Nichols v. Alker

• Decision Date: 14 February 1956
• Docket Number: No. 39,Docket 23580.,39
• Citation: 231 F.2d 68
• Parties: Ennis M. NICHOLS, individually and on behalf of other stockholders of Long Island Lighting Company, similarly situated, and as Acting Chairman and member of the Committee of the Common Stockholders Committee of Long Island Lighting Company, and Common Stockholders Committee of Long Island Lighting Company, Plaintiffs-Appellants, v. Harry A. ALKER, Edward F. Barrett, Dougall C. Fraser, John Vannek, Samuel Housman, Lee P. Slack, Ethel W. Blakeslee, as Executrix of the Estate of Charles G. Blakeslee, Deceased, James W. Carpenter, William Rogers Coe, Errol W. Doebler, George Link, Jr., Robert G. Olmstead, Edward J. Crummie, Harry C. Hagerty, Thomas P. Booth, Albert F. Tegen, Percival E. Jackson, Franklin S. Coons, Vincent T. Miles, William C. Langley, Laurence M. Marks, David K. Kadane and Charles P. Elbert, Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

231 F.2d 68 (1956)

Ennis M. NICHOLS, individually and on behalf of other stockholders of Long Island Lighting Company, similarly situated, and as Acting Chairman and member of the Committee of the Common Stockholders Committee of Long Island Lighting Company, and Common Stockholders Committee of Long Island Lighting Company, Plaintiffs-Appellants, v. Harry A. ALKER, Edward F. Barrett, Dougall C. Fraser, John Vannek, Samuel Housman, Lee P. Slack, Ethel W. Blakeslee, as Executrix of the Estate of Charles G. Blakeslee, Deceased, James W. Carpenter, William Rogers Coe, Errol W. Doebler, George Link, Jr., Robert G. Olmstead, Edward J. Crummie, Harry C. Hagerty, Thomas P. Booth, Albert F. Tegen, Percival E. Jackson, Franklin S. Coons, Vincent T. Miles, William C. Langley, Laurence M. Marks, David K. Kadane and Charles P. Elbert, Defendants-Appellees.

No. 39, Docket 23580.

United States Court of Appeals Second Circuit.

Argued October 10, 1955.

Decided February 14, 1956.

COPYRIGHT MATERIAL OMITTED

Harold G. Aron, Madison, Conn., for plaintiffs-appellants.

Winthrop, Stimson, Putnam & Roberts, New York City, Peter H. Kaminer, New York City, of counsel, for appellee Marks.

David K. Kadane, Mineola, N. Y., pro se, Bertram D. Moll, Mineola, N. Y., of counsel, for appellees Barrett and others.

Charles C. Lockwood, New York City, for appellee Vannek.

Percival E. Jackson, New York City, pro se.

Before FRANK, HINCKS and WATERMAN, Circuit Judges.

WATERMAN, Circuit Judge.

Plaintiff appeals from an order of the United States District Court for the Eastern District of New York (Galston, J.) dismissing the complaint on the ground of res judicata and striking it from the files of the District Court as sham and false. The complaint was filed by Ennis M. Nichols, individually, and as representative of a group of common stockholders of the pre-reorganized Long Island Lighting Company ("Long Island"), and was brought against four groups of defendants: (1) officers and directors of the pre-reorganized Long Island (Alker, Barrett, Blakeslee, Fraser, Vannek, Housman, Slack, Elbert, Carpenter, Coe, Doebler, Link, Crummie, Hagerty, Tegen, and Marks); (2) agents of the pre-reorganized Long Island (Barrett, Olmstead, and Booth); (3) members and counsel of a preferred stockholders' committee (the Langley Committee) representing certain preferred stockholders of the pre-reorganized Long Island (Langley, Marks, Jackson); and (4) David Kadane, formerly of the Securities and Exchange Commission ("S. E. C."), and now general counsel of the present Long Island. The complaint alleges in substance that these groups and Mr. Kadane fraudulently conspired together to defeat rights of the old common stockholders of the Long Island, allegedly created by and established under a 1944 plan of recapitalization of the Long Island ("the 1944 plan") which had been approved by the New York Public Service Commission. The same or strikingly similar charges have been before this court on four previous occasions. In re Long Island Lighting Co., D.C.E.D. N.Y.1950, 89 F.Supp. 513, affirmed sub nom. Common Stockholders Committee, etc. v. S. E. C., 2 Cir., 1950, 183 F.2d 45, certiorari denied 1950, 340 U.S. 834, 71 S.Ct. 64, 95 L.Ed. 612, petition to reopen denied 2 Cir., 1952, 197 F.2d 709; Nichols v. Long Island Lighting Co., 2 Cir., 1953, 207 F.2d 931, certiorari denied, 1954, 348 U.S. 827, 75 S.Ct. 45, 99 L.Ed. 652, petition for rehearing denied 1954, 348 U.S. 884, 75 S.Ct. 123, 99 L.Ed. 695, petition to amend denied 2 Cir., 1954, 211 F.2d 392. Reference to these opinions and to the opinion of Judge Kennedy enforcing the plan of reorganization approved by the S. E. C., In re Long Island Lighting Co., D.C.E.D.N.Y. 1950, 89 F.Supp. 513, will supply in profuse detail the factual background of the present action.

