Document: 329 U.S. 90 67 S.Ct. 133 91 L.Ed. 103 AMERICAN POWER & LIGHT CO.v.SECURITIES EXCHANGE COMMISSION. ELECTRIC CORPORATION v. SAME. Nos. 4, 5. Reargued Oct. 14, 15, 1946. Decided Nov. 25, [Syllabus from pages 90-94 intentionally omitted] Mr. Arthur A. Ballantine, of New York City, for American Power Light co. Daniel James, Electric corporation. Roger S. Foster, Philadelphia, Pa., respondent. Justice MURPHY delivered the opinion Court. 1 We are concerned here with constitutionality § 11(b)(2) Public Utility Holding Company Act 19351 and its application to petitioners, Corporation. 2 two subholding companies in Bond Share holding company system, certain aspects which were considered by this Court Co. S.E.C., 303 419, 58 678, 82 936, 115 A.L.R. 105. This system is a pyramid-like structure itself constitutes apex, five (including Electric) create an intermediate tier,2 approximately 237 direct indirect subsidiaries latter form base. From standpoint book capitalization assets, number customers areas served operating companies, quantity electricity generated gas sold, nd largest single public utility registered under Act. 3 The proceeding now review was instituted Securities Exchange Commission After appropriate notice hearing, found that corporate continued existence unduly unnecessarily complicated unfairly inequitably distributed voting power among security holders violation standards 11(b)(2). 11 S.E.C. 1146. Orders accordingly entered requiring dissolution both them submit plans effectuation these orders. First Circuit Appeals sustained Commission's action all respects affirmed orders, while refusing consider contentions had not been raised before Commission. 141 F.2d 606. granted certiorari because obvious importance issues presented. 325 846, 65 1400, 89 1968. I. 4 At outset, we reject claim 11(b)(2), viewed commerce clause, unconstitutional. 5 So far as pertinent,3 directs Commission, soon practicable after January 1, 1938, 'To require order, opportunity each company, subsidiary thereof, shall take such steps find necessary ensure or any holding-company does complicate structure, distribute holders, system. * Except purpose fairly equitably distributing nothing paragraph authorize change whose principal business company.' 6 Like 11(b)(1) statutory companion, applies only their subsidiaries. noted North 327 686, 66 785, making interstate transactions unlawful unless registers 4(a), extending Congress has effectively applied those fact stream activity affect more states than one. identical observations can be made Its impact likewise limited reference registration requirements, depend very upon constan systematic use mails instrumentalities commerce. Effect thereby given legislative policy set forth 1(c) interpreting provisions meet problems eliminate evils 'connected public-utility engaged activities directly burden commerce.' 15 U.S.C.A. 79a(c). 7 including Electric, possesses undeniable character makes it properly subject standpoint, vast embraces properties no fewer 32 Jersey Oregon Minnesota Florida, well 12 foreign countries. dominates controls headquarters City.4 As situation case, proper control functioning extensive multi-state network corporations necessitates continuous substantial Only way Share, service subsidiary, market securities, influence various negotiate inter-system loans, acquire exchange property, perform contracts, reap benefits stock ownership. See 1(a). also International Textbook Pigg, 217 91, 30 481, 54 27 L.R.A.,N.S., 493, 18 Ann.Cas. 1103. Moreover, many on lower echelon sell transmit electric energy extent cannot described spasmodic insignificant. supra, 432, 433, 681, 682, 105.5 Such serve augment nature And they make even plainer falls within intended scope 8 Congress, course, undoubted clause impose relevant conditions requirements who channels so will conduits promoting perpetuating economic evils. supra; United States Darby, 312 100, 657, 61 451, 85 609, 132 1430; Brooks States, 267 45 345, 69 699, 37 1407. Thus transacted through channels, affecting one, may act respect protect what conceives national welfare. It prescribe regulations determine pursued.6 compel changes rights other privileges stockholders.7 order divestment rearrangement properties.8 reorganization corporations.9 In short, completely uninhibited selecting means bringing about desired Any limitations sections Constitution. Gibbons Ogden, 9 Wheat. 