American Power & Light Co. v. Sec, 329 U.S. 90 (1946)
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American Power & Light Co. v.
Securities and Exchange Commission
No. 4
Argued November 16, 1945
Reargued October 14, 15, 1946
Decided November 25, 1946 *
329 U.S. 90
CERTIORARI TO THE CIRCUIT COURT OF APPEALS
FOR THE FIRST CIRCUIT
Syllabus
1. Section 11(b)(2) of the Public Utility Holding Company Act of 1935 directs the Securities & Exchange Commission, as soon as practicable after January 1, 1938,
To require by order, after notice and opportunity for hearing, that each registered holding company, and each subsidiary company thereof, shall take such steps as the Commission shall find necessary to ensure that the corporate structure or continued existence of any company in the holding company system does not unduly or unnecessarily complicate the structure, or unfairly or inequitably distribute voting power among security holders, of such holding company system.
In a proceeding instituted by the Commission under § 11(b)(2), the Commission found, after notice and hearing, that the corporate structure and continued existence of petitioners, two subholding companies in a holding company system, unduly and unnecessarily complicated the structure of the system and unfairly and inequitably distributed voting power among the security holders of the system, in violation of the standards of § 11(b)(2). The Commission thereupon entered orders requiring the dissolution of both petitioners and requiring them to submit plans for effectuating the orders.
Held: that the orders were authorized by § 11(b)(2), and that the section as so applied is constitutional. Pp. 96, 121.
2. Section 11(b)(2) is a valid exercise of the power of Congress under the commerce clause of the Federal Constitution. Pp. 96-104.
(a) Section 11(b)(2) applies only to registered holding companies and their subsidiaries. P. 97.
(b) The impact of § 11(b)(2) is limited, by reference to the registration requirements, to those holding companies which are in fact in the stream of interstate activity or that affect commerce in more States than one, North American Co. v. SEC, 327 U.S. 686, and depend for their very existence upon the constant and systematic use of the mails and the instrumentalities of interstate commerce. P. 98.
(c) The holding company system in which the petitioners are embraced possesses an undeniable interstate character which makes it properly subject, from the statutory standpoint, to the provisions of § 11(b)(2). P. 98.
(d) Congress has power under the commerce clause to impose relevant conditions and requirements on those who use the channels of interstate commerce so that those channels will not be conduits for promoting or perpetuating economic evils. P. 99.
(e) Congress is completely uninhibited by the commerce clause in selecting the means considered necessary for bringing about the desired conditions in the channels of interstate commerce. Any limitations are to be found in other sections of the Constitution. P. 100.
(f) Congress has constitutional authority under the commerce clause to undertake to solve national problems directly and realistically, giving due recognition to the scope of state power. P. 103.
3. Section 11(b)(2) does not unconstitutionally delegate legislative power to the Securities & Exchange Commission. Pp. 104-106.
(a) The standards of § 11(b)(2), which provides that the Commission shall act so as to ensure that the corporate structure or continued existence of any company in a particular holding company system does not "unduly or unnecessarily complicate the structure" or "unfairly or inequitably distribute voting power among security holders," are not too indefinite, in the light of the purpose of the Act, its factual background, and the statutory context in which they appear. Pp. 104-105.
(b) Necessity fixes a point beyond which it is unreasonable and impracticable to compel Congress to prescribe detailed rules. It then becomes constitutionally sufficient if Congress clearly delineates the general policy, the public agency which is to apply it, and the boundaries of this delegated authority. Private rights are protected by access to the courts to test the application of the policy in the light of these legislative declarations. P. 105.
(c) Under these circumstances, it is of no constitutional significance that the Commission, in executing the policies of § 11(b)(2), also has discretion to fashion remedies of a civil nature necessary for attaining the desired goals. P. 106.
(d) The Constitution does not require that the Commission translate the legislative standards into formal and detailed rules of thumb prior to their application to particular cases. It is sufficient that the Commission’s actions conform to the statutory language and policy. P. 106.
4. Section 11(b)(2) does not violate the due process clause of the Fifth Amendment. Pp. 106-108.
(a) It is not the function of the Court to reweigh the factors considered by Congress in enacting the legislation, or to question the conclusion reached by Congress. P. 106.
(b) Section 11(b)(2) does not, on its face, authorize or necessarily involve any destruction of any valuable interests without just compensation. North American Co. v. SEC. 327 U.S. 686. P. 107.
(c) Section 11(b)(2) is not rendered void by the absence of an express provision for notice and opportunity for hearing to security holders regarding proceedings under that section. P. 107.
