In re Engineers Public Service Co.

• Decision Date: 30 November 1953
• Docket Number: Civ. A. No. 995.
• Citation: 116 F. Supp. 930
• Parties: In re ENGINEERS PUBLIC SERVICE CO.
• Court: U.S. District Court — District of Delaware

116 F. Supp. 930

In re ENGINEERS PUBLIC SERVICE CO.

Civ. A. No. 995.

United States District Court D. Delaware.

November 30, 1953.

William H. Foulk, Wilmington, Del., for Guggenheimer & Untermeyer and Herbert L. Cobin (Alfred Berman, New York City, of counsel).

Louis Boehm and Raymond L. Wise, New York City, pro se.

Lawrence R. Condon, New York City, pro se (Milton Maurer, New York City, of counsel).

Roger S. Foster, Gen. Counsel, Myron S. Isaacs, Chief Counsel, Division of Public Utilities, Harlow B. Lester, Sp. Counsel, Division of Public Utilities, Myer Feldman, Washington, D. C., for Securities and Exchange Commission.

LEAHY, Chief Judge.

This is an application of the Securities and Exchange Commission seeking approval and enforcement of an amended plan providing for payment of fees and disbursements incurred in connection with the liquidation and dissolution of Engineers Public Service Company ("Engineers") pursuant to § 11(e) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79k(e). Objections have been filed to the SEC's fee proposals both by common shareholders' counsel who appeared in successful opposition to the reorganization plan before me and the Court of Appeals and subsequently unsuccessfully before the Supreme Court and by an attorney for the preferred, whose cause ultimately prevailed.¹

This proceeding may be the forerunner of a standard operating procedure which I, at times, anticipated, but do not, in fact, look forward to with joy. From a group of statistics keepers I learn 42% or more of all § 11(e) plans submitted for District Court approval have been passed upon by me.² I do not desire to set another judicial record by passing upon 42% or more of all fee applications which have been and will be made to the SEC concerning these § 11(e) cases.

All I can hope for is to be able to indicate, as the cases come along, factors I think should be considered by the SEC in passing upon fee applications. Possibly, this unwanted instruction will more often take a negative form, as it has most recently,³ but, nonetheless, I intend it to be helpful.

At oral argument, upon inquiry from the court, it was conceded there is no dispute as to the inherent authority of the SEC, as well as the District (enforcement) Court to allow and pay compensation and expenses to persons who have performed compensable services in connection with a § 11(e) plan under the Public Utility Holding Company Act of 1935. In the case at bar, Engineers' amended plan expressly provided all fees and expenses would be paid. Nearly $500,000 is available for such purposes. Neither Engineers nor anyone else, except the SEC, has raised question as to the right of the parties here involved to be paid the amounts they requested.⁴ Dispute, however, arises as to the extent of the review power. Under the Central-Illinois decision,⁵ a district court cannot disregard a valuation finding of the SEC under § 11(e) unless such finding is not "in accordance with legal standards" or not "supported by substantial evidence".⁶ This mandate of the Supreme Court must be interpreted in the light of the recent Supreme Court cases⁷ admonishing reviewing courts "not to abdicate the conventional judicial function." SEC here maintains appropriate legal standards have been applied and substantial evidence adduced in disposing of the instant fee applications; objecting counsel disagree. Whatever may be the quantum of judicial prerogative here, I am convinced the duty to review embraces the power to reverse.

Background facts to the matter at bar are as follows: Management of Engineers in September, 1945, filed a plan with SEC for reorganization. This plan contemplated the elimination of preferred stockholders from the enterprise at $100 per share, the charter involuntary liquidation price. A director of Engineers (Streeter), who was also a preferred shareholder, dissented from the proposed plan, arguing it was unfair to the preferred, since it proposed to retire the preferred shares at less than their call price. The Board of Engineers at that point authorized the employment of independent counsel (Condon) to present the preferred's position to SEC and the courts. During the course of the hearings before SEC, management counsel sought to sustain the proposed plan. The view of the preferred stockholders prevailed; SEC disapproved the plan and found fairness required a payment of an amount equal to the call prices of the preferred stock. Management counsel, after studying the SEC opinion, reviewed their position and thought it was unlikely the SEC decision could be upset in the courts and, considering the expense and delay in contesting the decision, concluded the best course was to acquiesce in the SEC's determination and file an amended plan incorporating the SEC's views. Accordingly, such an amended plan was filed by Engineers in December, 1946. SEC reopened the record, issued a notice of the filing of the amendment and an order for argument and hearing to be held on January 3, 1947.

