176 F.2d 194 | 2d Cir. | 1949
Lead Opinion
The plaintiff-appellant is an investment company organized under the laws of Maryland. It is a subsidiary of The North American Company which owns all of plaintiff’s preferred stock and about 80% of its common stock, the other 20% being publicly held. By an order dated April 14, 1942, issued pursuant to section 11 (b) (1) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79k (b) (1), the Se
The defendants Posen, Kraft and Kalik are a self-constituted protective committee for holders of the plaintiff’s publicly held common stock.
The question presented by this appeal relates to the proper interpretation of section 11 (g) of the Act, 15 U.S.C.A. § 79k-(g). This section so far as material reads as follows:
“(g) It shall be unlawful for any person to solicit * * * any proxy, consent, authorization, power of attorney, deposit, or dissent in respect of any reorganization plan of a registered holding company or any subsidiary company thereof * * * unless—
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“(2) each such solicitation is accompanied or preceded by a copy of a report on the plan which shall be made by the Commission after an opportunity for a hearing
“(3) each such solicitation is made not in contravention of such rules and regulations or orders as the Commission may deem necessary or appropriate in the public interest or for the protection of investors or consumers.
“Nothing in this subsection or the rules and regulations thereunder shall prevent any person from appearing before the Commission or any court through an attorney or proxy.”
The condition set forth in subdivision (2) cannot at present be met, as the Com;mission has not reported on the plan; hence the plaintiff contends that the proposed solicitation is unlawful. The defendants and the Commission reply that section 11 (g) is inapplicable to a solicitation of authorizations merely to represent stockholders in hearings on a plan before the Commission or in court. They assert that the section was intended only to prevent a premature and irrevocable commitment of security holders for or against a plan, and not to limit their representation at hearings or their communication among themselves for the purpose of selecting properly qualified representatives at such hearings. They support the argument by reference to other subdivisions of the section, to its legislative history and to the Commission’s longstanding administrative interpretation of the section.
Read literally the statutory language —“solicit * * * a-ny *• * * authorization * * * in respect of any * * * plan” — is broad enough to cover every kind of proxy authorization — a proxy to appear and argue as well as a proxy to vote. But in the interpretation of statutes where the literal meaning of the words leads to unreasonable results at variance with the policy of the legislation, a court should follow the legislative purpose rather than the literal meaning.
“ * * * This subsection is designed simply to assure that a security holder will
The appellant argues that this comment applies only to an earlier version of section 11 (g) which embraced only reorganization plans proper. However, the expansion of the scope of the section to include within its coverage divestment and dissolution plans does not in any way minimize the fact that Congress in enacting this section was expressly concerned with protecting security holders from committing themselves prematurely to a particular plan before receiving full disclosure of the material facts.
The literal interpretation for which the plaintiff contends is in direct conflict with the Commission’s long-standing administrative interpretation. The first proxy rules under the Holding Company Act were adopted in July 1937. In Holding Company Act Release No. 759 the Commission noted that the rules had been adopted under section 12 (e)
The appellant argues that the Commission’s interpretation makes section 11 (g) inapplicable to any plan filed under section 11 (e), since a plan submitted under that section may be approved by the Commission and carried into effect without the security holders ever being required to express by vote their approval or disapproval of it, as this court stated in Phillips v. Securities and Exchange Comm., 2 Cir., 153 F.2d 27, certiorari denied 328 U.S. 860, 66 S.Ct. 1350, 90 L.Ed. 1630. The argument is fallacious. Although an 11 (e) plan need not require a vote, it may contain a provision, either voluntarily imposed by the corporation submitting the plan or added to the
The judgment is affirmed.
11 S.E.C. 194, 221-223, affirmed North American Co. v. Securities and Exchange Comm., 2 Cir., 133 F.2d 148, affirmed 327 U.S. 686, 66 S.Ct. 785, 90 L.Ed. 945.
Posen and Kraft own shares of common stock and were granted leave to participate in the hearings as individual stockholders. Kalik is a lawyer; he owns no stock.
The authorization blank reads:
“You are hereby authorized to act for and represent the undersigned as owners of said common stock in connection with a certain plan of dissolution dated June 21, 1948 filed by The North American Company for the North American Utility Securities Corporation, under Section 11(c) of the Public Utility Holding Act of 1935, pending before the Securities and Exchange Commission, or any modification of such plan, and to appear before the Securities and Exchange Commission or any court or other commission or other regulatory body in connection with such proceeding.”
See United States v. American Trucking Ass’ns, 310 U.S. 534, 542-544, 60 S. Ct. 1059, 84 L.Ed. 1345, and authorities there cited.
In the cas» at bar some 23 stockholders representing about 20% of the plaintiff’s common stock outstanding in the hands of the public appeared in person or by attorney at the Commission hearings. More than 72,000 of the 90,-397 shares held by the public remained unrepresented at the hearings.
A similar statement was made by Representative Rayburn who sponsored the bill in the House. 79 Cong. Rec. p. 10325.
Sec. 12(e). “It shall be unlawful for any person to solicit or to permit the use of his or its name to solicit, by use of the mails or any means or instrumentality of interstate commerce, or otherwise, any proxy, power of attorney, consent, or authorization regarding any security of a registered holding company or a subsidiary company thereof in contravention of such rules and regulations or orders as the Commission deems necessary or appropriate in the public interest or for the protection of investors or consumers or to prevent the circumvention of the provisions of this title or the rules, regulations, or orders thereunder.”
Dissenting Opinion
(dissenting).
The scheme of § 11 appears to me to forbid my brothers’ conclusion, in spite of the Commission’s long settled interpretation. When a company submits “a plan” to the Commission under § 11 (e), the “notice and hearing” which it must give is, in part at any rate, in order to learn whether the shareholders approve or disapprove; and the Commission’s own “approval” may well depend upon what those say who attend. Perhaps it would be desirable before that hearing to allow electioneering by interested parties so that by- an accumulation of proxies they might present a formidable front to the Commission. Be that as it may, § 11 (g) unconditionally forbids electioneering “in respect of any plan” unless it is "“accompanied * * * by a copy” of the Commission’s report upon the plan or an accredited abstract of it; and on the face of it that covers this preliminary hearing. The purpose of this I should have thought pretty plain, had it not been for my brothers’ contrary conclusion. Congress did not wish shareholders to be subjected to the importunities of persons who seek to represent them, until the Commission has provisionally approved the plan, and until the shareholders have received a disinterested report upon it. That is in accord with the underlying theory that small investors are usually an uninformed, yet complaisant, group, not disposed to be nice in parting with their suffrage, who would be protected by the report. How far the Commission might think it desirable to sound out shareholders at the hearing under § 11 (e) was left to it alone; but the opportunity to gather up proxies for that hearing was thought open to abuse. It is true that even after it has approved a plan, the Commission need not take a vote; but that has nothing to do with how the vote shall be taken when they do choose to take one. Until the Commission’s approval the shareholders must be free from any electioneering by vicarious champions, because they are not armed to resist it.
Whether rulings of administrative tribunals should deflect a federal judge from his personal reading of a statute or an ordinance, occupies a great part of his time. Nevertheless, even in the case of those tribunals whose immunity rates highest, there is always a reserved review, for, at least in theory, there comes a point when not only'may he, but he should, assert his own convictions. All I can say is that in the case at bar I think that that point has been passed.
As to § 12 (e) on which the Commission also relies, it is so far afield from the subject matter that I do not think it necessary to discuss it.