Source: https://supreme.justia.com/cases/federal/us/348/341/case.html
Timestamp: 2017-01-24 07:12:34
Document Index: 330420836

Matched Legal Cases: ['§ 2', '§ 9', '§ 10', '§ 10', '§ 10', '§ 12', '§ 11', '§ 10', '§ 12', '§ 11', '§ 11', '§ 10', '§ 12']

SEC v. Drexel & Co. (full text) :: 348 U.S. 341 (1955) :: Justia U.S. Supreme Court Center Log In
› SEC v. Drexel & Co.
SEC v. Drexel & Co. 348 U.S. 341 (1955)
U.S. Supreme CourtSEC v. Drexel & Co., 348 U.S. 341 (1955)Securities and Exchange Commission v. Drexel & Co.No. 153Argued February 9, 1955Decided February 28, 1955348 U.S. 341CERTIORARI TO THE UNITED STATES COURT OF APPEALS
210 F.2d 585 reversed. Page 348 U. S. 342
Electric owned operating subsidiaries in several States and in Mexico. The plan provided that (1) Electric would transfer to a new holding company, Middle South Utilities, Inc., its holdings in those operating subsidiaries, as well as certain other assets; (2) preferred stocks of Electric would be retired by distributing to those security holders shares of Middle South and shares of another subsidiary of Electric; (3) the remaining shares of Middle South and the other subsidiary would be distributed to Page 348 U. S. 343 the holders of the common stock and of the warrants of Electric; and (4) Bond & Share would pay Electric $2,200,000 in settlement of intra-system claims.
Bond & Share's receipt of the new securities was an "acquisition" within the meaning of the Act. § 2(a)(22). Page 348 U. S. 344 That "acquisition" was made subject to the jurisdiction of the Commission by § 9(a). [Footnote 4] That approval could be had only by submitting the "acquisition" to the Commission's scrutiny pursuant to § 10 of the Act, a scrutiny that includes supervision of the fees paid by the holding company in connection with the "acquisition." [Footnote 5]
Bond & Share therefore filed an application pursuant to §§ 10, 11, and 12 of the Act, asking for the Commission's approval of the transactions which the plan required of it. [Footnote 6] Page 348 U. S. 345
"That jurisdiction be and hereby is specifically reserved to determine the reasonableness and appropriate allocation of all fees and expenses and other Page 348 U. S. 346 remuneration incurred or to be incurred in connection with the said Plan, as amended, and the transactions incident thereto, other than the fairness and reasonableness of the fees and expenses incident to the stockholders' actions enumerated in Part II of the Plan, as amended."
There are two answers to that argument. First, the reservation was made in the § 10 and § 12 proceedings for they were consolidated with the § 11 proceedings, and one order entered in all three. Second, the order in the consolidated proceedings reserved jurisdiction over the fees and expenses incurred not only "in connection with the said Plan," but also in connection with "the transactions incident thereto." The latter obviously included the matters under § 10 and § 12, for they were the chief collateral ones before the Commission at the time. The parties so understood it, for Bond & Share and Drexel filed petitions for approval of the Drexel fee, invoking the reserved jurisdiction of the Commission. The Commission held hearings and fixed a fee for Drexel [Footnote 7] Page 348 U. S. 347 which neither Drexel nor Bond & Share thought adequate. [Footnote 8] The Commission applied to the District Court for approval of this and other fee and expense orders. The District Court approved. The Court of Appeals affirmed except for the order as to Drexel, and, as to that, it reversed "for lack of jurisdiction in the Commission." 210 F.2d 585, 592.
The contrast between §§ 11(e) and 11(f) is plain so far as jurisdiction over fees is concerned. Section 11(f) Page 348 U. S. 348 contains an express provision concerning fees. The subsection, applicable to court proceedings where a receiver or trustee has been appointed, makes all fees, "to whomsoever paid," subject to the approval of the Commission. Cf. Leiman v. Guttman, 336 U. S. 1. Section 11(e) contains no such provision. It merely directs the Commission to approve the plan if it finds the plan "fair and equitable to the persons affected." The amount of fees to be paid by Electric plainly would be relevant to the question whether the plan was fair and equitable. See In re Public Service Corp. of New Jersey, 211 F.2d 231, 232. Payment of excessive fees was one of the historic abuses of the reorganization procedure, whereby utility companies were milked, an abuse the Public Utility Holding Company Act sought to correct. 79 Cong.Rec. 4607; S.Rep. No. 621, 74th Cong., 1st Sess. 33. Questions of fees payable by and to protective committees present special considerations irrelevant here, and we put them aside. Cf. Leiman v. Guttman, supra. Different considerations come into play when fees payable by individual security holders to their own counsel are involved. It would seem, for example, that the amount which a stockholder, say, agreed to pay his lawyer for representing him in an § 11(e) proceeding would be no business of the Commission. The amount of that fee would seem to have no direct bearing on the fairness of the plan.
But the fees payable by the registered holding company in connection with the reorganization of its subsidiary or affiliate are, or may be, different. At least Congress thought so, for Congress was explicit in making the fees payable by them, in connection with the transactions covered by § 10 and by § 12, subject to Commission approval. Congress had before it the detailed record of holding company activities, and knew that many of them had a proclivity for predatory practices. The fees were not only large; they were often loaded on affiliated Page 348 U. S. 349 companies [Footnote 9] and concealed in intra-system accounts. Congress decided to put an end to the worst of these practices, and control the critical ones. When it came to the intricacies of holding company finance, Congress expressed the desire to have the amount of the fees paid brought to light, and to have the Commission decide who pays them and what amounts are reasonable. We cannot be faithful to that statutory design without granting the Commission the jurisdiction asserted here.
"* * * *" "(2) in case of the acquisition of securities or utility assets, the consideration, including all fees, commissions, and other remuneration, to whomsoever paid, to be given, directly or indirectly, in connection with such acquisition is not reasonable or does not bear a fair relation to the sums invested in or the earning capacity of the utility assets to be acquired or the utility assets underlying the securities to be acquired. . . ."
Fully aware of the complicated interrelations of holding company systems, Congress did not enact a scheme for severance of all intercorporate relations among public utility interests. Instead, specific provisions were devised against specific abuses, and the Securities and Exchange Commission was given specific authority to effectuate the defined functions of these different provisions. Enforcement of the Act entailed authorization by the Commission of reorganization to secure simplification of a holding company system and regulation of transactions involving acquisitions and dispositions. Duly mindful of the abuses of excessive fees in the conduct of inter-company affairs, Congress effectively equipped the Commission with power to regulate fees in the various proceedings which required approval by the Commission. But Congress particularized. It did not vest this fee-fixing authority of the Commission in a comprehensive provision. It dealt with the problem distributively. It was Page 348 U. S. 350 explicit in relating the power to fix fees to the particular proceeding.