At the hearing, Alfred Berman, Esq., partner in Guggenheimer and Untermeyer (G & U), one of petitioners here, and Morton Schoor, Esq., an associate of Louis Boehm, Esq., another petitioner here, appeared on behalf of various common stockholders and filed objections to the amended plan. Berman and Schoor argued for the earlier plan provision for the payment of only $100 per share to the preferred. SEC again rejected this view and applied to this District Court for enforcement of the amended plan providing for payment of the preferred's call prices.

Then, management of Engineers, acting on advice of its counsel, took a self-styled "neutral position", more precisely one of silent assent; and, thus, common stockholders no longer had representation of their views in the courts. It was at this stage of the reorganization, G & U, representing a group of common, and Boehm and associate Wise, representing another group, took up cudgels for the common shareholders.⁸

As stated, G & U and Boehm and Wise were successful before me and the Court of Appeals but were unsuccessful before the Supreme Court, which upheld the view originally taken by SEC and acquiesced in by Engineers management. Condon's clients benefited from the ultimate decision. G & U, Cobin, Boehm, Wise and Condon, among others, at the conclusion of the litigation filed with SEC applications for the allowance of fees and expenses.⁹ After notice and hearing, SEC disallowed all claims based on allegations of service to the estate in connection with the attempt to persuade the courts to limit payment to the preferred shareholders to only $100 per share. Compensation of $5,000 only was allowed to G & U for their services in developing an escrow agreement, and $2,500 to Boehm and Wise for their services in the investment of the funds held in escrow. Reimbursement of such expenses as were applicable to the compensable services was also ordered.¹⁰ Condon was allowed $60,000 in fees and all claimed disbursements. In its Supplemental Application No. 2, SEC is now asking this court to approve and enforce its order on fees and disbursements over the objections of counsel whose fees and allowances were either drastically reduced from what they requested or disallowed entirely.

Guggenheimer & Untermeyer, Cobin, Boehm and Wise

The Commission defends its disallowance action by stating: (1) "counsel for the common stockholders did not participate in the formulation of the plan or the development of the record before us, but merely contested our decision after it had been announced"; (2) efforts of counsel here "were undertaken with full knowledge that the management, in discharge of its responsibility to the common stockholders, had vigorously asserted their position before this Commission and had concluded that it was not in the interests of those stockholders to pursue it further because it considered that success was unlikely and that further contest would prove costly to the common stock."¹¹

Objecting counsel do not here — nor did they before SEC — seek compensation for services in the formulation of the plan. They did not appear before SEC until after the management of Engineers had surrendered the fight for the common stockholders. Counsel for SEC at oral argument stated flatly SEC had "no criticism at all of Mr. Berman or Mr. Boehm for staying out of the proceeding while the plan was being formulated and the record made before the Commission."¹² SEC, moreover, does not criticize objecting common shareholders for coming in when they did. The stand of SEC as put to the court at oral argument is objecting common shareholders do not have the right "to require all common stockholders to pay for the minority's objections when it turns out that despite their good faith, despite their reasons for believing they were right, they were in fact wrong and the management which the common stockholders had elected was in fact right."¹³ SEC does not dispute but for the entry of G & U, Boehm and Wise, the common stock would have been unrepresented before me.¹⁴

What dispute between SEC and objecting counsel here comes down to is the legal question, as posed by the G & U brief, "whether under recognized principles of reorganization law competent services rendered in representing a class of security holders in the judicial phases of a reorganization or liquidation under the Holding Company Act, with respect to issues found by the Courts to be important and meritorious, are nevertheless non-compensable if they were not ultimately successful in producing a change in the plan or a monetary enrichment of the estate."

The legal question in the context of the facts of this litigation poses the plight of counsel: petitioning counsel would have been entitled to substantial compensation for their services if the Supreme Court had denied certiorari. SEC concedes this.¹⁵ Since the Supreme Court granted certiorari and reversed both...