Columbia Gas & Electric Corporation v. United States

• Decision Date: 21 January 1946
• Docket Number: No. 9775-9777.,9775-9777.
• Citation: 151 F.2d 461
• Parties: COLUMBIA GAS & ELECTRIC CORPORATION v. UNITED STATES et al. (three cases).
• Court: U.S. Court of Appeals — Sixth Circuit

151 F.2d 461 (1945)

COLUMBIA GAS & ELECTRIC CORPORATION v. UNITED STATES et al. (three cases).

Nos. 9775-9777.

Circuit Court of Appeals, Sixth Circuit.

October 9, 1945.

As Amended on Petition for Rehearing November 26, 1945.

Petition for Rehearing and Modification Denied January 21, 1946.

Floyd C. Williams, of Cincinnati, Ohio, and William D. Whitney, of New York City (Floyd C. Williams, Frank W. Cottle, Peck, Shaffer & Williams, and Ernst, Cassatt & Cottle, all of Cincinnati, Ohio, and Cravath, Swaine & Moore, of New York City, on the brief), for appellant.

Paul Williams, of Washington, D. C., Arthur G. Logan, of Wilmington, Del., and Roger S. Foster, of Philadelphia, Pa., for appellees.

Arthur G. Logan, of Wilmington, Del., Robert J. Bulkley, of Cleveland, Ohio, Richard B. Hand, of New York City, and W. E. Darragh, of Lexington, Ky., on the brief, for Russell Van Horn et al., as Committee for Bondholders of Inland Gas Corporation.

Baker, Obermeier, Rosner & Rosenson and Oscar S. Rosner, all of New York City, on the brief, for appellees Green Committee and Morris Green.

Roger S. Foster, Theodore L. Thau, and David Ferber, all of Philadelphia, Pa., and Charles J. Odenweller, Jr., of Cleveland, Ohio, on the brief, for Securities and Exchange Commission.

Wendell Berge and Paul Williams, both of Washington, D. C., and Claude P. Stephens, of Lexington, Ky., on the brief, for the United States.

Before HICKS, SIMONS, and MARTIN, Circuit Judges.

Petition for Rehearing and Modification Denied January 21, 1946. See 153 F.2d 101.

SIMONS, Circuit Judge.

Upon a more complete record and with new and differently aligned parties, we meet again in these appeals the basic problem encountered in In re American Fuel & Power Co., 6 Cir., 122 F.2d 223. That case involved appeals by creditors of Kentucky gas corporations in Chapter X, 11 U.S. C.A. § 501 et seq., bankruptcy reorganization proceedings from orders authorizing and directing trustees to consummate a proposed settlement of cross-demands between the debtors and the Columbia Gas & Electric Corporation, the present appellant. The orders were attacked on the ground that the stock interests and securities of the debtors had been acquired by Columbia from the public for purposes condemned by and in violation of § 7 of the Clayton Act, 15 U.S.C.A. § 18. The Securities and Exchange Commission had been a party to the proceedings and supported the appeal.

Columbia was not a party to the cause previously reviewed, the controversy being between the debtors' trustees who had recommended the settlement, and certain creditors' committees which had opposed it. The facts out of which the controversy arose were not there in dispute, and assuming them to present a controlling factual basis for decision, though not binding upon Columbia since it was not a party, this court concluded that the principles of law discussed in its opinion required a mandate to the district court to fix the division of creditors and stockholders of the debtors into classes according to the nature of their respective claims and stock, that all claims or stock interests of Columbia in the debtors' titles be rejected and Columbia take nothing thereby.

Upon remand, issues were fully framed between Columbia as a creditor and stockholder of the debtors, and the debtors' trustees, and an exhaustive hearing was had, preserved for us by a 6 volume record, wherein, upon detailed findings of fact and conclusions of law, the judgment here sought to be reviewed was entered, directing that all claims of Columbia against the debtors filed in Chapter X proceedings before the district court and any stock interest of Columbia in the debtors, be rejected.