It is desirable to summarize the history of the reorganization of the Long Island and the resulting litigation. By 1937 the Long Island had suspended full payment of dividends on its preferred stock. At this time and until 1945, the Long Island had been granted an exemption by the S. E. C. from the registration provisions of the Public Utility Holding Company Act of 1935, 15 U.S. C.A. § 79 et seq. ("P. U. H. C. A.").¹ The financial position of the Long Island and its subsidiaries continuing to deteriorate, the Long Island in 1944 submitted a reorganization plan to its stockholders. Under this plan the par value and current dividend rights of its preferred stock were to have been reduced by 40 per cent, the accrued dividend arrears of the preferred were not to be affected, and a new issue of common stock was to have been distributed approximately one half to the holders of preferred and one half to the holders of common. Although the plan was approved by the stockholders, and, with some modifications, by the Public Service Commission of New York, it was never put into effect.²

Shortly before the 1944 plan of reorganization was to be consummated, certain dissenting preferred stockholders of Long Island, realizing that the Public Service Commission of New York had only limited powers to compel readjustment of stock interests or voting rights, filed with the S. E. C. a petition asking the S. E. C. to revoke or modify the exemption previously granted. In November, 1944, the S. E. C. instituted proceedings to determine whether the exemption should be revoked or modified, and in December, 1944, the S. E. C. instituted an action in the United States District Court to restrain Long Island from taking any further steps to consummate the 1944 plan pending a determination by the S. E. C. as to whether the provisions of the P. U. H. C. A. should be extended to the Long Island. This attempt to enjoin the consummation of the plan failed in the first instance, S. E. C. v. Long Island Lighting Co., D.C.E.D.N.Y.1944, 59 F.Supp. 610, affirmed 2 Cir., 1945, 148 F.2d 252, and the certiorari granted by the Supreme Court, 324 U.S. 837, 65 S.Ct. 869, 89 L.Ed. 1401, became moot, 325 U.S. 833, 65 S.Ct. 1085, 89 L.Ed. 1961, when the S. E. C. completed its proceedings and revoked the exemption of Long Island from the P. U. H. C. A. The Long Island, which had heretofore contested the revocation of its exemption, now acquiesced in the order of the S. E. C., and registered in accordance with the provisions of the P. U. H. C. A.

In 1945 Long Island filed an application with the S. E. C. under § 11(e) of the P. U. H. C. A., 15 U.S.C.A. § 79k(e) for approval of a plan of reorganization and consolidation of Long Island with other New York public utilities. For 4 years thereafter various plans were under consideration by the S. E. C. The Public Service Commission of New York was also involved in consideration of these plans until 1948, when it was held that it had no jurisdiction with respect to the allocation of securities of New York public utilities which were being reorganized under § 11(e) of the P. U. H. C. A.³ In re King's County Lighting Co., D.C.E.D.N.Y.1947, 72 F.Supp. 767, affirmed sub nom. Public Service Commission of New York v. S. E. C., 2 Cir., 1948, 166 F.2d 784, certiorari denied 334 U.S. 838, 68 S.Ct. 1495, 92 L.Ed. 1763. The present plaintiffs formed a common stockholders committee in 1948 and took part in the S. E. C. proceedings. On November 16, 1949, the S. E. C. entered an order of consolidation and reorganization which, although giving the old common stockholders of Long Island much less than the 1944 plan, gave them in excess of 5 per cent of the new common stock to be issued. A petition for enforcement of this plan was granted by the District Court after a finding that the plan was fair and equitable. In re Long Island Lighting Co., D.C.E.D.N.Y.1950, 89 F.Supp. 513. We affirmed, 2 Cir., 183 F.2d 45, and certiorari was denied by the Supreme Court, 340 U.S. 834, 71 S.Ct. 64, 95 L.Ed. 612.

In April, 1952, approximately 18 months after the consummation of the reorganization, the present plaintiffs sought to set aside the order, reopen the proceedings, or be granted leave to file a bill of review in the District Court, on the ground that the order was entered "under circumstances tantamount to fraud effected and committed by said Long Island Lighting Company upon the Securities and Exchange Commission, the court below and this court."⁴ We denied this motion, finding that the "facts alleged in the petition do not show that fraud was practiced upon the Commission, the District Court, or this court," In re Long Island Lighting Co., 2 Cir., 1952, 197 F.2d 709, 710.

Then, in November, 1952, the present plaintiffs sued the reorganized Long Island in an independent tort action alleging that the Long Island's predecessor corporation conspired with certain of its preferred stockholders to defeat rights of the plaintiffs allegedly created by and established under the 1944 recapitalization plan. The S. E. C. moved to intervene and dismiss the action as a collateral attack on the 1950 decree enforcing the consolidation. That decree contained an injunction, pursuant to 15 U.S.C.A. § 79k(e) and § 79r(f) to the effect: "Long Island Lighting Company, Queens Borough Gas & Electric Company and Nassau & Suffolk Lighting Company, and all their creditors and security holders, and all persons be, and they are hereby enjoined and restrained from doing any act or taking any action interfering with, or tending to interfere with, these proceedings * * * including the commencement or prosecution of any action, suit or proceeding, at law or in equity, or under any statute, in any court or before any executive or administrative officer, commission or tribunal, other than such proceedings before the Commission or this Court as may be authorized by the Act or the Rules and Regulations promulgated thereunder, and such review, if any, in an appropriate Court of Appeals as may be provided by law." The District Court, per Judge Inch, granted the motion of the S. E. C. to intervene, and...