Brief for the Respondent in Opposition — Egan v. United States

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INDEX

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Opinion below__- : Lo 1

Jurisdiction ~~~ ae : _ »

Statute involved__ : : bs 2

Questions presented __ 3

es je : = =o 3

Argument s: isa - Pea. F a 13

Conelusion a ocatice p niinsNda — ae 2

CITATIONS

Cases :

Bochm v. United States, 1283 F. (2d) 791, certiorari denied,

315 U. S. 800 = ° Seas 9

Britton v. United States, 60 F. (2d) 772, certiorari denied.

287 U.S. 669 aa : tee es = : 23

Brooks v. United States, 267 U.S. 482 -____- ane x 19

Burnstein vy. United States, 55 F. (2d) 590, certiorari de- :

ae ee ae EE NO ated es SEO 23

Clark Distilling Co. v. Western Maryland Railicay Co., 242 ?

LS | EE SS a ane ae ee ee ee See 19

Clarke v. United States, 132 F. (2d) 588. certiorari denied,

318 U. S. 789__- parte inbasves ects ee eee “ae 23 ‘

Connell vy. Haase & Sons Fish Co, 302 Mo. 48 - 20

Deitrick v. Greaney, 309 U. S. 190 So ee CaS mS 20 3

Delaney vy. United States, 263 U.S. 586 . wee) 22

Direct Sales Co. vy. United States, No, 593, October Term, is

1842, decided June 14, 1943 --__ -_. Atinasi 21

Douchan vy. United States, 136 F. (2d) 144, certiorari denied,

No, 1033, October Term, 1942... --- wn Orn oe 23

Electrie Bond and Share Co. vy. Securities and Eechange

Commission, 303 U.S. 419 Sone eee oe le 14

Fensky v. Casualty Co., 264 Mo. 154----- pa 20

In re Rahrer, 140 U.S. 545___- 7 - 19

Joplin Mercantile Co. v. United States, 213 Fed. 926, aflirmed,

fis. Swe Piecnaindtacieneeahn 20

Kentucky Whip and Collar Co. vy. Iinois Central R. Co..

- Jia. = ene ‘ hice ditineante — ns 19

Martin vy. United States, 100 F. (2d) 490, certiorari de-

nied, 306 U.S. 649__ pinta mit keane = i 23

Mininsohn y. United States, 101 F. (20) 4772... __- aa 19

557294——42—-—1 (1)

Ne WATE EIN BEY

II

Cases—Continued.

New York Central R. R. v. United States, 212 U. S. 481--

North American Company, The, 4 8. BK. C, 4%4..........

North American Company, The, — S. KE. C. —, Holding

Company Act Release No. 4565 (Sept. 17, 1948) --------

Prudence Corp. v. Geist, 316 U. 8. 89----------------------

Sola Electric Co. v. Jefferson Co., $17 U. & i1Va....--..

State ex inf. McKittrick v. American Insurance Co., 346

Mo, 260....-----.---222----- one nnn eee nen-aneene=

State ex inf. Crow v. Firemans Fund Ins. Co., 152 Mo, 1----

State ex inf. Hadley v. Del Mar Jockey Club, 200 Mo. 34----

State of Missouri v. Union Electric Company of Missouri,

Cireuit Court of St. Charles County, Mo., No. 18065,

May 26, 1041--.-.--------------------------9--"9--0""

Union Electric Co. of Missouri, 4 8. BR © Gi. nessccance

United States v. Hill, 248 U. S. 420----------------------

United States v. Johnston, Nos. 4 and 5, October Term,

1942, decided June 7, 1943----------------------------"

Zito v. United States, 64 F. (2d) 772.--------------------

Statute:

Public Utility Holding Company Act of August 26, 1935, c.

687, 49 Stat. 803 (15 U.S. C. 79):

Ben Do ncenennnncccq--cennss- enon esa sasesenessen=

Bec. 1B. 222... on nnn nn nnn eeenesnnnse 2, 16,

Miscellaneous:

eae

79 Cong. Rec. 10557-10560_------------------------------"

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Guthe Supreme Court of the United States

OcroBEeR TreRM, 1943

Nos. 410 anp 414

Louis H. EGAN, PETITIONER

v.

Untrep States oF AMERICA

Union ELecrric Company or Missouri,

A CORPORATION, PETITIONER

v.

Untrep Srates OF AMERICA

ON PETITIONS FOR WRITS OF CERTIORARI TO THE

UNITED STATES CIRCUIT COURT OF APPEALS FOR THE

EIGHTH CIRCUIT*

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINION BELOW

The opinion of the circuit court of appeals (R.

