## Facts

- The North Jersey District Water Supply Commission issued $75 million in publicly sold notes to finance a water-supply facility project.
- The notes paid 7 7/8% interest semiannually and stated a maturity date of June 15, 1987.
- The notes allowed early redemption on 30 days’ notice by publication in newspapers of general circulation in Newark and New York City; the provision appeared in the authorizing resolutions, the official offering statement, and on each note.
- The Commission elected to redeem the notes effective June 23, 1986, and published notices on May 23 and June 9, 1986, consistent with the indenture and note terms.
- After the redemption date, the Commission stopped paying interest; about $10 million in notes remained unredeemed because some holders did not see the published notices and learned of the redemption only when interest payments ceased.
- Noteholders filed class actions against the Commission and First Fidelity Bank (trustee/indenture trustee), alleging the notice-by-publication method was inadequate and unconscionable, the instruments were contracts of adhesion, and defendants were liable under theories including negligence and unjust enrichment.
- The trial court granted summary judgment for defendants; the Appellate Division reversed on adhesion/unfairness grounds; the New Jersey Supreme Court granted certification.

## Issues

1. Whether publicly traded notes and their standard-form terms should be treated as contracts of adhesion subject to heightened fairness review, and whether the early-redemption notice clause was enforceable.
2. Whether notice of early redemption solely by publication in specified newspapers was sufficient and binding on holders who did not actually see the notice.
3. Whether plaintiffs could still pursue alternative claims (including unjust enrichment) concerning the handling of funds associated with unredeemed notes after the redemption date.

## Decision

- The Supreme Court of New Jersey reversed the Appellate Division’s invalidation of the redemption and notice provisions.
- The Court held the notes could be characterized as contracts of adhesion but were enforceable as written in light of public policy governing securities markets.
- The Court upheld the notice-by-publication redemption provision as valid and binding, notwithstanding lack of actual notice to some holders.
- The Court remanded for further proceedings on plaintiffs’ remaining, narrower claims, including unjust enrichment and related allegations concerning treatment of unredeemed funds.

## Legal Principles

- Standard-form investment securities may qualify as contracts of adhesion, but that classification does not justify broad, after-the-fact judicial review of disclosed terms for “fairness” in a way that would unsettle securities markets.
- Public policy favoring negotiability, certainty, and predictability in publicly traded debt instruments supports enforcing clear, disclosed contract terms.
- A redemption notice procedure expressly stated in the security and offering materials—such as publication in designated newspapers—may be enforced even if some holders do not receive or observe the notice.
- Even when core instrument terms are enforceable, equitable or ancillary claims (such as unjust enrichment based on post-redemption handling of unredeemed funds) may proceed if supported by facts independent of invalidating the security’s disclosed terms.

## Conclusion

The court enforced an early-redemption clause permitting notice by newspaper publication in publicly traded notes, rejecting a broad fairness-based invalidation of disclosed securities terms, while allowing litigation to continue on limited claims—such as unjust enrichment—focused on defendants’ conduct after redemption regarding unredeemed funds.


Rudbart v. N. Jersey Dist. Water Supply Comm’n, 127 N.J. 344, 605 A.2d 681 (N.J. 1992)