Document: 340 U.S. 336 71 S.Ct. 341 95 L.Ed. 319 NIAGARA HUDSON POWER CORP.v.LEVENTRITT. SECURITES & EXCHANGE COMMISSION v. LEVENTRITT. Nos. 211, 212. Argued Dec. 5, 1950. Decided Jan. 15, 1951. [Syllabus from pages 336-337 intentionally omitted] Mr. Randall J. LeBoeuf, Jr., New York City, for Niagara Hudson Power corp. Roger S. Foster, Washington, D.C., Securities and Exchange Commission. Messrs. M. Victor Leventritt T. Roland Berner, respondent. Justice BURTON delivered the opinion of Court. 1 These cases test validity Commission's finding that a plan reorganization is 'fair equitable' within meaning § 11 Public Utility Holding Company Act 1935,1 although makes no provision participaton outstanding stock option warrants relating to common company be reorganized. The basis conclusion it cannot find there reasonable expectation, foreseeable future, market price will exceed exercise that, upon consideration all circumstances, including warrants, Commission justification recognizing any present value in at expense stock. For reasons hereinafter stated, we sustain 2 Corporation, petitioner No. registered public utility holding company, incorporated under laws York, whose dissolution contemplated reorganization.2 It has notes amount $20,000,000; 378,875 shares firstpreferred stock, $100 par value; 105,930 second preferred 9,580,988 1/2 $1 Class B warrants. represent options purchase, time, up 497,191 3/6 each warrant entitling holder subscribe 1/6 payment $50, which rate approximately $42.86 per share.3 3 proposed includes conditioned consummation consolidation plan, now consummated. found both plans 'necessary effectuate provisions Section 11(b) (2) (§ 15 U.S.C. 79k(b)(2), U.S.C.A. 79k(b)(2)) fair equitable persons affected thereby * *.' Releases 9270, pp. 1, 57; 9295, p. 2. Over an objection made by respondent, Leventritt, as holder, United States District Court Northern approved ordered them enforced. 86 F.Supp. 697. On appeal Appeals Second Circuit reversed part order relates t remanded cause further proceedings. 179 F.2d 615. A rehearing was denied, one judge dissenting. Third thereafter reached substantially contrary result In re Commonwealth Southern Corp., Cir., 184 81. Because conflicting nature decisions Courts importance issue application Act, 79 et seq., granted petitions certiorari filed separately 211 809, 62. 4 At every stage this proceeding opportunity been afforded holders their claims they have fully presented. Respondent not, however, brought record before question sufficiency evidence support findings intrinsic or investment based on likelihood future.4 attacks authority Commission, matter law, conclude circumstances it, 11(e) where provides participation despite conceded, but low, value. sustained attack said: 'we agree 'substantial' insubstantial these 'warrants' were wholly worthless.' 618. 5 answer discretion approve afferted such plan,' without providing security recognizable value, may considers too small 'as practical matter' recognized. stated its conclusions original follows: 6 '5. Fairness Holders Stock Option Warrants 7 'Under plans, rights represented terminate company. 8 'The entitled purchase time $50. This equivalent share. Since 1932, predecessor never sold higher than 18 1/4 low 7/8. During same period, 1/8. (Appendix F attached shows 1943 dropped 1/16, 1941 1942 1/32.) 1948, prices ranged high 1/8, 1949, 9 'In considering entitled, basically applied with respect other types securities, is, if any, being given surrender attaching security. $42.86, would pay share more 30 times estimate used $1.39 earnings applicable continue. That about 3.5 recent around 12 10 'If assume continue sell future ratio consolidated earnings, appear very liberal assumption, require $2.86 Such increase 106% over attributable investment. likely assumption price-earnings something less times, even greater required attain $42.86. expectation Hudson's future. Accordingly, value59 satisfy standard fairness equity excluding Hudson.' Release 46—47. foregoing statement consistent position taken accordance principles established Comm. Central Illinois 338 96, 69 1377, 93 1836, Otis Co. Comm., 323 624, 65 483, 89 511, estimated guide determination those stocks. satisfied itself receive, cash comparable duty relation first determine extent reflect option. If, example, closely approaches ground two coincide then directly related