Court Opinion

ID: 5307782
Source: CourtListenerOpinion
Date Created: 2022-01-08 03:36:35.029168+00
Date Added: 2024-06-11T08:29:09.675728
License: Public Domain

Van Kirk, P. J.
(dissenting). There are four corporations interested. Three of these, the New York State Electric Corporation, herein called the petitioner; the Associated Gas and Electric Corporation, herein called the “ Associated Company,” and the Staten Island Edison Corporation, herein called the “ Staten Island Company,” are domestic corporations; and one, the New York Electric Company, herein called the “ Delaware company,” is a foreign corporation, organized under the laws of the State of Delaware. This last is a business corporation and not a gas, electrical or street railroad corporation. The stock relationship of these corporations is intimate. The petitioner owns ninety-nine per cent of the issued capital stock of the Staten Island Company. The Associated Company owns all of the capital stock of petitioner, except 4,600 shares. It organized and owns all of the capital stock of the Delaware company. Thus the Associated Company is the parent company of the other three. The petitioner’s share capital issued was 4,600 shares of common stock with voting power and 41,884 shares of preferred stock without voting power in the election of directors and management of corporate affairs. Without the consent of the Public Service Commission the 4,600 shares of common stock of petitioner were transferred to the Delaware company. In 1927 the share capital of the petitioner was changed to 10,000 shares of common stock, with voting power, and 90,000 shares of preferred stock without voting power. As above stated, 4,600 shares of this common stock went to the Delaware company. In March, 1928, when the petition herein was filed, 46,484 shares had been issued, but the share capital of petitioner had been *24increased to 150,000 shares, of which 90,000 was preferred stock without voting power as aforesaid and 60,000 common stock with voting power. The Delaware company was the owner of all the issued capital stock which had voting power as aforesaid.
Such was the relationship between the four interested corporations when the petition herein was filed asking authority to issue 38,250 additional shares of petitioner’s common stock; also asking consent that it issue this additional stock to the Delaware company. Authority was granted to issue 30,810 shares of common stock. I understand that no serious complaint is made that the number of shares authorized is less than the number asked for. But the Commission refused consent to issue or sell this stock to the Delaware company.
If the authorized additional shares be issued, control of the petitioner’s corporate affairs would not remain in the Delaware company unless it should acquire them or a majority of them. If the Delaware company be permitted to acquire these additional shares, it will not only have full control of petitioner, but will also acquire and hold more than ten per cent of its “ total capital stock issued.” Thus there can be no question but that the consent of the Commission is necessary before the Delaware company can “ acquire, take or hold ” these additional shares. This conclusion is not based upon any construction of section 70 of the Public Service Commission Law (as amd. by Laws of 1921, chap. 134); it is within the plain language and intent of that section. It is interesting to notice that, prior to the amendment of section 70 of the Public Service Commission Law by chapter 420 of the Laws of 1918, no stock corporation of any description could acquire or hold more than ten per cent of the total capital stock issued by a gas or electrical corporation, unless it already lawfully held a majority of the capital stock of such gas or electrical corporation. (Pub. Serv. Comm. Law, § 70, as amd. by Laws of 1911, chap. 788.) The Delaware company is a stock corporation; it does not hold a majority of the capital stock of the petitioner, which is an electrical corporation. Thus under this section as it then stood the Delaware company could not acquire or hold more than ten per cent of the capital stock of petitioner; the consent of the Commission would be of no avail. But by the amendment of 1918 a stock corporation was permitted, if it gets the consent of the Commission, to hold more than ten per cent of the capital stock of a domestic electrical corporation, provided that corporation is operated wholly outside the former First Public Service Commission district. Thus the policy of the State was changed but only as to a corporation operated wholly without *25the First District. The petitioner is so operated. It is under this amendment solely that the consent of the Commission could validate the proposed purchase of this additional stock of petitioner. The refusal of consent presents the one question here: Was the Commission justified in refusing its consent?
The questions which may be determined by the Commission are stated in section 1304 of the Civil Practice Act. In People ex rel. N. Y. & Queens Gas Co. v. McCall (219 N. Y. 87) it was said: “The court has no power to substitute its own judgment of what is reasonable in place of the determination of the Public Service Commission, and it can only annul the order of the Commission for the violation of some rule of law.
