138 F.2d 936 (D.C. Cir. 1943), 8394, Engineers Public Service Co. v. S.E.C.
|Citation:||138 F.2d 936|
|Party Name:||ENGINEERS PUBLIC SERVICE CO. et al. v. SECURITIES AND EXCHANGE COMMISSION.|
|Case Date:||November 22, 1943|
|Court:||United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit|
SOPER, Circuit Judge, dissenting in part.
Messrs. William E. Tucker, of New York City, and T. Justin Moore, of Richmond, Va., with whom Messrs. Paul D. Miller, of New York City, and George D. Gibson, of Richmond, Va., were on the brief, for petitioners.
Mr. Milton V. Freeman, of Philadelphia, Pa., pro hac vice, by special leave of Court, with whom Mr. John F. Davis, Solicitor, Securities and Exchange Commission, of Philadelphia, Pa., was on the brief, for respondent.
Before SOPER and ALBERT LEE STEPHENS, Circuit Judges, sitting by designation, and MILLER, Associate Justice.
SOPER, Circuit Judge.
This petition, filed under Sec. 24 of the Public Utility Holding Company Act of August 26, 1935, 49 Stat. 803, 15 U.S.C.A. § 79x, seeks a review of an order issued by the Securities and Exchange Commission on September 16, 1942, in a proceeding begun February 28, 1940, under Sec. 11(b)(1) of the Act, 15 U.S.C.A. § 79k(b)(1), whereby Engineers Public Service Company was ordered to divest itself of ownership and control of certain subsidiary corporations, and was allowed to retain as its principal system the electric utility system of the Virginia Electric and Power Company, with leave to petition within fifteen days for leave to retain as its principal system the electric utility system of the Gulf States Utilities Company instead of that of Virginia. By additional order of October 6, 1943, Engineers' petition for rehearing and leave to adduce additional evidence was denied except that the fifteen day period was allowed to run from the last mentioned date. The petition for review also covers this order.
Engineers was incorporated in Delaware in 1925 and has its principal offices in New York City. It is a registered holding company under Sec. 5 of the Public Utility Holding Company Act, 15 U.S.C.A. 79e. Prior to the divestment order of September 16, 1942 the Commission had passed a divestment order on July 23, 1941 and Engineers had taken certain steps to comply therewith. Disregarding the properties dealt with in the earlier order, Engineers, through stock ownership, controlled the following companies on September 16, 1942:
Virginia Electric and Power Company:
This company, referred to herein as 'Virginia', carries on an electric utility business in Virginia and North Carolina, and a gas utility, a street railway, a bus and an ice business in Virginia.
Savannah Electric and Power Company:
This company, referred to herein as 'Savannah', carries on an electric utility and a street railway and bus business in Georgia.
Gulf States Utilities Company:
This company, referred to herein as 'Gulf States', carries on an electric utility and a steam and water business in Texas and Louisiana, a gas utility business in Louisiana and an ice business in Texas.
Baton Rouge Bus Company, Inc.:
This company, referred to herein as 'Baton Rouge Bus' carries on a bus business in Baton Rouge, Louisiana.
El Paso Electric Company (Delaware):
This company is also a registered holding company and controls through stock ownership (a) El Paso Electric Company (Texas), referred to herein as 'El Paso', which is an electric utility, operating in Texas and New Mexico, and owns a street railway and bus business operating in El Paso, Texas, and the American half of two international toll bridges between El Paso, Texas, and Juarez, Mexico, and (b) El Paso and Juarez Traction Company, which owns a street railway in Juarez, Mexico, and the Mexican half of said international toll bridges.
The subsidiaries of Engineers, in amounts approximately proportionate to their respective gross earnings, hold stock control of Engineers Public Service Company, Inc., a mutual service company organized and having its executive offices in New York.
Engineers also owns a minority stock interest in El Paso Natural Gas Company.
Virginia, Savannah, Gulf States and El Paso also carry on electric merchandising and jobbing businesses, and Virginia and Gulf States carry on gas merchandising and jobbing businesses.