1231-1258) is reported at 137 F. (2d) 369.

‘Although two separate petitions for certiorari were filed,

they arise out of a single trial and are based on a single rec-

ord, The most important issue raised in both petitions is the

same. For this reason, we submit one brief in response to

both petitions.

(i)

2

JURISDICTION

The judgment of the circuit court of appeals in

each case (R. 1259-1260) was entered August 9,

1943, and petitions for rehearing were denied Sep-

tember 9, 1943 (R. 1278, 1295). The petition of

Louis H. Egan for a writ of certiorari was filed

October 5, 1943. The petition of the Union Elec-

trie Company of Missouri was filed October 8,

1943. The jurisdiction of this Court is invoked

under Section 240 (a) of the Judicial Code, as

amended by the Act of February 13, 1925, made

applicable by Section 25 of the Public Utility

Holding Company Act of 1935 (15 U.S. C. 79y).

See also Rules XI and XIII of the Criminal Ap-

peals Rules promulgated by this Court May 7,

1934.

STATUTE INVOLVED

Section 12 (h) of the Public Utility Holding

Company Act of August 26, 1935, ¢. 687, 49 Stat.

803, 824-825, 15 U.S. C. 791 (h), provides:

It shall be unlawful for any registered

holding company, or any subsidiary com-

pany thereof, by use of the mails or any

means or instrumentality of interstate com-

merce, or otherwise, directly or indirectly—

(1) to make any contribution whatso-

ever in connection with the candidacy, nom-

ination, election or appointment of any per-

son for or to any office or position in the

Government of the United States, a State, or

any political subdivision of a State, or any

3

agency, authority, or instrumentality of

any one or more of the foregoing; or

(2) to make any contribution to or in

support of any political party or any com-

mittee or agency thereof.

The term ‘‘contribution’”’ as used in this

subsection includes any gift, subscription,

loan, advance, or deposit of money or any-

thing of value, and includes any contract,

agreement, or promise, whether or not

legally enforceable, to make a contribution.

QUESTIONS PRESENTED

1. Whether Section 12 (h) of the Publie Utility

Holding Company Act of 1935 is constitutional.

2. Whether petitioner Union Electric Company

of Missouri is liable for the acts of its officers in

making political contributions in violation of

12 (h).

3. Whether there was sufficient evidence to sup-

port petitioner Egan’s conviction for conspiracy.

4. Whether the trial court committed reversible

error in charging the jury that contributions made

to office holders were in violation of Section 12 (h)

if the jury should find that such contributions

were made in contemplation of their candidacies.

STATEMENT

Union Electrie Company of Missouri and Louis

H. Egan, its former president, were indicted in

eight counts in the District Court of the United

States for the Eastern District of Missouri.

LT REO SG EE IS. TENE PELE LES NEI TOOTS

4

Count 1 charged a continuing conspiracy from

February 25, 1937, to the return date of the indict-

ment, among the corporation, Egan, Boehm and

Laun (two officers who were not indicted), and

other persons unknown to the grand jury to vio-

late Section 12 (h) of the Public Utility Holding

Company Act of 1935 by raising a secret cash fund

and making political contributions therefrom (R.

16-23). Counts 2 to 8 charged separate substan-

tive violations of section 12 (h), effected by the

use of the mails or the instrumentalities of inter-

state commerce (R. 23-31). Demurrers to the

indictment, in which petitioners challenged the

constitutionality of Section 12 (h) were overruled

(R. 32-33, 200-204). Egan was found guilty on

the first count and Union Electric on all counts

(R. 53, 1198-1199). Motions for a new trial and

in arrest of judgment were denied (R. 54-56,

1200-1219). Egan was sentenced to a term of

two years and to pay a fine of $10,000, and Union

Electric was sentenced to pay a fine of $10,000

on each count (R. 56-58, 1220). On appeal the

convictions were unanimously affirmed (R. 1260).

Union Electric is both an operating electric

utility company and a holding company with

subsidiaries in Missouri, Illinois, and Iowa (R.

220-224, 240-242; 686-687). It is itself a sub-

sidiary of the North American Company, which

during the entire period covered by the indict-

ment owned, directly or indirectly, all of its com-

oat ee ye ee

5

mon stock and possessed not less than 89.13% of

the voting power (R. 251). On February 25,

1937, North American registered with the Securi-

ties and Exchange Commission pursuant .to Sec-

tion 5 of the Act (R. 211-212, 213-215), thus

becoming a ‘‘registered holding company”’ as de-

fined by Section 2 (a) (12) and subjecting itself

and all its subsidiaries to Section 12 (h). Union

Electric itself registered as a holding company

on August 30, 1939 (R. 220). During the major

part of the period covered by the indictment,

until May 18, 1939, Egan was president of the

company and chairman of the board of directors,

Boehm was executive vice-president and member

of the board of directors, and Laun was vice-

president in charge of real estate and taxes (R.