“ The Public Service Commissions were created by the Legislature to perform very important functions in the community, namely, to regulate the great public service corporations of the State in the conduct of their business and compel those corporations adequately to discharge their duties to the public and not to exact therefor excessive charges. It was assumed perhaps by the Legislature that the members of the Public Service Commissions would acquire special knowledge of the matters intrusted to them by experience and study, and that when the plan of their creation was fully developed they would prove efficient instrumentalities for dealing with the complex problems presented by the activities of these great corporations. It was not intended that the courts should interfere with the Commissions or review their determinations further than is necessary to keep them within the law and protect the constitutional rights of the corporations over which they were given control.”
The Commission violated no rule of law material to its decision. The rule that ordinarily a stockholder has an inherent right to take a proportionate" share of new stock issued for money only (Stokes v. Continental Trust Co., 186 N. Y. 285, 296) has no application, but, if it had, would not aid this petitioner. The Delaware company, though a stockholder of petitioner, does not own all the issued stock. The Associated Company holds more of it. We find no legal right in the Delaware company to have this stock. The Commission did express its opinion that the plain intent of the Lc gislature was that the expression “ more than ten per centum of the total capital stock issued ” means stock with voting power. But th.s was said while discussing the transfer of the 4,600 shares to the Delaware company without consent and had no direct force in its decision of the issue here. The opinion shows that the Commission did not refuse its consent because of any particular con*26struction of the statute. It made its decision on the facts as presented, not on any rule of law.
Though the amended statute changed the policy of the State | so as to, in this case, permit the Commission to grant the request, ' it did not thereby require it to; permission is not a command. The record discloses, and the Commission has recited, facts which justified it in exercising its discretion and refusing consent. Consent is not to be given as a matter of course. A petitioner for such consent has the burden of proof; it must satisfy the Commission that there are reasons which justify giving the consent. No such reasons appear in this record, while reasons for refusal of consent do appear. No explanation is made why the unusual classification of petitioner’s stock was adopted. In the history of the companies presented, °it arouses interest; it had a purpose. Is that purpose for or against the public interest? No reason is suggested why it is necessary, or advantageous to the public, to interpose the Delaware company in the line of stock owners. The Associated Company, owning all of the stock of the Delaware company, could elect its board of directors. Without the aid of the Delaware company it could do all in the management of the business of the petitioner and of the Staten Island Company which the Delaware company could do if it should obtain control of the stock of the petitioner. But it is urged that, to authorize the issue of the additional shares and at the same time to refuse consent that the Delaware company should acquire it, is substantially to refuse the relief asked. This is not a necessary conclusion. For all this record shows, the Associated Company, which owns the Delaware company, could purchase the additional stock of petitioner, as well as the Delaware company could. It is not unreasonable to infer that the Associated Company is furnishing capital to the Delaware Company, its subsidiary. There has been no request for, and no. refusal of, consent that the Associated Company may acquire this additional stock. Nor has there been any effort to find another purchaser. It is common knowledge that such stocks are in great demand. On the other hand, there is reason why this foreign corporation should not be introduced; it, as one result, would occasion additional expense. The Delaware company must have an organization; it must have offices and officers; it must have employees; and the expense therefor must be paid. Whatever this additional expense is must be paid by the patrons of the petitioner. Whatever the Associated Company may receive from its ownership and control of the petitioner, the Staten Island Company and the Delaware company, can come to it only after the *27expenses of those companies have been paid. It is to be presumed that some advantage is anticipated by the Associated Company through the organization and introduction of the Delaware company into the line of stock owners. What that advantage is is not disclosed. But the Delaware company is a foreign corporation, in no wise subject to the control of New York State. (See People ex rel. D. & H. Co. v. Stevens, 197 N. Y. 1.) It can regulate the great public service corporations of the State in the conduct of their business and compel those corporations adequately to discharge their duties to the public and not exact therefor excessive charges. It has some authority over all domestic corporations. That the other corporations are domestic corporations and subject to this control may not give to the Commission complete control of the service to be rendered and of the expenses incurred by them if the Delaware company is in control. The Commission was justified on this record as a matter of discretion in refusing its consent.
We have here no question as to the reasonableness of the application for consent to issue the additional stock; that the Commission has granted.
I think the following conclusions are justified: The determination of the Commission was not an unlawful or arbitrary exercise of power. There has been no violation of a rule of law by the Commission. Whether or not its understanding of the intent of the Legislature in enacting section 70 of the Public Service Commission Law is correct is immateral; it had full authority to make the determination it made. This determination protects the constitutional rights of the corporations concerned. Under no law or provision of the Constitution has the petitioner a right to the consent which is refused; the evidence in this record does not require consent.
The determination should be confirmed, with costs.
Hill, J., concurs.
Determination annulled, with fifty dollars costs and disbursements, and matter remitted to the Commission to proceed in accordance with opinion.