of its stockholders. Certain journal entries were to be made in the books, as ordered by the state commission, and the par value of the outstanding 253,800 shares of preferred stock was to be reduced from $100 to $60 per share. The accumulated dividends as of June 30, 1944 were to remain unaffected. The outstanding 3,000,000 shares of common stock were to be cancelled and in lieu of outstanding stock the company was to issue 503,800 shares of new common stock to the preferred and common stockholders on the basis of one share of new common stock for each share of preferred stock and each 12 shares of common stock. No dividends on the common stock were to be paid until all preferred stock arrearage had been met, and the unearned surplus arising from the reduction in capital and the elimination of paid-in premiums together with existing unearned and earned surplus at June 30, 1940 was to be used to increase the depreciation reserve by $6,000,000 and to provide $4,979,320, as a "special reserve for depreciation" and for loss in value of investments. Almost simultaneously with the filing of the plan petitioner, the Securities and Exchange Commission (the federal commission) brought a proceeding in the Eastern District of New York to enjoin any further action, pending an effort by the federal commission to cancel the exemption theretofor granted Long Island and its subsidiaries. This application I denied, Securities and Exchange Commission v. Long Island Lighting Co., D.C.E.D. N.Y.1944, 59 F.Supp. 610, affirmed 2 Cir., 1945, 148 F.2d 252, judgment vacated and remanded to the district court with directions to dismiss the complaint on the ground that the cause had become moot, 1945, 325 U.S. 833, 65 S.Ct. 1085, 89 L.Ed. 1961. These proceedings to cancel the...