215-216, 513-515, 1083). _

The general program of political activity, of

which the specific charges set forth in the indict-

ment were a part, commenced in about the year

1931 under the immediate direction of Boehm,

the executive vice president (R. 842). Boehm

testified that Union’s participation in political

affairs was suggested as early as 1926 and was

subsequently encouraged by officers of the parent

North American, who wished to develop a politi-

eal atmosphere favorable to the utility interests

(R. 841-843, 857-858). The program was

financed largely by a secret cash ‘‘slush fund”

which was concealed on the books of the corpora-

6

tion (R. 309, 312, 369, 380, 448, 512, 719-720).

The fund was created and concealed: (a) by

kick-backs from various attorneys—Fowler,

Hamilton, Alschuler, and McMillan—who re-

turned in cash all or part of their annual re-

tainers (R. 310-311, 315-317, 351, 648; 352-354,

364, 370-372, 648-649, 854-855); (b) by cash re-

bates from a contracting firm which supplied pe-

titioner with insulators and poles (R. 260-264,

267-269, 272-276, 304, 309, 844); (c) by the re-

turn in eash of a $6,000 fee paid for an insurance

survey and by the receipt in cash of insurance

credits to which the Company was entitled by

reason of favorable risk experience credit, long-

term and fleet contracts (R. 400-403, 405-407,

413-417, 423-424, 445, 448-449) ; and (d) by cash

returns from officers and employees who sub-

mitted inflated expense accounts (R. 459, 462,

467, 469-471, 480-481, 489-492, 495-496, 505, 620,

623-624, 646-647, 857). Boehm, executive vice

president and director (R. 841, 857), Laun, vice

president (R. 646-647), Spoehrer, secretary and

director (R. 423, 480), Irish, research engineer

and after 1938 controller (R. 495, 505), Milten-

berger, vice president in charge of operations (R.

462-463), Kropp, assistant secretary (R. 444,

467), Welsh, vice president of a subsidiary (R.

619-620), May, vice president of a subsidiary

(R. 623-624), Emberson, operating auditor (R.

468-469), and Avery, general auditor (R. 459),

ID Se eR! be Re! a

7

_ all admitted their participation in the practice

of ‘‘padding” their expense accounts. In the

period from 1930 to 1939, the cash received from

all these sources amounted to more than $591,000

(R. 511). All these funds, with minor exceptions,

were turned over to Boehm, and disbursements

therefrom were made for the most part by Boehm

or by Laun at Boehm’s direction (R. 264, 304,

316, 352-353, 648, 650, 859, 895).

In the period from 1932 to 1939, contributions

varying in amount from $25 to $4,000 were made

to candidates for virtually every type of elective

office, state or local, in the State of Missouri, in all

elections, primary, general, or special, in all parts

of the State (e. g., R. 650-654, 661-668). The

contributions were made to Republicans, Demo-

crats, and nonpartisans (e. g., R. 528, 543-544,

961, 563-564, 572-573, 575, 581-582, 627-628, 632-

634, 643), sometimes to opposing candidates for

the same office (R. 570, 572, 622-623, 651, 662,

665-666). A number of the contributions were

made to candidates for local offices who would be

* A few contributions from the fund were made by officials

other than Boehm or Laun (R. 441, 625-628, 631-632, 619-

621). In addition, Union’s insurance brokers were directed

to send to public officeholders who held insurance broker age

licenses “brokerage fees” for which no insurance services

were rendered in return (R. 406-408, 410-411, 449-450, 563,

575-576, 582-584, 587-606).

* The ev idence also shows contributions to candidates for

offices in Iowa and Illinois (R. 548-549, 560-561, 620-623,

661-662).

557294—43——-2

8

in a position to pass on the valuation of Union’s

property for tax purposes (e. g., R. 551, 607-609,

635-636, 643-644, 651, 659-660, 662-663). The

money was frequently delivered by Laun or

Boehm personally (R. 551-566, 665-666), but a

number of contributions were made by registered

mail (R. 530-531, 548, 554, 607-616, 658, 667, 833-

840). The specific contributions set forth in

counts two to eight of the indictment were proved

to have been made by mail or through interstate

instrumentalities (R. 607-617, 667, 670, 833-835).

