Document: 332 U.S. 194 67 S.Ct. 1575 91 L.Ed. 1995 SECURITIES AND EXCHANGE COMMISSIONv.CHENERY CORPORATION et al. SAME v. FEDERAL WATER & GAS CORPORATION. Nos. 81 and 82. Argued Dec. 13—16, 1946. Decided June 23, 1947. Rehearing Denied Oct. 13, See 68 26. Mr. Roger S. Foster, of Philadelphia, Pa., for petitioner. [Argument Counsel from page 195 intentionally omitted] Spencer Gordon, Washington, D.C., Chenery Corporation others. Allen Hubbard, New York City, Federal Water Gas Corporation. Justice MURPHY delivered the opinion Court. 1 This case is here second time. In S.E.C. Corporation, 318 80, 63 454, 87 626, we held that an order Scurities a nd Exchange Commission could not be sustained on grounds upon which agency acted. We therefore directed remanded to such further proceedings as might appropriate. On remand, reexamined problem, recast its rationale reached same result. The issue now whether Commission's action proper in light principles established our prior decision. 2 When was first here, emphasized simple but fundamental rule administrative law. That effect reviewing court, dealing with determination or judgment alone authorized make, must judge propriety solely by invoked agency. If those are inadequate improper, court powerless affirm substituting what it considers more adequate basis. To do so would propel into domain Congress has set aside exclusively 3 also decision important corollary foregoing rule. tested basis purports rest, forth clarity understandable. It will compelled guess at theory underlying agency's action; nor can expected chisel precise left vague indecisive. other words, 'We know means before duty becomes ours say right wrong.' United States Chicago, M., St. P. P.R. Co., 294 499, 511, 55 462, 467, 79 1023. 4 Applying this corollary, Court unable sustain original action. had been reorganization Service (Federal), holding company registered under Public Utility Holding Company Act 1935, 49 Stat. 803, 15 U.S.C.A. § seq. During period when successive plans proposed management were Commission, officers, directors controlling stockholders purchased substantial amount Federal's preferred stock over-the-counter market. Under fourth plan, converted common new corporation; purchases stock, have received than 10% stock. frankly admitted management's purpose buying protect interest company. plain there no fraud lack disclosure making these purchases. 5 But approve plan long treated parity felt officers process fiduciaries trade securities during period. 8 893, 915-921. And amended provide acquired management, unlike others, stock; instead, surrendered cost plus dividends accumulated since purchase dates. As amended, approved over objections. 10 200. 6 interpreted approving grounded judicial authority. appeared accordance thought standards theretofore recognized courts. intended create growing out experience effectuating legislative poliy, fail ed express itself sufficient precision understood. Hence judged only clearly Commission. basis, stand. pointed courts impose corporation any fiduciary precludes them merely because they directors, selling corporation's Nor cases relied law equity themselves justify order. 7 noted neither promulgated general proscribing management. judge-made justified related mismanagement matters admittedly absent situation. After Corp. (Federal Water), surviving made application approval amendment issuance reorganized distributed members shares old reorganization, thereby placing position public holders intervening joined request. denied issued February 7, 1945. Release No. 5584. reversed Appeals, 154 F.2d 6, precluded 9 latest definitely avoids fatal error relying precedents it. time, after thorough reexamination problem purposes Act, concluded transaction inconsistent §§ 11 Act. drawn heavily utility reorganizations. expressed reasons thoroughness admit doubt argument pressed us, however, foreclosed taking step following said that, absence findings conscious wrongdoing part determine particular statutory permit realize profit through All enter allowing consummated. view, free promulgate outlawing profits future reorganizations; prospective nature retroactive instant reject contention, grows misapprehension duties. less unsupportable supplied Court, should equally still lacked final complete answer. clear give negative answer resort declarations. bound settled asituation nature. 89, 460, 626. Still unsettled, bring bear facts considerations, function belongs instance. taken erroneous rather turn. carefully refrained expressing views rooted relevant considerations. Siegel Trade 327 608, 613, 614, 66 758, 760, 761, 90 888. 12 appropriate, full duties harmony expressed. Ford Motor Co. National Labor Relations Board, 305 364, 374, 59 301, 307, 83 221; Radio Nelson Bros. Bond Mortgage 289 266, 278, 53 627, 633, 77 1166, 89 A.L.R. 406. obviously meant something entry perfunctory giving treatment holdings fact committed legal disposition certainly gave vested receive benefits Communications Pottsville Broadcasting 309 134, 145, 60 437, 442, 84 656. remand made, therefore, deal afresh, performing delegated Congress. again charged measuring standards. Only way policies embodied effectuated. 