American Power & L. Co. v. Securities and Ex. Com'n

• Citation: 141 F.2d 606
• Decision Date: 17 March 1944
• Docket Number: No. 3823,3824.,3823
• Parties: AMERICAN POWER AND LIGHT CO. v. SECURITIES AND EXCHANGE COMMISSION. ELECTRIC POWER & LIGHT CORPORATION v. SAME.
• Court: U.S. Court of Appeals — First Circuit

141 F.2d 606 (1944)

AMERICAN POWER AND LIGHT CO. v. SECURITIES AND EXCHANGE COMMISSION.

ELECTRIC POWER & LIGHT CORPORATION v. SAME.

Nos. 3823, 3824.

Circuit Court of Appeals, First Circuit.

March 17, 1944.

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Root, Clark, Buckner & Ballantine, of New York City (Arthur A. Ballantine, Wilkie Bushby, and Joseph Schreiber, all of New York City, of counsel), Simpson Thacher & Bartlett, of New York City (John F. MacLane and Douglas A. Calkins, both of New York City, of counsel), and Reid & Priest, of New York City (Frank A. Reid, of New York City, of counsel), for petitioner American Power & Light Co.

Wright, Gordon, Zachry, Parlin & Cahill, of New York City (Wallace P. Zachry and Daniel James, both of New York City, of counsel), Simpson Thacher & Bartlett, of New York City (John F. MacLane, Douglas A. Calkins and Gunnar Fromen, all of New York City, of counsel), and Reid & Priest, of New York City (Frank A. Reid, of New York City, of counsel), for petitioner Electric Power & Light Corporation.

John F. Davis, Sol., Milton V. Freeman, Asst. Sol., David K. Kadane, Special Counsel, Public Utilities Division, and Louis Loss, Atty., all of Philadelphia (Alfred Berman, of Washington, D. C., of counsel), for respondent.

Before MAGRUDER, MAHONEY, and WOODBURY, Circuit Judges.

MAGRUDER, Circuit Judge.

These cases come here on petitions of American Power & Light Company (hereinafter referred to as American) and Electric Power & Light Corporation (hereinafter referred to as Electric), both companies being Maine subholding company subsidiaries of Electric Bond & Share Company (hereinafter referred to as Bond & Share), for review of orders of the Securities and Exchange Commission dated August 22, 1942, requiring the dissolution of the two petitioners. The petitions for review were filed under § 24(a) of the Public Utility Holding Company Act of 1935, 49 Stat. 834, 15 U.S.C.A. § 79x(a).

The orders were issued pursuant to § 11(b) (2) of the Act, 15 U.S.C.A. § 79k(b) (2), on the basis of a finding by the Commission "(1) that the corporate structures and continued existence of American and Electric unduly and unnecessarily complicate the structure of the Bond and Share system and unfairly and inequitably distribute voting power among the security holders of such system; (2) that to effectuate the statutory requirements it is necessary that American and Electric be dissolved." In the case of American the order under review provided, inter alia:

"It is further ordered pursuant to Section 11(b) (2) of the Public Utility Holding Company Act of 1935 that the existence of American Power & Light Company shall be terminated and that said company shall be dissolved;

"It is further ordered that respondent American Power & Light Company and respondent Electric Bond and Share Company shall proceed with due diligence to submit to this Commission a plan or plans for the effectuation of this order, and shall take such other and further steps as may be necessary or appropriate to effectuate this order; * * *"

An order in corresponding terms was directed against Electric.

Relevant portions of § 11 of the Act are copied in the footnote.¹

Section 11(b) (2) makes it the duty of the Commission, as soon as practicable after January 1, 1938:

"To require by order, after notice and opportunity for hearing, that each registered holding company, and each subsidiary company thereof, shall take such steps as the Commission shall find necessary to ensure that the corporate structure or continued existence of any company in the holding-company system does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of such holding-company system."