In addition to these extensive contributions to

candidates, petitioner’s officers engaged in open

and secret lobbying activities (R. 649-650, 660,

665, 668, 764-765, 844, 846, 853, 1125). Bills which

were considered detrimental to the company’s in-

terests were defeated (R. 645, 655, 764-765, 845-

846, 896-897). Measures which the company

favored, including a bill drawn by Sullivan and

Cromwell, North American’s New York attorneys,

were introduced and passed (R. 679-680, 842, 845,

879, 897-898). Strenuous efforts were made to

defeat any proposal which would permit or en-

courage municipal ownership (R. 625-628, 631-

632, 635-639, 655, 674, 845-846, 896-897). Laun

and Boehm both testified that no bill considered

detrimental to the company’s interest passed the

Missouri legislature (R. 645, 846).

In 1938 Funk, a former controller who had been

discharged (R. 901, 1142), gave a statement to

OO wt serene aR eae:

F ESRC EARL TNR SNR Rp hae EE

9

the Securities and Exchange Commission (R. 879)

which resulted in the Commission’s orders for

an investigation (R. 1144-1151). Numerous offi-

cers and employees of petitioner testified falsely

under oath before the Commission over a period

of more than a year. (R. 471-472, 491, 505, 629,

685, 697-698, 902-903.) At the suggestion of

Sullivan and Cromwell, two New York attorneys,

Lincoln and Lundgren, were retained to defend the

company during the course of the investigation (R.

348-349, 882-883, 984, 1069, 1120). They exam-

ined persons who had been ealled or probably

would be called to testify before the Securities and

Exchange Commission and discussed their testi-

mony with some of them (R. 317-318, 322-323,

334-336, 354, 503, 630, 640, 681, 684-685). In the

course of the investigation, Lincoln and Lundgren

were informed of the nature of the political contri-

butions and the source of funds (R. 322-323, 328,

354, 630, 681, 682, 883) and reported to officers of

North American that the situation was serious (R,

984, 1052, 1062, 1080, 1152-1153). By May 1939

the officers of North American deemed it advisable

*Laun, Boehm, and an employee named Martin were all

indicted for perjury as a result of their testimony before the

Commission (R. 629, 685, 890). Martin and Laun pleaded

guilty and nolo contendere, respectively (R. 629, 685).

Boehm was convicted after trial and his conviction was

affirmed on appeal (see Boehm v. United States, 123 F. (2d)

791 (C. C. A. 8), certiorari denied, 315 U. S. 800,

LET NG LLG TEN LY ONL AEDES OCI ITE

10

to remove Egan, Boehm, and Laun from office and

succeeded in obtaining their resignations on May

16 (R. 452-453, 714-718, 968-971). These former

officers were continued at their former salaries

until the end of 1939 and were provided with

offices to carry on Union’s defense against the

Securities and Exchange Commission investiga-

tion (R. 453-455, 524, 647, 683, 829-831, 888). In

January 1940, Spoehrer made a full disclosure

to the Securities and Exchange Commission of the

expense account padding and insurance rebates

(R. 821-827). Egan and Boehm, who were impli-

cated in the affidavit, were then dropped from

the pay roll (R. 455-456, 990-992, 1081-1082).

The evidence tending to prove Egan’s partici-

pation in the conspiracy may be summarized as

follows:

From 1926 to April 1938 Egan, with the ap-

proval of the officers of N orth American, received

a salary of $1,500 per year as president of the

Union Colliery Company, a subsidiary of Union

Electric, for the express purpose of enabling him

to make political contributions to national po-

litical committees as president of the Company

(R. 522, 723, 727, 740, 799, 843, 848-853, 1001,

1116, 1134-1141). He did make such contribu-

tions in 1936 and in March 1938 (R. 727, 852,

1143). Boehm kept him generally informed of

his activities with respect to political contribu-

11

tions (R. 843, 853, 878-879, 892-893) and dis-

cussed a few specific contributions with him (R.

843, 878-879). In fact, after Egan had expressed

disapproval of the amount sought by one candi-

date, Boehm contributed a lesser amount (R.

878-879). On two occasions, in 1936 and 1938,

Boehm’s secretary delivered to Egan a total of

$4,500 from the slush fund kept by Boehm in his

safe (R. 805, 1161). Egan was generally informed

of the means by which the slush fund was created

(R. 843, 853, 855-856). He knew of the ten per-

cent rebate on insulator purchases (R. 262, 844,

1123-1124). He and Boehm were largely re-

sponsible for the compensation of the attorneys,

and he was informed of the ‘‘kick-back’’ arrange-

ments with at least some of the attorneys (R.

