Nichols v. Long Island Lighting Co., 56

• Citation: 207 F.2d 931
• Decision Date: 12 November 1953
• Docket Number: No. 56,Docket 22723.,56
• Parties: NICHOLS et al. v. LONG ISLAND LIGHTING CO. et al.
• Court: U.S. Court of Appeals — Second Circuit

207 F.2d 931 (1953)

NICHOLS et al. v. LONG ISLAND LIGHTING CO. et al.

No. 56, Docket 22723.

United States Court of Appeals, Second Circuit.

Argued October 15, 1953.

Decided November 12, 1953.

Harold G. Aron and Armstrong & Keith, New York City, for appellants.

David K. Kadane, Mineola, N. Y. (Charles E. Elbert, Forest Hills, N. Y., and Bertram D. Moll, New York City, of counsel), for defendant-appellee.

Roger S. Foster, General Counsel, Myron S. Isaacs, Associate General Counsel, Washington, D. C. (Aaron Levy, Washington, D. C., of counsel), for Securities and Exchange Commission, intervenor-appellee.

Before L. HAND, SWAN and AUGUSTUS N. HAND, Circuit Judges.

AUGUSTUS N. HAND, Circuit Judge.

This is an action sounding in tort brought by the plaintiff Nichols as representative of a group of the old common stockholders of the defendant Long Island Lighting Company (hereinafter referred to as Long Island). The charge is one of conspiracy and fraud against the defendant which is said to have resulted in damage to the stockholders in the amount of $27,500,000.

The parties here involved have been engaged in controversy over a number of years. A brief history of Long Island and recent litigation will be helpful in understanding the case. On March 27, 1936, the Securities and Exchange Commission entered an order under Section 3(b) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79c(b), granting an exemption to Long Island from the registration provisions of that Act. In 1936 the company suspended payment of dividends on its preferred stock and in 1944 it submitted a reorganization plan to its stockholders whereby the par value and current dividend rights of its preferred stock were to have been reduced by 40%; the accrued dividend arrears of the preferred were not to be affected; and a new issue of common stock was to have been distributed approximately one-half to the holders of preferred and the balance to the common. Although the plan was approved by the stockholders and, with some modifications, by the Public Service Commission of New York, it was never put into effect. The S. E. C.'s attempt to enjoin the consummation of the plan, pending redetermination of the exemption, failed in the first instance, Securities and Exchange Commission v. Long Island Lighting Co., D.C., 59 F. Supp. 610, affirmed 2 Cir., 148 F.2d 252, and certiorari granted by the Supreme Court, 324 U.S. 837, 65 S.Ct. 869, 89 L. Ed. 1401, became moot, 325 U.S. 833, 65 S.Ct. 1085, 89 L.Ed. 1961, when the S. E. C. completed its proceedings and revoked the company's exemption from the P. U. H. C. A., in which order the company acquiesced.

In 1945 Long Island filed an application with the S. E. C. under Section 11 (e) of the P. U. H. C. A., 15 U.S.C.A. § 79k(e) for approval of a plan of consolidation of the company with the Queens Borough Gas & Electric Company, Nassau & Suffolk Lighting Company and Long Beach Gas Company. For four years the plan was under consideration by the S. E. C. The Public Service Commission was also involved in consideration of these plans until 1948 when it was held that it had no jurisdiction with respect to the allocation of securities of public utilities companies in the State of New York which were being reorganized under Section 11(e) of the P. U. H. C. A. — the S. E. C. having exclusive jurisdiction. In re Kings County Lighting Co., D.C., 72 F. Supp. 767, affirmed sub nom. Public Service Commission of New York v. Securities and Exchange Commission, 2 Cir., 166 F.2d 784, certiorari denied, 334 U.S. 838, 68 S.Ct. 1495, 92 L.Ed. 1763. The present plaintiffs' committee was formed in 1948 and took part in these proceedings. On November 16, 1949, the S. E. C. entered an order of consolidation and reorganization which, although giving the old common stockholders of Long Island much less than the 1944 plan, gave them five per cent of the new common stock to be issued. It is to be noted that the P. S. C. in 1947 had refused to give the old common any share in the new company to be formed. For a more detailed discussion of these administrative proceedings and the proposed plans see the opinion of Judge Kennedy in In re Long Island Lighting Co., 89 F.Supp. 513.

A petition for enforcement of the consolidated plan was granted in the district court after a finding that the plan was fair and equitable. In re Long Island Lighting Co., D.C., 89 F.Supp. 513. This order was affirmed by us, 183 F.2d 45, and certiorari was denied by the Supreme Court, Common Stockholders Committee of Long Island Lighting Co. v. Securities and Exchange Commission, 340 U.S. 834, 71 S.Ct. 64, 95 L.Ed. 612. Subsequently, the present stockholders' committee sought to set aside the order, reopen the proceeding, or grant leave to file a bill of review in the district court on the ground that the order was entered "under circumstances tantamount to fraud effected and committed by said Long Island Lighting Company upon the Securities and Exchange Commission, the Court below and this Court." We denied this motion finding that "the facts alleged in the petition do not show that fraud was practiced upon the Commission, the District Court or this court." 2 Cir., 197 F.2d 709, 710.

The same plaintiffs now attempt to escape the conclusive effect of these prior proceedings by bringing a tort action against the new company. In substance it is alleged that the defendant's...