Lowell Gas Light Co. v. Department of Public Utilities
| Decision Date | 08 January 1946 |
| Citation | 319 Mass. 46,64 N.E.2d 640 |
| Parties | LOWELL GAS LIGHT COMPANY v. DEPARTMENT OF PUBLIC UTILITIES. |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
October 1, 2, 1945.
Present: FIELD, C.
J., LUMMUS, QUA & DOLAN, JJ.
Public Utilities. Corporation, Issue of stock, Public service corporation. Equity Jurisdiction, Public utilities. Words "Reasonably necessary."
In a suit in equity under G. L. (Ter. Ed.) c. 25, Section 5, seeking annulment of an order of the department of public utilities, the court cannot review or revise pure findings of fact made by the department, and can deal with its rulings or orders only to the extent that they are shown to be erroneous in law; and the burden of proving error is on the plaintiff.
Under G. L. (Ter Ed.) c. 164, Section 14, as amended by St. 1935, c. 222, the department of public utilities had jurisdiction to deny a petition by a gas company for approval of an issue of preferred stock even though such issue did not increase the total amount of the company's capitalization or indebtedness, if there was a substantial question whether the issue in any amount in existing circumstances was
"reasonably necessary" within the statute's provisions, and the department found that it was not.
In performing its functions under G. L. (Ter. Ed.) c. 164, Section 14, as amended by St. 1935, c. 222, when application was made by a gas company for approval of a certain issue of preferred stock, it was necessary that the department of public utilities inquire whether the proposed issue was "reasonably necessary for the purpose for which" it had been authorized by the company's stockholders in the sense of being reasonably necessary for the accomplishment of some purpose having to do with the obligations of the company to the public and its ability to carry out those obligations with the greatest possible efficiency.
No error of law was shown in the denial by the department of public utilities of a petition by a gas company for approval of a proposed issue of preferred stock where the department found in substance that the issue was for the purpose of interchange for common stock and that the interchange was not reasonably necessary for the company's business but was only reasonably necessary for the benefit of certain investors in the stock.
BILL IN EQUITY filed in the Supreme Judicial Court for the county of Suffolk on February 26, 1945.
The case was reserved and reported by Spalding, J.
R. G. Dodge, (J.
Wiggin & T. M. Banks, Jr., with him,) for the plaintiff.
C. A. Barnes, Attorney General, (G.
P. Drury, Assistant Attorney General, with him,) for the defendant.
This is a bill in equity under G. L. (Ter. Ed.) c. 25, Section 5, to annul an order of the department of public utilities in so far as it denied a petition of the plaintiff for approval of a proposed issue of preferred stock. The single justice reserved and reported the case for the consideration of the full court.
A demurrer to the bill is within the scope of the report but has not been separately argued and is deemed to have been waived. The record contains all that is necessary for a decision on the merits.
In a bill brought under Section 5 the court cannot review or revise pure findings of fact and can deal with rulings or orders of the department only to the extent that they are shown to be erroneous in law. Boston & Albany Railroad v. Department of Public Utilities, 314 Mass. 634 , 636. And the section expressly provides that "The burden of proof shall be upon the party adverse to the commission to show that its order is invalid."
The petition by the plaintiff to the department alleged that the petitioner (the present plaintiff) had an outstanding, paid in capital stock amounting to $1,524,050 divided into sixty thousand nine hundred sixty-two [1] shares of common stock; that the stockholders, at a meeting at which sixty thousand two hundred thirty-nine shares were represented, had unanimously voted (a) that the corporation purchase from shareholders who should elect to sell, "for cash at par," a number of common shares not exceeding thirty thousand four hundred eighty-one, being half of the total number, all shares purchased to be retired and canceled forthwith, and (b) that it issue and sell "for cash at par" thirty thousand four hundred eighty-one "new preferred shares." An amendment to the original vote inserted a provision that the proceeds of the sale of the preferred shares should be used to purchase the common shares. The exact dividend and voting rights of the proposed preferred stock are not important in this controversy.
The department found that the real purpose of the petition was to exchange half of the common stock for preferred stock by means of bookkeeping or other paper entries; that no actual cash would be passed; that the American Utilities Associates held approximately ninety-eight per cent of the stock of the company; that this stock was pledged for a note which certain persons had purchased, thereby acquiring control of the stock; that these persons, in order to "refinance" this purchase, desired to obtain preferred stock, which could be sold much more easily than common stock; that in this way they would be enabled to "refinance" the purchase without sacrificing the savings which the company enjoys on its Federal income tax by being able to make a consolidated tax return with the American Utilities Associates; that this tax saving is only an incident of the proposed transaction, the prime purpose of which is to "refinance" the purchase; that the present tax law under which the saving is effected has been changed many times and may be changed again, and "therefore does not warrant a permanent change in the capital structure of the company"; that the department was unable to set forth in a certificate to the Secretary of the Commonwealth a purpose within G. L. (Ter. Ed.) c. 164, Section 14, for which the issue of preferred stock is reasonably necessary; that the department in its opinion could not properly certify that the proposed interchange was reasonably necessary for the company's business; and that it was only reasonably necessary for the benefit of the most recent indirect investors in the company's stock.
General Laws (Ter. Ed.) c. 155, Section 18, provides in part that every corporation, with exceptions not here applicable, may issue preferred stock to an amount not exceeding at any time the amount of the general stock then outstanding. See c. 164, Section 6 (d). Chapter 164, Section 10, provides in substance that gas and electric companies, unless otherwise expressly provided, may increase their capital stock by such amounts as may be authorized by the department in accordance with Section 14 and may reduce their stock, subject to the provisions of cc. 164 and 158. Chapter 164, Section 11, provides that no gas or electric company, with an exception not here applicable, shall "issue any share of stock to any person" unless the par value or the price thereof "is first paid in cash to its treasurer." Chapter 164, Section 14, St. 1935, c. 222, is the principal section conferring upon the department power to regulate the issue of stock by gas and electric companies. The part of this section as amended with which we are especially concerned reads, "Gas and electric companies shall issue only such amount of stock and bonds, and of coupon notes and other evidences of indebtedness payable at periods of more than one year after the date thereof, as the department may from time to time vote is reasonably necessary for the purpose for which such issue of stock, bonds, coupon notes or other evidences of indebtedness has been authorized." This section further provides that a certificate of the vote of the department shall be filed in the office of the and that "No application for the approval of an issue of stock shall be made unless authorized by vote of the incorporators, if an original issue, or of the stockholders if an increase of stock, passed not more than four months prior to such application; but a vote of the stockholders to increase the capital stock may be passed before or after the decision of the department." Sections 18 and 19 of the same chapter, applicable in cases of an increase of stock, contain provisions as to the price at which shares may be issued and the manner of their sale and define the powers of the department relative to these matters.
The plaintiff contends that c. 164, Section 14, gives the department no power to pass upon the reasonable necessity of new issues of stock which, like those here involved, are merely rearrangements of the capital structure of a company but which do not increase the total amount of its capital stock. This contention cannot prevail. No doubt the prevention of overcapitalization was a prime object of the Legislature in enacting this and predecessor statutes, but the history of the section as disclosed in ...
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