Electric Bond Share Co v. Securities and Exchange Commission

Citation115 A.L.R. 105,58 S.Ct. 678,303 U.S. 419,82 L.Ed. 936
Decision Date28 March 1938
Docket NumberNo. 636,636
PartiesELECTRIC BOND & SHARE CO. et al. v. SECURITIES AND EXCHANGE COMMISSION et al
CourtUnited States Supreme Court

[Syllabus from pages 419-421 intentionally omitted] Messrs. Thomas D. Thacher and John F. MacLane, both of New York City, for petitioners.

[Argument of Counsel from pages 421-425 intentionally omitted] Robert H. Jackson, Asst. Atty. Gen., and Benjamin V. Cohen, Sp. Asst. Atty. Gen., for respondents.

[Argument of Counsel from Page 425 intentionally omitted] Mr. Chief Justice HUGHES delivered the opinion of the Court.

The Securities and Exchange Commission brought this suit to enforce the provisions of sections 4(a) and 5 of the Public Utility Holding Company Act of 1935, 49 Stat. 803, 812, 813, 15 U.S.C.A. §§ 79d(a), 79e. These sections provide for registration with the Commission of holding companies, as defined, section 5(a), 15 U.S.C.A. § 79e(a), and prohibit the use of the mails and the instrumentalities of interstate commerce to those companies which fail to register. Section 4(a), 15 U.S.C.A. § 79d(a). Section 5(b), 15 U.S.C.A. § 79e(b), provides for the filing of a registration statement giving information with respect to the organization, financial structure and nature of the business of the registrant, together with various details of operations.

Defendants, including interveners, contested the validity of these provisions and sought by cross-bill a declaratory judgment that the act was invalid in its entirety, 15 U.S.C.A. § 79 et seq., as being in excess of the powers granted to Congress by section 8 of article 1, and in violation of section 1 of article 1 and of the Fifth and Tenth Amendments, of the Constitution of the United States. The District Court sustained the validity of sections 4(a) and 5, and granted an injunction accordingly. The cross-bill was dismissed for want of equity and for lack of any actual controversy within the meaning of the Federal Declaratory Judgment Act of 1934, Jud.Code, § 274d, as amended, 28 U.S.C.A. § 400. D.C., 18 F.Supp. 131, 139. The Circuit Court of Appeals affirmed the decree. 2 Cir., 92 F.2d 580. Certiorari was granted. 302 U.S. 681, 58 S.Ct. 411, 82 L.Ed. —-.

The suit was brought against the Electric Bond & Share Company and fourteen associated public utility companies. Of these, it appears that seven have ceased to be holding companies within the meaning of the act, two1 before the cause was heard by the District Court and five2 since the decree. The remaining companies against whom the decree of injunction runs are Electric Bond & Share Company, American Gas & Electric Company, American Power & Light Company, National Power & Light Company, Electric Power & Light Corporation, Lehigh Power Securities Corporation, Utah Power & Light Company, and Pacific Power & Light Company.

The decree provides in substance, as to each of these defendants, that after a day specified and until such defendant shall cease to be a holding company as defined in the act, section 2, 15 U.S.C.A. § 79b, or shall register with the Securities and Exchange Commission as provided in section 5(a), 15 U.S.C.A. § 79e(a), it shall not carry on any of the activities in interstate commerce or through the mails which are forbidden to nonregistered holding companies by paragraphs (1), (2), (3), (4), and (6) of section 4(a), 15 U.S.C.A. § 79d(1—4, 6). The provisions of sections 4(a) and 5 are set forth in the margin.3

The decree further provides that the injunction and the dismissal of the cross bill shall be without prejudice 'to any rights or remedies in law or in equity' which defendants may have after registration, and leaves defendants free to challenge the validity of any of the provisions of the act other than sections 4(a) and 5. The dismissal of the cross-appeal is also declared to be without prejudice 'to any rights or remedies in law or in equity' which the intervening defendants 'may have or be entitled to upon the act being made applicable to them by the registration of any holding company of which they are subsidiary companies.' All rights of defendants, including interveners, are thus fully reserved with respect to the application to them of any provision of the act outside of those contained in the particular sections which are enforced by the decree.

