1. Under § 24(a) of the Public Utility Holding Company Act,
which grants a right of review to "any person or party aggrieved"
by an order issued by the Securities & Exchange Commission
under the Act, a stockholder having a substantial financial or
economic interest distinct from that of the corporation, which is
directly and adversely affected by an order of the Commission, is a
"person aggrieved." P.
325 U. S.
388.
2. A sole stockholder of a company ordered by the Securities
& Exchange Commission under the Public Utility Holding Company
Act to make certain accounting entries which would affect adversely
the stockholder's right to dividends
held entitled under §
24(a) to a review of the order as a "person aggrieved."
Pittsburgh & West Virginia R. Co. v. United States,
281 U. S. 479,
distinguished. P.
325 U. S.
389.
3. Where review of an order issued by the Securities &
Exchange Commission under the Public Utility Holding Company Act is
applied for in more than one circuit court of appeals, that one in
which the Commission under § 24(a) files a transcript of its
proceedings thereupon has exclusive jurisdiction. P.
325 U. S.
391.
4. A stockholder owning 9,000 out of a total of some 5,250,000
shares of stock of a corporation, charging illegality and fraud in
a refinancing transaction between the corporation and a subsidiary
which would reduce the value of his stock by reducing the interest
income of his corporation, held entitled, under § 24(a), as a
"person aggrieved," to a review of an order of the Commission
approving the transaction. Pp.
325 U. S. 387,
325 U. S.
392.
5. It is not essential to the stockholder's right to a review in
such case that the proceeding have the character of a derivative
suit. P.
325 U. S.
392.
143 F.2d 250 reversed.
143 F.2d 945 affirmed.
Page 325 U. S. 386
Certiorari, 323 U.S. 701, 324 U.S. 835, to review, in No. 470,
the dismissal of a petition for review of an order of the
Commission, and, in No. 815, denials of motions to dismiss (and to
dismiss or affirm) a petition for review of an order of the
Commission.
MR. JUSTICE ROBERTS delivered the opinion of the Court.
We granted certiorari in these cases because of an apparent
conflict in the decisions below [
Footnote 1] concerning the application of § 24(a) of the
Public Utility Holding Company Act, [
Footnote 2] which provides that "any person or party
aggrieved by an order issued by the Commission" under the Act may
obtain a review of the order by the Circuit Court of Appeals of the
circuit of his residence or principal place of business. The
difference of view is as to the scope of the phrase "person or
party aggrieved."
In No. 470, it appears that the petitioner is a registered
holding company, and owns all the common stock of the Florida Power
& Light Company. The paragraphs of the order in controversy
require Florida to make certain accounting entries which will
result in taking out of surplus moneys which would otherwise be
available to pay
Page 325 U. S. 387
dividends to petitioner. The order including these paragraphs
was made as the result of proceedings before the Commission to
which American and Florida were parties, and in which American
participated, and the provisions in controversy appear to have been
drawn with a view that they might be contested apart from other
matters before the Commission, and to have included statements to
the effect that they were made without prejudice to the rights of
American and Florida to contest them.
American petitioned the court below to set aside the order.
Later Florida petitioned another Circuit Court of Appeals to set
aside the same paragraph attacked by American. The Commission moved
to dismiss American's petition, reciting the fact that Florida had
instituted a similar proceeding, and asserting that American, as
sole stockholder, had no standing to seek review of the order.
In No. 815 it appears that Electric Bond & Share Company, a
registered holding company, loaned $35,000,000 to a subsidiary,
American and Foreign Power Company, which is also a registered
holding company, and that the question of how this loan should be
refinanced became the subject of a proceeding before the
Commission.
The respondent Okin, as the owner of 9,000 out of a total of
some 5,250,000 common shares of Electric Bond and Share, was
allowed to participate in the proceeding, and opposed a proposition
which the two companies submitted for a method of refinancing the
loan. The Commission made an order approving the proposal, and Okin
thereupon petitioned the court below to review the order. The gist
of his complaint was that the refinancing as approved would reduce
the value of his stock by reducing the interest income of Electric
Bond and Share.
Page 325 U. S. 388
The Commission, before filing a certified copy of the transcript
of the record upon which the order complained of was entered, moved
to dismiss Okin's petition upon two grounds. The first was that,
within the meaning of § 24(a), Okin was not a person or party
aggrieved. The second was that his objection to the order was
frivolous. In response to this, the court held that, while it might
well be that Okin's attack lacked merit, if it did, the result
should be an affirmance of the order, rather than a dismissal of
the proceeding, and that jurisdiction to consider the merits was
lacking in the absence of a transcript of the proceedings before
the Commission. The motion was accordingly denied.
