Court Opinion

ID: 9419654
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:50:48.407682+00
Date Added: 2024-06-11T17:22:19.829207
License: Public Domain

Me. Justice Murphy,
dissenting.
Fifteen years ago this Court was confronted with an attempt by a corporate stockholder to set aside an order of the Interstate Commerce Commission on the claim that the order threatened the financial stability of the corporation to which it was directed as well as the “appellant’s financial interest as a minority stockholder.” The Court, speaking through Mr. Justice Brandéis, held that the stockholder had no standing to maintain the suit since “the order under attack does not deal with the interests of investors” and the only injury feared “is the indirect harm which may result to every stockholder from harm to the corporation.” Pittsburgh & West Virginia R. Co. v. United States, 281 U. S. 479, 487. That holding, in my estimation, disposes of this attempt by the American Power & Light Company to obtain an independent judicial review of an order of the Securities and Exchange Commission directed at a company in which it is the sole stockholder.
Section 24 (a) of the Public Utility Holding Company Act allows “any person or party aggrieved by an order issued by the Commission” to obtain a review of such order in an appropriate Circuit Court of Appeals. The test, then, is whether American was “aggrieved” by the Commission’s order in this instance. Since the term “person or party aggrieved” is not defined in the Act. we can *394only assume that its meaning is to be drawn from traditional legal principles and from any relevant statutory policies.
Only two paragraphs of the Commission's order are in issue. They are directed solely to the Florida Power & Light Company; all of whose securities are owned by American. These paragraphs fail even to mention American; they neither require nor prohibit any action by it. Nor do they in any way affect American’s rights as a stockholder. They simply require Florida to make certain accounting adjustments in the form of charges to earned surplus. Since dividends are paid from earned surplus and since these requirements will decrease the earned surplus account, the Court reasons that “the order has a direct adverse effect upon American as a stockholder entitled to dividends.” From this it is concluded that American is “aggrieved” by the order. To that reasoning and conclusion I cannot agree.
1. There is no evidence in the record to justify the assumption that the items to be charged to surplus would necessarily have been available for distribution as dividends to American or that the surplus was otherwise inadequate to pay the normal amount of dividends. Florida might well have retained these items for reinvestment in the business, thus making them unavailable for dividend distribution. Moreover, to the extent that Florida retains these items in its capital structure, American’s ultimate equity in the organization is increased. It cannot be said, therefore, that American has been adversely and permanently affected by this order.
2. But even if it were clear that the order would necessarily restrict dividend payments it does not follow that the restraint so directly affects American as to entitle it to challenge the order as a person “aggrieved.” It has long been established that ordinarily the mere accumulation of an adequate surplus does not entitle a stockholder *395to dividends until the directors, in their discretion, declare them. Southern Pacific Co. v. Lowe, 247 U. S. 330. And until such a declaration is made the directors are free to deal with that surplus in good faith as they may see fit in the exercise of their business judgment, the stockholders not having sufficient interest in undeclared or potential dividends to challenge such action. See Wabash R. Co. v. Barclay, 280 U. S. 197. The stockholders’ interest in such matters, in other words, is indistinct from that of the corporation prior to an actual declaration. Thus if the Florida management had made the same accounting adjustments as those ordered by the Commission in this case American would not be sufficiently “aggrieved” to attempt to prevent Florida from making such adjustments, even though dividend payments might be adversely affected. No adequate reason is evident from the facts or from the opinion of this Court as to why American is any more directly or adversely “aggrieved” when the accounting adjustments are ordered by the Commission rather than by Florida’s management or as to why any different results should follow. The impact of the adjustments in either instance is presumably to strengthen the financial structure of Florida; that they may have the incidental effect of decreasing dividends temporarily has never heretofore been sufficient to entitle a stockholder to challenge the adjustments.