Under did not recognize provide it.5 13 hand, $15 expection share, buy at, $1,000 obviously worthless measure depends only convertibility into With facts, difficult see how could justify either continuance compensation existing difference between example last facts case merely degree. Where line drawn expert judgment limits are also narrowed here fact limited law conservative return governmentally ascertained base. 14 Respondent's primarily computation insofar relationship His claim rather must, give recognition themselves. He contends valuable 'perpetual feature' because exercised 'at (without limit).' From premise he must some infinite possibilities inhere reaches partially false does extend beyond life guaranty length life. afford anticipating survival short period ordinary estimates values. unexpected unpredictable. called premium distinguished takes account runaway inflation, unprecedented accumulation undistributed surplus unlikely liberalization standards regulation, surprise discovery oil property etc. considerations buyer 'perpetual' open might consider speculation them. Furthermore, among lowest priced securities tends fluctuate related, permit trends minimum investment.6 purchaser thus willing nominal mere chance saleable rising market.7 This, adequate reason allowing Act. 16 interest public. subjected status registration determining allowed bound limit precisely values recognizes. informed market, designated appropriate Court, looks going-concern measured case, supra, accepted approval though assets reorganized insufficient charter liquidation preference years corporation's sufficient dividends Central-Illinois expressly rejected 'colloquial equity' approach placed special emphasis history. 17 absence abuse discretion, lawful binding when recognizes zero selects figure. allowance gives take another. who affected. We conclude, therefore, instance proof denies enough careful Moreover, lack analogous fields sustaining general principle class go unrecognized indicate value.8 Appeals, accordingly, affimed. 19 Judgment affirmed. 20 FRANKFURTER, whom BLACK joins, 21 I another look, indicated Judge Learned Hand's below, 22 JACKSON took decision cases. 'Sec. 11. (a) *. '(b) shall '(2) To order, after notice hearing, subsidiary thereof, steps necessary ensure corporate structure continued existence holding-company system unduly unnecessarily complicate structure, unfairly inequitably distribute voting power holders, system. '(e) rules regulations deem protection investors consumers, may, January 1936, submit divestment control, assets, action thereof purpose enabling comply subsection (b). submitted modified, (b) make approving plan; request apply court, (f) section 18, enforce carry out terms plan. *' (Emphasis added.) 49 Stat. 820, 821, 822, 79k(b) (e), 79k(b, e). summary proceedings since 11(b)(2) system, 26 entities, 7—8. appears certificates 'is limit)' stated. generation having issued exchange corporations 'for preserving continuing, nearly be, said date consolidation, according respective terms.' 'are subject reexamination court unless supported substantial arrived 'in legal standards." 126, 1393, 1836. 59 right perpetual feature remote speculative be. accorded right, so justified purposes reorganization. Cf. Electric Light —- S.E.C. (1949), 8889.' Re 8889, affirmed, 176 687, allocating three $25 $30 whereas See Dewing, Financial Policy Corporations (4th ed. 1941), 254; Graham Dodd, Security Analysis (1934), 258—259, 548—550; Hoagland, Corporation Finance (2d 1938), 177. What trader determined his own 'prospects change.' 547. privilege (conferred holder) constitutes call prosperity depend hope rise above stipulated subscription expires.' Guthman Dougall, Corporate 1948), 145. Berle Means, Modern Private Property (1932), stress difficulty fixing '(T)hey maintain valuse, uninitiated seem inexplicable.' P. 183. Market quotations led 'certain observers suggest real create pure gambling counter 184. '(A)t issued, particularly perpetual, almost human wisdom set options.' Ibid. effect, 568—570. Group Institutional Investors Chicago, M., St. P.R. Co., 318 523, 63 727, 87 959, railroad 77 Bankruptcy 911, 205, shareholders wiped prospects. And reorganizations former 77B 48 912, 207. criterion earning capacity essential Consolidated Rock Products Du Bois, 312 510, 526, 61 675, 685, 85 982. Collier (14th 1947), 3849—3859.

Category: 7