In re United Corporation

• Decision Date: 09 June 1960
• Docket Number: Civ. A. No. 1650.
• Citation: 184 F. Supp. 502
• Parties: In the Matter of The UNITED CORPORATION.
• Court: U.S. District Court — District of Delaware

184 F. Supp. 502

In the Matter of The UNITED CORPORATION.

Civ. A. No. 1650.

United States District Court D. Delaware.

June 9, 1960.

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Thomas G. Meeker, Gen. Counsel, Ellwood L. Englander, Sp. Counsel, and Peter H. Morrison, Atty., S. E. C., Washington, D. C., for Securities and Exchange Commission.

William S. Potter, of Berl, Potter & Anderson, Wilmington, Del., Richard Joyce Smith and William T. Farley, of Whitman, Ransom & Coulson, New York City, of counsel, for The United Corp.

Thomas Reath and John Mulford, of Drinker, Biddle & Reath, Philadelphia, Pa., for Committee of Warrant Holders.

Carlos L. Israels, of Berlack, Israels & Liberman, New York City, for Herbert M. Diamond and others.

Randolph Phillips, pro se.

CALEB M. WRIGHT, Chief Judge.

This is a supplemental application of the Securities and Exchange Commission (Commission) seeking approval and enforcement of certain Commission orders providing for the payment of fees and expenses awarded by the Commission pursuant to Section 11(e) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79k(e). Timely objections to the orders have been filed by Messrs. Drinker, Biddle and Reath (Drinker), Messrs. Berlack, Israels and Liberman (Berlack), and Charles Tatham, Jr. (Tatham).

Randolph Phillips on the day set for oral argument applied for permission to present objections to the Commission's order notwithstanding the interested participants had been advised,

"* * * that any person who proposes to oppose the Supplemental Application of the Commission or the enforcement and carrying out of the terms and provisions of the Plan relating to the payment of fees and expenses as determined and ordered by the Commission, or the approval thereof by this Court, shall file with the Clerk of this Court, not later than fifteen days prior to the date of said hearing, a written statement of objections and of any brief proposed to be filed in support thereof, * * *."¹

As a result of Phillips' noncompliance with the court's directive, the Commission's brief did not address itself to Phillips' claim.² Illness and the pressures of New York business were proffered as the reasons for failing to file within the designated period. At no time prior to the hearing date did Phillips attempt to apprise the court of his condition. Phillips, although lacking in formal legal training, has had extensive practical schooling in the judicial arts as evidenced by his many courtroom appearances. Against this background, Phillips' application was denied; and, accordingly, the Commission's supplemental application pertaining to the Phillips claim will be approved.

The Drinker, Berlack and Tatham claims are predicated upon services rendered for warrant holders in connection with proceedings relating to a plan filed by The United Corporation (United) under Section 11(e) of the Public Utility Holding Company Act of 1935 (Act). The plan voluntarily submitted by United and approved by the Commission in 1951 provided, inter alia, for the transformation of United into a registered holding company and for the cancellation of United's outstanding warrants to purchase 3,732,059 shares of its common stock, with no compensation to the warrant holders.³

The claims of the objectants will be discussed seriatim.

Drinker, Biddle & Reath

The original plan filed by United in November, 1949 provided for new five-year warrants to purchase common stock at $7 per share to be issued in exchange for outstanding warrants at the rate of one new warrant for five old warrants. In June, 1950 at the insistence of the Commission, United amended the plan deleting the five for one exchange and in lieu proposed the outright cancellation of all outstanding warrants without compensation to the holders. At this juncture, the General Protective Committee (Committee) for the holders of option warrants was formed to press the legal rights of the warrant holders. Committee composed of 1,000 persons representing holdings of about one-third of the outstanding warrants, engaged the law firm of Drinker, Biddle & Reath in July, 1950.

Drinker, for its own services and those of its Washington associate, M. Quinn Shaughnessy, requests $57,500 for 5,661 hours devoted to Committee matters.⁴ In addition, $14,531.84 is sought as reimbursement for Committee expenses.⁵ The Commission awarded Drinker $26,500 for services⁶ and $6,960 for expenses.⁷

Drinker asserts that in the course of representing the warrant holders there were eight major legal proceedings in which the warrant holders' rights were in issue:⁸

"(1) Before the Commission, in 1950, in hearings on an Amended Plan filed by United under which all rights of the warrant holders were to be wiped out without compensation.

