Source: https://supreme.justia.com/cases/federal/us/325/385/
Timestamp: 2019-04-24 22:12:26+00:00

Document:
1. Under § 24(a) of the Public Utility Holding Company Act, which grants a right of review to "any person or party aggrieved" by an order issued by the Securities & Exchange Commission under the Act, a stockholder having a substantial financial or economic interest distinct from that of the corporation, which is directly and adversely affected by an order of the Commission, is a "person aggrieved." P. 325 U. S. 388.
2. A sole stockholder of a company ordered by the Securities & Exchange Commission under the Public Utility Holding Company Act to make certain accounting entries which would affect adversely the stockholder's right to dividends held entitled under § 24(a) to a review of the order as a "person aggrieved." Pittsburgh & West Virginia R. Co. v. United States, 281 U. S. 479, distinguished. P. 325 U. S. 389.
3. Where review of an order issued by the Securities & Exchange Commission under the Public Utility Holding Company Act is applied for in more than one circuit court of appeals, that one in which the Commission under § 24(a) files a transcript of its proceedings thereupon has exclusive jurisdiction. P. 325 U. S. 391.
4. A stockholder owning 9,000 out of a total of some 5,250,000 shares of stock of a corporation, charging illegality and fraud in a refinancing transaction between the corporation and a subsidiary which would reduce the value of his stock by reducing the interest income of his corporation, held entitled, under § 24(a), as a "person aggrieved," to a review of an order of the Commission approving the transaction. Pp. 325 U. S. 387, 325 U. S. 392.
5. It is not essential to the stockholder's right to a review in such case that the proceeding have the character of a derivative suit. P. 325 U. S. 392.
Certiorari, 323 U.S. 701, 324 U.S. 835, to review, in No. 470, the dismissal of a petition for review of an order of the Commission, and, in No. 815, denials of motions to dismiss (and to dismiss or affirm) a petition for review of an order of the Commission.
We granted certiorari in these cases because of an apparent conflict in the decisions below [Footnote 1] concerning the application of § 24(a) of the Public Utility Holding Company Act, [Footnote 2] which provides that "any person or party aggrieved by an order issued by the Commission" under the Act may obtain a review of the order by the Circuit Court of Appeals of the circuit of his residence or principal place of business. The difference of view is as to the scope of the phrase "person or party aggrieved."
dividends to petitioner. The order including these paragraphs was made as the result of proceedings before the Commission to which American and Florida were parties, and in which American participated, and the provisions in controversy appear to have been drawn with a view that they might be contested apart from other matters before the Commission, and to have included statements to the effect that they were made without prejudice to the rights of American and Florida to contest them.
The respondent Okin, as the owner of 9,000 out of a total of some 5,250,000 common shares of Electric Bond and Share, was allowed to participate in the proceeding, and opposed a proposition which the two companies submitted for a method of refinancing the loan. The Commission made an order approving the proposal, and Okin thereupon petitioned the court below to review the order. The gist of his complaint was that the refinancing as approved would reduce the value of his stock by reducing the interest income of Electric Bond and Share.
The Commission, before filing a certified copy of the transcript of the record upon which the order complained of was entered, moved to dismiss Okin's petition upon two grounds. The first was that, within the meaning of § 24(a), Okin was not a person or party aggrieved. The second was that his objection to the order was frivolous. In response to this, the court held that, while it might well be that Okin's attack lacked merit, if it did, the result should be an affirmance of the order, rather than a dismissal of the proceeding, and that jurisdiction to consider the merits was lacking in the absence of a transcript of the proceedings before the Commission. The motion was accordingly denied.
The Commission alleges that, subsequently, it filed a motion to dismiss or affirm, after having filed an abbreviated transcript containing so much of the record as was relied on for the purposes of the motion, and that this motion was denied without opinion. The record shows that a motion to dismiss or affirm was denied without opinion.
First. We hold that a stockholder having a substantial financial or economic interest distinct from that of the corporation which is directly and adversely affected by an order of the Commission, irrespective of any effect the order may have on the corporation, is a "person aggrieved" within the meaning of Section 24(a).
inaction of the management. It insists, however, that American's application for review in the court below was in the nature of a derivative action, commonly designated a stockholder's suit, to redress a wrong to his corporation. In this view, the Commission urges that, as Florida has itself sought a review of the order, it must be presumed that Florida will endeavor to protect the interest of its sole stockholder, American, and that American has consequently failed to show any necessity for its representing the interests of Florida.