854-855). In 1937, Egan participated in a con-

ference with Boehm and Fogarty of the North

American Company at which Boehm presented a

summary of Union’s expense accounts and a state-

ment showing the benefit to the Company from

the defeat of inimical bills. Boehm testified that

at this conference Fogarty expressed his approval

of the practice of creating a fund by padding

expense accounts. (R. 866.)

During the course of the Securities and Ex-

change Commission’s investigation, officers of the

Company spoke to Egan and were told by him

to “sit tight’’; that the Company ‘would stand”’

back of them (R. 428, 442-443, 447, 464, 680).

ae

Egan was present at some of the conferences dur-

ing which Boehm disclosed his activities to Lin-

eoln and Lundgren (R. 883-884), and he was

present when Hamilton and Alschuler discussed

means by which they could account to the Com-

mission for the large cash withdrawals resulting

from the ‘“‘kickback’’ arrangement (R. 317, 323,

353-354). When Emberson, an employee who

had been called to testify before the Securities

and Exchange Commission, stated at a conference

which Egan attended that he was afraid he could

not account for the padding of his expense ac-

counts, Egan suggested that his expenditures

could be accounted for as the expense of luncheon

conferences with his subordinates (R. 471, 479-

480). On January 7, 1940, Spoehrer’s affidavit

implicating Egan was read to Egan, Boehm, Lin-

coln, and Lundgren, and Egan did ‘.0t challenge

or deny the charge (R. 441-443, 826).

Egan took an active interest in the fate of

proposals for municipal ownership of power

plants (R. 628-629, 1103) and legislation which

affected the Company’s interests (R. 764-767.

844-845, 897-898). He attended at least one ses-

sion of the Missouri legislature in 1933 (R. 567,

1125). When Boehm found North American of-

ficials unwilling to expend $300,000 for the pas-

sage in 1933 of the Indeterminate Permit Bill

which the Company favored, Egan himself spoke

to an officer of the North American Company

12

setae

13

about the matter (R. 845, 1031). Egan asked

Laun to effect the passage of a bill controlling

the use of motor boats on Union’s Lake of the

Ozarks (R. 676-677). He admitted maintaining

“friendly contacts’? with public officials and tak-

ing part in the Company’s pienics and other af-

fairs at which public officers were entertained (R.

760-764, 1127-1128).

In 1934 Boehm asked Laun to make a study of

the election results in each county in Missouri

over a ten- or fifteen-year period, to be used as a

basis of a program of political expenditures dis-

tributed pro rata among the utility companies

operating in Missouri (R. 673, 858). In May

1934 Egan presided at a meeting of utility execu-

tives at Union’s Administration Lodge at Bagnell

Dam (R. 675, 769-773, 780, 858, 1112, 1124-1125).

The difficulties of the utilities in the previous ses-

sion of the Legislature were discussed and Boehm

presented his plan for systematic financial aid to.

candidates throughout the state (R. 769-773, 779-

781, 858).

ARGUMENT

We respectfully submit that the only question

of substance raised by the petitions is that of the

constitutionality of Section 12 (h). No other

question raised by the petitions warrants consid-

eration by this Court.

14

1. To assist the Court in determining whether

certiorari should be granted on the constitutional

question, we point out the grounds for concluding

that, although the issue raised is important, Sec-

tion 12 (h) is clearly constitutional under the

decisions of this Court. Moreover, the constitu-

tionality of Section 12 (h) does not turn on the

involved questions argued in the petitions.

In Electric Band and Share Co. v. Securities

and Exchange Commission, 303 U. S. 419, this

Court upheld the constitutionality of Sections 4

and 5 of the Act, which require that holding com-

panies must register if they use the mails or chan-

nels of interstate commerce, or if they own securi-

ties of subsidiary companies which use the mails

or such channels. The activities of The North

American Company, Union Electric and _ the

subsidiaries of Union Electric in interstate com-

merce and through the mails make it clear that

they are as fully subject to federal control as was

Electric Bond and Share. Union Electric and its

subsidiaries transmit electricity across state lines

(GX 7-9, R. 223-224, 951); a subsidiary ships

coal across state lines (R. 951); Union Electric

serves industries in its three-state area which are

of nation-wide importance. North American and

Union Electric use the facilities of imnter-

state commerce for communication and other-

15

wise in order that the former may exert its

control over the latter (R. 807, 842, 853, 993, 1007,

1111), and both companies have sold large secur-

ity issues in interstate commerce. Union Electric

Company of Missouri, 4 8. E. C. 65; The North

American Company, 4 S. E. C. 4384; The North

American Company, Holding Company Act Release

No. 4565 (Sept. 17, 1943). Therefore it avails

petitioner nothing to argue the possible applica-

tion of the Act to registered holding companies or

their subsidiaries not actually engaged in inter-

state commerce, if there are any such. It will be

time enough to decide the constitutionality of

such regulation when, if ever, it arises.

