221 F.2d 708 | 3rd Cir. | 1955
Lead Opinion
Was the Securities and Exchange Commission- entitled to deny compensation to counsel for dissenting common stockholders under the circumstances of the instant case? Engineers Public Service Company, a public utility holding company, was liquidated under Section 11 (e) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79k(e). Engineers had issued and outstanding both common and preferred stocks. Engineers’ management took the position before the Commission that each share of the preferred stock should be paid an amount, the equivalent of stated value, as on involuntary liquidation. The Commission, after extended hearings, concluded that each share of the preferred stock should be paid an amount, found by the Commission not to be in excess of actual value, as on voluntary liquidation. The amount to be paid on voluntary liquidation was considerably in excess of the amount to be paid on involuntary liquidation.
Common stockholders, represented by the appellees, then appeared to contest the amended plan, but the plan as amended was' approved by the Commission. When the amended plan was moved for hearing in the court below the dissenting stockholders contended that the plan for the payment of the preferred stockholders was not “fair and equitable to the persons affected,” who included the common stockholders. The court below concluded that the dissenters were right. See 71 F.Supp., 797. An appeal was
Thereafter the liquidation of Engineers was proceeded with and consummated. The appellees applied to the Commission, which had reserved the right to pass on fees and expenses as part of the plan of liquidation, for compensation for their services but their application was denied.
In its memorandum opinion concerning fees the Commission under the heading “Applicable Standards” for the granting of compensation stated: “Compensation may be paid for services which have contributed to the plan ultimately approved, which have contributed to the defeat of the proposed plan found to be unsatisfactory, or which have otherwise directly and materially contributed to the development of the proceedings with respect to the plan.” The Commission goes on to state that in determining the amovmt of the compensation the primary factor is the amount of benefit conferred upon the estate or its security holders' by the services rendered.
Referring specifically to the appellees’ application for fees the Commission said: “Counsel for the common stockholders did not participate in the formulation of the plan or the development of the rocord before us, but merely contested, our decision after it had been announced. Their efforts were undertaken with full knowledge that the management, in discharge of its responsibilities to the common stockholders, had vigorously asserted their position before this Commission and had concluded that it was not in the interests of those stockholders to pursue it further because it considered that success was unlikely and that further contest would prove costly to the common stock.”
The Commission also stated in its memorandum opinion:
“In * * * [seeking court review of the determination the appellees
“We assume, particularly in view of the outcome in the District Court and in the Court of Appeals, that the question of law involved was a doubtful one, until resolved by the Supreme Court. We assume also that there was room for a reasonable difference of opinion as to whethei, as; of the time court contest was undertaken, the prospects of ultimate success were too doubtful to compensate for the risk of prejudice to the class sought to be represented. Nevertheless we cannot find that Engineers’ management was unreasonable in concluding that the best interest of the common stockholders demanded that there be no court contest. Under these circumstances, we are of ;he opinion that no compensation may be allowed for services rendered by these applicants in their unsuccessful efforts." (Emphasis added.)
This memorandum of the Commission specifies the standard applied by it to determine the eligibility of the appellees for compensation from the company assets for their services as counsel in the Holding Company Act reorganization. That standard may be fairly stated as follows: When stockholder groups contest a plan submitted by management, primarily in the judicial phase of the review of the plan, and are ultimately unsuccessful, their counsel' may not be compensated from the estate. The issue in this case is the validity of this standard utilized by the Commission. At the outset it is necessary to determine the extent of the court’s reviewing power in determining the validity of that standard.
In determining the allowable scope of review of Commission action, the Administrative Procedure Act is applicable. See Loss, Securities Regulation 1138. Section 10 of the Act, 5 U.S.C.A. § 1009 provides: “Except so far as (1) statutes preclude judicial review or (2) agency action is by law committed to agency discretion * * * (e) * * * the reviewing court shall decide all relevent questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of any agency action.” In reviewing Commission action, the Supreme Court, in S. E. C. v. Chenery Corp., 1947, 332 U.S. 194, 207-208, 67 S.Ct. 1575, 1582, 1760, 91 L.Ed. 1995, the second Chenery case, has specified the scope of inquiry, saying that “The wisdom of the principle adopted is none of our concern”; that “The facts being undisputed, we are free to disturb the Commission’s conclusion only if it lacks any rational and statutory foundation”; and that “The very breadth of the statutory language precludes a reversal of the Commission’s judgment save where it has plainly abused its discretion in these matters.” But in the last paragraph of Mr. Justice Murphy’s opinion, 332 U.S. at page 209, 67 S.Ct. at page 1583, he said: “The Commission’s conclusion here rests squarely in that area where administrative judgments are entitled to the greatest amount of weight by appellate courts. It is the product of administrative experience, appreciation of the complexities of the problem, realization of the statutory policies, and responsible treatment of the uncontested facts. It is the type of judgment which administrative agencies are best equipped to make and which justifies the use of the administrative process.”
In the case at bar we think the issue does not require the type of judg
We conclude that the standard as supplied by the Commission was not a proper one under the circumstances at bar. The Commission has stated, as the reason for its exercising supervision over the allowance of fees from the estates of public utility holding companies in reorganization, that the object of allowing such fees is to encourage the appearance of security holders to insure the “adequate representation of their respective interests and points of view in proceedings before us.” Sec 'Holding Company Act Release No. 7041. We conclude that the action of the Commission in this case was not consistent with that proper objective.