The difficulty with this contention is that the action of the Commission in ordering the transfer of an item from surplus account to another account where the item will not be available for the payment of dividends does not deprive the corporation of any asset or adversely affect the conduct of its business in the manner it affects the petitioner, whereas the order has a direct adverse effect upon American as a stockholder entitled to dividends. It was because the court below overlooked this difference that it found support for its decision in Pittsburgh & West Virginia R. Co. v. United States, 281 U. S. 479. That was a suit brought under the Urgent Deficiencies Act to set aside an order of the Interstate Commerce Commission addressed to a carrier other than the plaintiff in the suit. The plaintiff was a minority stockholder of the carrier affected. This court pointed out that, under the accepted doctrine, the plaintiff had no standing to sue, since, in attempting to do so, it was merely seeking, in a derivative capacity, to vindicate the rights of the corporation.
"any person aggrieved by an order issued by the Commission in a proceeding under this title to which such person is a party may obtain a review of such order. [Footnote 4]"
The provision was altered so as to read as it is now found in the statute. There seems to be no reason not to accord the statutory language its natural meaning in a case such as this, where the considerations which would move the corporation to seek review differ from those which may be relevant to the stockholder's interests. There may be situations in which the two interests are the same and where, consequently, the grievance ought not to support two proceedings identical in character. This, however, is not such a case, for it is possible that, without any legal wrong to stockholders, the corporation may elect not to prosecute, or to abandon, a proceeding for review.
the extension of the privilege to persons aggrieved was held to extend it to those not technically parties, and therefore not entitled, without the statutory provision, to initiate litigation in a court.
Second. In No. 815, the court below held the respondent had standing to maintain the proceeding for review of the Commission's order. In this case, Okin, as a stockholder, attacked the transaction made by his company with its subsidiary on the grounds that it was both illegal and fraudulent. His corporation urged that the Commission approve the transaction, thus taking a position adverse to him. His application for review of the Commission's order approving the settlement was therefore in the nature of a derivative or stockholder's action. Inasmuch as he charged illegality and fraud, it is evident that application to the Board of Directors would have been futile. Under the Commission's own view, therefore, the Circuit Court of Appeals was right in denying a dismissal of the proceeding for lack of standing on the part of Okin to initiate it. But, as above stated in the decision of No. 470, we do not deem it essential that the proceeding have the character of a derivative suit.
with a motion to dismiss or affirm on the ground that the petition for review is frivolous.
In No. 470, the judgment is reversed.
In No. 815, the judgment is affirmed.
* Together with No. 815, Securities & Exchange Commission v. Okin, on certiorari to the Circuit Court of Appeals for the Second Circuit.
American Power & Light Co. v. Securities and Exchange Commission, 143 F.2d 250; Okin v. Securities and Exchange Commission, 143 F.2d 945.
Federal Power Comm'n v. Pacific Power & Light Co., 307 U. S. 156, 307 U. S. 159.
Senate Bill No. 1725, 74th Cong., 1st Sess., § 24(a); House Resolution No. 5423, 74th Cong., 1st Sess., § 23(a).
Interstate Commerce Commission v. Oregon-Washington R. & N. Co., 288 U. S. 14 (the Interstate Commerce Act); Federal Communications Comm'n v. Sanders Bros. Radio Station, 309 U. S. 470, 642 (Communications Act); cf. L. Singer & Sons v. Union Pac. R. Co., 311 U. S. 295.
Associated Industries v. Ickes, 134 F.2d 694 (the Bituminous Coal Act).
Lawless v. Securities & Exchange Commission, 105 F.2d 574; Todd v. Securities and Exchange Commission, 137 F.2d 475; cf. Northwestern Electric Co. v. Federal Power Commission, 321 U. S. 119.
L.J. Marquis & Co. v. Securities and Exchange Commission, 134 F.2d 335; L.J. Marquis & Co. v. Securities and Exchange Commission, 134 F.2d 822.
Fifteen years ago, this Court was confronted with an attempt by a corporate stockholder to set aside an order of the Interstate Commerce Commission on the claim that the order threatened the financial stability of the corporation to which it was directed, as well as the "appellant's financial interest as a minority stockholder." The Court, speaking through Mr. Justice Brandeis, held that the stockholder had no standing to maintain the suit, since "the order under attack does not deal with the interests of investors" and the only injury feared "is the indirect harm which may result to every stockholder from harm to the corporation." Pittsburgh & West Virginia R. Co. v. United States, 281 U. S. 479, 281 U. S. 487. That holding, in my estimation, disposes of this attempt by the American Power & Light Company to obtain an independent judicial review of an order of the Securities and Exchange Commission directed at a company in which it is the sole stockholder.
only assume that its meaning is to be drawn from traditional legal principles and from any relevant statutory policies.
