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SEC v. MORGAN

June 3, 1953

SECURITIES AND EXCHANGE COMMISSION
v.
MORGAN, LEWIS & BOCKIUS et al.



The opinion of the court was delivered by: GRIM

This is an action by the Securities and Exchange Commission (hereinafter referred to as the 'Commission') to compel by mandamus the law firm of Morgan, Lewis & Bockius and the individual partners thereof, all of whom are defendants, to file informational statements with the Commission under Section 12(i) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. 791(i) and the Commission's Rule U-71, 17 C.F.R. 250.71. The information demanded has to do with defendants' practice, as attorneys at law, in representing The United Gas Improvement Company (hereinafter referred to as 'UGI') in proceedings before the Commission pursuant to Section 11 of the Public Utility Holding Company Act during the years 1941 to 1944, inclusive, 1946, 1947, 1951 and 1952. The plaintiff also seeks by the action to enjoin the defendants permanently from failing to file such statements in the future. *fn1"

The case is before this Court on plaintiff's motion for summary judgment.

 There is no dispute as to the facts. They are set forth in the complaint, the answer, and an affidavit filed in support of plaintiff's motion for summary judgment. They may be summarized as follows:

 In March, 1940, the Commission instituted corporate integration and simplification proceedings against UGI under Section 11 of the Public Utility Holding Company Act. In connection with those proceedings the defendant law firm, acting through various partners and associates, represented UGI and its subsidiaries. In doing so, the defendants (all of whom are members of the bars of the Supreme Court of Pennsylvania and one or more of the Pennsylvania lower courts and one or more of the federal courts) engaged solely in the practice of law and did not engage in lobbying. Defendants presented to the Commission evidence in support of plans, applications and petitions filed by UGI and its subsidiaries, advocated Commission approval thereof in briefs and oral arguments, presented UGI's views with respect to various matters which arose during the course of such proceedings, and in a number of instances opposed positions taken by the staff of the Commission's Division of Public Utilities. In addition to their appearances before hearing examiners and before the Commission itself, defendants participated in numerous conferences with members of the staff of the Division of Public Utilities in matters pertaining to UGI and its subsidiaries which subsequently became the subjects of the more formal administrative proceedings.

 Defendants have never filed, and have consistently refused to file, statements under Section 12(i) of the Act and Rule U-71 promulgated thereunder.

 The question whether Section 12(i) applies to defendants in their practice of law before the Commission was made the subject of extensive correspondence and discussions between the parties early in 1944, at which time defendants made their position quite clear in refusing to accede to the Commission's request for compliance with Section 12(i) of the Act and Rule U-71. They are and always have been strongly of the opinion that Section 12(i) and the rules promulgated thereunder do not apply to lawyers practicing their profession before the Commission. The Commission made no further attempt to obtain defendants' compliance until the year 1952, when, following additional correspondence thereon between the parties, the Commission informally rejected defendants' request that Rule U-71 not be applied to them. Defendants' position was then orally presented at a formal hearing before the Commission. After having been advised that the Commission had denied their application that Rule U-71 not be enforced against them, defendants filed a formal petition for repeal of Rule U-71. The petition for repeal of U-71 was denied by the Commission on the same day, and the following day, September 26, 1952, the complaint in this action was filed. Both sides regard this as a test case to determine whether the Commission or the defendants are correct in their respective positions.

 Section 12(i) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 791(i), provides:

 'It shall be unlawful for any person employed or retained by any registered holding company, or any subsidiary company thereof, to present, advocate, or oppose any matter affecting any registered holding company or any subsidiary company thereof, before the Congress or any Member or committee thereof, or before the (Securities and Exchange) Commission or Federal Power Commission, or any member, officer, or employee of either such Commission, unless such person shall file with the Commission in such form and detail and at such time as the Commission shall be rules and regulations or order prescribe as necessary or appropriate in the public interest or for the protection of investors or consumers, a statement of the subject matter in respect of which such person is retained or employed, the nature and character of such retainer or employment, and the amount of compensation received or to be received by such person, directly or indirectly, in connection therewith. It shall be the duty of every such person so employed or retained to file with the Commission within ten days after the close of each calendar month during such retainer or employment, in such form and detail as the Commission shall by rules and regulations or order prescribe as necessary or appropriate in the public interest or for the protection of investors or consumers, a statement of the expenses incurred and the compensation received by such person during such month in connection with such retainer or employment.'

