Lownsbury v. Securities & Exchange Commission

151 F.2d 217, 1945 U.S. App. LEXIS 4411, 1945 WL 58005

• Court: Court of Appeals for the Third Circuit
• Decided: September 11, 1945
• Docket: No. 9015
• Status: Published

Opinions

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 orders¹ 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 1935² 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)³ of the Act, as petitioners allege, or whether the District Court is the proper forum pursuant to section 11(e),⁴ 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 piar, 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.

1 Order of June 30, 1945; Order of July 18, 1945.

2 15 U.S.C.A. §§ 79 to 79z — 6; 49 Stat. 803, Act of Aug. 26, 1935, c. 687, §§ 1-33.

3 § 24(a). “Any person or party aggrieved by an order issued by the Commission under this chapter may obtain a review of such order in the circuit court of appeals of the United States within any circuit wherein such person resides or has his principal place of business, or in the United States Court of Appeals for the District of Columbia, by filing in such court, within sixty days after the entry of such order, a written petition praying that the order of the Commission be modified or set aside in whole or in part. A copy of such petition shall be forthwith served upon any member of the Commission, or upon any officer thereof designated by the Commission for that purpose, and tliereupon the Commission shall certify and file in the court a transcript of the record upon which the order complained of was entered. Upon the filing of such transcript such court shall have exclusive jurisdiction to affirm, modify, or set aside such order, in whole or in part. No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission or unless there were reasonable grounds for failure so to do. The findings of the Commission as to the facts, if supported by substantial evidence, shall be conclusive. If application is made to the court for leave to adduce additional evidence, and it is shown to the satisfaction of the court that such additional evidence is material and that there were reasonable grounds for failure to adduce such evidence in the proceeding before the Commis sion, tile court may order such additional evidence to be taken before the Commission and to be adduced upon the hearing in such manner and upon such terms and conditions as to the court may seem proper. The Commission may modify its findings as to the facts by reason of .the additional evidence so taken, and it shall file with the court such modified or new findings, which, if supported by substantial evidence, shall be conclusive, and its recommendation, if any, for the modification or setting aside of the original order. The judgment and decree of the court affirming, modifying, or setting aside, in whole or in part, any such order of the Commission shall be final, subject to review by the Supreme Court of the United States upon certiorari or certification as provided in sections 346 and 347 of Title 28.”

4 § 11(e). “In accordance with such rules and regulations or order as the Commission may deem necessary or appropriate in the public interest or for the protection of investors or consumers, any registered holding company or any subsidiary company of a registered holding company may, at any time after January 1, 1836, submit a plan to the Commission for the divestment of control, securities, or other assets, or for other action by such company or any subsidiary company thereof for the purpose of enabling such company or any subsidiary company thereof to comply with the provisions of subsection (b). If, after notice and opportunity for hearing; the Commission shall find such plan, as submitted or as modified, necessary to effectuate the provisions of subsection (b) and fair and equitable to the persons affected by such plan, the Commission shall make an order approving such plan; and the Commission, at the request of the company, may apply to a court, in accordance with the provisions of subsection (f) of section 79r of this chapter, to enforce and carry out the terms and provisions of such plan. If, upon any such application, the court, after notice and opportunity for hearing, shall approve such plan as fair and equitable and as appropriate to effectuate the provisions of this section, the court as a court of equity may, to such extent as it deems necessary for the purpose of carrying out the terms and provisions of such plan, take exclusive jurisdiction and possession of the company or companies and the assets thereof, wherever located; and the court shall have jurisdiction to appoint a trustee, and the court may constitute and appoint the Commission as sole trustee, to hold or administer, under the direction of the court and in accordance with the plan theretofore approved by the court and the Commission, the assets so possessed.”