Consolidated Edison, Inc. v. Northeast Utilities

Consolidated Edison, Inc. (CEI) (plaintiff) agreed pursuant to a merger agreement to purchase the stock of Northeast Utilities (NU) (defendant) for $3.6 billion, which represented a $1.2 billion premium over the market price for NU’s stock. Prior to closing, however, CEI indicated it would not close the transaction at the agreed-upon price because NU allegedly had suffered a material adverse change to its financial condition. NU refused to renegotiate the purchase price and deemed the merger agreement terminated by CEI’s anticipatory breach of contract. CEI sued NU for breach of contract, and NU counterclaimed for breach of contract. NU also sued on behalf of its shareholders, as third-party beneficiaries under the contract, for damages that included the $1.2 billion premium that NU shareholders would have received had the merger been consummated. The merger agreement stated there were no third-party beneficiaries under the contract except that NU shareholders specifically had third-party beneficiary rights with respect to a particular provision in the contract that specified what value NU shareholders would receive upon the merger’s consummation. Further, the contract’s termination provision stated (1) that any party could terminate the merger agreement if, among other things, the other party breached the agreement and (2) what payments, if any, each party would receive as a result of the termination. For example, the agreement provided for a $20 million expense reimbursement payment to one party if the other party terminated the agreement under particular conditions. Moreover, the agreement stated that if a termination resulted from a willful and material breach, then the nonbreaching party could sue for damages. The district court ruled that NU’s shareholders were third-party beneficiaries under the merger agreement and that NU could bring suit on behalf of its shareholders for the $1.2 billion premium. CEI appealed the ruling.