Matter of Engineers Public Service Company. Securities and Exchange Commission v. Guggenheimer & Untermyer, Louis Boehm, and Raymond L. Wise, 221 F.2d 708, 3rd Cir. (1955)
Matter of Engineers Public Service Company. Securities and Exchange Commission v. Guggenheimer & Untermyer, Louis Boehm, and Raymond L. Wise, 221 F.2d 708, 3rd Cir. (1955)
2d 708
denying fees and expenses to the appellees and granted them substantial
compensation and their expenses. See 116 F.Supp. 930. The Commission has
appealed from that portion of the court's order making these allowances to the
appellees.
4
In its memorandum opinion concerning fees the Commission under the heading
"Applicable Standards" for the granting of compensation stated:
"Compensation may be paid for services which have contributed to the plan
ultimately approved, which have contributed to the defeat of the proposed plan
found to be unsatisfactory, or which have otherwise directly and materially
contributed to the development of the proceedings with respect to the plan."
The Commission goes on to state that in determining the amount of the
compensation the primary factor is the amount of benefit conferred upon the
estate or its security holders by the services rendered.
"In * * * [seeking court review of the determination the appellees 3 ] were aware
of the existence of the considerable risk that they would be unsuccessful and
that in such event the delay and costs resulting from the litigation would be
detrimental to the stockholders on whose behalf they purported [sic] to act. In
the event that they had been successful the benefit would have been substantial
and it would have been proper to award correspondingly substantial
compensation on the basis of such benefit. However, they were unsuccessful,
and their failure resulted in a substantial monetary loss by the common
stockholders by virtue of the necessity of paying to the preferred stockholders
compensation for the delay in payment of the additional amounts to which they
were held to be entitled and because it subjected their residual interest in the
estate to the burden of paying larger allowances than would otherwise have
been warranted in connection with the participation of preferred stockholders'
representatives in that litigation.
"We assume, particularly in view of the outcome in the District Court and in the
Court of Appeals, that the question of law involved was a doubtful one, until
resolved by the Supreme Court. We assume also that there was room for a
reasonable difference of opinion as to whether, as of the time court contest was
undertaken, the prospects of ultimate success were too doubtful to compensate
for the risk of prejudice to the class sought to be represented. Nevertheless we
cannot find that Engineers' management was unreasonable in concluding that
the best interest of the common stockholders demanded that there be no court
contest. Under these circumstances, we are of the opinion that no compensation
may be allowed for services rendered by these applicants in their unsuccessful
efforts." (Emphasis added.)
10
In the case at bar we think the issue does not require the type of judgment
which administrative agencies are best equipped to make. We are of the
opinion that the District Court here was as well qualified as the Commission
if not better qualified to determine whether the appellees should be
compensated for their services, so that no particular deference is due the
administrative judgment. See Davis, Administrative Law 927. As was said in S.
E. C. v. Cogan, 9 Cir., 1952, 201 F.2d 78, 86, "If any `expertise' was involved,
it belonged to the district judge because of his familiarity with the [problem] *
* *. And so, just as in the first Chenery case [318 U.S. 80, 63 S.Ct. 454, 87
L.Ed. 626] the Supreme Court because of its superior knowledge of the
principles * * * [involved], rejected what the commission said of those
principles, so here we think it manifest that the district judge knew more about
the subject in hand than did the Commission." We, therefore, shall review the
standard applied by the Commission in this case without that exacting
deference that is due to the determination of experts.
12
We conclude that the standard as supplied by the Commission was not a proper
one under the circumstances at bar. The Commission has stated, as the reason
for its exercising supervision over the allowance of fees from the estates of
public utility holding companies in reorganization, that the object of allowing
such fees is to encourage the appearance of security holders to insure the
"adequate representation of their respective interests and points of view in
proceedings before us." See Holding Company Act Release No. 7041. We
conclude that the action of the Commission in this case was not consistent with
that proper objective.
13
First, no good reason appears for not allowing fees to those who may oppose
the position of management, even though that position be reasonable. Whether
the management of a company undergoing reorganization under the statute
does in fact act as the "representatives of all the stockholders", as was declared
to be management's duty in S. E. C. v. Chenery Corp., 1943, 318 U.S. 80, 91,
63 S.Ct. 454, 461, 87 L.Ed. 626, the first Chenery case, or "manage[s] solely in
their own interest tremendous capital investments of other people's money," as
was said of many holding company managements in Report of the National
Power Policy Committee on Public Utility Holding Companies, H. Doc. 137,
74th Cong., 1st Sess., pp. 4-5, the management of a company undergoing
liquidation is not in a position to represent adequately the conflicting interests
The fact that most of the services of the appellees were performed before the
courts rather than the Commission is not a reason for holding them ineligible
for compensation. The statute requires court review and encouraging adversary
proceedings before courts is as important as encouraging them before the
Commission. See Nichols v. S. E. C., 2 Cir., 1954, 211 F.2d 412, 418. As was
succinctly said in In re United Corp., D.C.D.Del.1954, 119 F.Supp. 524, 532:
"Contrary to SEC's decision, the ball game is not over after the Commission
inning."
