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Lownsbury v. Securities and Exchange Commission

as amended september 22 1945: September 11, 1945.

LOWNSBURY ET AL.
v.
SECURITIES AND EXCHANGE COMMISSION, ET AL.



Author: Goodrich

Before BIGGS, MARIS, and GOODRICH, Circuit Judges .

GOODRICH, Circuit Judge .

This case arises upon the motion of the Securities and Exchange Commission to dismiss the petition of certain stockholders of The Commonwealth & Southern Corporation for review of present orders*fn1 of the Commission, respondents, and to dismiss a motion, also made by the same petitioners, for a stay of all proceedings, pending review by this Court. The controversy centers upon interpretation of two sections of the Public Utility Holding Company Act of 1935*fn2 in relation to court review of the corporation's reorganization plan.

The primary question involved is whether this Court is the proper forum to test the Commission's orders pursuant to Section 24 (a)*fn3 of the Act, as petitioners allege, of whether the District Court is the proper forum pursuant to Section 11 (e)*fn4, as the Commission alleges.

The orders of the Commission are expressly stated not to be deemed operative to authorize any of the transactions contemplated by the plan until a District Court has entered an order enforcing the plan. The orders also condition the effectiveness of the plan upon its approval by vote of the corporation's shareholders, prior to submission to a District Court. The orders are then, argues the Commission, interlocutory and general review provisions, in a statute, as to agency orders do not apply to those which are merely interlocutory. Federal Power Commission v. Metropolitan Edison Co., 1937, 304 U.S. 375, 58 S. Ct. 963, 82 L. Ed. 1408.

The conditional nature of the Commission's order is apparently a method of so framing its mandate as to avoid the seeming inconsistency involved in sections 11 (e) and 24 (a) of the statute. If effective, an orderly review following Commission action is provided for through District Court, Circuit Court of Appeals, and possibly Supreme Court, in proceedings in which all parties in interest may be participants. The very question before us as to effectiveness of the device was before the Second Circuit in a case, which while showing some difference on facts, presented no difference in legal question which we can see. Okin v. Securities and Exchange Commission, 2 Cir., 1944, 145 F.2d 206, remanded as to a point not relevant to our question 1945, 325 U.S. 840, 65 S. Ct. 1569.

The Second Circuit took squarely the position the Commission contends for here. In support of its conclusion, the Court stressed the significance of the express provision for general review in § 11 (b) and its omission in § 11 (e); "the practicalities of the situation"; and "the legislative history of the Act, evincing a Congressional intent that the relationship of the Securities and Exchange Commission and the district court provided for in § 11 should be 'exactly' the same as that of the Interstate Commerce Commission and the district court in railroad reorganization under § 77 of the Bankruptcy Act, 11 U.S.C.A. § 205." [145 F.2d 208.]

We think this decision is completely in point and that it discusses the problem thoroughly, reaching a result which we believe to be correct. No object would be served in repeating what has been so adequately discussed in that opinion.

The petition for review of the orders of the Securities and Exchange Commission is dismissed and the motion for stay of proceedings denied.

BIGGS, Circuit Judge (concurring).

The modified plan submitted by the Commonwealth & Southern Corporation under Section 11 (e) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79k (e), has been found by the Securities and Exchange Commission to effect compliance by Commonwealth with the requirements of the Commission's order of April 9, *fn19421 entered pursuant to the provisions of Section 11 (b) (2) of the Act, 15 U.S.C.A. § 79k (b) (2). The Commission has entered its order of June 30, 1945 approving the plan and its later order of July 18, 1945 denying rehearing. These are the orders which the petitioners, common stockholders of Commonwealth, seek to have reviewed by this court pursuant to the provisions of Section 24 (a) of the Act, 15 U.S.C.A. § 79x (a). The merits of the plan are not before us. We are concerned first with the question of whether this court is the proper forum for the review of the Commission's orders and second, with the question of the petitioners' application for a stay of all other proceedings. If the answer to the first question is in the negative, no stay may be granted.

The Commission takes the position that this court is without jurisdiction to review the decision of the Commission, pointing out that effectuation of Commonwealth's plan is conditioned by the terms of the Commission's order upon approval by a majority of each class of stock affected and by a district court of the United States pursuant to Section 11 (e) of the Act; that since the order is so conditioned the petitioners are not "aggrieved" by it within the purview of Section 24 (a); that the right of the petitioners to test the question of whether the plan is fair and equitable and appropriate to effectuate the provisions of Section 11 must be tried in a district court. The plan has not yet been submitted to a district court and the Commission states that it will not submit the plan unless it is approved by the stockholders.

If the various subsections of Section 11 be scrutinized the following appears. Subsection (a) provides that it shall be the duty of the Commission to examine the properties of public utility holding systems subject to the Act to the ends of integration and simplification. Subsection (b) provides that the Commission shall compel the integration and simplification of public utility holding-company systems by its orders. Subsection (b) also contains express language providing for judicial review of the Commission's order pursuant to Section 24. Subsection (b) of Section 11 is the policy effecting clause of the statute and deals with integration and simplification, not with the rights of the individual investors as such. The words "fair and equitable" are not used in subsection (b) and the word "plan" does not appear therein except in connection with the distribution of voting power. This conception was expressed by this court in Commonwealth & Southern Corporation v. Securities and Exchange Com'n, 3 Cir., 134 F.2d 747, *fn7512 There may be in fact no definite "plan" in the Commission's mind when it makes orders of divestment. There may be no identification of the single integrated system or additional systems which may be retained.See United Gas Improvement Co. v. Securities and Exchange Com'n, 3 Cir., 138 F.2d 1010, 1016 and Engineers Public Service Co. v. Securities and Exchange Com'n, 78 U.S. App. D.C. 199, 138 F.2d 936.

If the holding company refuses to comply with the Commission's orders in accordance with subsection (c), 15 U.S.C.A. § 79k (c), the Commission may apply to a court in accordance with Section 11 (d), 15 U.S.C.A. § 79k (d) to effect compliance by the means provided by Section 18 (f), 15 U.S.C.A. § 79r (f). Subsection (d) also speaks of a plan, providing that when a district court has taken jurisdiction the court may dispose of the assets ...


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