Acting under that authority the Commission instituted the present proceeding on May 9, 1940, by the entry of notice and order for hearing, naming as respondents Electric Bond & Share, several subholding company subsidiaries of Electric Bond & Share (including the two petitioners), and Ebasco Services, Inc. The order specified that the hearing was to determine whether it was necessary to discontinue the existence of or modify the corporate structure of, or redistribute the voting power among security holders of, Bond & Share or any of the other respondents and "what further action, if any, is necessary and shall be required to be taken by the respondents herein, or any of them, to ensure that the corporate structure or continued existence of any of the respondents herein does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of the holding company system of Electric Bond and Share Company." On June 7, 1940, the Commission entered an order that the hearing "shall be limited initially to the issue of whether it is necessary to discontinue the existence of American Power & Light Company or Electric Power & Light Corporation * * * in order to insure that the structure of the holding company system of Electric Bond and Share Company shall not be unduly or unnecessarily complicated and that voting power shall not be unfairly or inequitably distributed among security holders of such system."²

The hearing opened on June 18, 1940, before an examiner, and extended over a period of two years. A voluminous record was made, comprising over 18,000 pages of testimony and more than 1,500 exhibits.

Copies of the Commission's proposed findings, opinion and order were exhibited to counsel for American and Electric, who thereupon entered into stipulations, reading, in part, as follows:

"And a copy of Commission's proposed findings, opinion and order having been exhibited to counsel for American Electric;

"And it appearing therefrom that the objections made by respondent American Electric in motions and exceptions, or otherwise in the record, have been fully presented to and urged before the Commission, and are ruled upon in said findings, opinion and order;

"It is hereby stipulated that respondent American Electric through its counsel hereby waives the filing of request for findings, further exceptions to the findings and opinion of the Commission, the filing of briefs and oral argument, but reserves all legal and constitutional rights, including its right to full judicial review of the said findings, opinion and order.

"Subject to the foregoing reservations of rights, it is stipulated that the Commission may proceed to enter its findings, opinion and order without further formality."

Thereupon, the Commission, on August 22, 1942, formally issued its findings, opinion and orders. Petitions for rehearing were filed on August 27 and denied the next day.

Petitioners seek to raise before us a great many issues, which fall into four basic categories: (1) those raising procedural objections to the orders; (2) those challenging the sufficiency of the evidence to sustain the Commission's ultimate findings; (3) those asserting that the orders are arbitrary and capricious, and (4) those challenging the constitutionality of § 11 (b) (2) of the Act. Some of these issues are not properly before us; others have been passed upon by decisions in other circuits and do not need extended discussion.

Section 24(a) of the Act provides that: "No objection to the order of the Commission shall be considered by the court unless such objection shall have been urged before the Commission or unless there were reasonable grounds for failure so to do." Observing this limitation upon our power of review, we must decline to consider the following objection, which the petitioners have presented here but did not urge before the Commission: that § 11(b) (2) does not as a matter of statutory interpretation authorize the dissolution of subholding companies as one method of bringing a holding company system into compliance with that subsection. Marshall Field & Co. v. National Labor Relations Board, 1943, 318 U.S. 253, 63 S.Ct. 585, 87 L.Ed. 744; Pacific Gas & Electric Co. v. Securities and Exchange Commission, 9 Cir., 1942, 127 F.2d 378, 386; Todd v. Securities and Exchange Commission, 6 Cir., 1943, 137 F.2d 475. The last two cases just cited held that § 24(a) would preclude judicial review even of questions as to the constitutionality of the Act, if such issues were not raised before the Commission. There may be some doubt whether this is so; since an administrative agency necessarily assumes the constitutionality of the statute under which it operates, it might perhaps be held that this constitutes "reasonable grounds" for the failure to raise constitutional issues before the Commission. However that may be, there can be no doubt that under § 24(a) petitioners were obliged to raise before the Commission issues as to the Commission's statutory authority to issue the contemplated orders. We do not find that the Commission in the course of the proceedings did anything which might be held to constitute a "waiver" of this requirement. The stipulation filed by petitioners just before the formal entry of the orders reserved in general terms all legal and constitutional rights, including the "right to full judicial review of the said findings, opinion and order". This can only mean judicial review according to law. It cannot confer upon us power to review questions which § 24(a) forbids us to review because they were not raised before the Commission.

For the same reason, the following objections, which were not made before the Commission, cannot be considered by us: (1) that petitioners are legally incapable of complying with the order of dissolution because dissolution can be effectuated only by a vote of the stockholders in pursuance of procedure prescribed by state law; (2) that the orders are not in accordance with § 11(b) (2) in that they fail to prescribe the "steps" which petitioners must take to effectuate compliance with the statutory...