Lawless v. Securities & Exchange Commission

Decision Date26 June 1939
Docket NumberNo. 3281.,3281.
Citation105 F.2d 574
CourtU.S. Court of Appeals — First Circuit
PartiesLAWLESS v. SECURITIES & EXCHANGE COMMISSION et al.

Daniel J. Lyne, of Boston, Mass. (Lyne, Woodworth & Evarts and Saul L. Kaplan, all of Boston, Mass., on the brief), for petitioner for review.

O. John Rogge, of Washington, D. C., and Howard F. Corcoran, Asst. U. S. Atty., of New York City (Allen E. Throop, Thomas J. Lynch, Milton Katz, and Mayer U. Newfield, all of Washington, D. C., on the brief), for Securities and Exchange Commission.

George A. Brownell, of New York City, and Charles E. Wyzanski, Jr., of Boston, Mass. (Charles A. Coolidge, Jr., and Ropes, Gray, Boyden & Perkins, all of Boston, Mass., and Davis, Polk, Wardwell, Gardiner & Reed, of New York City, on the brief), for intervenor.

Before BINGHAM, WILSON, and MORTON, Circuit Judges.

BINGHAM, Circuit Judge.

This is a petition to review an order of the Securities and Exchange Commission. Section 24 (a) of the Public Utility Holding Company Act of August 26, 1935, 49 Stat. 834, 15 U.S.C.A. § 79x(a), provides that "any person or party aggrieved by an order issued by the Commission under this chapter may obtain a review of such order in the circuit court of appeals of the United States within any circuit wherein such person resides or has his principal place of business * * *."

The order was made on the application of the International Power and Paper Company. It concerned the issuing of a report on a reorganization plan for the Power Company changing its capital structure and exempting it from the provisions of Sections 4 (a) (3) and 6 (a) and (c) (1) of the Act, 15 U.S.C.A. §§ 79d(a) (3), 79f(a), (c) (1), and from the necessity of further orders or approval of the future issuance of certain securities pursuant to the plan, in case they were not issued and disposed of within the statutory period of its temporary exemption as an unregistered company, it having previously filed with the Commission an application under Section 3 (a) (5) asking for a permanent exemption from the provisions of the Act, 15 U.S.C.A. § 79c(a, c).

Section 4 (a), 15 U.S.C.A. § 79d(a), provides that, after December 1, 1935, it shall be unlawful for an unregistered holding company directly or indirectly "(3) to distribute or make any public offering for sale or exchange of any security of such holding company, * * * by the use of the mails or any means or instrumentality of interstate commerce," etc.

And Section 6 (a), 15 U.S.C.A. § 79f (a), makes it unlawful for a registered holding company by the use of the mails or any means or instrumentality of interstate commerce "directly or indirectly (1) to issue or sell any security of such company; or (2) to exercise any privilege or right to alter the priorities, preferences, voting power, or other rights of the holders of an outstanding security of such company", except "in accordance with a declaration effective under section 7 15 U.S.C.A. § 79g, and with the order under such section permitting such declaration to become effective".

The Act requires all holding companies, defined in Section 2 (a) (7), 15 U.S.C.A. § 79b (a) (7), as a condition precedent to the use of the mails or any means or instrumentalities of interstate commerce, to register with the Commission prior to December 1, 1935, unless such company is permanently exempted by order of the Commission pursuant to Section 3 (a), or unless such company is temporarily exempted by reason of the pendency of an application for permanent exemption filed in good faith under Section 3 (c), and then only during the period of temporary exemption can it use the mails or means or instrumentalities of interstate commerce.

At the time the order in question exempting the Power Company from the provisions of Sections 4 (a) and 6 (a) was made, the Commission had not passed upon that company's right to a permanent exemption under Section 3 (a) (5), and it was not then known whether a permanent exemption would be granted on its application or not. At that time the Power Company was an unregistered holding company and one question is whether the Commission had the power and authority to exempt the Power Company from the provisions of Sections 4 (a) and 6 (a) (1) so that it might, after its period of temporary exemption had expired, then issue and put upon the market any of its securities which it had not issued and put upon the market during the period of the temporary statutory exemption, and this, without the necessity of a further order or approval of the Commission, even if the Commission finally determined that the Power Company should not be granted a permanent exemption.

