Philadelphia Co. v. Securities & Exchange Com'n

• Decision Date: 08 October 1947
• Docket Number: No. 9513.,9513.
• Citation: 164 F.2d 889
• Parties: PHILADELPHIA CO. v. SECURITIES & EXCHANGE COMMISSION.
• Court: U.S. Court of Appeals — District of Columbia Circuit

164 F.2d 889 (1947)

PHILADELPHIA CO. v. SECURITIES & EXCHANGE COMMISSION.

No. 9513.

United States Court of Appeals District of Columbia.

Argued April 18, 1947.

Decided October 8, 1947.

Writ of Certiorari Denied February 2, 1948.

Mr. Thomas J. Munsch, Jr., of Pittsburgh, Pa., with whom Messrs. Thomas E. Harris, of Washington, D. C., and C. Elmer Bown, of Pittsburgh, Pa., who entered appearances, and Mr. Philip A. Fleger, of Pittsburgh, Pa., were on the brief, for petitioner.

Mr. Roger S. Foster, Sol., of Philadelphia, Pa., with whom Messrs. David Ferber, Sp. Counsel, of Philadelphia, Pa., Paul S. Davis, Sp. Counsel, of Washington, D. C., Public Utilities Division, and Howard S. Guttmann, of Washington, D. C., of the Securities & Exchange Commission, were on the brief, for respondent.

Miss Anne X. Alpern, of Pittsburgh, Pa., of the bar of the Commonwealth of Pennsylvania, pro hac vice by special leave of court, for the City of Pittsburgh, intervenor.

Mr. Charles S. Rhyne, of Washington, D. C., entered an appearance for the City of Pittsburgh, intervenor.

Before STEPHENS, CLARK and WILBUR K. MILLER, Associate Justices.

Writ of Certiorari Denied February 2, 1948. See 68 S.Ct. 452.

STEPHENS, Associate Justice.

This case is before the court upon a motion by the Securities and Exchange Commission, hereafter sometimes called the Commission, to dismiss a petition of the Philadelphia Company, a Pennsylvania corporation, hereafter called Philadelphia, for review of an "order" of the Commission revoking an exemption from the provisions of the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79 et seq., hereafter sometimes referred to as the Act. The case presents also objections of the Commission to the issuance of a stay order pending disposition of the petition for review. The stay order is sought in the prayer of the petition and also by a separate motion filed by Philadelphia. The relevant facts are either alleged in the petition for review and admitted, for the purposes thereof, by the motion to dismiss (cf. American Sumatra Tobacco Corporation v. Securities and Exchange Commission, 1937, 68 App.D.C. 77, 93 F.2d 236), or are stated in the brief of Philadelphia and treated as true, or not denied, in the brief of the Commission. The facts thus made to appear are as follows:

Philadelphia, a registered public utility holding company under the Act, is the owner of the stock of gas, electric and street railway subsidiaries. One of these is the Pittsburgh Railways Company, a Pennsylvania corporation, hereafter sometimes called Pittsburgh, or the Debtor. Until May 10, 1938, Pittsburgh operated, as a unified street railway system in Pittsburgh, Pennsylvania, and vicinity, its own properties and also, pursuant to a system of leases, operating agreements and stock ownership, the properties of fifty-three so-called "underlier" companies. Of the latter ten are publicly controlled and are not subsidiaries of any registered holding company. Philadelphia owns all of the stock of Pittsburgh and of certain of its underlier companies, and is also a large creditor of Pittsburgh and a guarantor of obligations substantial in amount of Pittsburgh and of certain of its subsidiaries and underliers.¹ In view of Philadelphia's ownership of Pittsburgh's stock, Pittsburgh is a "subsidiary" within Section 2(a) (8) of the Act, 15 U.S.C.A. § 79b (a) (8). Not being an "electric utility company" or a "gas utility company," it is not a "public utility company" within the meaning of Section 2 (a) (5) of the Act, 15 U.S.C.A. § 79b (a) (5), but it is nevertheless, as a "non-utility subsidiary" of a registered holding company, subject to the requirements of the Act unless in some manner exempted therefrom by action of the Commission.

