Court Opinion

ID: 6259250
Source: CourtListenerOpinion
Date Created: 2022-02-17 21:56:39.17578+00
Date Added: 2024-06-11T08:59:39.633150
License: Public Domain

Dissenting Opinion by
Mr. Justice Roberts:
The majority opinion, as it frankly states, is merely a highlighting of the opinion of the court below; indeed the majority seems to adopt that opinion in toto. Of necessity, therefore, my disagreement must be with the source of this Court’s opinion.
1. Perhaps the most inequitable aspect of the Court’s disposition is its saddling PTC with the obligation of paying future pension rights due its retired employees, thereby depriving PTC’s stockholders of approximately $17,000,000. As a result the amount they will actually receive for their stock will be considerably less than the $10 per share envisioned by the 1939 formula. Indeed the amount required to meet the pension fund obligation is practically equal to the amount received in exchange for PTC’s stock. Thus the effect of the disposition on this aspect is to wipe out entirely Item 3 of the option formula.
Yet in choosing to exercise its option, SEPTA is obligated to take over PTC as an operating transporta*411tion system in its entirety. Logically this ought to include PTG’s pension obligation. “Pensions are wages and constitute a present benefit, and therefore upon the establishment of a pension plan, whether based on past or future services, or both, the entire charge becomes an operating expense not an income deduction or a charge to surplus.” Re Uniform System of Accounts for Electric Corporations, 82 P.U.R. (NS) 161 (N.Y. 1950). In Pittsburgh v. Pennsylvania Public Utility Comm’n, 370 Pa. 305, 88 A. 2d 59 (1952), this Court held that the burden of pension payments, including those attributable to past services, should be assumed by present and future ratepayers, rather than the stockholders. The following paragraphs from the Court’s opinion seem to me to be equally applicable to the present case: “The Superior Court and the City of Pittsburgh rely upon the argument that a decision allowing the ‘freezing payment’ places a burden on present and future ratepayers which should have been borne by those in the past. It is obvious, as the City argues and the Superior Court stated, that as a result of the Commission’s decision present and future ratepayers must pay that portion of the cost of pensions which is more properly attributable to past services. But the criterion for determining whether present and future ratepayers or the investors in Bell should bear this portion of the cost is not ivhether past ratepayers should have paid it. If it were, it was illogical for the Superior Court to permit the Company to allow that portion of the pension costs attributable to services rendered between 1933 and 1927 since such costs should have been placed upon ratepayers between those years. Furthermore, even the ratepayers in 1913, by that test, should not have borne the amount which was paid out in pensions on a pay-as-you-go basis and which was attributable to services rendered before 1913.
*412“Reduced to its simplest terms, the situation is this. Pensions are noio recognised as a proper operating expense. It is fundamental that in order to afford an adequate retirement program any pension plan must take into consideration past services of employes: Osborne et al. v. United Gas Improvement Co. et al., 354 Pa. 57, 63, 64, 46 A. 2d 208. Someone must pay for the pension costs properly attirbutable to past services. At the present time such costs can be placed upon present and future ratepayers or the investors in the Company. In the present situation the test for determining where the burden should be placed as between these two classes of individuals is whether management abused its discretion in 1927 by not placing the full cost on the ratepayers from that time on. If they did, the investors for whom they acted should bear the cost. If they did not, there is no valid legal objection to placing the burden on present and future ratepayers. Since we have already demonstrated it cannot properly be held that management abused its discretion in 1927, the costs of pensions including the freezing payment were correctly included by the Commission as an operating expense.
“The view which we take of this phase of the case is supported by ample authority. On the other hand, the contention of the City of Pittsburgh that these pension costs should be borne by the Bell stockholders is not supported by a decision of any court of last resort. . . .” 370 Pa. at 320-21, 88 A. 2d at 66-67. (Emphasis supplied and footnote omitted.)
PTC has always followed the normal procedure of treating its pension obligations as part of its current operating expense. Accordingly these obligations have been reflected in its current rate structure. For over twenty-five years this has been done with express knowledge and approval of the City of Philadelphia, *413SEPTA’s assignor, who during this entire period was represented on PTC’s Board of Management. Moreover, PTC’s handling of its pension obligation had the approval of the Pennsylvania Public Utilities Commission. It seems to me, therefore, to be totally irrelevant to the issue before us for SEPTA to suggest that if it had been in control of PTC’s management, it would have made different arrangements in order to meet its pension obligation. Had SEPTA chosen to acquire PTC by means of condemnation, the price SEPTA would have paid would have included the value of PTC’s past pension obligations. Metropolitan Transportation Authorities Act of 1963, P. L. 984, §8, 66 P.S. §2008(f) (24) (1) (iii). In exercising the option SEPTA is purchasing PTC “lock, stock, and barrel,” and is obligated to purchase it as it is — -not as it might have been.
In addition, SEPTA’s failure to assume PTC’s pension obligation is in conflict with the legislative intention set forth in the statute creating SEPTA, Metropolitan Transportation Authorities Act of 1963, P. L. 984, 66 P.S. §2001 et seq. Section 24, 66 P.S. §2024 provides that SEPTA “shall recognize and be bound by existing labor union agreements where they exist between labor unions and transportation companies that are acquired, purchased, condemned or leased.” It is evident that the legislature was thus concerned with the welfare of the transportation companies’ employees. The existing union agreement specifically provides that retired employees shall “continue to receive benefits in accordance with the provisions of the contracts which were in effect at the times of their respective retirements on pension.” Yet, as the amicus brief points out, SEPTA can hardly be bound by this provision of the union contract, which it assumes on the settlement date, and at the same time insist that *414retired employees look not to it, bnt to PTC, for their benefits.
