In re the New York State Electric Corp. , 236 N.Y.S. 411 ( 1929 )

Whitmyer, J.

The application was for leave to issue and sell 38,250 shares of common capital stock, at $60 per share, to produce the sum of $2,295,000, for extensions and improvements. New York Electric Company is ready, able and willing to buy. Authority was granted to issue and sell 30,810 shares, to produce $1,848,600, but not to New York Electric Company. A certiorari by that company is pending. The order under review was - made on July 11, 1928. At that time a proceeding was pending for consent to New York Electric Company to acquire 41,884 shares of the preferred capital stock of New York State Gas and Electric Corporation. That stock is without voting power as to directors and management; 4,600 shares of the common stock, which had the voting power in those respects, had already been transferred, without any application or consent. The entire capital stock consisted of 46,484 shares, so that the company is seeking to acquire all of the stock. That application was denied on July 31, 1928, and a certiorari to review that determination is also pending. The proceedings are related. New York State Electric Corporation was organized under the Transportation Corporations Law of the State of New York and is a gas and electric corporation. It is the successor of New York State Gas and Electric Corporation, a New York transportation corporation, which succeeded Ithaca Gas Light Company, incorporated in 1852, to furnish service in Ithaca, N. Y. New York Electric Company is a stock corporation and is not a gas or electrical or street railroad corporation. It was organized under the laws of Delaware, with the right to acquire, take and hold the stock of other corporations, including New York State Electric Corporation. The several companies or corporations are subsidiaries of the Associated Gas and Electric Company, a New York State holding company, which owned the entire capital stock of New York State Gas and Electric Corporation, and filed a certificate for an increase to 10,000 shares common, no par, with voting power, and 90,000 preferred, no par, and without voting power, whereupon the former shares were exchanged for the same number of new ones and immediately transferred to New York Electric Company. At the time of the application, New York Electric Company had 4,600 shares of the common stock, without par and with the voting power, as stated, and the Associated Gas and Electric Company owned all of the preferred, 41,884 shares. And, at that time, New York State Electric Corporation owned upwards of ninety-nine per cent of the common stock of Staten Island Edison Corporation. According to the petition, the funds are to be used partly for New York State Electric Corporation and partly for Staten Island Edison Corporation and it is alleged that the stock of New York State Electric Corporation has not been in the market for sale in the last year. There was no hearing. In its opinion the Commission said, as to the 38,250 shares, that the issue might be authorized, but that leave to sell to New York Electric Company should be denied, otherwise that the result would be that New York Electric Company would acquire control of all the property, business and affairs, not only of New York State Electric Corporation, but also of Staten Island Edison Corporation, in contravention of the plain purpose and intent of section 70 of the Public Service Commission Law. The applications were under section 69 (as amd. by Laws of 1921, chap. 134), relating to the issue, and under section 70 (as amd. by Laws of 1921, chap. 134), relating to the sale. An issue of 30,810 shares was authorized, but consent to sell to New York Electric Company was denied. The questions arise under section 70. The section prohibits the transfer or lease, or a contract for operation, by a gas or electrical corporation of its franchise, works or system, without the written consent of the Commission. Next, it prohibits such a corporation from acquiring, directly or indirectly, the stocks or bonds of any other corporation engaged in the same or a similar business, unless authorized by the Commission. And, then, it provides that no stock corporation of any description, domestic or foreign, other than a gas or electrical or street railroad corporation, shall purchase, or acquire, take or hold, more than ten per centum of the total capital stock issued by any gas or electrical corporation organized or existing under the laws of the State, except that a corporation, now holding a majority of such capital stock, may, with the consent of the Commission, acquire and hold the remainder, provided that, with the consent of the Commission and upon such terms and conditions as it may fix and impose, any such stock corporation may acquire, take and hold more than ten per centum of the stock of any such gas or electrical corporation, provided it is operated wholly outside of the territory embraced within the former First Public Service Commission district. The questions raised relate to the ten per cent limitation and the proviso relating to operation