196, 23. Since mandates directed solely systems commerce, validity section becomes apparent. designed prevent propagate disseminate flow inequitable distributions systems. inextricably entwined around present serious question eradicate them. 10 studies preceded passage Act, 79 et seq., 'The most distinctive characteristic, perhaps defect organization pyramided important groups examined.'10 pyramiding device common consisted interposing one between issuing, at level different classes unequal rights. Most financing occurred sale bonds preferred having low fixed returns generally carrying voice managements. Under circumstances, relatively small but strategic investment (with privileges) higher levels often resulted absolute underlying assets hundreds millions dollars.11 A tremendous 'leverage' relation thus produced; earnings top greatly magnified comparatively companies. might quickly rise value just fall, natural object specul tion gambling. instances created financially irresponsible managements unsound capital structures.12 investors themselves innocent victims, supplied purchase suffered addition being largely disfranchised. Prudent management became minor consideration, pressure placed sustain excessive detriment consumers. Reduction rates firmly resisted. conclusion reached highly 'is dangerous justification existence'13 'represents worst.'14 general problem addressed Various abuses traceable measure enumerated 1(b). specifically 1(b)(3) interest interests consumers adversely affected 'when (subsidiary) exerted disproportionately investment.' underlies therefore, deals essence Their structures resulting abuses, like characteristics, rest squarely Conversely, every transaction impregnated degree another effects distribution power. Many intangible indistinct, nonetheless real. 13 To deny connected systems, have promoted transmitted deal concerning welfare economy. Rather reaffirm once constitutional authority resident virtue undertake solve realistically, giving due recognition state That follows federal broad needs nation. supra. II. 14 unconstitutional delegation alleged absence ascertainable guidance out functions. Section provides particular 'unduly structure' 'unfairly holders.' argued phrases undefined legally meaningless carry historically defined concepts. result, said, forced unlimited whim compliance non-compliance 11(b)(2); framing unfettered discretion decide property taken destroyed extent. Objection score developed announced justify case. 16 These without merit. Even standing alone, terms said utterly meaning, especially familiar realities. But need tested isolation. They derive much meaningful content factual background context appear. Intermountain Rate Cases, 234 476, 34 986, 1408. sources—From manifold revealed investigations, express recital 1(b) declarations 1(c), new 7, acquisitions securities prescribed 10, inquiries contemplated 11(a)—a veritable code rules reveals follow effect certainly less definite speaking contexts 'public interest,' 'just reasonable rates,' 'unfair methods competition' 'relevant factors.' approval past compels sanctioning ones issue. Central Corp. 287 12, 24, 53 45, 48, 77 138; Yakus 321 414, 419-427, cases cited, 64 660, 665-669, 88 834. 17 judicial accorded 'broad' administrative reflection necessities modern legislation dealing complex social problems. Sunshine Anthracite Coal Adkins, 310 381, 398, 60 907, 914, 84 1263. process would frequently bog down if constitutionally required appraise before-hand myriad situations wishes e formulate specific situation. Necessity therefore fixes point beyond unreasonable impracticable detailed rules; then sufficient clearly delineates policy, agency apply it, boundaries delegated authority. Private protected access courts test light declarations. here. significance executing policies fashion remedies civil attaining goals. Phelps Dodge National Labor Relations Board, 313 177, 194, 845, 1271, 1217. clear, adopted safeguards against excesses. 19 Nor there requirement translated into formal thumb prior If proceed flexible case-by-case method, Constitution offers obstacle. All actions conform language policy. III. 20 Our decision disposes objections basis Fifth Amendment. 21 11(b)(1), materially affects investors; destroy whatever right part useful function. carefully 'outweighed political desirability breaking up concentrations financial field too big regulated either consumer investor permit democratic institutions.'15 our function reweigh diverse factors Congress. say face authorizes necessarily involves destruction valuable compensation. pointed case negative argument. 