In Re Standard Gas and Electric Company

• Decision Date: 29 July 1969
• Docket Number: Civ. A. No. 1497.
• Citation: 301 F. Supp. 1382
• Parties: In the Matter of STANDARD GAS AND ELECTRIC COMPANY.
• Court: U.S. District Court — District of Delaware

301 F. Supp. 1382

In the Matter of STANDARD GAS AND ELECTRIC COMPANY.

Civ. A. No. 1497.

United States District Court D. Delaware.

July 29, 1969.

Aaron Levy, Philip A. Loomis, David Ferber and Frank N. Fleischer, Washington, D. C., for Securities and Exchange Commission.

Hellerstein, Rosier & Rembar, George Rosier and Victor Brudney, New York City, of counsel, for Standard Gas and Electric Co.

Louis J. Lefkowitz, Atty. Gen., Samuel A. Hirshowitz, First Asst. Atty. Gen., and Joel Lewittes, Asst. Atty. Gen., New York City, for State of New York.

OPINION

LATCHUM, District Judge.

The Securities and Exchange Commission ("Commission") applied to this Court, pursuant to §§ 11(e) and 18(f) of the Public Utility Holding Company Act ("Act"),¹ for an order approving and enforcing the provisions of Step VI (the final Step) of a Plan of Liquidation and Dissolution ("Plan"), filed by Standard Gas and Electric Company ("Standard") in compliance with § 11 of the Act. The Comptroller of the State of New York ("New York") appeared, objected to the application, and asserted a claim, under Article V of the New York Abandoned Property Law, McKinney's Consol.Laws, c. 1,² to all distributions made under prior Steps and Step VI of the Plan to stockholders of record residing in New York but which were or may be unclaimed because such stockholders could or can not be located. Some background is needed to understand New York's objections and claim, the matter now in litigation.

In 1948, Standard, a Delaware corporation and a public utility holding company registered under the Act, was ordered by the Commission to liquidate and dissolve pursuant to § 11(b) (2) of the Act, 15 U.S.C. § 79k(b) (2).³ An overall plan of compliance by Standard was filed with the Commission in 1951, and thereafter over a period of some 18 years, Standard filed various specific amendments and supplements ("Steps") thereto to cover divestment of subsidiaries, settlements with various claimants and, as its assets were marshalled and portfolio securities and funds became available, distributions to security holders. All of these Steps were approved by the Commission.⁴ Pursuant to Steps I through II-A of the Plan, Standard retired its outstanding senior securities. Partial distributions⁵ were made to Standard's common stockholders under Steps III through V. Steps III through V provided for five year periods during which time Standard was to attempt to locate all its common shareholders who were entitled to those distributions. Step V also provided for the formal dissolution of Standard under State law⁶ and for the subsequent distribution of its remaining assets. In addition, Step V called for the termination of all rights of Standard's stockholders to all unclaimed distributions which were approved for distribution under Steps III through V. Step V was approved by the Commission on January 19, 1961 and ordered enforced by this Court on April 22, 1961.

On August 31, 1966, Standard petitioned this Court for a Bar Order, terminating the rights of its unlocated common stockholders, who had failed to surrender their stock certificates for cancellation and otherwise perfect their rights, to receive cash and security distributions under Steps III through V. After hearing, this Court, on September 29, 1966, entered an order finding that Standard's efforts since 1953 "to locate all stockholders of Standard Gas entitled to distribution pursuant to the provisions of Steps III, III-A, IV and V * * * have been reasonable" and the Court further ordered that the rights of Standard's common stockholders to receive distributions under Steps III through V be terminated as of October 3, 1966. The order did not purport to cut off stockholders' rights to future distributions.

On December 11, 1968, as previously mentioned, the Commission applied to this Court for an order approving Step VI of the Plan. Step VI provides: (1) for the final distribution of Standard's remaining assets consisting of about $3,000,000 in cash, (2) that shareholders who do not surrender their stock certificates on or prior to the cut-off date, viz. six months following the effective distribution date, will forego their right to the final distribution and (3) that Standard will again make every reasonable effort to locate its common stockholders who fail to surrender their certificates within one month of the effective distribution date. Prior to this application, the Commission had found Step VI to be necessary to effectuate the provisions of § 11(b) of the Act, that the plan was "fair and equitable" to all persons affected thereby and that the Step satisfied all the requirements of the applicable provisions of the Act.⁷

Thus, it will be noted that under Step V of the Plan all unclaimed distributions under Steps III through V up to the cut-off date of October 3, 1966, set in the Court's Bar Order of September 29, 1966, were cut off from the stockholders who failed to claim them and are to be distributed to the known identified stockholders of Standard who did perfect their rights. Under Step VI similar treatment is accorded to the final distributions to be made under that Step. It is these tontine-type provisions which New York challenges in these proceedings.