First, no good reason appears for not allowing fees to those who may oppose the position of management, even though that position be reasonable. Whether the management of a company undergoing reorganization under the statute does in fact act as the “representatives of all the stockholders”, as was declared to be management’s duty in S. E. C. v. Chenery Corp., 1943, 318 U.S. 80, 91, 63 S.Ct. 454, 461, 87 L.Ed. 626, the first Chenery case, or “manage[s] solely in their own interest tremendous capital investments of other people’s money,” as was said of many holding company managements in Report of the National Power Policy Committee on Public Utility Holding Companies, II. Doc. 137, 74th Cong., 1st Sess., pp. 4-5, the management of a company undergoing liquidation is not in a position to represent adequately the conflicting interests of different classes of security holders.
The fact that most of the services of the appellees were performed before the courts rather than the Commission is not a reason for holding them ineligible for compensation. The statute requires court review and encouraging adversary proceedings before courts is as important as encouraging them before the Commission. See Nichols v. S. E. C., 2 Cir., 1954, 211 F.2d 412, 418. As was succinctly said in In re United Corp., D.C.D.Del.1954, 119 F.Supp. 524, 532: “Contrary to SEC’s decision, the ball game is not over after the Commission inning.”
The circumstance that the appellees, after winning in the District Court and the Court of Appeals, lost in.
The decision of the court below ttat the Commission had erred in denyirg compensation to the appellees therefore was correct. The District Court painstakingly considered the circumstances under which the services had been rendered and in accordance with its best judgment awarded compensation in specified amounts to the appellees. Of course a court acting pursuant to Section 11(e) may not rewrite a plan approved by the Commission for Section 11(e) provides only that a district court shall approve the plan of reorganization if it finds the plan to be fair and equitable and appropriate to effect the policies of the Act as we pointed out in our prior opinion. 168 F.2d at pages 739-740. But in S. E. C. v. Central-Illinois Securities Corp., supra, 338 U.S. at page 126, 69 S.Ct. at page 1393, the Supreme Court said that a “correlation * * * is required between the terms of § 11(e) and those of § 24(a)”, because these sections provide different methods for the review of Commission orders. Section 24(a), 15 U.S.C.A.- § 79x(a), provides for review of Commission orders in courts of appeals and • states that the court “shall have exclusive jurisdiction to affirm, modify, or set aside such order, in whole or in part.” Consequently, in light of the rationale of the decision of the Supreme Court in S. E. C. v. Central-Illinois Securities Corp., the power to “modify” specified in Section 24(a) in some instances may be read into the provisions of Section 11(e). Thus, in North American Light & Power Co., 3 Cir., 1950,180 F.2d 975, 980, this court upheld the affirmative remedial action of a district court under Section 11(e) without remanding the case for further consideration by the Commission. As was said by Judge Hastie in his concurring opinion : “ * * * the statute leaves a substantial area for the exercise of inherent judicial power.” Moreover, in fee cases, it has been held that the reviewing courts have the power to modify a Commission award, Standard Gas & Electric Co. v. S. E. C., 8 Cir., 1954, 212 F.2d 407, 412, and to award a fee where the Commission has refused to do so, Nichols v. S. E. C., supra, 211 F.2d at pages 418-419. This court in In re North American Light & Power Co., 1953, 202 F.2d 638, 639, held that the district court acting pursuant to Section 11(e) might modify a Commission fee award by increasing the amount. We said: “Upon consideration of the record we are of the opinion that the District Court’s action was a
In determining the amounts to be paid the court below considered carefully all evidence relating to the appellees’ services and compared the work done by them with that of the other counsel who participated in the proceedings. See the opinion and its appendix, 116 F.Supp. 930, 947-948. Chief Judge Leahy was of the opinion that when appearing before him the appellees “adroitly waged the legal battle”, and we are of like mind. The Commission, however, argues that the compensation allowed the appellees was too large. We cannot say that the compensation granted by the court below was excessive in the light of the entire record. Chief Judge Leahy was acting from a wealth of experience and we find his reasoning to be clear and unambiguous and the factual bases for his determination entirely adequate.
That portion of the order appealed from will be affirmed.
. The pertinent charter provisions of Engineers are set out in our earlier opinion in notes 2 and 3 cited to the text in 168 F.2d at page 725. The amount involved was approximately $3,200,000 in which 13,000 stockholders holding 1,900,-000 common shares were interested.
. The appellees were allowed compensation for their services in developing a plan for keeping in escrow and investing the amount of money in dispute until the outcome of the litigation. This compensation is not involved in the dispute.
. The Commission’s reference is to the ap-pellees, not to the common stockholders they represented.
. Wliat wo have said here Is not intended to reflect on the good faith or integrity of Engineers’ management or of its very competent counsel.
Concurrence in Part
(concurring in part, dissenting in part).
I am in accord with the view of the majority that the District Court had correctly held that the Commission erred in denying compensation to the appellees. I disagree, however, with the majority’s holding that “ * * * it was within the power of the court below to determine the amounts of compensation to be paid to the appellees and to require such payments to be made from the estate of Engineers.”
In my opinion the District Court was limited to a consideration of the single issue as to whether there was substantial evidence to support the Commission’s finding that the appellees could not assert a claim for compensation under the circumstances of this case. It had no right to take the additional step of fixing the appellee’s fees and directing their payment. That that is so is crystal clear from the ruling by the Supreme Court in Securities and Exchange Commission v. Drexel & Co., 75 S.Ct. 386. There the Supreme Court expressed the view that the Securities and Exchange Commission was exclusively entrusted by the “statutory design” with the power to pass upon fees allowable in reorganizations under the Public Utility Holding Company Act, 15 U.S.C.A. § 79 et seq.