22 Equally groundless contention void provision hearing regarding proceedings section. short answer holder injury lack hearing. No type us. admittedly notified participated hearings possess assert invalidity viewpoint holders' Tyler Judges Registration, 179 405, 410, 206, 208, 252; People State ex rel. Hatch Reardon, 204 152, 160, 188, 190, 51 415, 736. 23 However instance actually gave pendency invited file applications intervention stated time. done pursuant 19, permits accordance ch prescribe, admit representative interested investors, person, party body. received everything could possibly guarantee respect. 24 statute expressly insist relevance circumstances. Wherever possible, statutes must interpreted principles. Here, contrary indications, fair assume lawfully executed entitled thereto. when assumption added quite evident bound give consumers, persons whenever necessary. Japanese Immigrant Case, 189 86, 101, 611, 614, 47 721. 25 should neglect procedure failure objection determination rather itself. needless do nullify disregard here, however, reiterate construed, neither nor impliedly procedure. immune attack basis. Kentucky Railroad Tax 321, 57, 29 414; Bratton Chandler, 260 110, 43 43, 157; Toombs Citizens' Bank Waynesboro, 281 643, 50 434, 74 1088; Cf. Coe Armour Fertilizer Works, 413, 35 625, 59 1027; Wuchter Pizzutti, 276 13, 48 259, 72 446, 57 1230. IV. 26 Turning record amply supports finding major facts crucial finding. organized laws Maine 1909 1925, respectively. Until 1935, offices employees; books kept employees Share's City. officers employed paid Share. managed detail dealt parent represented counsel Functionally, found, mere sets office. 28 shortly effective date superficial organizational set-up separate Ebasco Services Incorporated, continue functions formerly carried department. Each own suite office building. Other took place, operate precisely 1935. still complete unquestioned over American, There evid nce presently able role operations subsidiaries, organizing integrated furnishing cash. Both currently accumulations unpaid dividends arrears, dividend ten years preceding 1941. Instances relating reveal harmful results guiding hand real leverage whereby amass sums contributed others realize large profits proportionate investment—the prime evil directed. 31 holds 20.7% total nearly $10,000,000 3.68% American's $270,000,000. Through investment, $29,000,000. An $729,000,000, ratio 73. 46.8% Electric's stock; equity amounts $17,500,000 9.14% $192,000,000. enable $654,000,000. $654,000,000, 37. 33 alternative calculations benefit favorable assumption. adjusted upward figures reflect amount values exceeded corresponding adjustments, equals 8.2% 3.42% subsidiaries; equivalent 22.25% 8.72% subsidiaries.16 disproportion controlled acute further adjustments unconscionable write-ups inadequate depreciation disagree urge justified; complaint refused valuation testimony offered deem unnecessary, enter disputed matters. values, attenuated achieved 'through On basis, 96% representation, 91% similarly disfranchised.17 evidence enough support paper legitimate functional purpose. merely mechanism maintains containing seeds attendant condemned reasonable, conclude undue unnecessary complexities distributes V. 36 relates choice 'necessary ensure' corrected effectuated. Emphasis drastic allegedly standards. fundamental principle, where entrusted responsibility achieving 'the remedy peculiarly matter competence.' 852, adjusting standards, accumulated experience knowledge court hope attain. judgment greatest weight, recognizing square responsibility. chosen unwarranted law attempt intervene matter. Neither ground instance. 38 Dissolution plainly possible remedy. finds system' violate forth. argue phrase 'in limits orders removing terminating existence. Grammatically, modifies 'continued existence' 'corporate structure.' relates, rather, word 'company,'18 though read system.' 