(d) The managements of the petitioners, having been notified and having participated in § 11(b)(2) proceedings, possess no standing to assert the invalidity of that, section from the viewpoint of the security holders’ constitutional rights to notice and hearing. P. 107.
(e) The Commission is bound under the statute to give notice and opportunity for hearing to consumers, investors, and other persons whenever constitutionally necessary. P. 108.
(f) Section 11(b)(2), fairly construed, neither expressly nor impliedly authorizes unconstitutional procedure. P. 108.
5. The record amply supports the Commission’s findings that the corporate structures and continued existence of petitioners unduly and unnecessarily complicate the holding company system in which they are subholding companies, and unfairly and inequitably distribute voting power among the security holders of that system. Pp. 108-112.
6. The Commission’s choice of the dissolution of petitioners as "necessary to ensure" effectuation of the Act was authorized, and may not be set aside on judicial review. Pp. 112-118.
(a) Where Congress has entrusted an administrative agency with the responsibility of selecting the means of achieving the statutory policy, the relation of remedy to policy is peculiarly a matter for administrative competence. P. 112.
(b) Only if the remedy chosen is unwarranted in law or without justification in fact should a court intervene. Pp. 112-113.
(c) Dissolution of a holding company or a subholding company is contemplated and authorized by § 11(b)(2) as a possible remedy. P. 113.
(d) The phrase "in the holding company system" does not limit the authority of the Commission to orders removing a particular company from the holding company system of which it is a part but permits an order terminating its corporate existence. P. 113.
(e) The legislative history of the Act compels the conclusion that dissolution is one of the remedies contemplated by § 11(b)(2) and that its choice falls within the allowable area of the Commission’s discretion. Pp. 114-115.
(f) The Commission’s choice of dissolution with respect to the petitioners is not so lacking in reasonableness as to constitute an abuse of discretion. P. 115.
(g) Dissolution is not so drastic a remedy as to be unreasonable. P. 116.
(h) Since the Commission’s choice of dissolution of the petitioners has a rational basis, the fact that other solutions might have been selected is immaterial. P. 118.
(i) Review by this Court of the Commission’s choice of remedies is limited solely to testing the propriety of the remedy so chosen from the standpoint of the Constitution and the statute. P. 118.
(j) The Commission’s finding that the continued existence of petitioners violates the statutory standards warrants the order of their dissolution, whatever may be the shortcomings of the parent holding company. P. 118.
7. When the hearings in the proceedings instituted against the petitioners by the Commission under § 11(b)(2) had been in progress for more than a year and the record was approaching completion, petitioners moved to consolidate applications for approval of plans filed by them under § 11(e), designed to adjust the companies to the standards of § 11(b)(2) without the necessity of dissolution. The Commission deferred consideration of the motions until it entered the dissolution orders under § 11(b)(2). It then denied the motions and refused to grant hearings on the plans in advance of its orders of dissolution. It did this after thorough examination of the plans, and after finding that they were incomplete and inadequate on their face and that they failed to hold out any real promise of effectuating the standards of § 11(b)(2). Held, that there was no error in this procedure. Pp. 118-119.
(a) The filing of the plans under § 11(e) did not oust the Commission of jurisdiction to enter its orders under § 11(b)(2). P. 119.
(b) Where consideration of plans filed under § 11(e) leads the Commission to the conclusion that, on their face, they are incomplete, inadequate, and unlikely to satisfy the statutory standards, or where they are found to have been filed solely for purposes of delay, it would be contrary to the statutory policy of prompt action to require the Commission to hold hearings on them before entering an order under § 11(b)(2). P. 120.
(c) To the extent that entry of the § 11(b)(2) orders made the plans filed under § 11(e) moot or hearings thereon unnecessary, the result is one that is inevitable if proper accommodation is to be made for the different sections of the Act and for the various statutory policies. Pp. 120-121.
(d) Moreover, a § 11(b)(2) proceeding leads only to the expression of the Commission’s view of what must be done to ensure compliance with the statutory standards. Petitioners are not yet foreclosed from attacking the Commission’s orders under § 11(b)(2). P. 121.
141 F.2d 606 affirmed.
In a proceeding under § 11(b)(2) of the Public Utility Holding Company Act of 1935, the Securities & Exchange Commission entered orders requiring the dissolution of petitioners and requiring them to submit plans for the effectuation of the orders. 11 S.E.C. 1146. The Circuit Court of Appeals sustained the orders. 141 F.2d 606. This Court granted certiorari. 325 U.S. 846. Affirmed, p. 121.