Schwartz v. Romnes, 125-127

• Citation: 495 F.2d 844
• Decision Date: 02 April 1974
• Docket Number: Dockets 73-1680,73-1696,73-1713.,No. 125-127,125-127
• Parties: Donald E. SCHWARTZ, as the general guardian for Pamela B. Schwartz, a minor, in a derivative capacity as a shareholder of American Telephone and Telegraph Company, Plaintiff-Appellee, v. H. I. ROMNES et al., Defendants-Appellants, Louis J. Lefkowitz, Attorney General of the State of New York, Intervenor-Appellant, and Yes for Transportation in New York State, Inc., Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

495 F.2d 844 (1974)

Donald E. SCHWARTZ, as the general guardian for Pamela B. Schwartz, a minor, in a derivative capacity as a shareholder of American Telephone and Telegraph Company, Plaintiff-Appellee, v. H. I. ROMNES et al., Defendants-Appellants, Louis J. Lefkowitz, Attorney General of the State of New York, Intervenor-Appellant, and Yes for Transportation in New York State, Inc., Defendant.

Nos. 125-127, Dockets 73-1680, 73-1696, 73-1713.

United States Court of Appeals, Second Circuit.

Argued December 11, 1973.

Decided April 2, 1974.

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Lawrence E. Walsh, New York City (Philip C. Potter, Jr., Guy Miller Struve, Davis, Polk & Wardwell, New York City, of counsel), for individual appellants.

Lippman Bodoff, New York City, for appellant American Telephone and Telegraph Co.

George E. Ashley, New York City (Kenneth J. Lucey, New York City, of counsel), for N.Y. Telephone Co.

Irving Galt, Asst. Atty. Gen., New York City (Louis J. Lefkowitz, Atty. Gen. of N.Y., Stanley Kantor, Deputy Asst. Atty. Gen., New York City, of counsel), for intervenor-appellant pro se.

H. Miles Jaffe, New York City (Norwick, Raggio & Jaffe, New York City, of counsel), for appellee.

Before KAUFMAN, Chief Judge, MANSFIELD and MULLIGAN, Circuit Judges.

MANSFIELD, Circuit Judge:

At issue on this appeal is whether the expenditure of $50,000 by the New York Telephone Company ("NYT") in 1971 for the purpose of publicizing views with respect to a proposed state public transportation bond issue to be submitted to the voters of New York for a referendum vote violated a New York statute (§ 460, N.Y.Election Law, McKinney's Consol.Laws, c. 17¹) prohibiting corporate contributions for political purposes. If so, we are asked to decide whether the statute, as so construed, would deny NYT its First Amendment rights of free speech and petition. Since NYT and its parent, American Telephone and Telegraph Company ("AT&T"), are public utilities, we are also called upon to determine whether the $50,000 contribution was barred by a state statute (§ 107, N.Y.Public Service Law, McKinney's Consol.Laws, c. 48²) which prohibits public utilities, except with the consent of the state public service commission, from expending funds other than for certain specified purposes. In a derivative suit on behalf of NYT and AT&T against directors who approved the $50,000 expenditure plaintiff, an AT&T shareholder invoking diversity jurisdiction, sued to recover the $50,000 contribution on the ground that it violated the aforementioned state statutes. The district court granted summary judgment in plaintiff's favor. For reasons stated below, we reverse the grant of summary judgment and remand with instructions that summary judgment be entered in favor of the defendants.

Pursuant to provisions of New York law, a transportation bond issue was submitted to the voters of New York State for their approval or disapproval at a general election in 1971. The bond issue was a bipartisan matter; it garnered support from both sides of the aisle in the State Senate and Assembly which enacted it by a very substantial majority, subject to approval by the voters at the forthcoming 1971 election. Among its active supporters was then-Governor Rockefeller, who urged adoption of the bond issue as a source of jobs and as a catalyst for continued economic growth. New York history, however, has revealed that such bond issues are not something lightly approved by the voters. Indeed the 1971 issue was defeated at the polls, as was a subsequent issue put to a referendum vote in 1973. Suspecting the worst, the proponents of the 1971 bond issue organized Yes for Transportation in New York State, Inc. ("YES"), a not-for-profit corporation, to promote the bond issue. To this end YES reportedly expended some $2.5 million on its campaign. Individual as well as corporate donations sustained YES in its work.

