In re American States Public Service Co.

• Decision Date: 07 November 1935
• Docket Number: No. 7851.,7851.
• Citation: 12 F. Supp. 667
• Parties: In re AMERICAN STATES PUBLIC SERVICE CO.
• Court: U.S. District Court — District of Maryland

12 F. Supp. 667

In re AMERICAN STATES PUBLIC SERVICE CO.^*

No. 7851.

District Court, D. Maryland.

November 7, 1935.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Piper, Carey & Hall, of Baltimore, Md. (by James Piper and Huntington Cairns, both of Baltimore, Md.), for trustees of American States Public Service Co., debtor.

Davis, Polk, Wardwell, Gardner & Reed, of New York City (by John W. Davis, of New York City), for Ferd Lautenbach.

Ralph P. Buell, of New York City, for Burco, Inc.

John J. Burns, of Washington, D. C., for Securities and Exchange Commission.

Thomas G. Corcoran and Benjamin V. Cohen, Sp. Assts. to U. S. Atty. Gen., and Bernard J. Flynn, U. S. Atty., and C. Ross McKenrick, both of Baltimore, Md., for the United States.

Semmes, Bowen & Semmes, of Baltimore, Md. (by Frederick W. Brune and W. Randall Compton, both of Baltimore, Md.), and Humes, Buck, Smith & Stowell, of New York City (by Albridge C. Smith, of New York City), for R. Emerson Swart and First Lien Bondholders' Protective Committee.

Carlyle Barton and H. Warren Buckler, Jr., both of Baltimore, Md., for reorganization managers.

Seymour O'Brien, of Baltimore, Md., for Central Republic Trust Co. of Chicago, trustee for all of the outstanding bonds.

Marbury, Gosnell & Williams, of Baltimore, Md. (by William L. Rawls, of Baltimore, Md.), for the debtor.

WILLIAM C. COLEMAN, District Judge.

In the present case, trustees, appointed by this court for the American States Public Service Company, a Delaware corporation having its principal place of business in Baltimore, and being under the jurisdiction of this court by virtue of reorganization proceedings brought pursuant to section 77B of the Bankruptcy Act as amended (11 U.S. Code, § 207 11 U.S.C.A. § 207), have petitioned this court for instructions as to their further duties in these proceedings, in view of the enactment of the "Public Utility Act of 1935" (Public, No. 333, 74th Congress, approved August 26, 1935, title 1 15 U.S.C.A. §§ 79, 79a, et seq.); and, specifically, as to whether that act is valid, and if so, whether they are subject to its provisions.

PROCEDURAL FACTS AND PLEADINGS.

On June 8, 1934, the debtor corporation filed its original petition, which, on June 19, 1934, was approved, and on July 2, 1934, temporary trustees were appointed for the estate of the debtor. On July 21, 1934, their appointment was made permanent, and it is they who have filed the petition now before this court.

On August 25, 1934, the debtor filed a plan of reorganization which did not affect the debtor's First Lien bondholders, but shortly thereafter, with leave of this court, this plan was withdrawn because found not feasible. On June 10, 1935, the debtor filed another plan of reorganization to which an amendment was filed on July 19, 1935. On that latter date this court approved the selection of reorganization managers for the purpose of supervising the deposit of securities of the debtor, the solicitation of acceptances, and the carrying out of the plan of reorganization, and directed the trustees to advance money not in excess of a total of $5,000 to defray the expenses of the reorganization managers in the performance of their duties. The court also approved, subject to confirmation of the plan of reorganization proposed by the debtor, payments out of the trust estate to dealers for expenses and compensation in connection with the solicitation of deposits and acceptances under the plan. Pursuant to an order of this court made on the same day, notice was given of a hearing of creditors and stockholders to be held on September 20, 1935, to consider the debtor's plan for confirmation or modification. On August 15, 1935, a committee, representing at least 25 per cent. of the First Lien bonds outstanding, filed a plan of reorganization known as the "Swart Plan." That plan was approved by this court as properly filed and also was scheduled for consideration at the hearing on September 20, 1935, by order of this court dated August 19, 1935. However, on September 16, 1935, the trustees filed the petition which gives rise to the present proceeding, asking to be instructed and directed as to their duties in the handling, management, and conservation of the property of the debtor intrusted to their care; and particularly whether they should continue to disburse money in furtherance of the pending plan of reorganization, or should register as a holding company under the Public Utility Act of 1935, title 1, and otherwise comply with the provisions of that law. The petition of the trustees states that they are advised by their counsel (appointed by this court) that this act is unconstitutional.

