Opinion ID: 1186734
Heading Depth: 1
Heading Rank: 6

Heading: The court correctly applied to the instant case the test of substantial review of the entire record.

Text: (13a) We shall explain that the instant administrative decision does not tangentially involve any important or fundamental right and therefore does not call for an independent judgment review. The minority shareholders do not allege any deprivation of their right to a livelihood or a deprivation of their property. [19] Under the articles of incorporation and the bylaws and the applicable provisions of law, specified majorities of the directors and shareholders may adopt a recapitalization plan unless the commissioner concludes that the plan is not fair, just, or equitable to all security holders affected. (Corp. Code, § 25510.) [20] If the commissioner reasonably finds that the plan is fair, just and equitable, and, additionally, that it has received the approval of the required majorities of directors and shareholders, the minority suffer no deprivation of rights, vested or otherwise, by permitting the plan to take effect. Under these circumstances, the minority have received precisely the rights to which their shareholders' contract entitles them, as well as the statutory right to a decision by the commissioner that the plan is fair, just and equitable. (Corp. Code, § 25510.) Section 25510 does not give them the additional right to an independent determination by a trial court that the plan is fair, just, and equitable. At least two Courts of Appeal have decided that a decision of the commissioner disapproving a recapitalization plan does not affect vested rights. [21] A fortiori, a decision of the commissioner in the present case approving a recapitalization plan would not affect any vested rights. (See Pacific Mut. Life Ins. Co. v. McConnell (1955) 44 Cal.2d 715, 729 [285 P.2d 636].) (14) The Legislature has delegated to the Commissioner of Corporations extremely broad authority to determine whether any recapitalization is in his opinion fair, just and equitable. Such an administrative decision necessarily involves overwhelming technical knowledge as to matters of corporate structure, finance, taxation, and business judgment. The trial court must defer to the agency judgment in these matters and clearly should not attempt to substitute its judgment for the expertise of the commissioner. Almost any proposed recapitalization may give rise to differences of opinion as to its wisdom and as to whether it might appear fair, just and equitable. The decision to adopt such a plan must derive initially from the sound business judgment of the directors and the required majority of the shareholders. If that corporate decision receives the lawful approval of the Commissioner of Corporations and his approval enjoys the support of substantial evidence, that resolution should end the matter. (13b) We conclude that the trial court in the present case properly reviewed the commissioner's approval of the corporation's recapitalization plan to determine whether substantial evidence supported the commissioner's determination. (15) The trial court reviewed the entire administrative record and found substantial evidence to support the commissioner's lawful determination that the corporate reorganization was fair, just and equitable. [22] Our scope of review on appeal from such a judgment is identical to that of the trial court. ( Boreta Enterprises, Inc. v. Department of Alcoholic Beverage Control, supra, 2 Cal.3d 85, 94-95; Merrill v. Department of Motor Vehicles, supra, 71 Cal.2d 907, 916.) Our review of the record discloses ample evidence to support the commissioner's decision and the trial court's judgment. For example, President Hotchkis testified at length at the administrative hearing regarding the proposed plan of recapitalization, its underlying corporate purposes, and its potential effects upon the corporation and its shareholders. On the basis of the testimony and evidence before him, the commissioner found that the plan would promote a valid corporate purpose, and concluded that the plan was fair, just and equitable, thereby impliedly rejecting appellants' contention that the purpose and effect of the plan was to perpetuate the control of the majority shareholders to the prejudice of the minority. The minority shareholders request us to hold as a matter of law that the proposed plan is not fair, just and equitable, since it could be used to perpetuate majority management and control, could result in a decrease in the value of appellants' stock, and could have adverse tax consequences to appellants. The commissioner's findings clearly indicate that the minority shareholders failed to establish the foregoing allegations to the commissioner's satisfaction. Moreover, the commissioner concluded that these considerations were outweighed by the positive advantages to be gained by the corporation and its stockholders through continuity and stability of ownership and management. In making that determination, the commissioner acted within the scope of his statutory authority, [23] was exercising the discretion entrusted to him by the Legislature, and his findings were based upon substantial evidence. Consequently, his decision did not constitute an abuse of discretion. As the United States Supreme Court observed in Securities & Exch. Com. v. Chenery Corp. (1947) 332 U.S. 194, 208 [91 L.Ed. 1995, 2005, 67 S.Ct. 1575], a case involving the statutory authority of the Securities and Exchange Commission to approve certain reorganization plans found to be fair and equitable, [t]he application of those criteria, whether in the form of a particular order or a general regulation, necessarily requires the use of informed discretion by the Commission. The very breadth of the statutory language precludes a reversal of the Commission's judgment save where it has plainly abused its discretion in these matters. (See Doble Steam Motors Corp. v. Daugherty (1924) 195 Cal. 158, 164-165 [232 P. 140]; Western Airlines, Inc. v. Schutzbank, 258 Cal. App.2d 218, 246 [66 Cal. Rptr. 293]; cf. American Power & Light Co. v. Securities & Exch. Com. (1946) 329 U.S. 90, 112-114 [91 L.Ed. 103, 119-120, 67 S.Ct. 133].) The statutory discretion of the commissioner would be entirely abrogated were we to hold that the question of the fairness of securities transactions necessarily constitute questions of law for the courts to decide. By its very nature, the exercise of discretion requires the ability to choose between permissible alternatives. (16) If the Legislature has conferred upon an administrative officer or agency the authority to apply such broad standards as the fair, just and equitable criteria involved herein, the courts should not substitute their own judgment for that of the agency, but should uphold the administrative decision unless it is arbitrary, capricious, or fraudulent, having no reasonable basis in law or no substantial basis in fact. ( McDonough v. Goodcell, supra, 13 Cal.2d 741, 746-747; Martin v. Alcoholic Bev. etc. Appeals Bd. (1961) 55 Cal.2d 867, 875-876 [13 Cal. Rptr. 513, 362 P.2d 337]; Crestlawn Memorial Park Assn. v. Sobieski, supra, 210 Cal. App.2d 43, 52; Netterville, Administrative Questions of Law and the Scope of Judicial Review in California (1956) 29 So.Cal.L.Rev. 434, 466-468.) (17) Since the commissioner's findings herein were supported by substantial evidence in the light of the entire record, and since his conclusions were reasonable in view of the broad statutory discretion conferred upon him, his decision must be upheld. At a time in this technocratic society when the individual faces ever greater danger from the dominance of government and other institutions wielding governmental power, we hesitate to strip him of a recognized protection against the overreaching of the state. The loss of judicial review of a ruling of an administrative agency that abrogates a fundamental vested right would mark a sorry retreat from bulwarks laboriously built. Such an elimination would not only overrule decisions long held in California, but destroy a bed-rock procedural protection against the exertion of arbitrary power. The judgment is affirmed.