The present case is new with added litigants and parties differently aligned. The creditors' committees had filed their several petitions seeking rejection of Columbia claims, the United States intervened on the ground of a public interest involved which might be adversely affected by a ruling of the court if inconsistent with relief sought in an anti-trust proceeding pending in the District Court of Delaware, and has assumed the burden of supporting the decree which S. E. C. also supports, and Columbia has had its day in court. We are not obliged to consider whether, upon the facts there assumed, the American Fuel and Power case was rightly decided, or its mandate broader than the issues required. Columbia was not bound by it, the present record is complete, and the principle of "the law of the case" does not govern our decision. The appellant's inference that the district judge was, by our earlier decision, led to an erroneous evaluation of evidence, finds little support in his carefully detailed findings, however bound he may have felt to apply principles of law, by us thought to be controlling.

In the main, his findings are not controverted insofar as they disclose the origin and purpose of the debtors and the story of Columbia's interest in their activities which follows. Inland Gas Corporation was incorporated in 1927, and Kentucky Fuel Gas Corporation in 1928, both for the purpose of producing, transporting and selling natural gas to industrial consumers. They were promoted by the same persons and financed by the same group of bankers, and each issued securities to the public and distributed its common stock to the promoters and underwriters as compensation for services. The promoters also, in July, 1928, organized the American Fuel & Power Company for the purpose of taking over and holding stock of Inland and Kentucky Fuel and other operating companies which might later be organized, in order to integrate and expand their operations through unified control and management. Stockholders of Inland and Kentucky Fuel exchanged their stock for stock in the holding company, and in July, 1929, American Fuel issued and sold to the public an issue of convertible gold notes, maturing July 1, 1934. The proceeds thereof were used to provide financial aid to the operating companies, and to acquire additional gas acreage and transmission lines. American Fuel also organized and financed other subsidiary companies for the purpose of having them acquire, hold and operate various properties.

During the same period Columbia, through numerous subsidiary corporations, was engaged in the production, transmission and sale of natural gas to both industrial and domestic consumers in Kentucky, West Virginia, Ohio, Indiana and other states. Such subsidiaries were connected by interstate transmission lines and integrated, through unified management and operation, into what is known as the "Columbia System." The Columbia subsidiaries served both domestic and industrial consumers and so were public utilities subject to the rules and regulations of State Public Utility Commissions and the provisions of municipal franchises under which they operated. The result was that they could not contract with industries at fixed rates for definite periods because of the power of state and municipal authorities to change their rates and to require them to give preference to domestic consumers when gas was insufficient for both. The subsidiaries of American Fuel served only industrial users under private agreements, and all plans for expansion of the American Fuel system contemplated strict adherence to that policy. Being free from constraint by municipal franchises and state regulation, they had a substantial competitive advantage over Columbia wherever they came into competition with it.

Prior to the organization of American Fuel, Columbia was practically free from actual competition in the field occupied by its subsidiaries in Kentucky, Ohio and West Virginia, but during 1928, 1929 and a greater part of 1930, the operating subsidiaries of American Fuel, as a result of their competitive advantage, took from them some of their large industrial customers, including the American Rolling Mill Company. During 1929 and 1930, Columbia was engaged in developing a plan for the construction of a natural gas pipe line from its Kentucky and West Virginia fields to the eastern seaboard cities of Washington, Baltimore and Philadelphia. As originally planned, the project called for a large increase of gas reserves in West Virginia and eastern Kentucky, and to acquire such reserve Columbia embarked upon a large scale program for increasing its acreage. The gas acreage held by American Fuel was considered by it to be desirable. Inland and Kentucky Fuel had sustained substantial operating losses in 1928 and 1929, due to their heavy burden of securities and burdensome gas contracts, and so were never able to earn their fixed charges. Columbia knew of this precarious financial condition and that the indentures securing the bonds of Inland and Kentucky Fuel provided that upon their failure to meet interest or sinking fund requirements the indenture trustees could institute foreclosure proceedings upon the request of holders of 25% of their bonds. Anticipating such eventuality, and to place itself in a position to force foreclosure and sale of the properties with an opportunity to purchase them at foreclosure, Columbia, in January, 1930, began to purchase Inland and Kentucky Fuel bonds on the open market by methods which concealed the fact that it was the purchaser, and by the end of April, 1930, had acquired in excess of 25% in principal amount of the bonds of both.

From the beginning of their operations, Inland and Kentucky Fuel were under the supervision and management of Hope Engineering Company, an organization with wide experience in successfully promoting and building gas transmission lines. It recognized the dubious financial condition of American Fuel and its subsidiaries, and realized that its only hope of survival was to secure capital not only to bridge its immediate difficulties, but to finance a large expansion of its business. The industrial area in and around Detroit, Michigan, not then supplied...