At the time the order was made it could not have been foreseen whether the Commission would or would not grant the Power Company a permanent exemption. Prior to December 1, 1935, the Power Company owned and controlled, among other assets, approximately 97 percent of the voting stock of the International Hydro-Electric System, which in turn owned approximately 88 percent of the New England Power Association. That association, through its subsidiaries, owned, controlled, and operated public-utility properties of an important character throughout the New England states. It then was unquestionably a holding company within the meaning of the Act and, as a consequence, would on or before December 1, 1935, be required to register under its provisions in order to qualify for the lawful sale or distribution of its securities by the use of the mails, etc. On November 29, 1935, it effected an arrangement whereby the voting stock of the New England Power Association was placed in a voting trust to terminate December 1, 1940, and to be administered during that period by three trustees who were to vote the stock to the best of their ability for the benefit of the New England Power Association and for each and every class of its shareholders and other security holders as a whole, with the understanding that, in the exercise of its power to vote, the trustees would be governed solely by their uncontrolled discretion.

On November 30, 1935, the New England Power Association registered with the Commission as a public-utility holding company. The Power Company, however, refused to register, but on December 1, 1935, filed with the Commission an application, dated as of November 30, 1935, for permanent exemption pursuant to Section 3 (a) (5) of the Act, in consequence of which it became, by force of the terms of the Act, temporarily exempt from its provisions, if it filed the application in good faith, until the Commission made a final determination.

The Commission had not passed upon the question of permanent exemption when the petition for review was heard before this court in the spring of 1938, although Section 3 (c) of the Act imposes a duty upon the Commission to do so within a reasonable time after the receipt of the application; nor had it passed upon the question of the company's good faith in filing the application.

Late in 1936 or early in 1937 the Power Company considered it advisable to revise its capital structure. At that time it had outstanding five classes of stock, — Cumulative 7 percent preferred; cumulative 6 percent preferred and classes A, B, C, common. A plan was devised whereby the preferred stock outstanding would be exchanged for a new class of 5 percent cumulative preferred stock and new common stock, and the common stock outstanding would be exchanged for new common stock and common stock purchase warrants. Each share of 5 percent cumulative preferred stock was to carry a right of conversion, at any time on and after October 15, 1937, into two and one-half shares of common stock. The common stock purchase rights were to entitle the holders thereof to purchase a specified number of shares of common stock during the period after March 12, 1937, and terminating May 15, 1942.

In this situation the Power Company on March 12, 1937, filed with the Commission an "Application for Order in Connection with Plan for Change in Capitalization". In this application the Power Company requested (1) a hearing on the plan; (2) a report on the plan "in the manner provided in Section 11 (g) (2) of the Act, 15 U.S.C.A. § 79k(g) (2) which only applies to a registered company; (3) for an order of exemption from the provisions of Sections 4 (a) and 6 (a) of the Act in so far as the same...

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6 cases
  • American Gas & Electric Co. v. Securities & Exch. Com'n
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • 1 Febrero 1943
    ...or partial. International Paper & Power Co., 1937, 2 S.E.C. 274, 278, rev'd on jurisdictional grounds, Lawless v. Securities and Exchange Commission, 1 Cir., 1939, 105 F.2d 574. Controls and influences exercised for so long and so extensively as were Bond and Share's over petitioner are not......
  • Gearhart & Otis, Inc. v. SECURITIES AND EXCHANGE COM'N
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • 30 Junio 1965
    ...a quorum. International Paper and Power Co., 2 S.E.C. 792 (1937), reversed on other grounds, sub nom. Lawless v. Securities & Exchange Commission, 1 Cir., 105 F.2d 574 (1939); see Otis & Co., 31 S.E.C. 380 (1950). 12 United Air Lines, Inc. v. C. A. B., 108 U.S.App.D.C. 220, 281 F.2d 53 (196......
  • American Power Light Co v. Securities and Exchange Commission Securities and Exchange Commission v. Okin
    • United States
    • U.S. Supreme Court
    • 4 Junio 1945
    ...from the order. Securities and Exchange Commission v. Chenery Corp., 318 U.S. 80, 63 S.Ct. 454, 87 L.Ed. 626; Lawless v. Securities and Exchange Commission, 1 Cir., 105 F.2d 574; New York Trust Company v. Securities and Exchange Commission, 2 Cir., 131 F.2d 274; City National Bank & Trust C......
  • American Power & Light Co. v. SECURITIES AND EXCH. COM'N
    • United States
    • U.S. Court of Appeals — First Circuit
    • 19 Junio 1944
    ...occurred" and affirmed the Commission's order. Finally, the petitioner relies heavily on our decision in Lawless v. Securities and Exchange Commission, 1 Cir., 1939, 105 F. 2d 574. In that case, as this court understood the Commission's order, its effect was to cast doubt upon the validity ......
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