The prohibition of political contributions may

be viewed as an incident of the comprehensive

statutory regulation of interstate utility holding-

company enterprises, to the end that their in-

tegrity shall be maintained. But it is unnecessary

to consider the validity of the statutory plan as a

whole, for Section 12 (h) may be sustained on

narrower grounds.

a. The pattern of the regulation constitutes

a Congressional finding that political contri-

butions directly affect interstate commerce, even

though, as the petitioners state, there is no

express finding by Congress in that regard. This

is made plain by the declaration in See. 1 (ce)

that ‘fit is hereby declared to be the policy of

557294—43—— 3

16

this title, in accordance with which policy all

the provisions of this title shall be interpreted,

to meet the problems and eliminate the evils as

enumerated in this section, connected with public-

utility holding companies which are engaged in

interstate commerce or in activities which di-

rectly affect or burden interstate commerce.”’ ®

After this declaration Congress included in the

Act the prohibition of political contributions con-

tained in Sec. 12 (h). In the light of Sec. 1 (¢)

it is clear that Congress found that political con-

tributions by registered holding companies and

their subsidiaries directly affect interstate com-

merece and involve the evils enumerated in See.

1 and are, therefore, within the federal power.

Among these evils are those recited in See. 1 (b)

(5): lack of economy and lack of effective public

regulation. It needs no argument to show that

both of these evils may flow from a course of

political activity.

These Congressional findings will not be over-

turned, of course, unless they are clearly unrea-

sonable. It certainly is not unreasonable to ex-

pect that political contributions by companies as

5 The findings supporting this declaration of purpose ap-

pear in Sec. 1 (a) and (b). Sec. 1 (b) declares that the na-

tional public interest is affected by certain evils relating to

holding companies and their subsidiaries, and Sec. 1 (a)

recites that such public interest comes from interstate activi-

ties of holding companies and their subsidiaries and from

lack of effective state regulation of their interstate activities.

17

closely tied into interstate commerce as these com-

panies will have a material effect on that com-

merce. In fact, the argument made by the Union

Electric Company in the court below (see R.

1236) that the political use of the company’s

money was favorable to the interests of con-

sumers for the reason that bills disadvantageous

to the company were defeated and bills advan-

tageous to its interest were passed, resulting in

a saving to the company of approximately two

and one-half million dollars annually, is itself an

admission that the political activity had a sub-

stantial effect on the company’s business which,

as we have pointed out above, is an interstate

business. It is difficult to understand the argu-

ment of the lack of a substantial effect on in-

terstate commerce when it is at the same time

claimed that the activity has so substantial an

effect on the finances of the company. As the

court below recognized (R. 1236), whether these

effects are deemed salutary or harmful to the

public interest was for Congress to decide.

b. Section 12(h) is likewise constitutional as

an exercise of the commerce power in aid of the

domestic policies of the states, policies which the

Act makes a part of the federal scheme of regu-

lation of interstate commerce. Sections 6 and 7

regulate security issues and Sections 9 and 10

regulate acquisitions of utility assets and utility

securities by registered holding companies and

their subsidiaries. We believe that we may safely

18

start with the premise that these sections are a

constitutional exercise of federal power.*

In these particulars Congress has made the

administration of the federal policy dependent

on state regulation. Thus Section 6 (b) directs

the Commission (by rules, regulations or order,

and subject to terms and conditions) to exempt

from the standards of Section 7 a security issue

of a subsidiary of a registered holding company

which has been expressly authorized by the State

Commission of the state in which such subsidiary

company is organized and doing business. Sec-

tion 9 (b) contains a similar exemption applicable

to acquisitions of public utility assets or of public

utility securities where the acquisition has been

authorized by the State Commission.

Since the effectiveness of the federal policy

under the commerce power is thus made depend-

ent on effective state control, we submit that

Section 12 (h) is constitutional as a use of that

power in aid of the domestic policies of the states,

that is, to preserve their operations from domina-

tion or corruption.’ As the statement of facts

above shows, despite the fact that the State of

Missouri has forbidden political contributions by

corporations for many years, Union Electric for

* In 8 years of the administration of the Act, during which

the Commission’s jurisdiction pursuant to these sections has

been exercised in hundreds of situations, their constitution-

ality has not been challenged.