Among the corporate contributors was NYT in the amount of $50,000. As a business matter NYT, according to its directors, had more than a fleeting interest in the transportation bond issue. With over 12,000 vehicles in its motor pool, NYT was probably the largest private enterprise using the State's highways and roads. As the largest private employer in the state, it likewise had an interest in the quality of mass transportation, upon which many of its employees depend for travel between home and work. The Project on Corporate Responsibility, a shareholder of AT&T, nonetheless demanded that the directors of AT&T and NYT recover the contribution as having been made for a political purpose in violation of § 460 of the New York Election Law. Relying on the opinion of counsel that the contribution did not violate § 460, the directors of NYT denied the request. This action followed.³

In denying defendants' motion to dismiss or for summary judgment and in granting plaintiff's motion for summary judgment, the district court concluded that the contribution was barred by that portion of § 460 which prohibits a corporate contribution "for any political purpose whatever." The court found that this phrase "unambiguously included an effort to influence the outcome of a vote on a question or proposition" and rejected defendants' argument that as so construed the statute would constitute an impermissible restraint on First Amendment rights. The court further held that § 107 had also been violated, concluding that the required approval of the Public Service Commission had not been obtained.⁴

On appeal the defendant-directors challenge each of the district court's findings. They maintain that § 460 does not prohibit a contribution in support of a non-partisan referendum; and that if the section did, it would be an unconstitutional restraint on a corporation's First Amendment rights. They also argue that the contribution did not offend § 107. Finally, they charge that it was error in any event for the district court to imply a cause of action against them after they had acted in reliance upon the advice of counsel that the contribution would violate no provision of New York law and in a good-faith belief that the contribution would benefit the corporation.⁵

I.

Section 460 of the Election Law plainly makes it a penal offense for a corporation to pay money to or in aid of "any political party, committee or organization" or "any candidate for political office". These terms clearly do not apply to a referendum. The applicability of the section to NYT's contribution to YES turns on whether the statute's provision prohibiting corporate payments to any corporation or association organized or maintained "for political purposes" or payments for "any political purpose whatever" should be interpreted as barring a corporate expenditure in support of or in opposition to a public referendum that is essentially non-partisan in nature.

The fundamental issue before us is the meaning of the word "political" as used in this context. Under the construction of § 460 advanced by plaintiff, which was in the main accepted by the district court, any question submitted to the voters as the body politic for a vote would ipso facto become a "political" matter, and any monies expended with respect to such a vote would therefore be spent for a "political purpose." Were the word being interpreted in vacuo, the district court might well have been justified in adopting the definition advocated by plaintiff, even though narrower meanings have been attributed to the word "political."⁶ However, we are not here called upon to determine the meaning of the term in the abstract but its meaning in the context of a specific statute which, being penal, must be strictly construed, United States v. Wiltberger, 18 U.S. (5 Wheat.) 76, 5 L.Ed. 37 (1820); United States v. Fruit Growers Express Co., 279 U.S. 363, 49 S.Ct. 374, 73 L.Ed. 739 (1929); United States v. Resnick, 299 U.S. 207, 57 S.Ct. 126, 81 L.Ed. 127 (1936); FCC v. American Broadcasting Co., Inc., 347 U.S. 284, 74 S.Ct. 593, 98 L.Ed. 699 (1954) (applying this rule of construction to a criminal statute in a civil action). This time-honored rule is all the more compelling when First Amendment rights are involved. In such circumstances, where a word or phrase is reasonably capable of more than one meaning, we have repeatedly affirmed the wisdom of looking to the entire text of the statute and to its legislative history in order to ascertain, if possible, the intent of the drafters and the true scope and meaning of the term. See, e.g., Guiseppi v. Walling, 144 F.2d 608, 624 (2d Cir.1944) (L. Hand, J., concurring).

Following this traditional method of analysis, we are initially confronted with the fact that the phrase "for any political purpose whatever," as used in § 460, does not stand alone. If it were the only qualifying predicate it might evidence an intent expansively to prohibit corporate contributions with respect to every possible type of legislative measure. The term, however, is used in § 460 as a catchall phrase to terminate a list of specifically enumerated prohibitions limited to payments in aid of a "political party" or "candidate for political office." The partisan flavor of these words is unmistakable. See United Public Workers v. Mitchell, 330 U.S. 75, 67 S.Ct. 556, 91 L.Ed. 754 (1947); United States Civil Service Comm. v. National Assn. of Letter Carriers, 413 U.S. 548, 93 S.Ct. 2880, 37 L.Ed.2d 796 (1973). It is a "familiar canon of statutory construction that such catchall terminating clauses are to be read as bringing within a statute categories similar in type to those specifically enumerated." FMC v. Seatrain Lines, Inc., 411 U.S. 726, 734, 93 S.Ct. 1773, 36 L.Ed.2d 620 (1973). Application of that principle calls for an interpretation that would restrict the phrase "for any political purpose whatever" to contributions of the type specifically described in the text immediately preceding it.

The legislative history of § 460, furthermore, reveals...