At the hearing in this Court on September 29, 1966 when Standard, with Commission approval, sought the Bar Order terminating the rights of its unlocated common stockholders to receive cash and security distributions under Steps III through V, a representative of the Attorney General for the State of New York appeared on behalf of the State Comptroller in opposition to the entry of the Bar Order and orally asserted a claim to all possible distributions which might be due the Comptroller in his custodial capacity under New York's Abandoned Property Law. However, it was agreed in open court, and later by written stipulation, that the Bar Order, which was entered by the Court on September 29, 1966, would not prejudice New York's claim under its Abandoned Property Law to the cash and securities held by Standard for its unlocated stockholders who were recorded on Standard's books as New York residents. This stipulation was entered into because it was noted (1) that Standard had sufficient assets to enable New York to be paid at the time of Standard's final distribution if New York's claim was found to be valid and (2) that New York would have ample opportunity formally to file its claim at the time Standard sought Commission and Court approval to make its final distribution.

After the Commission applied on December 11, 1968 for Court approval and enforcement of Step VI, the final distribution, New York filed its formal claim, contending that the unclaimed amounts, relating to stockholders whose last known addresses are in New York, are deemed to be abandoned property payable to New York under its Abandoned Property Law, rather than distributable to the other Standard stockholders in accordance with the Plan.

At the hearing on January 17, 1969, the Court entered its order approving and enforcing Step VI but the parties agreed in open court that the maximum amount of New York's claim did not exceed $85,000 and that this amount would be reserved from distribution until final adjudication of New York's claim.

Of the securities and cash unclaimed by stockholders and held by Standard in the fall of 1966, New York laid claim to the following: 1572 shares of Duquesne common stock, 5 shares of Duquesne preferred stock, 38 shares of Wisconsin common stock, $5,170.00 comprising cash in lieu of fractional shares and $21,846.64 comprising accumulated cash dividends as of December 31, 1966. As required by the Plan and the orders of the Commission and this Court, all of the aforementioned securities were sold on or about February 16, 1967, and the proceeds ultimately realized from the sale were $48,763.74 for the Duquesne common, $188.70 for the Duquesne preferred and $717.06 for the Wisconsin common. Thus, New York's claim consists of three parts. First, it claims the sum of $76,695.14 (representing the stock sale proceeds and the cash before mentioned), the amounts which were distributable under Steps III through V of the Plan but unclaimed by unlocated common stockholders who were New York residents. Second, it claims $720.96 representing the total proceeds due to two New York resident-owners of three shares of Standard's preferred stock which were distributable in 1953 under Step II and subject to a Bar Order of this Court entered on June 15, 1959. Third, New York claims cash in the approximate amount of $2500 to be distributed under Step VI to persons recorded on Standard's books as New York residents but which may not be claimed by such stockholders.⁸

The Public Utility Holding Company Act, enacted by Congress under its power to regulate interstate commerce, places the responsibility upon the Commission to require registered public utility holding companies to take the necessary steps under an over-all plan which the Commission finds necessary to simplify their corporate structures. The provisions of all such Plans are required by the Act to be "fair and equitable" to the persons affected thereby.

New York takes the position that the "fair and equitable" requirement of § 11(e) does not authorize the termination of stockholders' rights to unclaimed funds. Thus, it argues that Standard's Plan is "unfair and inequitable" because "it provides for a cut-off of stockholders —a class that may not be barred." Further, New York contends that the provision in Standard's Plan for a distribution of unclaimed funds among known and located stockholders "violates vested rights of unlocated stockholders" and hence is contrary to the "fair and equitable" standard of § 11(e). New York concludes from these premises that Standard's Plan "allows unjust enrichment and a `windfall' for a group unentitled to the fund," and that New York is the sole and logical successor...