Thus I believe the Court’s treatment of the $17,-000,000 pension obligation is doubly burdensome. First, it retroactively compels PTC to utilize past earnings in order to pay for future obligations. This is not only contrary to the manner which PTC, with the express approval of the City and the P.U.C., has in the past treated said obligations, but also contrary to the intent of the 1939 agreement itself. Secondly, since these pension obligations have always been met on a pay-as-you-go basis, it contravenes the legislative intention by unnecessarily depriving retired employees of the security of the fare-box.
2. Under the 1939 agreement, the purchase price of PTC’s entire operations is to be determined in accordance with a four factor formula contained therein. The only dispute concerning this formula is the meaning of the term “undistributed corporate surplus.” I am unable to agree with either SEPTA’S definition, adopted by the Court, that undistributed corporate surplus means only the balance sheet figure described as retained earnings, or PTC’s definition that the term means the excess of the fair valuation of all the assets over the liabilities plus capital stock, thus requiring all the assets to be valued prior to their inclusion in the formula.
PTC derives its position from the classic definition of corporate surplus in Edwards v. Douglas, 269 U.S. 204, 46 S. Ct. 85 (1925), and approved by this Court in Branch v. Kaiser, 291 Pa. 543, 549, 140 Atl. 498, 500 (1928) : “The word ‘surplus’ is a term commonly employed in corporate finance and accounting to designate an account on corporate books. But this is not true of the words ‘undivided profits.’ The surplus account represents the net assets of a corporation in *415excess o'f all liabilities including its capital stock. This surplus may be ‘paid-in surplus,’ as where the stock is issued at a price above par. It may be ‘earned surplus’, as where it urns derived wholly from undistributed profits. Or it may, among other things, represent the increase in valuation of land or other assets made upon a revaluation of the company’s fixed property.” 269 U.S. at 214, 46 S. Ct. at 88.
While I have no quarrel with this definition, I believe that it is inapplicable in the present case because the entire purpose of the 1939 agreement was to establish a fixed formula which would permit the buyer to know the price he would have to pay at the time he exercised his option. Philadelphia v. Philadelphia Transp. Co., 386 Pa. 231, 239, 126 A. 2d 132, 135-36 (1956). A valuation proceeding after the option is exercised, as PTC urges, would defeat this purpose; lienee I agree with the court below that “undistributed corporate surplus” is not a valuation but a balance sheet figure.
On the other hand, the conclusion that undistributed corporate surplus is limited to the retained earnings of PTC is a non sequitur. In my view, which incidentally is supported by the opinion of the court below, the purpose of the formula price was not only to permit the optionee to purchase the company at a known price but also to insure PTC’s stockholders that in the event the option was exercised their equity in the corporation as the same appeared on the company’s books would at least be returned to them. On its books, PTC has divided its stockholders’ equity into three categories: (1) capital stock, for which the formula compensates the stockholders by requiring the purchaser to pay $10 per share for each outstanding share of stock; (2) retained earnings, for which, under the opinion of the court below, the stockholders are *416compensated for by its inclusion in the term “undistributed corporate surplus”; (3) capital surplus, for which under the Court’s determination the stockholders receive no compensation.
I can see no justification for giving SEPTA the capital surplus as a windfall. This account is not a recently created entry but has had the unchallenged acceptance and approval of both the City and the P. U. C. for more than a quarter of a century. Every advantage of a known certainty which is true about the retained earnings balance sheet figure is equally true about the capital surplus account. As the court below observed: “There was no fraud or deceit — either alleged or proved — in the way PTC kept its books. The essence of the formula price, as had been seen, is that it is a book price. SEPTA is therefore bound to accept PTC’s books in computing the formula price.”
Accordingly, I would hold that the term “undistributed corporate surplus” as used in the 1939 formula means PTC’s retained earnings and capital surplus as reflected on its balance sheet at date of settlement.
3. Additionally, I am disturbed by the uncertainty generated by the Court’s treatment of PTC’s current cash and liabilities. All agree that under the agreement SEPTA will purchase PTC’s cash as well as its other assets, and that PTC is liable for the excess of its current liabilities over and above its current cash. However, there is considerable uncertainty as to what the Court’s disposition is with regard to PTC’s current cash and liabilities. As I read the opinion of the court below, on the one hand, it permits PTC to pay its current liabilities before settlement date, thereby reducing the amount of cash transferable to SEPTA. Presumably, PTC could liquidate all its cash by satisfying as much of its current liabilities as the cash would cover. It is also possible for SEPTA *417and PTC to make an arrangement so that SEPTA will assume the current liabilities to the extent of PTO’s current cash account thus not necessitating PTC to dispose of its cash in a desperate effort to meet a settlement deadline. On the other hand, the court states that if for any reason no such agreement is made PTC remains responsible for any liabilities existing on settlement date even though in its cash account there is an amount which could theoretically be utilized to reduce current liabilities.
In my view this confusion, which is not necessary and could produce a most inequitable result, should, especially in view of the intensity of this litigation, be clarified. Under the Court’s decree SEPTA has six months in which to raise the money to purchase PTC. Under these circumstances PTC might not know until settlement date whether or not SEPTA will actually secure the necessary funds to assume control of its operations, and it may be impossible for PTC to settle its current liabilities on such short notice. On the other hand, if SEPTA fails to purchase the company, PTC may find itself with an inadequate cash position with which to properly operate the transportation system. I see no problem in making it crystal clear that the current cash is to be applied to the payment of current liabilities. On the settlement date SEPTA should only receive that portion of current cash which is in excess of PTO’s current liabilities, unless there is an agreement that SEPTA will assume an amount of current liabilities equal to the amount of current cash it obtains.
Mr. Justice O’Brien joins in this dissenting opinion.