39 construction accords declares interpreted, 'to provide elimination except otherwise provided title.' last sentence 11(b) (2) 'Except hall *.' §§ 11(f) 11(g) refer 11.19 statements 40 history interpretation. original bill passed Senate (S. 2796, 74th Cong., 1st Sess.) contained similar first mandatory reorganized dissolved' violated addition, 11(e) written permitted voluntary plan 'for control, dissolution, 11(b)(3), providing cease certificate convenience necessity obtained Federal House Representatives insisted 11(b)(3) finally reported joint conference committee deleted provision. time instead specifying remedies, 'such steps' compliance. changed thereof.' 41 compromise omitted unconditional years, substituting therefor 'great-grand-father clause' dissolution. indicate framers meant forbid choose. Indeed, previously specified strong minds wrote portion consideration wished restrict remedies; choose felt history, combined references parts 11, allowable area discretion. 42 lacking reasonableness constitute abuse chose calculated correct 'most quickly, ever bearing mind Act.' 1215. some amelioration offensiveness afforded approaches, approach available promise effectuating statute's fully promptly.' Ibid., p. Jacob Siegel Trade 608, 758. preference lightly disregarded shown statement Dr. Walter Splawn, relied shaping statute, preventing so-called intermediary interposed top.'20 Without attempting invade domain discretion, readily perceive reasonably justifiable function; enabling perpetuate actual potential outweigh claimed advantages, since seem impossible attainment warranted feeling (2). 44 unimpressed, moreover, unreasonable. Elimination useless equitable value. little portfolio securities. belief circumstances harm brought argument us that, concerned, mean receipt lieu shares Electric. thereafter accrue holders. equities strengthened removal costly tend proportion investment. weaknesses remaining easier correct, numerous investors.21 'In individual receive kind he thought buying place. clearing up, clean reorganizations, tangle finance left industry invested reestablish confident, stable good securities.' Report No. 621, Sess., 17. lend substance never medium harm, effectuate beneficial consumers; find.' view rational choice, solutions selected immaterial. body duty considering choosing considers testing propriety statute. impinging rightful alternatives appropriate. factually sustainable, matters believe entered. irrelevant feel offender divest supportable shortcomings 46 Finally, lengthy relative treating filed adjust Motions consolidate progress year approaching completion. deferred motions until review; denied grant advance did this, thorough examination proposed failed hold fail error filing plans, oust jurisdiction grows command declare practicable, requires integration simplification. programs conformity 11(b), contemplated. staying initiated plans. dilatory render impotent practicable. enters order. merit principles orderly administration dictate entry full plans.22 become apparent involuntary comp iance worked 11(e). leads incomplete, unlikely satisfy purposes delay, prompt entering unsatisfactory long institution proceedings. adverse regard lying sound 49 Here incomplete face. seven elapsed four half 'as practicable' instituted. led delay justified. adequate action. Note refuse moot result inevitable accommodation policies. expression Actual comes later. meantime, precludes seeking revocation showing predicated exist, envisages procedure, yet foreclosed attacking affirm below points discussion adequately answered below. 52 Affirmed. FRANKFURTER agrees believes arise, made. REED, DOUGLAS JACKSON cases. 55 RUTLEDGE, concurring. 56 I concur Court's opinion, portions Part V Although, reasons stated, think ent ring sustained, assured. Because considerable future, desire my difference views expressed 1938:' 'that Stat. 803, 821, 79k(b)(2). stood alone unqualified unquestionable accomplish section's submitted affected. stand 11(e)1 submission objects 'any protection consumers.' 'if, plan, modified, subsection (b) approving (Emphasis added.) simply free pleasure. show allow work issuance *,' issued 11(b). S.Rep.No.621, 33; Commonwealth Southern Cir., 134 747, 751. purpose, together investors,'2 assu es determined 'after hearing.' Chicago Junction 264 258, 264, 265, 317, 319, 68 667. Furthermore, although gives followed, terms, contemplates determination, submitted, Ashbacker Radio Communications 326 327, 148. order' effective. true, cast submitting rules, comporting 62 disclose complied appears issued. contrary, followed not, initial stages, provisions, following chronology demonstrates. 