Only two paragraphs of the Commission's order are in issue. They are directed solely to the Florida Power & Light Company, all of whose securities are owned by American. These paragraphs fail even to mention American; they neither require nor prohibit any action by it. Nor do they in any way affect American's rights as a stockholder. They simply require Florida to make certain accounting adjustments in the form of charges to earned surplus. Since dividends are paid from earned surplus, and since these requirements will decrease the earned surplus account, the Court reasons that "the order has a direct adverse effect upon American as a stockholder entitled to dividends." From this it is concluded that American is "aggrieved" by the order. To that reasoning and conclusion I cannot agree.
1. There is no evidence in the record to justify the assumption that the items to be charged to surplus would necessarily have been available for distribution as dividends to American, or that the surplus was otherwise inadequate to pay the normal amount of dividends. Florida might well have retained these items for reinvestment in the business, thus making them unavailable for dividend distribution. Moreover, to the extent that Florida retains these items in its capital structure, American's ultimate equity in the organization is increased. It cannot be said, therefore, that American has been adversely and permanently affected by this order.
to dividends until the directors, in their discretion, declare them. Southern Pacific Co. v. Lowe, 247 U. S. 330. And, until such a declaration is made, the directors are free to deal with that surplus in good faith as they may see fit in the exercise of their business judgment, the stockholders not having sufficient interest in undeclared or potential dividends to challenge such action. See Wabash R. Co. v. Barclay, 280 U. S. 197. The stockholders' interest in such matters, in other words, is indistinct from that of the corporation prior to an actual declaration. Thus, if the Florida management had made the same accounting adjustments as those ordered by the Commission in this case American would not be sufficiently "aggrieved" to attempt to prevent Florida from making such adjustments, even though dividend payments might be adversely affected. No adequate reason is evident from the facts or from the opinion of this Court as to why American is any more directly or adversely "aggrieved" when the accounting adjustments are ordered by the Commission, rather than by Florida's management, or as to why any different results should follow. The impact of the adjustments in either instance is presumably to strengthen the financial structure of Florida; that they may have the incidental effect of decreasing dividends temporarily has never heretofore been sufficient to entitle a stockholder to challenge the adjustments.
Co. v. Securities and Exchange Commission, 134 F.2d 65. See also Otis & Co. v. Securities and Exchange Commission, 323 U. S. 624. Nor is there any charge of fraud or breach of duty on the part of Florida from which it could be argued that American should be given the right to appeal since Florida might not act to protect American's legitimate interests. Indeed, such a possibility is expressly negatived by the fact that Florida has already appealed the Commission's order to another court, and is urging precisely the same considerations that American seeks to present in this proceeding. In view of American's complete control of Florida through stock ownership, there is no danger of conflicting interests arising between the two companies in the other proceeding. There is thus no basis for concluding that the economic interest asserted by American cannot or will not be adequately protected by Florida. Cf. Federal Communications Commission v. Sanders Bros. Radio Station, 309 U. S. 470; Associated Industries, Inc. v. Ickes, 134 F.2d 694, dismissed as moot, 320 U.S. 707. The inevitable logic of the facts of this case leads straight back to the conclusion that American's grievance is only "the indirect harm which may result to every stockholder from harm to the corporation." Pittsburgh & West Virginia R. Co. v. United States, supra, 281 U. S. 487. That conclusion calls for a dismissal of American's attempted appeal from the Commission's order, just as it would call for a dismissal of any suit brought by American against Florida on these facts.
Section 24(a) gives exclusive jurisdiction to the court in which the Commission files the transcript of a particular proceeding. That provision clearly envisages two or more appeals in different courts by persons who are legally "aggrieved" by a Commission order and who can obtain adequate relief only by individual appeals. But, under this decision, stockholders are now free, whenever they feel that their potential dividends are affected by Commission action directed to the corporation's accounting entries against which dividends are charged, to appeal regardless of the management's wishes in the matter and regardless of the management's ability to protect their interests fully and fairly. Stockholders in effect supplant the management in deciding whether to appeal from administrative action affecting such internal accounting procedure of the corporation, a problem which, until now, was exclusively and properly within the domain of the corporate directors and officers. Many stockholders are not in a position to know the intricacies of modern corporate accounting or the proper attitude to take, from the corporation's point of view, as to the challenged administrative action. But now they have been given carte blanche to proceed as they desire. It is difficult to believe that Congress intended such consequences to flow from its use of the word "aggrieved" in Section 24(a).
outside the United States; (2) the particular transaction in issue is detrimental to Okin's interests as a stockholder inasmuch as the management extended a note of a subsidiary at a reduced interest rate; (3) various corporate officers held conversations with each other and with members of the Commission's staff; (4) his constitutional rights have been invaded, and (5) the transaction is void for failure to comply with Section 20 of the New York Stock Corporation Law. Such frivolous claims of fraud are insufficient to warrant making an exception to the general rule that a stockholder cannot appeal and administrative order which involves only the corporation as such.

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