 Commission Rule U-71, 17 C.F.R. 250.71, prescribes forms of statements which require detailed disclosure of the types of information specified in Section 12(i) of the Act.

 Defendants' first contention is that Section 12(i) has no application to the legitimate practice of law before the Commission, but only to actual 'lobbying' activities. They point to nothing in the statute to support their contention, but they say that their view is justified by the legislative history of the statute.

 It is well settled that reference to legislative history is not called for where a statute is clear and unambiguous. *fn2" It is not necessary to go beyond the language of Section 12(i) itself to ascertain that Congress intended its provisions to be applicable to lawyers. It applies to persons, among others, who are 'retained' to 'present', 'advocate' or 'oppose' any matter affecting a registered holding company. A statement is required, among other things, of the subject matter with respect to which such person is 'retained' and the nature of the 'retainer'. The use of the words 'retain', 'retainer' and 'advocate' indicates, in my opinion, that Congress contemplated that lawyers engaged in the practice of law before the Commission would be expected to give the required information, for the words are peculiarly referable to the activities of lawyers. Moreover, the 'matters' which registered public utility holding companies normally have before the Commission under the Holding Company Act are of such character as to require the legitimate services of attorneys. The work of the defendants in the present case is a good example of this.

 The broad language of Section 12(i) was intended to comprehend and does comprehend the activities of 'lobbyists'. But this certainly does not mean that Congress, in using this broad language, did not intend also to require disclosures of fees and expenses paid to lawyers for activities which, in many cases, might constitute nothing more than the legitimate practice of law. Section 12(i) contains no unqualified prohibition of lobbying; instead, Congress utilized the technique of disclosure as a deterrent to aspects of lobbying which were regarded as involving too subtle an abuse to be dealt with effectively by such prohibition. For that reason, the disclosure requirements necessarily cover a broadly defined area which may or may not involve the particular evil intended to be discouraged. *fn3" While the complaint does not charge any abuse, subtle or otherwise, in defendants' activities, the absence of abuse is no reason for not requiring disclosures designed to deter abuse. *fn4" It is evident that payment of a fee higher than and unrelated to the value of legitimate legal services conceivably could involve payment for influence or supposed influence or a payment subject to the understanding that the recipient would make ostensibly on his own behalf, but really on behalf of his holding company client, the type of political contribution which his client is prohibited from making by Section 12(h) of the Act, 15 U.S.C.A. § 79l(h). Furthermore, the expenses of an attorney might include expenditures, whether or not specifically prohibited by Section 12(h), which could be regarded as improper attempts to influence administrative or legislative activity. Since attorneys can act as lobbyists in the sinister sense of the word, and since the line between legitimate acts of persuasion and attempts at improper influence may frequently be a shadowy one, it is probable that Congress thought that it was necessary to require complete disclosures irrespective of the legitimacy of the particular services rendered, the reasonableness of the fees charged, or the propriety of the expenditures. *fn5" The Commission was given discretion to prescribe the 'form and detail' of the disclosures to be made; and the forms it has adopted have been designed to reveal possibly illegitimate activities without imposing burdensome detail with respect to routine and legitimate expenditures.

 In view of my holding that the language of Section 12(i) is clear and unambiguous, it is unnecessary to refer to its legislative history in order to ascertain the purpose or intent of Congress in enacting the statute. However, a careful reading of the legislative history of the Holding Company Act and particularly of Section 12(i) thereof has revealed nothing to me to indicate that Congress intended to exempt the ...


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