North American Co. v. Sec, 327 U.S. 686 (1946)
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North American Co. v. Securities & Exchange Commission
No. 1
Argued November 15, 1945
Decided April 1, 1946
327 U.S. 686
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE SECOND CIRCUIT
Syllabus
1. The enactment of § 11(b)(1) of the Public Utility Holding Company Act of 1935, authorizing the Securities and Exchange Commission to require each public utility holding company engaged in interstate commerce to limit its operations to a single integrated public utility system, was within the power of Congress under the commerce clause of the Constitution. Pp. 700-707.
(a) While the ownership of securities, considered separately and abstractly, may not be commerce, the ownership of securities of operating companies has a real and intimate relation to the interstate activities of public utility holding companies and cannot be effectively divorced therefrom; such ownership is the generating force of the constant interstate flow of reports, letters, equipment, securities, accounts, instructions and money which constitute the life blood of holding companies and allow abuses to be effectuated. P. 702.
(b) Congress may impose relevant conditions and requirements on those who use the channels of interstate commerce in order that those channels will not become the means of promoting or spreading evil, whether of a physical, moral, or economic nature. P. 705.
(c) The fact that an evil may involve a corporation’s financial practices, its business structure, or its security portfolio does not detract from the power of Congress under the commerce clause to promulgate rules in order to destroy that evil -- once it is established that the evil concerns or affects commerce in more States than one. P. 706.
(d) Congress having found that economic evils resulting from unintegrated public utility holding company systems were polluting the channels of interstate commerce and took the form of transactions occurring in and concerning more States than one, it had power under the commerce clause to attempt to remove those evils by ordering the holding companies to divest themselves of the securities that made such evils possible. P. 706.
2. An order of the Securities and Exchange Commission requiring a public utility holding company to divest itself of its scattered subsidiaries and to confine its operations to a single integrated public utility system, pursuant to § 11(b)(1) of the Public Utility Holding Company Act of 1935, does not take property without just compensation in violation of the due process clause of the Fifth Amendment. Pp. 707-710.
(a) Congress having determined that the economic advantages of a holding company at the top of an unintegrated public utility system are not commensurate with the resulting economic disadvantages, the fact that valuable interests may be affected does not, by itself, render that determination invalid under the due process clause. P. 708.
(b) Since the Act does not contemplate or require the dumping or forced liquidation of securities on the market for cash, but requires any divestment or reorganization plan to be fair and equitable and to be carefully scrutinized by both the Commission and the enforcing court -- thus enabling the assertion and protection of all shareholders’ rights -- it cannot be said, in the absence of any alleged unfair plan of divestment, that the shareholders are adversely affected from a constitutional standpoint by the operation of § 11(b)(1). P. 709.
3. Congress having decided, within the scope of its constitutional power and discretion, that it is necessary to reorganize existing public utility holding company systems, this Court cannot question the appropriateness or propriety of its decision, even though other sections of the Act provide for the regulation of future transactions of the kinds that were found to give birth to many of the evils about which Congress was concerned. P. 710.
4. Even though a particular holding company may not have engaged in any of the evils enumerated in § 1(b) of the Public Utility Holding Company Act of 1935, this does not make the application of § 11(b)(1) to it unconstitutional, since the power of Congress to legislate generally in order to prevent potential injury to the national economy from becoming a reality is not limited by proof of the existence of evils in each particular situation. P. 710.
5. In the light of the facts stated in the opinion, and particularly petitioner’s extensive holdings of the securities of its subsidiaries and the penetration of local managements with men selected by or historically related to petitioner, the Commission was justified in treating petitioner not as engaged solely in the business of acquiring and holding stocks and other securities of its subsidiaries for investment, but as a "holding company" possessing domination over its subsidiaries or the power to dominate them when and if necessary, even though petitioner’s active intervention in the affairs of its subsidiaries has been of a limited character and operational policies have been left entirely to local management. Pp. 692-693.
6. Petitioner clearly is engaged in interstate commerce, since it is the nucleus of an empire of corporations covering 17 States and the District of Columbia, its influence and domination permeate the entire system, the mails and instrumentalities of interstate commerce are vital to the functioning of this system, and several of its subsidiaries admittedly are engaged in interstate commerce. P. 694.
7. The power of the Commission to deny exemption under § 3(a)(1) to a predominantly local holding company does not mean that a holding company having no relation whatever to interstate commerce may be subjected to § 11(b)(1) or to any other provisions of the Act. P. 699.
133 F.2d 148, affirmed.
After appropriate administrative proceedings under § 11(b)(1) of the Public Utility Holding Company Act of 1935, the Securities and Exchange Commission entered orders limiting petitioner’s properties to those which, in the judgment of the Commission, complied wit the standards of that section and requiring it to sever relationship with all of its other properties. 11 S.E.C.194; 11 S.E.C. 715. On petition for review, the Circuit Court of Appeals sustained the Commission’s order. 133 F.2d 148. This Court granted certiorari. 318 U.S. 750. See also 320 U.S. 708. Affirmed, p. 711.