Morris v. Securities and Exchange Commission

• Decision Date: 13 January 1941
• Citation: 116 F.2d 896
• Parties: MORRIS et al. v. SECURITIES AND EXCHANGE COMMISSION.
• Court: U.S. Court of Appeals — Second Circuit

116 F.2d 896 (1941)

MORRIS et al. v. SECURITIES AND EXCHANGE COMMISSION.

Circuit Court of Appeals, Second Circuit.

January 13, 1941.

Chester T. Lane, General Counsel, Christopher M. Jenks, Asst. General Counsel, and John Logan O'Donnell, all of Washington, D. C., for respondent.

Davis, Polk, Wardwell, Gardiner & Reed, of New York City (George A. Brownell, Porter R. Chandler, and Lester H. Chase, all of New York City, of counsel), for intervenor.

George L. Schein, of New York City (Joseph M. Cohen, of New York City, of counsel), for petitioner.

Before L. HAND, SWAN, and CLARK, Circuit Judges.

SWAN, Circuit Judge.

The petitioners, as a committee for holders of 7% preferred stock of International Paper & Power Company, filed their petition in this court on January 25, 1940 to review and set aside an order of the Securities and Exchange Commission dated November 28, 1939. The commission has moved to dismiss the petition and the company has moved for leave to intervene in order that it may likewise move to dismiss it.

For an understanding of these motions a recital of the antecedent proceedings before the commission is necessary. On November 30, 1935, International Paper & Power Company filed an application under section 3 (a) (5) of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79c (a) (5), for an order exempting it from the provisions of said Act. While this application for exemption was still pending and undetermined, the company formulated a plan for recapitalization, and on March 12, 1937 filed with the commission an "application for order in connection with plan for change in capitalization." For brevity this may be referred to as the "second proceeding". Subsequently the commission furnished a report on the plan, in the manner provided in section 11 (g) (2) of the Act, 15 U.S.C.A. § 79k (g) (2); this report was submitted to the company's stockholders, and at a stockholders' meeting on June 23, 1937, the plan was approved by the requisite number of stockholders, the petitioners voting adversely the stock represented by them. There after a further hearing was had in the second proceeding, and on July 31, 1937 the commission made an order purporting to exempt the securities to be issued under the plan from all provisions of the Act and to dispense with any further order of approval by the commission, whether or not the company's original exemption application of November 30, 1935 should be granted. From this order a stockholder appealed to the Circuit Court of Appeals for the First Circuit. That court reversed the commission's order on the theory that until a corporation was registered under the Act the commission lacked jurisdiction to pass on any plan of recapitalization; it remanded the cause to the commission for further proceedings not inconsistent with its opinion. Lawless v. Securities & Exchange Com., 105 F.2d 574. A few days later, on April 26, 1939 the commission granted the company exemption upon its application of November 30, 1935, as amended. Thereafter a further hearing was had before the commission in the second proceeding, the company asking for its dismissal in obedience to the mandate, the petitioners for its retention and the entry of an order permitting the plan to become effective upon conditions more favorable to the 7% preferred stockholders, or, in the alternative, for determination of the "restitution" to which the petitioners and others might be entitled. On November 28, 1939 the commission made an order dismissing the second proceeding. This is the order which the petitioners desire this court to set aside.

The commission's motion to dismiss the petition is rested on the ground (1) that dismissal of the application of March 12, 1937 was directed by the mandate of the Circuit Court of Appeals for the First Circuit and any construction of the mandate to permit retention of the cause was a matter within the exclusive jurisdiction of that court; and (2) that the entire controversy as to recapitalization of the company became moot when the commission granted the company exemption from the Act with the result that it could lawfully issue the securities contemplated by its plan of recapitalization without the necessity of obtaining the commission's approval. We believe that both points are well taken.

The petitioners' contention that the order of dismissal was erroneous proceeds upon the assumption that the mandate of the First Circuit did not require dismissal. This raises a question as to the meaning of the mandate which obviously should be determined by the court that issued it. The appeal taken by Lawless from the order of July 31, 1937 gave the first circuit "exclusive jurisdiction to affirm, modify, or set aside such order, in whole or in part." Sec. 24 (a), 15...