On May 10, 1938, Pittsburgh filed a voluntary petition for reorganization under Section 77B of the Bankruptcy Act, 48 Stat. 912 (1934), as amended by 49 Stat. 664 (1935) and 49 Stat. 965 (1935), in the District Court for the Western District of Pennsylvania, hereafter referred to as the District Court. Trustees were appointed by the District Court on June 14 and since that date they have operated the same properties as were theretofore operated by Pittsburgh before the initiation of the bankruptcy proceedings. In the early stages of the reorganization Pittsburgh and its underliers were the subject of exemptions granted by the Commission under Section 3(d) of the Act, 15 U.S.C.A. § 79c (d), providing that "The Commission may, by rules and regulations, conditionally or unconditionally exempt any specified class or classes of persons from the obligations, duties, or liabilities imposed upon such persons as subsidiary companies or affiliates under any provision or provisions of this title . . .." The full text of this provision is set forth in the margin.² Exemption prior to April 1, 1941, was by virtue of the Commission's Rule U-3D-5 which relieved from the operation of most of the provisions of the Act all subsidiaries of registered holding companies which were not gas or electric utility companies, investment companies, service companies, or holding companies thereof. On April 1, 1941, the Commission by Rule U-49, also promulgated under Section 3 (d) of the Act, narrowed the scope of the Rule U-3D-5 exemption but nevertheless continued exemption from the otherwise applicable requirements of the Act of certain transactions by subsidiaries of registered holding companies if they were neither electric nor gas utility companies and were being reorganized in a United States court, and if the Commission had filed in such court notice of appearance pursuant to Section 208 of Chapter X of the Bankruptcy Act, 11 U.S.C.A. § 608. Specifically, Rule U-49 so far as here pertinent provided:

"Rule U-49. Certain Exemptions Granted to Nonutility Subsidiaries.

"(a) Companies exempted. — The exemptions provided by this rule shall apply to any subsidiary of a registered holding company which subsidiary is not —

(1) A holding company,

(2) A public-utility company,

(3) A company engaged in the business of performing services or construction for or selling goods to associate holding or public-utility companies, or

(4) A company controlling, directly or indirectly, any company specified in clauses (1) to (3) above.

"(b) Exemption from sections 6(a) and 12 (c). — Any such subsidiary company shall be exempt from the provisions of section 6(a) of the Act 15 U.S.C.A. § 79f (a) with respect to the issuance or sale of any securities to the vendor of supplies or equipment for use in the business of such subsidiary company, and from the provisions of any rule under section 12(c) of the Act 15 U.S. C.A. § 79l (c) with respect to the acquisition, redemption or retirement of any such securities.

"(c) Transactions approved by a reorganization court. — Any such subsidiary company which is the subject of a proceeding for reorganization in any court of the United States in which proceeding the Commission has filed a notice of appearance pursuant to section 208 of chapter X of the Bankruptcy Act, as amended, or which is a subsidiary within the meaning of section 106(13) of said chapter X 11 U.S.C.A. § 506(13), or of section 2(a) (8) of the Public Utility Holding Company Act, of any such subsidiary company which is the subject of such a proceeding, shall be exempt from any provision of the Act applicable to the appointment of any trustee for such company or to any transaction entered into with the approval (direct or indirect) of such court: Provided, That such transaction does not involve the acquisition of any utility assets or securities of any public-utility or holding company." General Rules and Regulations under the Public Utility Holding Company Act of 1935, as amended to and including January 1, 1946.

The exemption granted by sub-paragraph (c) was applicable to the Pittsburgh reorganization because the Commission had, pursuant to Section 208 of Chapter X of the Bankruptcy Act, filed in the District Court notice of appearance in the reorganization proceeding.

In view of the exemptions successively afforded by Rules U-3D-5 and U-49(c) as above explained, the following steps were taken in the Pittsburgh reorganization proceeding: The trustees prepared a plan of reorganization covering not only Pittsburgh itself but also forty-nine of its underlier companies, including the ten which were publicly controlled and were not subsidiaries of any registered holding company. The plan contemplated compliance with the requirements of Section 172 of the Bankruptcy Act, 11 U.S. C.A. § 572. This provides that "After the hearing as provided in section 169 or section 170 11 U.S.C.A. §§ 569, 570 of this Act, and before the approval of any plan, as provided in section 174 of this Act 11 U.S.C.A. § 574, the judge may, if the scheduled indebtedness of the debtor does not exceed $3,000,000, and shall, if such indebtedness exceeds $3,000,000, submit to the Securities and Exchange Commission for examination and report the plan or plans which the judge regards as worthy of consideration. Such report shall be advisory only." (Italics supplied) The plan, in view of the exemptions, contained no provision for submission to the Commission under Section 11(f) of the Holding Company Act, 15 U.S.C.A. § 79k (f), providing that in any proceeding of a court of the United States in which a receiver or trustee is appointed for a registered holding company or any subsidiary thereof "a reorganization plan for a registered holding company or any subsidiary company thereof shall not become effective unless such plan shall have been approved by the Commission after opportunity for hearing prior to its submission to the court. . . ." (Italics supplied)³ The plan was, however, pursuant to Section 178 of the Bankruptcy Act, 11 U.S.C.A. § 578, submitted to the Pennsylvania Public Utility Commission, hereafter referred to as the Pennsylvania Commission, and, after a hearing,...