63 May 1940, petitioners. it. June scarcely petitioners prepare afforded, defense recognized preparing defense, postponement relief.3 postponed week, extension. commenced 18, 1940. July 23, 1941, December 3, plan. 6, moved pending proceedings.4 By agreement motion delayed pass end hearing5 228 1942, closed stipulation. August 31, enforced. same ground: 'It consolidation granted, inject from, unrelated to, involved. consequence, permitting Plans confusion inevitably result.'6 Consistently, apparently grounds proceeding, defeat action,7 ineffective. comply respect, timely faith, observe reversal. equally manner invalidates denial reversible error. continuance. sought indeed toward securing began, When made, hearing; months later Although initially 11(e), hardly ignorant period taking earlier secure preservation waived hearings. late stage Nor, cases, sees fit so.8 U.S.C. 79k(b)(2), three Foreign Company, Inc., Gas Company. wholly-owned Incorporated. explained 1146, re 978. 'great-grandfather involved (and company) Otis 323 624, 483, 511. 'This operation casting percentage votes stockholders' meetings. permeates stratum unit comprehensive manner. concentrated owned elect directors govern selection respective turn responsive respecting contracts details companies.' 1203—1204. 31% across lines, 25% lines handled Approximately 47% transported constituting 20% States. Northern 193 197, 436, 679; Standard Oil 221 502, 619, 834, Ann.Cas.1912D, 734; Tobacco Co., 106, 632, 663. 785. Reading 253 26, 425, 760; Delaware Hudson 213 366, 527, 836. Breckenridge, 'Legal Study Constitutional Regulate Stock Ownership Railroads Engaged Interstate Commerce,' 2789, 72st 3d Vol. 1. Senate, 'Utility Corporations,' Doc. 92, 72—A, 70th 858. Bonbright Means, (1932), 147; Barnes, Economics Regulation (1942), pp. 71—81, 143—148. 'By holdings issue, rights, powerful manage investments people's money.' Policy Committee Public-Utility Companies, H.Doc. 137, multiply exercised dominant parties personal resources. For example, illustration given, $1 Corporation exercise $2,000 bottom pyramid. seems unsafe account concentration immense masses adventurers country.' Report, note 161. 860, tends few '(1) failing depreciation; exaggerate unsound, deceptive accounting; (3) seek exorbitant fees exacted (4) disburse unearned dividends, gains, obtained, magnify rate company; (5) promote extravagant speculation prices stocks exchanges.' 162. 860. 12. $53,337,600, adjustment arrearages, equal 1.85% consolidated results, rendering ineffectual remains hands 80% capitalizations. understand co equal. weighting representing best capitalization, 978, 992. words substituted company' draft indicated. refers fees, expenses remuneration connection reorganization, liquidation, bankruptcy receivership thereof. speaks proxies, etc., used Splawn Pt. 2, VII, H.J.Res. 572, 72d 2d referred 1(d) occasions 'death sentence,' sophisticated observer longer regards liquidation step feared investo s. increased enforcement 'akin surgical operation, dead skin (the cut away pores companies) breathe." Blair-Smith Helfenstein, 'A Death Sentence Lease Life?' 94 Univ. Pa.L.Rev. 148, 201. With said: 'Subsection (e) fer 33. may, 1936, thereof (b). If, plan; request court, (f) enforce 801, 822, 79k(e). obviously permission dispense altogether direction prescribed. contradict effect, letter. part: vital import respondents thousands receiving believe, first, check verify allegations develop correlate presentation presented *' introduce exhibit company's attorney L ght proposal material proceeding.' reply trial examiner, sustaining admission, typifies attitude 11(e): 'Quite 11; want mind. probable. But, nevertheless, restricted (2).' during whether (2), taken. contrary. Matter 1217, 1218, quoted infra; Common-wealth Corporation, 138, 154—156. examiner help himself. 391. insofar always 1152. 'these nearing completion.' Ibid. 'With former point, promptness, Utilities Division present, explore, extremely subjects preliminary acceptable courses 11. event negative, presumably (even respondents' contention) herein meantime necessitate repetition process. hand, ultimately approve ratified vote companies' stockholders. 'Considering gone 1/2 practicable', consumed instituted, program fraught potentialities substitute existing jurisdiction, relieve obligation, 11(b).' 1217—1218. Compare notes 11(b): revoke modify subsection, if, exist.' 79k(b).

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