The Commission alleges that, subsequently, it filed a motion to
dismiss or affirm, after having filed an abbreviated transcript
containing so much of the record as was relied on for the purposes
of the motion, and that this motion was denied without opinion. The
record shows that a motion to dismiss or affirm was denied without
opinion.
The Commission asks us to review both denials. The respondent
insists we lack jurisdiction so to do, for the reason that neither
order is final.
First. We hold that a stockholder having a substantial
financial or economic interest distinct from that of the
corporation which is directly and adversely affected by an order of
the Commission, irrespective of any effect the order may have on
the corporation, is a "person aggrieved" within the meaning of
Section 24(a).
The Commission does not question that American, as sole
stockholder of Florida, has a substantial economic interest which
is affected by the order; nor does it maintain that the term
"person aggrieved" is not broad enough to include one whose
economic interest is affected by an order affecting his company
under circumstances which make it inequitable that he be bound by
the action or
Page 325 U. S. 389
inaction of the management. It insists, however, that American's
application for review in the court below was in the nature of a
derivative action, commonly designated a stockholder's suit, to
redress a wrong to his corporation. In this view, the Commission
urges that, as Florida has itself sought a review of the order, it
must be presumed that Florida will endeavor to protect the interest
of its sole stockholder, American, and that American has
consequently failed to show any necessity for its representing the
interests of Florida.
The difficulty with this contention is that the action of the
Commission in ordering the transfer of an item from surplus account
to another account where the item will not be available for the
payment of dividends does not deprive the corporation of any asset
or adversely affect the conduct of its business in the manner it
affects the petitioner, whereas the order has a direct adverse
effect upon American as a stockholder entitled to dividends. It was
because the court below overlooked this difference that it found
support for its decision in
Pittsburgh & West Virginia R.
Co. v. United States, 281 U. S. 479.
That was a suit brought under the Urgent Deficiencies Act to set
aside an order of the Interstate Commerce Commission addressed to a
carrier other than the plaintiff in the suit. The plaintiff was a
minority stockholder of the carrier affected. This court pointed
out that, under the accepted doctrine, the plaintiff had no
standing to sue, since, in attempting to do so, it was merely
seeking, in a derivative capacity, to vindicate the rights of the
corporation.
In awarding a review of an administrative proceeding, Congress
has power to formulate the conditions under which resort to the
courts may be had. [
Footnote 3]
The persons accorded
Page 325 U. S. 390
a right to obtain review are therefore to be ascertained from
the terms of the statute. Congress might here have provided that
only parties to the administrative proceeding should have standing
to obtain court review. When the bill which became the Public
Utility Holding Company Act was introduced in the houses of
Congress, it provided that
"any person aggrieved by an order issued by the Commission in a
proceeding under this title to which such person is a party may
obtain a review of such order. [
Footnote 4]"
The provision was altered so as to read as it is now found in
the statute. There seems to be no reason not to accord the
statutory language its natural meaning in a case such as this,
where the considerations which would move the corporation to seek
review differ from those which may be relevant to the stockholder's
interests. There may be situations in which the two interests are
the same and where, consequently, the grievance ought not to
support two proceedings identical in character. This, however, is
not such a case, for it is possible that, without any legal wrong
to stockholders, the corporation may elect not to prosecute, or to
abandon, a proceeding for review.
This court has not allowed the usual criteria of standing to sue
to deny persons who, in analogous cases under that doctrine, would
ordinarily not be permitted to invoke court review, the benefit of
such review under statutes embodying the same language as § 24(a).
[
Footnote 5] The same is true
of the lower federal courts. [
Footnote 6] In these instances,
Page 325 U. S. 391
the extension of the privilege to persons aggrieved was held to
extend it to those not technically parties, and therefore not
entitled, without the statutory provision, to initiate litigation
in a court.
While the matter was not specifically mooted, it would seem
that, until the instant cases, both the Commission and the courts
have been of the view that persons situated as are the stockholders
in these cases were given the statutory right to apply for review
of a Commission order. In Circuit Courts of Appeals and in this
court, stockholders have been heard upon the merits of orders made
against corporations by the Securities and Exchange Commission.