15
The circumstance that the appellees, after winning in the District Court and the
Court of Appeals, lost in the Supreme Court is the determinative element in the
test of the Commission requiring a denial of compensation to the appellees, for
the Commission in its opinion says that the services of the appellees would
have been compensable if they had won their case. We think that success in
litigation of this sort is not a proper criterion for determining the eligibility of
counsel for compensation, although it may be a relevant factor in computing the
amount of compensation to be awarded. Cf. 6 Collier, Bankruptcy 4537-4538.
In other types of reorganizations, where statutes govern with some particularity
the granting of fees, success does not control. See 11 U.S.C.A. 642.
Moreover, in a Section 11(e) proceeding, lack of success has been held to be
irrelevant. In Nichols v. S. E. C., supra, 211 F.2d at page 418, Judge Learned
Hand said: "It appears to us therefore that the appeal was reasonable, and the
fact that it was unsuccessful does not make the expense an improper charge
against the corporation. It should have been allowed. * * * It follows * * * that
the appeal * * * should not be deemed wholly uncontributive to `the
proceedings.'" The appellees in the instant case appeared in support of a
reasonable position. Consequently, even though the appellees appeared in
opposition to a reasonable position taken by Engineers' management, primarily
in judicial reviews, and ultimately lost, it is our view, to use the language of the
Commission, that their services have "directly and materially contributed to the
development of the proceedings with respect to the plan." Therefore, the
appellees are eligible for compensation from the estate for their services.
16
The decision of the court below that the Commission had erred in denying
compensation to the appellees therefore was correct. The District Court
painstakingly considered the circumstances under which the services had been
rendered and in accordance with its best judgment awarded compensation in
specified amounts to the appellees. Of course a court acting pursuant to Section
11(e) may not rewrite a plan approved by the Commission for Section 11(e)
provides only that a district court shall approve the plan of reorganization if it
finds the plan to be fair and equitable and appropriate to effect the policies of
the Act as we pointed out in our prior opinion. 168 F.2d at pages 739-740. But
in S. E. C. v. Central-Illinois Securities Corp., supra, 338 U.S. at page 126, 69
S.Ct. at page 1393, the Supreme Court said that a "correlation * * * is required
between the terms of 11(e) and those of 24(a)", because these sections
provide different methods for the review of Commission orders. Section 24(a),
15 U.S.C.A. 79(a), provides for review of Commission orders in courts of
appeals and states that the court "shall have exclusive jurisdiction to affirm,
modify, or set aside such order, in whole or in part." Consequently, in light of
the rationale of the decision of the Supreme Court in S. E. C. v. Central-Illinois
Securities Corp., the power to "modify" specified in Section 24(a) in some
instances may be read into the provisions of Section 11(e). Thus, in North
American Light & Power Co., 3 Cir., 1950, 180 F.2d 975, 980, this court
upheld the affirmative remedial action of a district court under Section 11(e)
without remanding the case for further consideration by the Commission. As
was said by Judge Hastie in his concurring opinion: "* * * the statute leaves a
substantial area for the exercise of inherent judicial power." Moreover, in fee
cases, it has been held that the reviewing courts have the power to modify a
Commission award, Standard Gas & Electric Co. v. S. E. C., 8 Cir., 1954, 212
F.2d 407, 412, and to award a fee where the Commission has refused to do so,
Nichols v. S. E. C., supra, 211 F.2d at pages 418-419. This court in In re North
American Light & Power Co., 1953, 202 F.2d 638, 639, held that the district
court acting pursuant to Section 11(e) might modify a Commission fee award
by increasing the amount. We said: "Upon consideration of the record we are of
the opinion that the District Court's action was a permissible exercise of its
judgment in the performance of its reviewing function * * *." Accordingly we
conclude that it was within the power of the court below to determine the
amounts of compensation to be paid to the appellees and to require such
payments to be made from the estate of Engineers.
17
In determining the amounts to be paid the court below considered carefully all
evidence relating to the appellees' services and compared the work done by
them with that of the other counsel who participated in the proceedings. See the
opinion and its appendix, 116 F.Supp. 930, 947-948. Chief Judge Leahy was of
the opinion that when appearing before him the appellees "adroitly waged the
legal battle", and we are of like mind. The Commission, however, argues that
the compensation allowed the appellees was too large. We cannot say that the
compensation granted by the court below was excessive in the light of the
entire record. Chief Judge Leahy was acting from a wealth of experience and
we find his reasoning to be clear and unambiguous and the factual bases for his
determination entirely adequate.
18
Notes:
1
The pertinent charter provisions of Engineers are set out in our earlier opinion
in notes 2 and 3 cited to the text in 168 F.2d at page 725. The amount involved
was approximately $3,200,000 in which 13,000 stockholders holding 1,900,000
common shares were interested
What we have said here is not intended to reflect on the good faith or integrity
of Engineers' management or of its very competent counsel
19
20
I am in accord with the view of the majority that the District Court had
correctly held that the Commission erred in denying compensation to the
appellees. I disagree, however, with the majority's holding that "* * * it was
within the power of the court below to determine the amounts of compensation
to be paid to the appellees and to require such payments to be made from the
estate of Engineers."
21
v. Drexel & Co., 75 S.Ct. 386. There the Supreme Court expressed the view
that the Securities and Exchange Commission was exclusively entrusted by the
"statutory design" with the power to pass upon fees allowable in
reorganizations under the Public Utility Holding Company Act, 15 U.S.C.A.
79 et seq.