Homewood v. Standard Power & Light Corporation

• Decision Date: 29 April 1944
• Docket Number: No. 229.,229.
• Citation: 55 F. Supp. 100
• Parties: HOMEWOOD et al. v. STANDARD POWER & LIGHT CORPORATION et al.
• Court: U.S. District Court — District of Delaware

55 F. Supp. 100

HOMEWOOD et al. v. STANDARD POWER & LIGHT CORPORATION et al.

No. 229.

District Court, D. Delaware.

April 29, 1944.

Ivan Culbertson, of Wilmington, Del., and Maurice J. Dix, of New York City, for plaintiffs.

Howard Duane, of Wilmington, Del., and H. Preston Coursen, of New York City, for Standard Power & Light Corporation.

Caleb S. Layton, of Wilmington, Del., for H. M. Byllesby & Co.

Edwin D. Steel, of Wilmington, Del., for Bancamerica Corporation.

Clair J. Killoran, of Wilmington, Del., for A. C. Allyn & Co.

John J. Morris, Jr., U.S. Atty., of Wilmington, Del., and David Kadane, of Philadelphia, Pa., for the Securities and Exchange Commission.

LEAHY, District Judge.

This derivative stockholders' action started in September, 1941, on behalf of Standard Power and Light Corporation against certain investment bankers who allegedly illegally controlled the corporation to its loss. Answer was filed. The action has since been dormant. Now, plaintiffs seek to file a supplemental complaint — which defendants oppose — charging Standard with doing no business, as a useless holding company¹ with operating expenses exceeding income, with asset values less than liquidating preferences on Standard's preferred stock, and with sole voting power in the common stock, which is without equity. Standard's management is charged with designs to circumvent the Public Utility Holding Company Act of 1935, 15 U. S.C.A. § 79 et seq., by working solely in the interests of the common stock. In substance, the supplemental pleading alleges that the causes of action set out in the original complaint are of enough value to pay preferred in full; that "disintegration" sic of Standard will occur without judicial control with resultant irreparable damage to preferred as they have "no voice" with respect to any plan of liquidation which, under the Act, must be filed and approved by the Securities and Exchange Commission; that this court should supervise an equitable dissolution of Standard by protecting Standard's causes of action against defendants; that Standard's management has failed to call a meeting of stockholders to vote upon a voluntary dissolution; that a certain plan of recapitalization filed by Standard Gas and Electric Company with the SEC will eliminate all value of that company's common stock owned by Standard; that the present interests of Standard's management is in conflict with their duties in protecting Standard's interests in the Standard Gas and Electric Company plan; that a forced sale of Standard's assets would be detrimental to its preferred stockholders; and finally, no judicial proceedings have been started by Standard for its liquidation or distribution of its assets.

On the basis of these supplemental allegations, plaintiffs pray (1) for a court-appointed trustee to protect preferred stockholders in all proceedings before the SEC; (2) to submit a plan before the Commission protecting the causes of action alleged in the original complaint; (3) to intervene in the proceedings for recapitalization of Standard Gas and Electric Company; and (4) to take possession of and distribute Standard's assets.

Standard objects to the supplemental pleading because it fails to state a claim upon which relief can be granted², because it pleads a new cause of action,³ and because it pleads a cause of action which can not be joined with the particular causes of action set forth in the original complaint.⁴

The court finds it unnecessary to consider the preliminary arguments urged by plaintiffs as to the application of certain of the Rules of Civil Procedure.⁵ Likewise, it is unnecessary to consider the other points urged by plaintiffs that, even in the face of Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, 114 A.L.R. 1487, a federal court may grant relief by appointment of a receiver or trustee of a solvent corporation, in the case of fraud and mismanagement, irrespective of state law.⁶

In re Standard Power & Light Corporation, D.C.Del., 48 F.Supp. 716, this court held that where the SEC had ordered Standard, as a public utility holding company, to liquidate and terminate its existence, a preferred stockholder could not invoke the process of a state chancery court to liquidate the utility in view of the Public Utility Holding Company Act of 1935, §§ 11(b-d), 18(f), 15 U.S.C.A. §§ 79k (b-d), 79r(f), and Jud.Code, § 265, 28 U. S.C.A. § 379. As the crux of the relief presently sought by plaintiffs is essentially the same as that sought by the intervener in the earlier case (48 F.Supp. 716), obviously the court's former holding is a fortiori authority against plaintiffs here. It becomes quite unnecessary, then, to repeat what was said in the former opinion respecting the expert competence of the SEC to carry through to completion its own orders. The Commission has taken Standard into its custody. It presently has before it Standard Gas and Electric Company's plan of recapitalization which will, undoubtedly, deal with Standard's rights and liabilities with respect to the former company. Hence, the Commission's order of June 19, 1942, directing Standard to present a plan of liquidation to the Commission, was an order to liquidate under the Commission's supervision and in no other manner. The present proffer of plaintiffs to file a supplemental complaint must not interfere with the Commission's investigation of the affairs of both Standard and Standard Gas and Electric Company. If committed, the alleged sins of Standard's management in dealing with their own company and its interests in Standard Gas and Electric Company will come to light. The preferred stockholders do not allege that the SEC has refused any relief sought. The administrative agency in investigating the relative values of all interests in both corporate enterprises has not denied to a single preferred stockholder the right to be heard. It is not the function of the Commission to insist that the plaintiffs here, or any other stockholder, appear before it and tell of their grievances. The fact that the plaintiffs have not gone to the Commission is not without significance. Where a party does not seek to enlist the protective sanctions of the SEC, or at least warn that agency by formal charges that potential equities lurk behind a submitted plan of a utility, in favor of a particular group, a court should hesitate to proceed with litigation against companies which are under the jurisdiction of the Commission.

Some may call this delayed judicial action, but this court, in attempting to integrate the Public Utility Holding Company Act into the judicial process in view of the SEC's statutory duties, rules that the supplemental complaint may only, at this time, be filed with the clerk. The supplemental pleading will simply rest here until the SEC completes its administrative analysis of both the Standard Gas and Electric...