[
Footnote 7]
The further suggestion is made that to permit stockholders to
resort to court review would create unnecessary inconvenience and
expense, since a stockholder entitled to apply to a court may go to
the Circuit Court of Appeals of the circuit in which he resides or
has his principal place of business. Thus, it is urged, the
Commission might be called upon to answer suits in various
circuits. But § 24(a) provides that the Commission may file a
transcript of its proceedings in any circuit in which a proceeding
has been initiated, and thereupon the court in which the transcript
is filed shall have exclusive jurisdiction. Thus, if the Commission
had here elected to file a transcript in the Circuit Court of
Appeals where Florida applied for review, the Circuit Court of
Appeals for the First Circuit, in which American's petition was
filed, should have transferred that petition to the other court,
and all the complaints would have been heard by a single court and
on the same record. [
Footnote
8]
Page 325 U. S. 392
Second. In No. 815, the court below held the respondent
had standing to maintain the proceeding for review of the
Commission's order. In this case, Okin, as a stockholder, attacked
the transaction made by his company with its subsidiary on the
grounds that it was both illegal and fraudulent. His corporation
urged that the Commission approve the transaction, thus taking a
position adverse to him. His application for review of the
Commission's order approving the settlement was therefore in the
nature of a derivative or stockholder's action. Inasmuch as he
charged illegality and fraud, it is evident that application to the
Board of Directors would have been futile. Under the Commission's
own view, therefore, the Circuit Court of Appeals was right in
denying a dismissal of the proceeding for lack of standing on the
part of Okin to initiate it. But, as above stated in the decision
of No. 470, we do not deem it essential that the proceeding have
the character of a derivative suit.
The Commission urges us to hold that the petition, on its face,
presents only frivolous contentions. The court below was unwilling
to dismiss on this ground, holding that a more appropriate order
would be one of affirmance. It required that the record be filed,
as required by the Act, as a condition of consideration of this
matter. Apparently it was not satisfied that the filing of an
abbreviated transcript furnished a basis for affirmance. The
Commission, without inordinate delay or additional expense, might
have filed the full transcript of the proceedings before it and
obtained the judgment of the court on the adequacy of the petition.
We think we are not called upon to examine the merits of the
Commission's contentions or to reverse the decision denying the
motion to dismiss, or that denying the motion to dismiss or affirm.
The Court below has discretion to deal with the problem of the
necessity of a record, and the extent thereof, in connection
Page 325 U. S. 393
with a motion to dismiss or affirm on the ground that the
petition for review is frivolous.
In No. 470, the judgment is reversed.
In No. 815, the judgment is affirmed.
MR. JUSTICE DOUGLAS took no part in the consideration or
decision of these cases.
MR. JUSTICE BLACK and MR. JUSTICE REED concur in the result in
No. 815.
* Together with No. 815,
Securities & Exchange
Commission v. Okin, on certiorari to the Circuit Court of
Appeals for the Second Circuit.
[
Footnote 1]
American Power & Light Co. v. Securities and Exchange
Commission, 143 F.2d 250;
Okin v. Securities and Exchange
Commission, 143 F.2d 945.
[
Footnote 2]
15 U.S.C. § 79x(a).
[
Footnote 3]
Federal Power Comm'n v. Pacific Power & Light Co.,
307 U. S. 156,
307 U. S.
159.
[
Footnote 4]
Senate Bill No. 1725, 74th Cong., 1st Sess., § 24(a); House
Resolution No. 5423, 74th Cong., 1st Sess., § 23(a).
[
Footnote 5]
Interstate Commerce Commission v. Oregon-Washington R. &
N. Co., 288 U. S. 14 (the
Interstate Commerce Act);
Federal Communications Comm'n v.
Sanders Bros. Radio Station, 309 U. S. 470, 642
(Communications Act);
cf. L. Singer & Sons v. Union Pac. R.
Co., 311 U. S. 295.
[
Footnote 6]
Associated Industries v. Ickes, 134 F.2d 694 (the
Bituminous Coal Act).
[
Footnote 7]
Lawless v. Securities & Exchange Commission, 105
F.2d 574;
Todd v. Securities and Exchange Commission, 137
F.2d 475;
cf. Northwestern Electric Co. v. Federal Power
Commission, 321 U. S. 119.
[
Footnote 8]
L.J. Marquis & Co. v. Securities and Exchange
Commission, 134 F.2d 335;
L.J. Marquis & Co. v.
Securities and Exchange Commission, 134 F.2d 822.
MR. 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 Brandeis,
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,
281 U. S. 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
Page 325 U. S. 394
only 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
Page 325 U. S. 395
to 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 and Exchange Commission v. Chenery
Corp., 318 U. S. 80;
Lawless v. Securities and Exchange Commission, 105 F.2d
574;
New York Trust Company v. Securities and Exchange
Commission, 131 F.2d 274;
City National Bank &
Trust
Page 325 U. S. 396
Co. v. Securities and Exchange Commission, 134 F.2d 65.
See also Otis & Co. v. Securities and 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, Inc. 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,
281 U. S. 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
Page 325 U. S. 397
Section 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 Section 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
Page 325 U. S. 398
outside 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 Section 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 and administrative order which involves only the
corporation as such.
MR. JUSTICE BLACK and MR. JUSTICE REED join in that part of this
dissent dealing with No. 470, the
American Power & Light
Co. case.