"The Commission approved the Plan. The United Corporation, 32 S.E.C. 378,500 (1951).

"(2) Before the Court of Appeals for the District of Columbia Circuit, on appeal taken by Randolph Phillips, a stockholder of United, from the Order of the Commission approving the Plan.

"The Court affirmed the Order of the Commission, Downing v. S. E. C., 1953, 92 U.S.App.D.C. 172, 203 F.2d 611.

"(3) On petition for certiorari, filed by us in the Supreme Court of the United States, from the decision of the Court of Appeals affirming the Order of the Commission. This petition was based both (a) on the lack of jurisdiction in the Court of Appeals to review the Order of the Commission, and (b) on the merits.

"The Supreme Court granted certiorari, limited however to the question of jurisdiction.

"(4) On argument before the Supreme Court on the question of jurisdiction of the Court of Appeals.

"The Supreme Court sustained our view that the Court of Appeals had no jurisdiction, and remanded the case to the Commission for further proceedings. General Protective Committee etc. v. S. E. C., 1954, 346 U.S. 521 74 S.Ct. 261, 98 L.Ed. 261.

"(5) Before the Commission on our petition for rehearing and leave to introduce additional testimony.

"This petition was denied. The United Corporation, 35 S.E.C. 645 (1954).

"(6) Before Judge Leahy, of the District Court of Delaware, on petition by the Commission for enforcement of the Plan.

"The Court entered an order enforcing the Plan. The United Corporation, 1955, 128 F.Supp. 725.

"(7) Before the Court of Appeals for the Third Circuit on our appeal from the Order of the District Court.

"The Order was affirmed. The United Corporation, 1956, 232 F.2d 601.

"(8) On our petition to the Supreme Court of the United States for certiorari to review the decision of the Court of Appeals.

"This petition was denied on October 8, 1956. 352 U.S. 839 77 S. Ct. 59, 1 L.Ed.2d 56."

The Commission determined,

"* * * that Committee counsel are entitled to modest compensation for their services in the initial hearings on the Plan before us, despite their lack of success, under the normal principles applicable to class representation in proceedings before us * * *. However for their services in the Court of Appeals for the District of Columbia subsequent to our order approving the Plan and in petitioning the Supreme Court for certiorari with respect to the merits, * * * the firm is entitled to compensation on a more reduced basis, and for the services in raising the jurisdictional point in the Supreme Court and for the services subsequent to the granting of the petition for certiorari * * * the United estate should not be required to pay any compensation."⁹

In support of its conclusion the Commission found:

1. That in view of the existing law "there was very little likelihood that the Committee could succeed in its contention that our finding as to the warrants was not supported by substantial evidence";¹⁰

2. "The Committee's other principal contention * * * was the argument that we lacked power to order cancellation since the plan provided for the transformation of United into an investment company rather than for its dissolution or continuance as a holding company. * * * While this position may have been arguable the possibility that it would prevail was extremely remote";¹¹

3. "The policy which justifies charging the reorganization estate with the costs of litigation relating to the merits of a plan was substantially satisfied after the Committee had unsuccessfully presented its contentions to the Court of Appeals for the District of Columbia and petitioned the Supreme Court for certiorari on the merits. The result of the successful raising of the jurisdictional issue by the Committee before the Supreme Court was to enable the Committee to embark on a second round of unsuccessful litigation on the plan * *, and * * * it would be unfair to United to require it to bear the Committee's cost in such litigation or its costs in raising the jurisdictional point and making additional litigation necessary."¹²

The fundamental issue is whether the Commission's findings of fact and conclusions of law are (1) adequate; (2) supported by substantial evidence, and (3) in accordance with legal standards.¹³ The Commission does not dispute the propriety of requiring the estate to bear the necessary and reasonable costs incurred by the various security interests in an 11(e) proceeding. Nor, does it confine the compensable allowances to those incurred solely before the Commission. Moreover, with respect to representation of a qualified Committee of security holders Commission concedes the right to compensation is not affected by the fact that counsel's efforts did not result in tangible benefits, although this would require the amount of the fee be fixed on a relatively modest basis.

Counsel for the Commission at oral argument observed that the basis of the Commission denial of compensation pertaining to the so-called second round litigation is that, "there comes a point in the pursuit of a hopeless case when there is not a chance in the world of winning it; there comes a point at which the...