* See 79 Cong. Rec. 10557-10560. _

* Revised Statutes of Missouri, 1939, Section 11,786.

19

over a decade subsidized political campaigns of

candidates for a wide range of offices in the State

of Missouri, legislative, executive, and judicial.

If conditions like these were permitted to go

unchecked, the reliance which the Act places on

effective regulation by the State of Missouri in

order to accomplish the ends of Congress would

be frustrated. Use of the federal power in aid

of the domestic policies of the states under these

circumstances, we submit, is clearly constitutional.

Cf. Brooks v. United States, 267 U. S. 432; Ken-

tucky Whip and Collar Co. v. Illinois Central

Railroad Co., 299 U. 8. 334; In re Rahrer, 140

U.S. 545; Clark Distilling Co. v. Western Mary-

land Railway Co., 242 U. 8. 311; United States v.

Hill, 248 U. 8. 420.

In brief, our view on the constitutional issue is

that although the specific problem is here raised

for the first time, the decision below is correct and

is in accordance with precedents established by

this Court.

2. Union Electric Company contends (Pet. 12-

15) that the trial court erred in instructing the

jury as to the test to be applied in determining

its corporate responsibility for the acts of its

officers. It is, however, well established that a

corporation is responsible for the illegal acts of

its officers performed for the benefit of the cor-

poration in pursuance of the business of the cor-

poration. New York Central R. R. v. United

States, 212 U. S. 481, 492-496; Mininsohn v.

20

United States, 101 F. (2d) 477, 478 (C. C. A. 3);

Zito v. United States, 64 F. (2d) 772, 775 (C. C.

A. 7); Joplin Mercantile Co. v. United States, 213

Fed. 926, 935-936 (C. C. A. 8), affirmed, 236 U. S.

531. The court instructed the jury to this effect

in a charge which paraphrased the language of

this Court in the New York Central R. R. case,

supra (R. 1185-1186, 1189).° The facets which

bring the activities disclosed by the evidence

within the scope of this rule are so well sum-

marized in the decision of the circuit court of

appeals (R. 1247-1251) that to repeat them here

would be supererogatory. In the present case

the corporate officers were endeavoring to procure

reduction of taxes, favorable public relations and

® The extent and nature of legal liability for the perform-

ance of an act forbidden by a federal statute is a federal ques-

tion, to be determined in accordance with principles estab-

lished in the federal courts. Cf. Sola Electric Co. v. Jefferson

Co., 317 U.S. 178, 176; Prudence Corp. v. Geist, 316 U.S. 89,

95; Deitrick v. Greaney, 309 U. S. 190, 201, 202. Even if

Missouri law were to be applied, however, the same principles

of liability would pertain. Connell v. Haase & Sons Fish Co.,

302 Mo. 48, 87-88 (1923); Fensky v. Casualty Co., 264 Mo.

154, 160-164 (1915) ; State ex inf. Crow v. Firemans Fund Ins.

('o., 152 Mo. 1, 88-389 (1899). Cf. State ex inf. Hadley v.

Delmar Jockey Club, 200 Mo. 34 (1906) ; State ex inf. Me-

Kittrick vy. American Insurance Co., 346 Mo. 269 (1940).

Indeed, on the very facts of the present case a Missouri court

held Union Electric liable for the payment of a fine in quo

warranto proceedings. State of Missouri v. Union Electric

Company of Missouri, Circuit Court of St. Charles County,

Mo., No. 18065, May 26, 1941.

21

friendly legislation, all legitimate corporate ends.

This activity was admittedly entrusted to the di-

rection of Boehm and Laun (R. 763, 1112). To

effect that aim a large secret fund was put at

Boehm’s disposal. The corporation cannot, on

the plea of ignorance and lack of authorization,

escape liability for illegal acts performed by man-

aging officers so employed and so authorized.

3. Egan’s contention that his conviction on the

conspiracy count was based on an erroneous test

of liability (Pet. 14, 27-29) is without merit.

The instructions given to the jury embody the

very theory which he propounds as the correct

rule of law. The trial judge specifically charged

the jury that Egan was guilty only if, with

knowledge of the unlawful agreement, he ‘actu-

ally participated’”’ therein; that mere knowledge

of the illegal acts and failure to prevent or expose

them was insufficient to warrant conviction (R.