wholly outside of the territory within the former First Public Service Commission district. Lack of power is assigned as the reason for the determination which was made. The total capital stock consisted of 46,484 shares, namely, 4,600 common, and 41,884 preferred. The common was less than ten per cent of the total. It had the unqualified and unrestricted right to vote for the directors and in the management, but the preferred was not without voting power. If the common had the actual control, the - limitation was not violated, since that is based upon total capital stock issued and not upon total capital voting stock. The language is plain and construction is not required. If total capital voting stock was intended, it is for the Legislature to say so. Moreover, the holding of this stock, if illegal, is not a valid reason for denying the request to sell the new issue to New York Electric Company. Under its charter, the company could acquire and hold stock. It is a business corporation, not a gas or electrical or street railroad corporation. The decision in Matter of New York-New Jersey Super-Power Connecting Corp. v. Public Service Commission (215 App. Div. 578) is not to the contrary. That case was under the portion of the section which prohibited a gas or electrical corporation from acquiring, directly or indirectly, the stock or bonds of any other corporation, incorporated for or engaged in the same or similar business, unless authorized so to do by the Commission. And the decision was based on the ground that the petitioner had failed to establish that it was an electrical corporation within the meaning of subdivision 13 of section 2 of the Public Service Commission Law, and not on the ground that it was a foreign corporation. Ownership and operating territory, contrary to the proviso, are the objections in the matter of Staten Island Edison Corporation stock. New York State Electric Corporation now owns over ninety-nine per cent of the stock and approval of such ownership may be inferred from the fact that the Commission has authorized the issue and sale of additional stock. The evidence does not show the territory of the operations. Apparently, the Commission has assumed, from the name, that it is within the territory mentioned in the proviso. Associated Gas and Electric Company, the parent corporation, a New York corporation, owned all of the stock of New York State Gas and Electric Corporation, which acquired and was the owner of said stock of Staten Island Edison Corporation, when its name was changed to New York State Electric Corporation. In principle, ownership by New York Electric Company does not differ from ownership by Associated Gas and Electric Company. And it is the stock of New York State Gas and Electric Corporation now New York State Electric Corporation, which was acquired by New York Electric Company, not the stock of Staten Island Edison Corporation. Thus, it must be found that New York State Gas and Electric Corporation, now New York State Electric Corporation, ¡is operated contrary to the proviso. That is not found. More¡over, ownership of stock does not give an interest in the specific j assets of Staten Island Edison Corporation. Those assets belong | to the corporate entity, which is required to operate the property and is responsible to the Commission therefor, and the evidence does not show that it has not so operated. In Berkey v. Third Avenue R. Co. (244 N. Y. 84) it was held that the evidence failed to show that the parent company was operating the subsidiary. The parent company owned substantially all of the stock of the subsidiary, the members of the two boards of directors were nearly the same, the parent had made loans to the subsidiary from time to time for construction and operating expenses, and cars, marked in the same way, were used over the entire system. That case is controlling here. Public policy is also assigned as a reason for the refusal, but that question is not involved, if there has been compliance with law. While consent is required for various acts, the Commission may not refuse, arbitrarily or unreasonably. Leave to issue and to sell the stock was granted, so that the necessity therefor was found, but leave to sell to a company, ready, able and willing to buy, was refused. Thus, a sale in the market will be necessary and may result in no sale or in one for an insufficient price, so that it may become impossible to carry out the necessary extensions and improvements. And injury to the public may result. To prevent a foreign company from acquiring control of a State utility is assigned as the reason, but the State utility, which is the operating company, is subject to the regulatory powers of the Commission, and the Commission will have power to protect it as well as the public. Under the law and the facts, the refusal was unreasonable.

The determination should be annulled, with fifty dollars costs, and the matter should be remitted to the Commission to proceed in accordance with this opinion.

Hinman and Hasbrouck, JJ., concur; Van Kirk, P. J., dissents, with an opinion in which Hill, J., concurs.