3. The fact that American is trying to appeal an administrative order rather than to institute an original action against Florida’s management is irrelevant under the circumstances. The Commission’s order does not deal with the rights of stockholders as such, in which case a stockholder clearly could appeal from the order. Securities & Exchange Commission v. Chenery Corp., 318 U. S. 80; Lawless v. Securities & Exchange Commission, 105 F. 2d 574; New York Trust Co. v. Securities & Exchange Commission, 131 F. 2d 274; City National Bank & Trust *396Co. v. Securities & Exchange Commission, 134 F. 2d 65. See also Otis & Co. v. Securities & Exchange Commission, 323 U. S. 624. Nor is there any charge of fraud or breach of duty on the part of Florida, from which it could be argued that American should be given the right to appeal since Florida might not act to protect American’s legitimate interests. Indeed, such a possibility is expressly negatived by the fact that Florida has already appealed the Commission’s order to another court and is urging precisely the same considerations that American seeks to present in this proceeding. In view of American’s complete control of Florida through stock ownership there is no danger of conflicting interests arising between the two companies in the other proceeding. There is thus no basis for concluding that the economic interest asserted by American cannot or will not be adequately protected by Florida. Cf. Federal Communications Commission v. Sanders Bros. Radio Station, 309 U. S. 470; Associated Industries v. Ickes, 134 F. 2d 694, dismissed as moot, 320 U. S. 707. The inevitable logic of the facts of this case leads straight back to the conclusion that American’s grievance is only “the indirect harm which may result to every stockholder from harm to the corporation.” Pittsburgh & West Virginia R. Co. v. United States, supra, 487. That conclusion calls for a dismissal of American’s attempted appeal from the Commission’s order just as it would call for a dismissal of any suit brought by American against Florida on these facts.
4. The Court’s conclusion here leads only to unfortunate consequences in the judicial review of administrative orders. If the remote economic interest asserted by American is sufficient to institute a review proceeding such as this there is no limit to which minority stockholders may harass the Commission and their respective corporations by challenging orders of the Commission directed to the corporations. It is no answer that *397§ 24 (a) gives exclusive jurisdiction to the court in which the Commission files the transcript of a particular proceeding. That provision clearly envisages two or more appeals in different courts by persons who are legally “aggrieved” by a Commission order and who can obtain adequate relief only by individual appeals. But under this decision stockholders are now free, whenever they feel that their potential dividends are affected by Commission action directed to the corporation’s accounting entries against which dividends are charged, to appeal regardless of the management’s wishes in the matter and' regardless of the management’s ability to protect their interests fully and fairly. Stockholders in effect supplant the management in deciding whether to appeal from administrative action affecting such internal accounting procedure of the corporation, a problem which until now was exclusively and properly within the domain of the corporate directors and officers. Many stockholders are not in a position to know the intricacies of modern corporate accounting or the proper attitude to take, from the corporation’s point of view, as to the challenged administrative action. But now they have been given carte blanche to proceed as they desire. It is difficult 'to believe that Congress intended such consequences to flow from its use of the word “aggrieved” in § 24 (a).
Finally, I dissent from the Court’s disposition of the writ in the Okin case. It is no doubt true, as the Court states, that an assertion that a transaction approved by the Commission was fraudulently entered into by the corporation is sufficient to entitle the stockholder to an independent review of the Commission’s action. But it does not follow that the mere cry of “fraud” is sufficient. There must be some bona fide basis appearing .on the face of so serious a charge. Here, however, Okin merely charges that (1) a Maine corporation is not subject to the Commission’s jurisdiction because its subsidiaries operate *398outside the United States; (2) the particular transaction in issue is detrimental .to Okin’s interests as a stockholder inasmuch as the management extended a note of a subsidiary at a reduced interest rate; (3) various corporate officers held conversations with each other and with members of the Commission’s staff; (4) his constitutional rights have been invaded; and (5) the transaction is void for failure to comply with § 20 of the New York Stock Corporation Law. Such frivolous claims of fraud are insufficient to warrant making an exception to the general rule that a stockholder cannot appeal an administrative order which involves only the corporation as such.
Me. Justice Black and Me. Justice Reed join in that part of this dissent dealing with No. 470, the American Power & Light Co. case.