Philadelphia Co. v. Securities and Exchange Com'n

• Decision Date: 28 October 1948
• Docket Number: No. 9513.,9513.
• Citation: 175 F.2d 808
• Court: U.S. Court of Appeals — District of Columbia Circuit
• Parties: PHILADELPHIA CO. v. SECURITIES AND EXCHANGE COMMISSION (CITY OF PITTSBURGH, Intervener).

175 F.2d 808 (1948)

PHILADELPHIA CO. v. SECURITIES AND EXCHANGE COMMISSION (CITY OF PITTSBURGH, Intervener).

No. 9513.

United States Court of Appeals District of Columbia Circuit.

Argued April 12, 1948.

Decided October 28, 1948.

Judgment Vacated May 16, 1949.

Mr. Thomas J. Munsch, Jr., with whom Messrs. C. Elmer Bown, Ellsworth C. Alvord, and Floyd F. Toomey, who entered appearances, and Mr. Philip A. Fleger, were on the brief, for petitioner. Mr. Thomas E. Harris also entered an appearance for petitioner.

Mr. Roger S. Foster, Solicitor, with whom Messrs. David Ferber, Special Counsel, Paul S. Davis, Special Counsel, Public Utilities Division, and Howard S. Guttmann, of the Securities and Exchange Commission, were on the brief, for respondent.

Mr. Charles S. Rhyne for intervener, City of Pittsburgh.

Before STEPHENS, Chief Justice, and CLARK and WILBUR K. MILLER, Associate Justices.

Judgment Vacated May 16, 1949. See 69 S.Ct. 1047.

STEPHENS, Chief Justice.

This case is before the court under a petition filed by the Philadelphia Company, a Pennsylvania corporation, hereafter referred to as Philadelphia, under Section 24 (a) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79x(a), hereafter sometimes referred to as the Act, to review an order of the Securities and Exchange Commission (hereafter sometimes referred to as the Commission) of February 28, 1947, revoking an exemption from the application of the Act theretofore granted by the Commission to a subsidiary of Philadelphia. The Commission moved to dismiss the petition upon the grounds that its action in revoking the exemption was discretionary in character and that the petition presented no substantial question as to action by the Commission in excess of statutory authority, that the action of the Commission was of interlocutory character and for that reason not reviewable, and that the action of the Commission was not an "order" subject to review under Section 24 (a) of the Act. The motion was denied by this court on October 8, 1947. Philadelphia Co. v. Securities and Exchange Commission, 1947, 82 U.S.App.D.C. 335, 164 F.2d 889, certiorari denied, 1948, 333 U.S. 828, 68 S.Ct. 452. The Commission did not question in its motion to dismiss and does not now question that Philadelphia is a "person or party aggrieved" by the order under review, within the meaning of that phrase in Section 24(a) of the Act. This court stayed, pending disposition of the petition for review, the Commission's order revoking the exemption. The petition, which is now before the court, questions the validity of the order and prays that it be set aside as invalid for reasons particularized below.

The facts relevant to the question of the validity of the Commission's order revoking the exemption are in the large not in dispute. In substantial part they are set forth in the opinion of this court on the motion to dismiss. Reference should be made to that opinion for further detail than it is here necessary to state. For the purpose of the present proceeding the facts may be stated as follows:

Philadelphia, a registered public utility holding company under the Act, is the owner of the stock of gas, electric and street railway subsidiaries. One of these is the Pittsburgh Railways Company, a Pennsylvania corporation, hereafter sometimes called Pittsburgh, or the Debtor. Until May 10, 1938, Pittsburgh operated, as a unified street railway system in Pittsburgh, Pennsylvania, and vicinity, its own properties and also, pursuant to a system of leases, operating agreements and stock ownership, the properties of fifty-three so-called "underlier" companies. Of the latter ten are publicly controlled and are not subsidiaries of any registered holding company. Philadelphia owns all of the stock of Pittsburgh and of certain of its underlier companies, and is also a large creditor of Pittsburgh and is a guarantor of obligations substantial in amount of Pittsburgh and of certain of its subsidiaries and underliers. In view of Philadelphia's ownership of Pittsburgh's stock, Pittsburgh is a "subsidiary" within Section 2(a) (8) of the Act, 15 U.S.C.A. § 79b(a) (8). Not being an "electric utility company" or a "gas utility company," it is not a "public utility company" within the meaning of Section 2(a) (5) of the Act, 15 U.S.C.A. § 79b(a) (5), but it is nevertheless, as a "non-utility subsidiary" of a registered holding company, subject to the requirements of the Act unless in some manner exempted therefrom by action of the Commission.