1188). The circuit court of appeals in its

opinion (R. 1246-1247) accepted this rule of law

and concluded on the basis of the evidence that

the jury was justified in finding Egan’s actual

participation. The evidence (see Statement,

supra) amply justifies the conclusion of the jury

and of the circuit court of appeals that Egan’s

conduct amounted to more than mere knowledge

and acquiescence, that there was informed and

interested cooperation and stimulation. See Di-

rect Sales Co. v. United States, No. 593, October

PLO SOME OE HEE NIE EEA PE, EYRE US

22

Term 1942, decided June 14, 1943. It is thus evi-

dent that this aspect of the case involves merely

a reconsideration of the sufficiency of the evidence

to support Egan’s conviction and does not present

a proper question for consideration by this Court.

United States v. Johnston, Nos. 4 & 5, October

Term, 1942, decided June 7, 1943; Delaney v.

United States, 263 U.S. 586, 589-590.

4, Egan’s petition presents the further ques-

tion whether the words ‘‘in connection with”’

as used in Section 12 (h) were properly inter-

preted by the trial judge in his charge to include

contributions made in contemplation of the candi-

dacy of the recipient (Pet. 11-13, 24-27). The

charge was, we submit, clearly proper. Since

many activities ‘‘in connection with’? nomination,

election or appointment to office are carried on be-

fore the candidacy is officially announced, no arbi-

trary rule can fix the time when a person becomes

a candidate for an office. In this case the jury

was not told that contributions to officeholders

were necessarily made in connection with their

candidacies; it was instructed that if it found as

a fact that the money was given in contemplation

of the candidacy, the contribution would fall

within the prohibition of the statute, otherwise

not (R. 1187). The charge therefore properly

presented to the jury an issue of fact for their

determination.

SASS PRONE Ab ESS a aE RARER TERA RLS ROS TOU ARR AE ts te se

23

In any event, the charge did not constitute

reversible error. The contributions by way of

insurance brokerage fees, about which Egan com-

plains, were a very minor part of the conspiracy

disclosed by the evidence. The conspiracy proved

obviously contemplated contributions to eandi-

dates actually running for office. There was no

evidence connecting Egan directly with the pay-

ments to office holders.” On the other hand, there

was evidence of his direct connection with con-

tributions to particular candidates and of his own

contributions to national committees (see State-

ment, supra). If Egan was a party to the con-

spiracy, and the jury has found that he was, he

was a party to an agreement to make contribu-

tions to candidates and to political parties.

Hence, even if the charge were erroneous, it would

not present grounds for reversal. Cf. Douchan v.

United States, 136 F. (2d) 144, 147-148 (C. ©. A.

6), certiorari denied, No. 1033, October Term,

1942; Clarke v. United States, 182 F.“(2d) 538,

541 (C. C. A. 9), certiorari denied, 318 U. S. 789;

Martin v. United States, 100 F. (2d) 490, 497 (C.

C. A. 10), certiorari denied, 306 U. S. 649; Brit-

ton v. United States, 60 F. (2d) 772, 7173-774 (C.

C. A. 7), certiorari denied, 287 U. S. 669; Burn-

*° Egan’s assertion that this aspect of the charge was im-

portant in his conviction because the contributions were made

from the rebates to which Spoehrer testified is frivolous.

The effect of Spoehrer’s affidavit was merely to show that

Egan had knowledge of the general practice, not of the spe-

cific details of his activities (see R. 826).

23 TAS TT INE ORRIN 5 ORIG MF LO tO ISI SOLED A ah SRO GPSS BOT CaS he RBA ROLL AOS

24

stein v. United States, 55 F. (2d) 599, 607 (C. C.

A. 9), certiorari denied, 286 U. S. 550.”

CONCLUSION

The decision below is correct. It presents no

conflict of decisions and, aside from the constitu-

tional question raised, no question of general

importance. If this Court deems the constitu-

tional question of sufficient importance to warrant

the granting of writs of certiorari, we respect-

fully submit that review should be limited to that

question.

CHARLES Fauy,

Solicitor General.

Tom C. CLaRrK,

Assistant Attorney General.

Oscar A. PROVOST,

Special Assistant to the Attorney General.

BEATRICE ROSENBERG,

Attorney.

JOHN F. Davis,

Solicitor.

HoMER KRIPKF,

Assistant Solicitor,

ERVINE J. GREEN,

Attorney.

Securities and Exchange Commission.

NOVEMBER 1943.

4 The remaining issues raised by Egan’s petition (Pet. 7,

15) are not argued in his brief since he concedes that they

are not of sufficient importance to warrant a writ of certio-

rari. The alleged errors assigned were disposed of in the

opinion of the circuit court of appeals (R. 1251-1255).

U, S. GOVERNMENT PRINTING OFFICE, '~48

DE URN Se TON ee