Phillips v. Securities and Exchange Commission

• Decision Date: 06 December 1948
• Docket Number: 58,21078.,Dockets 20523,No. 57,57
• Citation: 171 F.2d 180
• Parties: PHILLIPS v. SECURITIES AND EXCHANGE COMMISSION et al. PHILLIPS et al. v. UNITED CORPORATION.
• Court: U.S. Court of Appeals — Second Circuit

171 F.2d 180 (1948)

PHILLIPS v. SECURITIES AND EXCHANGE COMMISSION et al. PHILLIPS et al. v. UNITED CORPORATION.

Nos. 57, 58, Dockets 20523, 21078.

United States Court of Appeals Second Circuit.

December 6, 1948.

Randolph Phillips, of New York City, petitioner and plaintiff-appellant, pro se.

Roger S. Foster, Gen. Counsel, Securities and Exchange Commission, of Washington, D. C. (William R. Nowlin, Sp. Counsel, and Alfred Hill, Atty., Securities and Exchange Commission, both of Washington, D. C., on the brief), for respondent Securities and Exchange Commission in first appeal.

Richard Joyce Smith, of New York City (Whitman, Ransom, Coulson & Goetz and William T. Farley, all of New York City, on the brief in the first appeal; Whitman, Ransom, Coulson & Goetz and Forbes D. Shaw, all of New York City, on the brief in the second appeal), for respondent and defendant-appellee United Corporation in both appeals.

Before SWAN, AUGUSTUS N. HAND, and CLARK, Circuit Judges.

CLARK, Circuit Judge.

Randolph Phillips, petitioner in the first appeal here and one of the plaintiffs-appellants in the other, is a stockholder in The United Corporation, a public utility holding company registered under the Public Utility Holding Company Act of 1935, 49 Stat. 838, 15 U.S.C.A. § 79. In 1943, the Securities and Exchange Commission, acting under the "death-sentence" provision of that Act, § 11, 15 U.S.C.A. § 79k, ordered that United cease to be a holding company, but withheld a dissolution order, in view of United's expressed intention to become an investment company. Matter of United Corporation, 13 S.E.C. 854. Inequities in its distribution of voting power were, however, to be corrected by recapitalization on a one-stock basis. The Commission added:

"Abandonment of United's present business as a public utility holding company and embarking upon a new type of business, whether that of investment company or any other type of business, involves a drastic change in the activities of the company. Such a change will devote the funds which security holders have invested to a purpose different from that for which they were contributed. It would seem necessary that United should consult its security holders before embarking on such a program. In the light of the existing maldistribution of voting power and for other reasons, we believe no such program would be fair which does not require majority approval either of the present preferred and common stock voting by classes, or of the new common stock, should United choose to recapitalize on a one-stock basis before seeking stockholder approval of the proposed new venture. The literature soliciting such approval would, of course, be subject to our scrutiny."

A number of steps in compliance with the 1943 order have been taken, with the Commission's approval and over Phillips' objections, and other steps are pending. In Phillips v. Securities and Exchange Commission, 2 Cir., 153 F.2d 27, certiorari denied 328 U.S. 860, 66 S.Ct. 1350, 90 L.Ed. 1630, we affirmed one such step on a petition for review brought by Phillips.

In the first months of 1947, United was ready to present a proposed "Plan for Future Operations" to its stockholders, in order to obtain a preliminary expression of opinion, which it felt was necessary in order to justify "extensive preparations and preliminary arrangements." In this connection, United requested the Commission to modify its 1943 opinion by eliminating the requirement of a favorable vote by a majority of the preferred stockholders, since all of the preferred stock would be retired before the plan could go into effect. It also filed with the Commission its proposed solicitation material for the plan. The literature was submitted for Commission scrutiny both because of the direction in the 1943 opinion and because the Commission's Rule U-62 requires submission when the solicitation is in connection with a transaction which has been the subject of an application filed with the Commission, such as the application for elimination of the voting by preferred stockholders.

In the first appeal here petitioner seeks review of two actions of the Commission not incorporated into formal orders: (1) the action stated in a "Memorandum Opinion" of February 7, 1947, whereby the Commission modified its 1943 opinion to eliminate the requirement of participation by the preferred shareholders in the vote, without conducting a hearing on the plan; and (2) the action stated in a "Minute," dated February 25, 1947, denying petitioner's request for a hearing on the solicitation material submitted and for a rehearing of the first decision. Petitioner does not object to the decision eliminating the voting of the preferred stock in itself; his objection is rather to the Commission's refusal to treat the plan as one for the divestment of control and the simplification of holding company structures under § 11(e) of the Act, 15 U.S.C.A. § 79k(e), or as a reorganization plan or part thereof under § 11(g), 15 U.S.C.A. § 79k(g). The initial question we must decide is whether or not these actions are now reviewable here.

It seems to us apparent that no plan of the form and substance contemplated under the section just cited is before us here. United was merely seeking advice from its stockholders on its future course of action after it should have complied with the Commission's 1943 order and ceased to be a holding company. The result of the vote was not to be binding upon the Commission, even if the expressly reserved authority to order a new vote in the light of changed circumstances should not be exercised. No final determination will be made until a proceeding is instituted, under § 5 (d) of the Act, 15 U.S.C.A. § 79e(d), for a declaration by the Commission that United is no longer a holding company. That declaration may be conditioned on performance of such requirements as the Commission may impose at the time.

Hence we find ourselves in substantial agreement with the Commission's position as to the actions it has taken and which the petitioner seeks to bring directly before us for review in the first appeal. We of course agree with the Commission in its concession that the form in which it couched its action is irrelevant beyond showing its own conception of what it had done. It is the substance which must control, and lack of a formal order will not of itself bar review. But since we agree that the actions by the Commission were, as it urges, merely "interpretative, procedural and interlocutory," we must hold that the petitioner's challenge is premature. There will be adequate occasion to review all the preliminary orders of the Commission which may have shaped the final result when the matter of terminating United's existence as a holding company comes up under § 5(d) of the Act. But it would be unfortunate if at so tentative a stage as is at present disclosed to us it became necessary for an appellate court to interfere with such details as how an advisory vote of stockholders as to a future corporate course not yet at the stage of execution should be taken. It is true that these proceedings have, all too unfortunately, been long drawn...