On May 10, 1938, Pittsburgh filed a voluntary petition for reorganization under Section 77B of the Bankruptcy Act, 48 Stat. 912 (1934), as amended by 49 Stat. 664 (1935) and 49 Stat. 965 (1935), in the United States District Court for the Western District of Pennsylvania, hereafter referred to as the District Court. Trustees appointed by the District Court on June 14 have since that date operated the properties which were operated by Pittsburgh before the initiation of the bankruptcy proceedings. In the early stages of the reorganization Pittsburgh and its underliners were the subject of exemptions granted by the Commission under Section 3(d) of the Act, 15 U.S.C.A. § 79c(d), providing that "The Commission may, by rules and regulations, conditionally or unconditionally exempt any specified class or classes of persons from the obligations, duties, or liabilities imposed upon such persons as subsidiary companies or affiliates under any provision or provisions of this title . . . ." Exemption prior to April 1, 1941, was by virtue of the Commission's Rule U-3D-5 which relieved from the operation of most of the provisions of the Act all subsidiaries of registered holding companies which were not gas or electric utility companies, investment companies, service companies, or holding companies thereof. On April 1, 1941, the Commission by Rule U-49 narrowed the scope of the Rule U-3D-5 exemption but nevertheless continued exemption from the otherwise applicable requirements of the Act of certain transactions by subsidiaries of registered holding companies if they were neither electric nor gas utility companies and were being reorganized in a United States court, and if the Commission had filed in such court notice of appearance pursuant to Section 208 of Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 608. The continued exemption was applicable to the Pittsburgh reorganization because the Commission had, pursuant to that section, filed in the District Court notice of appearance in the reorganization proceeding. Paragraph (c) of Rule U-49 made that a condition of the exemption.

In view of the exemptions successively afforded by Rules U-3D-5 and U-49(c), as above explained, the following steps were taken in the Pittsburgh reorganization proceeding: The trustees prepared a plan of reorganization covering not only Pittsburgh itself but also forty-nine of its underlier companies, including the ten which were publicly controlled and were not subsidiaries of any registered holding company. The plan contemplated compliance with the requirements of Section 172 of the Bankruptcy Act, 11 U.S.C.A. § 572, providing that before approval of any plan the district judge may, if the scheduled indebtedness of the debtor does not exceed $3,000,000, and shall, if such indebtedness exceeds $3,000,000, "submit to the Securities and Exchange Commission for examination and report the plan or plans which the judge regards as worthy of consideration," and that "Such report shall be advisory only." (Italics supplied) The plan, in view of the exemptions, contained no provision for submission to the Commission under Section 11(f) of the Holding Company Act, 15 U.S. C.A. § 79k(f), providing that in any proceeding of a court of the United States in which a receiver or trustee is appointed for a registered holding company or any subsidiary thereof a reorganization plan for a registered holding company or any subsidiary company thereof "shall not become effective unless such plan shall have been approved by the Commission after opportunity for hearing prior to its submission to the court. . . ." (Italics supplied.) The plan was, however, pursuant to Section 178 of the Bankruptcy Act, 11 U.S.C.A. § 578, submitted to the Pennsylvania Public Utility Commission, hereafter referred to as the Pennsylvania Commission, and, after a hearing, was on January 12, 1942, approved by it.¹ As approved by the Pennsylvania Commission the plan was filed with the District Court on March 17, 1942, without prior submission to the Securities and Exchange Commission. Litigation then ensued in the District Court on the question of that court's jurisdiction with respect to Pittsburgh's underlier companies. This culminated in a decision by the United States Court of Appeals for the Third Circuit (In re Pittsburgh Rys. Co., 1946, 155 F.2d 477, certiorari denied, 1946, 329 U.S. 731, 67 S.Ct. 89, 90, 91 L.Ed. 632) holding that the District Court had jurisdiction over the Pittsburgh transportation system as a unit, including the underliers, notwithstanding that some of them were not subsidiaries of any registered holding company and notwithstanding that some of them were (according to the opinion in that case) solvent.² The routine administration of the Debtor's estate proceeded, in view of the exemptions afforded by Rules U-3D-5 and U-49(c), without reference to the jurisdiction of the Commission, except as recognized by Section 172 of the Bankruptcy Act, providing, as above stated, for an advisory report, and proceeded without the necessity of securing Commission approval by applications to it under the Holding Company Act.

It was in this posture of the reorganization in the District Court that the Commission made the revocation of exemption which is the subject of the petition for review. It purported to act under Section 3(d) of the Act, printed above, and also under Section 20(a) of the Act, 15 U.S.C.A. § 79t(a)...