Thus it appears that Engineers controls gas and electric utility companies which serve widely scattered sections of the country. Electric service is furnished in Virginia, North Carolina, Georgia, Louisiana, Texas and New Mexico. Gas service is rendered in Virginia and Louisiana by the subsidiaries which render electric service in those states. The subsidiary companies in the system also engage in various other businesses such as bus and street railway systems, interurban and suburban transportation lines, toll bridges, ice and cold storage plants and various water and steam enterprises.
The principal subsidiaries, in the order of their importance measured by net income in 1940, are Virginia, Gulf States and El Paso. On December 31, 1940, prior to the divestment order of July 23, 1951, the book value of Engineers' assets was $375,000,000.
Engineers exercises active control over its subsidiaries by virtue of its voting power. It elects the Boards of Directors, designates and transfers executive officers; and through the Service Company, it arranges for the financing of its subsidiaries, negotiates their loans and sales of securities, reviews the contents of their reports to regulatory bodies and tax authorities, and prepared and distributes reports for the stockholders and general publication.
By its order of September 16, 1942 the Commission required Engineers within one year (1) to dispose of its interest in the following companies: Savannah, Gulf States, Baton Rouge Bus, El Paso Electric Company (Delaware), El Paso Electric Company (Texas), El Paso and Juarez Traction Company, El Paso Natural Gas Company and Engineers Public Service Company, Inc.; and (2) to cease to own or operate any property now owned or operated through Virginia Electric & Power Company for the purpose of conducting any gas utility, gas appliance merchandising and jobbing, and transportation businesses.
The order also required (1) El Paso Electric Company (Delaware) to dispose of its interest in El Paso and Juarez Traction Company; (2) to cease to own or operate any facilities now owned or operated by it through El Paso Electric Company (Texas) for the purpose of conducting any transportation or toll bridge business.
The order gave the Engineers the right within 15 days to petition for leave to retain as its principal system the electric utility system of Gulf States.
It will be perceived that under the order Engineers was ordered to rid itself of all its holdings except Virginia; and Virginia was ordered to rid itself of its gas utility, gas appliance merchandising and jobbing business, and also its transportation business. The holdings that Virginia was permitted to retain consisted of the Virginia Electric and Power Company, its electric appliance merchandising and jobbing business and its ice business.
Engineers contends that the order of the Commission is invalid because (1) it is based upon an erroneous interpretation of the Act; (2) it impeded the Engineers in the selection of the principal system to be retained; (3) the statute is unconstitutional when considered in the light of evidence rejected by the Commission which shows that the divestment provisions of the statute are arbitrary and capricious in that they have no substantial relation to the evils which Congress desired to eliminate.
Interpretation of Section 11(b)(1) of the Statute.
The character and content of the order of September 16, 1942, were influenced by the Commission's interpretation of the provisions for the simplification of holding company systems contained in Sec. 11(b)(1) of the Act.
Section 11(a) and (b) are as follows:
'Simplification of holding company systems-- * * * .
'Sec. 11(a) It shall be the duty of the Commission to examine the corporate structure of every registered holding company and subsidiary company thereof, the relationships among the companies in the holding-company system of every such company and the character of the interests thereof and the properties owned or controlled thereby to determine the extent to which the corporate structure of such holding-company system and the companies therein may be simplified, unnecessary complexities therein eliminated, voting power fairly and equitably distributed among the holders of securities thereof, and the properties and business thereof confined to those necessary or appropriate to the operations of an integrated public-utility system. * * *
'(b) It shall be the duty of the Commission, as soon as practicable after January 1, 1938:
'(1) To require by order, after notice and opportunity for hearing, that each registered holding company, and each subsidiary company thereof, shall take such action as the Commission shall find necessary to limit the operations of the holding-company system of which such company is a part to a single integrated public-utility system, and to such other businesses as are reasonably incidental, or economically necessary or appropriate to the operations of such integrated public-utility system: Provided, however, That the Commission shall permit a registered holding company to continue to control one or more additional integrated public-utility systems, if, after notice and opportunity for hearing, it finds that--
'(A) Each of such additional systems cannot be operated as an independent system without the loss of substantial economies...
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