Petitioners insist that the act is invalid as a whole; that the provisions of sections 4(a) and 5 are not separable from the remainder; that these provisions, if separately considered, do not constitute a valid regulation of interstate commerce and the mails; and that the cross-bill presented a controversy upon the merits of which the defendants, including interveners, were entitled to the judgment of the court.

First. The initial question is whether the defendant companies, against which the decree for injunction runs, are engaged in activities which bring them within the ambit of congressional authority. Upon this point there seems to be no serious controversy, and for the purpose of the present decision we do not find it necessary to make a comprehensive statement of the corporate setup and operations of the respective defendants. The facts were fully set forth in an elaborate stipulation which underlay the findings of fact of the trial court. A brief statement addressed to the point now under consideration will suffice.

Electric Bond & Share Company is styled in the findings as 'the top holding company' in 'a holding-company system' in which all the other defendants and intervening defendants together with numerous other companies are subsidiaries. Electric Bond & Share Company owns substantial minorities of the voting stocks of the defendants American Gas & Electric Company, American Power & Light Company, National Power & Light Company, and Electric Power & Light Corporation. These companies in turn own directly or through subholding companies substantial majorities, in some cases approximating complete ownership and in all cases sufficient to insure voting control, of the common stocks of operating gas and electric utilities. The 'electric operations' of subsidiaries in the Bond & Share system are conducted in thirty-two states. Some operate only within a single state, some in two or more states, transmitting energy across state lines for their own account, and some sell energy at wholesale in interstate commerce.

Until shortly prior to the institution of this suit Electric Bond & Share Company rendered services to both holding and operating companies under service contracts. After the approval of the act, it formed a wholly owned subsidiary, Ebasco Services Incorporated, to take over the servicing of the operating companies and the servicing of the holding companies was discontinued. The performance of service contracts by Ebasco, operating as a subsidiary and on behalf of Electric Bond & Share Company, constitutes an extensive business in rendering continuous expert, specialized, and technical service, advice, and assistance to the serviced companies upon every phase of the utility enterprise. Phoenix Engineering Corporation, a wholly owned subsidiary of Ebasco, performs construction work for subsidiary public-utility companies in the Bond & Share system. The American Gas & Electric Company also performs services for subsidiary operating companies.

We need not go further in the description of the operations of these companies, as petitioners concede that the carrying out of these service contracts, as found by the trial court, involves continuous and extensive use of the mails and instrumentalities of interstate commerce, although petitioners are careful to qualify the concession by saying that they agree with the trial court that 'this is not to say that the entire business of Ebasco or American Gas constitutes interstate commerce and is therefore subject to unlimited federal regulation.'

Petitioners also state with respect to American Power & Light Company, National Power & Light Company, and Electric Power & Light Corporation, that while it is insisted that these are simply investment holding companies and that their business as such is not interstate commerce, they may 'from time to time engage in transactions in interstate commerce or may use the instrumentalities of interstate commerce in particular transactions, such as the distribution of securities, in such manner that those particular activities become the subject of federal regulation.'

The trial court found that one or more subsidiary electric-utility companies of Lehigh Power Securities Corporation 'are regularly engaged in selling, purchasing, or transmitting some electric energy across state lines'; and that Utah Power & Light Company and Pacific Power & Light Company are both holding companies and electric-utility companies; and that the transmission of electric energy across state lines is part of the enterprise of each.

In the light of the findings supported by the stipulation, we perceive no ground for a conclusion that the defendant companies which are enjoined are not engaged in activities within the reach of the congressional power.

Second. Challenging the validity of the act in its entirety, petitioners contend that sections 4(a) and 5, 15 U.S.C.A. §§ 79d(a), 79e, cannot be separated from the other provisions of the act and thus be separately sustained and enforced. They urge that these sections are purely auxiliary to the subsequent or 'control provisions' of the act, sections 6 to 13, 15 U.S.C.A. §§ 79f to 79m; that the object of this suit is to compel submission to an integrated system of control and that the sole question is whether the act as a whole, 'or enough to accomplish its general plan,' is constitutional. They insist that this question must be determined before they may be compelled to register.

(1) In this branch of the case, petitioners address their argument to the intent of Congress, rather than to its power. But Congress has defined its...

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