Professional Documents
Culture Documents
Securities and Exchange Commission v. F. C. Dumaine, JR., Koppers Company, Inc. v. Securities and Exchange Commission, 218 F.2d 308, 1st Cir. (1954)
Securities and Exchange Commission v. F. C. Dumaine, JR., Koppers Company, Inc. v. Securities and Exchange Commission, 218 F.2d 308, 1st Cir. (1954)
2d 308
These two appeals from a Supplemental Order of the United States District
Court for the District of Massachusetts present, respectively, questions with
respect to allowance of a fee and questions with respect to disallowance of
expenses both connected with the reorganization of Eastern Gas & Fuel
Associates under 11(e) of the Public Utility Holding Company Act of 1935.
49 Stat. 822, 15 U.S.C.A. 79k(e).
Eastern Gas & Fuel Associates came into being under the laws of
Eastern Gas & Fuel Associates came into being under the laws of
Massachusetts as a voluntary association in July 1929. It was created by the
Koppers Company,1 for the purpose of combining the properties of two of its
subsidiaries, Philadelphia Coke Company and The Connecticut Coke Company,
with the properties of a holding company also controlled by Koppers interests
called Massachusetts Gas Companies which owned all of the securities of two
local operating utilities, Boston Consolidated Gas Company and Old Colony
Gas Company. Prior to Eastern's reorganization Koppers owned 78% of
Eastern's outstanding common stock and 13.4% of its 6% cumulative preferred
stock. Thus Eastern, by reason of its ownership of all of the outstanding
securities of two operating gas companies, Boston Consolidated and Old
Colony, was a holding company as defined in 2(a)(7) of the Act. So also was
Koppers since it owned more than 10% of the voting securities of Eastern. Both
Koppers and Eastern registered with the Commission under 5(a) of the Act
and thus became subject to the provisions of its 11.
inter alia it denied the application of F. C. Dumaine, Jr., appellee in No. 4852,
for a fee, and the application of Koppers Company, Inc., appellant in No. 4853,
for expenses. Both Dumaine and Koppers filed objections to the Commission's
action in the court below and that court after hearing entered a Supplemental
Order wherein in accordance with the views expressed in a memorandum
opinion it ordered the portions of Eastern's plan covering the matter of fees and
expenses enforced except as to Dumaine's fee. The court disagreed with the
Commission as to this and ordered that Dumaine be paid a fee of $5,000 by
Eastern. Wherefore the court remanded the matter to the Commission for the
purpose of modifying Eastern's plan and its Supplemental Findings and
Opinion accordingly. Both Koppers and the Commission have appealed from
this Supplemental Order of the District Court.
6
The Supplemental Order of the District Court, 120 F.Supp. 460, from which
these appeals were taken is not final in form. Nevertheless, nothing remains for
the Commission to do in carrying out the District Court's order but to amend its
Supplemental Findings and Opinion and Eastern's plan of reorganization to
provide for the payment of a fee of $5,000 to Dumaine. This is a purely
ministerial act not calling for the exercise of any discretion on the
Commission's part. The District Court has adjudicated Dumaine's right to a fee
with all the finality it can, and it has taken the only means it has available to
enforce its adjudication. Under these circumstances we think the District
Court's order in spite of its form constitutes a 'final decision' appealable under
Title 28 U.S.C. 1291. See Buscaglia v. District Court of San Juan, 1 Cir.,
1944, 145 F.2d 274, 281. See also S.E.C. v. Central Illinois Corp., 1949, 338
U.S. 96, 69 S.Ct. 1377, 93 L.Ed. 1836, wherein the Supreme Court in a
comparable situation did not even mention the existence of any question of
appellate jurisdiction.
We shall first consider the appeal of Koppers Company, Inc. in No. 4853.
Act, it felt that 'they should bear their own costs incurred in connection with
system proceedings for effecting such compliance rather than shift such costs to
the subsidiaries.' In addition the Commission pointed out not only that Koppers'
large holdings of both classes of Eastern's securities and its dominant position in
Eastern's affairs differentiated its participation in Eastern's reorganization from
the participation of an individual security holder, but also that Koppers' own
compliance with the Act was directly related to Eastern's compliance. The
Commission said:
9
'* * * During these proceedings Koppers was subject to our order issued
pursuant to Section 11(b)(1) of the Act requiring it to divest itself of its
holdings in Eastern. This divestment by Koppers was not feasible prior to
Eastern's recapitalization and in all probability could not have been effected
until Eastern's recapitalization was accomplished. Thus, Koppers' participation
had the dual aspect of facilitating its own compliance with the Act and
protecting its investment in Eastern.'
10
The District Judge dealt only briefly with Koppers' objection to the denial by
the Commission of its application for reimbursement. He merely said, citing
S.E.C. v. Chenery Corp., 1947, 332 U.S. 194, 67 S.Ct. 1575, 91 L.Ed. 1995 and
In re Niagara Hudson Power Corp., D.C., 114 F.Supp. 683: 'I cannot interfere
with the determination of the Commission denying reimbursement of expenses
in the amount of $206,299.51 to Koppers, since in my opinion this conclusion
has the necessary rational and statutory foundation to allow it freedom from
judicial disturbance.' (120 F.Supp. 461.)