The petition further alleges that if the act is constitutional, the trustees, as a "holding company" within the meaning of the term "holding company" as defined in the act, will be required to register with the Securities and Exchange Commission not later than December 1, 1935, and thereby commit the estate to the expenditure of a substantial sum of money in preparing and filing, within a reasonable time thereafter, a registration statement; that, accordingly, if the act is constitutional the trustees should cause to be prepared promptly, at the expense of the estate, such data as are required to be included in such registration statement; but that if, on the other hand, the act is unconstitutional, preparation of such data will constitute a waste of assets of the estate in a substantial amount; that a situation of even more immediate importance, however, arises out of the fact that if the act is constitutional, neither of the plans of reorganization that have been filed, nor any other feasible plan of reorganization of the debtor, can be consummated on account of the prohibitions contained in the act, and that any expenditures such as the court has heretofore authorized and directed to be made, looking to the consummation of a plan of reorganization, will constitute a waste of assets of the estate; further, that if the act is constitutional and the trustees fail to register on or before December 1, 1935, and if they or any of their subsidiary companies continue to engage in any of the activities forbidden by the act, they become subject to imprisonment as well as to a very heavy fine or fines, as great as two years' imprisonment or $10,000 fine, or both; that if the two other holding companies, which are subsidiaries of the debtor corporation, should likewise fail to comply with the act, they become subject to a fine as great as $200,000; that, on the other hand, if the act is unconstitutional, the trustees should not go to the expense entailed by registration and by the subsequent preparation and filing with the commission of the elaborate statements required by the act to be filed, but should continue to make expenditures as authorized and directed by this court, looking to the consummation of a plan of reorganization.

Because of the filing of this petition by the trustees, this court adjourned the hearing on the plans of reorganization, in order that it might first hear and determine the questions presented by the petition, they clearly raising the question as to the application of the Public Utility Act of 1935, title 1, to the rights, duties, and obligations of the trustees in the present proceeding, since both of the plans of reorganization that are before the court contemplate the continued existence of a holding company (the debtor or a reorganized company) which will continue to hold more than 10 per cent. of the outstanding voting securities of various public utility companies, organized and operating in states other than that where the holding company would be organized or would operate; both contemplate the issuance of new securities not confined to a single class of common stock and bonds secured by a first lien upon physical property; neither restricts the operations of the holding company system as reorganized to a single inter-connected and co-ordinated system confined in its operations to a single area or region, in one or more states; and neither proposes that the plan shall be approved by the Securities and Exchange Commission prior to its submission to this court — all of which things, as will hereinafter be shown, being covered by the act.

On September 16, 1935, Burco, Inc., an investment corporation organized under the laws of Delaware, the owner and holder of $150,000 principal amount of First Lien 5½ per cent. Gold bonds, Series A, of the debtor corporation, filed a petition for leave to intervene, asserting that the Public Utility Act of 1935 should be treated as constitutional and in full force and effect; that it (Burco, Inc.), as well as other creditors of the debtor corporation, will be greatly damaged and the assets available for payment of their claims will be wasted unless some plan of reorganization is accepted within a reasonable time or the estate of the debtor corporation is liquidated by order of this court; and, further, that unless the trustees are directed to register under the Public Utility Act of 1935, title 1, as a holding company, it will be impossible to progress a plan of reorganization of the debtor corporation or to have the same accepted and confirmed, or failing acceptance, to have the estate of the debtor corporation liquidated, inasmuch as the progress, acceptance, and confirmation of any plan of reorganization or the liquidation of the estate failing the acceptance of such a plan will require the doing of acts which are forbidden by the Public Utility Act of 1935, unless the debtor corporation is a holding company and registered in accordance with the provisions of that act.

On the same day Ferd Lautenbach, the owner of $2,500 principal amount of Ten-Year 6 per cent. Gold debentures, Series A, of the debtor corporation, also filed a petition asking leave to intervene, claiming that the Public Utility Act of...