13 regulation governing trading did affect relation proposal asked grant deny effectiveness whereby accorded holdings. form order, entered due consideration true regardless previously spelled regulation. Indeed, if rightly standards, covering matter unjustified. 14 explicitly possibility rule-making powers, entirely different confront us. pages 92, 93, 461, mean imply failure anticipate withdrew all power perform case. hold alternative proceeding transaction, while formulating rules desire use nature, stultify process. refuse do. Since does ability make prospectively exercise reason rely ad hoc adjudication formulate conduct within framework filling interstics A ct performed, much possible, quasi-legislative promulgation applied future. rigid requirement inflexible incapable many specialized problems arise. Report Attorney General's Committee Administrative Procedure Government Agencies, Doc. 8, 77th Cong., 1st Sess., p. 29. Not every principle essential effective administration statute cast immediately mold Some await their own development, others adjusted meet particular, unforeseeable situations. functions respects, equipped act either individual insist one exclusion exalt necessity. 16 may arise reasonably foresee, solved despite Or warrant rigidifying tentative hard fast varying impossible capture boundaries situations, retain case-to-case effective. There thus very definite place case-by-case evolution choice between individual, litigation lies primarily informed discretion Columbia System States, 316 407, 421, 62 1194, 1202, 86 1563. 17 confronted forbidden utilizing announcing applying standard conduct. Cf. R. F. Keppel Bro., 291 304, 54 423, 78 814. necessarily validity. Every impression effect, announced retroactivity balanced against mischief producing result contrary design equitable principles. greater ill standard, type condemned Addison Holly Hill 322 607, 620, 64 1215, 1222, 88 1488, 153 1007. 18 case, retroactively prevent securing control objects well outweighed dangers inherent standpoint. true, nothing claim lacks enforce proceeding. Such deserves rejection. 19 resolves denying rests. noted, avoided sole reliance inapplicable precedents. Rather derived conclusions view requirements. hose guide review. 20 find proposed, 'fair persons affected (thereby)' meaning 11(e) place. Its involve terms 'detrimental investors' 7(d)(6) 7(e), 'unfair inequitable distribution voting power' among security 7(e). led 'not proof interveners (Federal's management) acts character conflicting interests created interveners' program carried consideration.' 21 controlled large multi-state system influence permeated down lowest tier operating companies. financial, operational accounting parent subsidiaries strict control. broad range business judgments multiplied opportunities affecting market price outstanding subject greatest significance investors. Added normal managerial obtains special powers course voluntary represents initiates proceeding, draws up files file amendments thereto These additional introduce conflicts responsibilities various classes reorganization. Moreover, representative status, obtain advance information attitude 22 Drawing experience, indicated placed command 'a formidable battery devices enable it, choose selfishly, material degree ultimate allocation existing classes, gain manipulate obstruct required mandate statute.' setting, rise temptation opportunity shape encourage low prices. No engage without raising serious questions personal opposed 'to disinterested pertaining subsidiaries' accounting, budgetary dividend policies, present publicly unprejudiced financial picture enterprise, effectuate fair feasible expeditiously.' 23 even where intentional lacking. Assuming conflict interests, actual misconduct immaterial; injury investors just readily. 'Questionable transactions explained away, abuse perpetrated evil intent, yet remain.' delays difficulties involved pobing mental processes integrity corporate officials distinction being 'that unfairness detriment sort practically establish proof.' 24 Turning salient primary object accruing investment therein. prices depressed anticipated be, was, earning asset value equivalent. good faith question; justification motives, trying 'deny selfish interest, vis-a-vis existence owing program.' 'peculiarly susceptible good' advantageous influence, though subconsciously, decisions Accordingly, considerations applicable 25 scope review wherein pertains ordinary wisdom adopted none concern. Board Kansas Mo. 314 534, 548, 366, 373, 432. Our end evident based evidence consistent authority granted 319 190, 224, 997, 1013, 1344. 26 erred reaching did. undisputed, disturb conclusion rational foundation. connection, examination matters. essence, informed, expert problem. account 'those subtle factors marketing grave evils 1935 designed correct' 'Abuse position, access raise effectively prohibitions concerned fairness transaction.' 27 properly considered determining company, plan. equitable' consumers' 7(e) inserted framers stake. 90, 91, critera, regulaton, necess arily requires informal breath language reversal save plainly abused Lowden, 308 225, 248, 208; I.C.C. Railway Executives Ass'n, 315 717, 904. 