11
There can be no doubt, indeed, it is not disputed, that the Commission has
implied power under 11(e) of the Act to award and allocate fees and expenses
as a factor or element of the fairness and equitableness of a plan of
reorganization. In re Public Service Corp. of New Jersey, 3 Cir., 1954, 211 F.2d
231, 232. The statute, however, nowhere names the persons or describes the
services entitled to compensation. nor does its give any hint as to how the
amounts that may be awarded are to be determined. But it does not follow from
the fact that the Commission's powers with respect to fees and expenses are not
specifically spelled out or limited in the statute that the Commission may act
arbitrarily or capriciously in the premises. Obviously its awards must be
reasonable in amount, In re North American Light & Power Co., 3 Cir., 1953,
202 F.2d 638, 639, certiorari denied sub nom. S.E.C. v. Masterson, 1953, 346
U.S. 818, 74 S.Ct. 30, and it is equally obvious that the persons or services
entitled to receive awards must be selected on some rational basis. The power
of the Commission in the field of fees and expenses, stemming as it does from,
and being part and parcel of its general power to approve plans of
With these general principles in mind we turn to the specific problem presented
by Koppers' appeal.
13
14
This was the approach taken by the District Court, and we think it reached the
correct result. Certainly denying reimbursement to Koppers does not run afoul
of any statutory command. And the evidence in the record, taken as a whole,
supports the findings of fact upon which the Commission based its conclusion.
Universal Camera Corp. v. National Labor Relations Board, 1951, 340 U.S.
474, 71 S.Ct. 456, 95 L.Ed. 456. Whether on those basic facts a corporation in
Koppers' position ought, or ought not, to be reimbursed for its expenses by its
subsidiary under reorganization is a matter for the Commission to decide in its
administrative discretion and we see nothing unreasonable or irrational in the
decision reached by the Commission.
15
Moreover, the Commission did not decide Koppers' application ad hoc. Its
decision was in conformity with prior rulings of the Commission in comparable
situations, and those rulings insofar as they have been judicially reviewed have
been sustained in every instance of which we are aware. See In re Public
Service Corp. of New Jersey, 3 Cir., 1954, 211 F.2d 231, 234, 235, certiorari
denied sub nom. United Corp. v. S.E.C., 1954, 348 U.S. 820, 75 S.Ct. 32; and
Standard Gas & Electric Co. v. S.E.C., 8 Cir., 1954, 212 F.2d 407, 410, 411,
certiorari denied 1954, 348 U.S. 831, 75 S.Ct. 52, and the cases cited therein.
16
We think that the Commission's decision as to Koppers was clearly within the
scope of its discretion in carrying out the congressional policy underlying the
Act, and in support of that view we have nothing to add to the reasoning of the
cases last cited.
17
We turn now to the Commission's appeal from that part of the District Court's
order in effect requiring Eastern to pay a fee of $5,000 to Dumaine which
invokes quite different principles in that the interpretation of one of the
Commission's General Rules and Regulations is involved.
18
19
The Commission frankly admitted that its Rule does not specifically forbid
stock transactions by a committee member's wife with her own funds. It said:
20
'* * * While the Rule does not specify that members of the immediate family
are within the Rule, we consider that the clear intendment of Rule U-62 is that
trading by members of the immediate family of any person connected with a
committee falls in the category of prohibited trading by that person. In our
opinion, a person connected with a committee has such an interest in any profit
which might result from his immediate family's trading, even though such
interest may be indirect, that it can influence his activities and conduct as a
The District Court disagreed. It felt that the Rule would not stand the
interpretation put upon it by the Commission. In the court's view the
Commission's construction of its Rule as requiring, without 'plain forewarning,'
either that Dumaine sacrifice a fee for valuable services or that his wife freeze
valuable assets for an indefinite time was 'unwarranted and unreasonable.'
Wherefore it ordered the Commission to require Eastern to pay a $5,000 fee to
Dumaine and the Commission appealed.
22
We are not here called upon either to accept or to reject the Commission's broad
interpretation of its Rule as embracing within its sweep without any attempt at
definition the 'immediate family of any person connected with a committee,'
whoever such persons may be. Cf. Nichols v. Securities and Exchange
Commission, 2 Cir., 1954, 211 F.2d 412. The specific question before us is
whether the Rule is violated when during a reorganization the wife of a
member of a stockholders' committee, with her husband's knowledge, sells
shares of stock represented by her husband's committee which she purchased
with her own personal funds before reorganization, and uses the proceeds of the
sale to reduce a loan incurred in the purchase of a family residence. Our
discussion is confined to the precise question before us; we express no opinion
on any other.
23
Clearly the phrase 'any beneficial interest, direct or indirect' covers every
property or contract right, legal or equitable, in securities traded by any of the
persons specified in the Rule. But we do not think that the Rule must
necessarily be construed as limited in its reference to recognized legal or
equitable rights. By the Rule the Commission, quite properly and very
obviously, was attempting to implement and enforce the wholesome principle
that committee members should wholeheartedly serve only one master, the
holders of the stock represented by the committee, without any of the purely
personal distractions necessarily incident to trading in the stock for individual
gain. We think the Rule should be construed with its obvious purpose in mind,
and that so construed its language is broad enough to cover trading in the stock
by a wife with her husband's knowledge, even though she uses her own funds
for the purpose.
24
This does not mean, and is not to be taken for one moment as even indirectly
implying, that a husband today still retains some vestigial remnant of his
ancient rights in his wife's individual property. We rest our conclusion on the
proposition that as a practical matter an economic benefit to a wife is indirectly
an economic benefit to a husband, at least when husband and wife are living
together as a family unit, and on the further proposition that when a wife with
her husband's knowledge trades in a stock represented by a committee of which
the husband is a member, the husband cannot possibly be as disinterested in his
role of committee member as one in a fiduciary capacity ought to be. Cf.
Helvering v. Clifford, 1940, 309 U.S. 331, 335-336, 60 S.Ct. 554, 84 L.Ed.
788.
25
26
27
The order of the District Court is vacated and the cause is remanded to that
Court for the entry of an order in conformity with the views expressed in this
opinion.
At the same time the Commission issued an order of divestment under 11(b)
(1) of the Act against Koppers which at Koppers request the Commission held
in abeyance until after the consummation of Eastern's plan of reorganization