28 company's fraught danger denial fanciful one. inconsequential. occupy positions period, actions higher imposed investing public. reasonable prohibited, involved. justifiably equitableness, public, consumers protected. policy, make. 29 rests squarely area entitled weight appellate product appreciation complexities realization responsible uncontested facts. agencies best justifies Republic Aviation 324 793, 800, 65 982, 986, 1372, 157 1081. Whether agree disagree reached, allowable cannot disturb. 30 Reversed. 31 BURTON concurs 32 CHIEF JUSTICE DOUGLAS took 33 FRANKFURTER JACKSON dissent, response issues raised Court's opinion. concern detailed dissent filed course. 34 For dissenting JACKSON, see 194, 1760. 35 dissenting. 36 sustains identical recently invalid. Securities Corp., correctly notes, 'recast result.' (Par. 1.)1 change record legislation, shift membership who 37 he opinion, joins, setting his 1947, cases. 38 I feel constrained reasoning offered rationalize shift. makes orders hopeless formality litigant, him reduces mere feint. While adherence majority pronouncements become would, practice, put most above I. 39 few dispute.2 pending sixteen bought open about 1/2% Both law, precedent, Nevertheless, ordered individuals surrender cost, 4% approves 40 helpful, considering reflect not. conceivably discharge equitable.' structure, amounts rights preferences. remotely impersonal deprivation cntinue privileges. Other time allowed keep convert Thus, sense relations securities. 41 Neither regulate property. literally takes valuable property away lawful owners benefit private parties compensation expressly taking. says owned conversion along similar others; 'instead, dates.' 5.) formula subsequently altered read 'cost interest.' recognized, 'That equivalent.' 24.) Admittedly, simply owners, compensation. ever confirmed body. 42 adjudge forfeiture consequence sharp breach trust. says, 'The * *.' again, 'It purchases.' 4.) II. 43 prevailing philosophy. basic assumption earlier therein stated 'But otherwise outlawed usual consequences, fall ban some prescribed government prescribe standards.' thus: it.' 13.) puts juxtaposition two philosophies produce opposite results difference ground annul them. 44 support peruse diligently pain error, stamp approval. deference experience. five times stressed contexts, quote enough identify instances: Commission,' 'has reorganizations.' 9.) 'Rather requirements.' 19.) 'Drawing *,' etc. 22.) '* utilzing statu tory matters.' 26.) finally, experience,' 29.) 45 What reiterated 'administrative experience' another context 'Hence conduct.'? 17.) (Emphasis supplied.) 46 adds this: solving never confronted! 47 Of course, uphold professing enunciated 'new conduct,' brings invalidity law-making. falter. validity.' principles.' really 'statutory design' 'legal principles,' stopped condone. already prohibited purchases, hardly necessary three sentences 'from conduct.' 48 up. Now fully Mark Twain said, you explain don't understand III. need comprehend minds reach given estimate practical consequences pronouncement orders. 50 existent Appeals obliged defer asserted exercised, print briefs hear argument? always present, least dictate like assertion power. Must presumptive imputed discredit opinion? Is fictitious conclusive particularly interpretation statutes, intimates, finding heretofore experience? 51 suggest point—it persuasive discretionary outside is, determined courts, review, how finding. Surely unto itself, face offering sustaining 52 Even had, utilized announce conduct, hurdles cleared, dwell now. Because declined promulgate, profess prohibit absolutely conditions. hand, cases.3 IV. Whether, managers question us decide. decide whether, prohibits buying, forfeited, not, exists words implication, possible point Instead, admits prohibiting thereafter. And, except decision, truth govern force whenever will, overlook acquisitions chooses. lead take remain locked breast, apparently intend commit authoritarianism, seems words: *' 13). me undervalue belittle justice. calls mind Cardozo's statement 'Law reduced level futility unknown unknowable.'4 V. averment concerning process,' 29) instance disregard enemies alleged principal evil. encouragement lawlessness permissible ominous believe men governed laws ascertain abide by, authoity wel l authority.5 56 urged, believe, fostering expeditious nontechnical method fields.6 used, think continued endangered dispensing fields. 57 joins convenience reference, numbered consecutively paragraphs (67 1575), cite quotations accordingly. generally Chief Groner (75 U.S.App.D.C. 128 303) (80 365, 6) reversing rationale.' speaking appends note opinion: 'Without flexibility operate unfairly. Limitation appears appropriate inappropriate excess value, instances cash payment feasible. addition, incidental contemplation benefits. wish emphasize gain, practices, published reports, like. presented capital readjustment. At scrutiny called for, vigilant doubted. Appendix Sen. Rep. 621 (74th Sess.) 2796, 58, quoted supra.' Growth Law, 3. day recognize Congressional action, unlegislated liability novel field tort traditionally developed decisional confirm executive goes beyond delegation. Compare Standard Oil 1604. House Delegates, American Bar Association, 1939. (1939 Proceedings, XXXV A.B.A. Journal 95.) Also General President Roosevelt recommending veto Walter-Logan Bill—made message, Vol. 86, Part 12, Record, 76th Congress, 3d Session, 13943.

Category: 7