# Appendix — Association of Massachusetts Consumers, Inc. v. Securities & Exchange Commission > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385608_1692%3A2 ## Record - **Collection:** Supreme Court brief - **Document type:** Appendix - **Published:** January 1, 1976 - **Citation:** 423 U.S. 1052 ## Text la APPENDIX A UNITED STATES COURT OF APPEALS FOR THE DISTRICT OF COLUMBIA CIRCUIT AssoclaTION oF Massacuvuserts ConsuMERS, IN coRPoRATED, Petitioner, Vv. Unrrep States Securities anp Excuancr Com MISSION, Respondent, New England Electric System Bay State Gas Company, Intervenors. No. 74-1325. United States Court of Appeals, District of Columbia Cireuit. Argued Feb. 27, 1975. Decided July 24, 1975. Rives, Senior Circuit Judge: Without a hearing, the Securities and Exchange Com- mission (Hereafter referred to as ‘**Commission’’) ap- proved the final step in compliance with its order requiring the New England Electric System (‘‘NEES’’)—a statutory holding company under the Publie Utilities Holding Com- pany Act of 1935 (15 U.S.C. § 79) (hereinafter the Act)— to divest itself of all ownership in gas utility companies. The Association of Massachusetts Consumers, Ine. (‘‘AMC’’), an intervenor in the proceedings before the Commission, challenges the actions of the Commission. We find that the Commission did not abuse its discretion and affirm its disposition of this ease. The controversy culminating in the present proceeding began over 18 years ago. In 1957, NEES held stock in a number of eleetrie and gas utility companies serving New England. In that year, the Commission began proceedings, . : See SORA NA ATT LO 2a under section 11 of the Act (15 U.S.C. § 79k), against NEES. The following vear the Commission declared NEES’ electric utility holdings to be an integrated system. (See $2 of the Act, 15 U.S.C. §79b). Six years later, the Commission ordered NEES to divest itself of the gas utility stock. In 1968, after protracted litigation, the Supreme Court and the First Circuit affirmed the order.2. In Decem- ber, 1971, with approval of the Commission, NEES sold its stock in four of the gas utilities.“ The following year NEES sought Commission approval of a plan to sell to the Boston Gas Company, an operating subsidiary of the East- ern Gas System, the assets of three utilities (plus another company related to those utilities), whose corporate shells would therafter be dissolved. In a separate application, NEES also proposed to sell to Springfield Gas Light Com- pany its Lawrence Gas Company stock.* The plan required minority shareholders, whose holdings totaled 10% of the stock, to sell their stock to Springfield at the same price received by NEES. Springfield would then merge into iis subsidiary, the Northampton Gas Light Company. The 'NEES transferred its stock to a subsidiary, the Massachusetts Gas System. The latter held the stock until the divestment could be completed. 2See New England Electric System, 41 SEC 888 (1964), affirmed initially, SEC v. New England Electrie System, 384 U.S. 176, 86 S.Ct. 1397, 16 L.Ed.2d 456 (1966), reversing, 346 F.2d 399 (1st Cir. 1965), affirmed on second appeal, SEC v. New Eng- land Electric System, 390 U.S. 207, 88 S.Ct. 916, 19 L.Ed.2d 1042 (1968), reversing, 376 F.2d 107 (1st Cir. 1967). See also Holding Company Act Release No. 16618, Feb. 24, 1970 (App. 107-108). ? Central Massachusetts Gas Co., Norwood Gas Co., Wachusett Gas Co. and Northampton Gas Co. 4 Although the two proposed sales were to be made to different purchasers, bids were solicited by copies of the same letter. There was no difference in the bidding procedure in the two cases. The sales became separate proceedings after NEES had determined the highest bidders. LEHNER LORE ME LAME NOE 3a surviving company would change its name to Bay State Gas Company, and would hold all of the Lawrence stock. Two petitions to intervene in the proceedings were filed by AMC—(1) in the Eastern proceedings to ratify the sale of the assets of the three utilities to Boston Gas, and (2) in the Bay State proceedings to ratify the sale of the Lawrence stock to Bay State. AMC moved that the Com- mission consolidate the proceedings and conduct a hearing. The Commission did not act upon AMC’s motion, but it did allow AMC limited participation in the Eastern proceed- ings. Following the hearings in those proceedings, a set- tlement among the parties was reached, and the Commis- sion approved the sale to Boston Gas. At about the same time, the Massachusetts Publie Utility Commission held a public hearing on the proposed sale of the Lawrence stock to Springfield and the merger of Springfield into North- ampton to form Bay State. The record of those hearings reveals no participation by AMC. The Massachusetts Com- mission approved the plan. On October 31, 1973, the Com- mission issued a memorandum opinion approving the sale of the Lawrence stock to Springfield and denying AMC’s motion. The Commission denied AMC’s request for re- consideration. AMC appeals to this Court, pursuant to § 24(a) of the Act (15 U.S.C. § 79x(a)). The question before this Court is whether the Commis- sion abused its discretion in refusing to consolidate these proceedings with the Eastern proceedings and in denying a hearing on the original motion or on the motion for reconsideration. [1-3] The law is clear concerning judicial review of an administrative body’s refusal to consolidate two proceed- ings. ‘“‘No principle of administrative law is more firmly established than that of agency control of its own calendar. Practical problems of calendar administra- tion confront an agency whenever related applications sop ELSES PREM EE { i 3 / : i 5 4 re edi ee ere sien tiie > 4a are pending at the same time. Consolidation * * * and similar questions are housekeeping details addressed to the discretion of the agency and, due process or stat- utory considerations aside, are no concern of the courts.’’ City of San Antonio v. C. A. B., 126 U.S.App.D.C. 112, 274 F.2d 326, 329 (1967) (footnotes omitted). Consolidation would have needlessly delayed resolution of the Eastern proceedings. The failure to consolidate prejudiced none of AMC’s rights in either proceeding. The Commission’s refusal to consolidate the proceedings was a sound exercise of necessary discretion. [4] On appeal, AMC submits that, contrary to the Com- mission’s determination, three issues required a hearing: (1) the possible anti-competitive effects of the sale of Lawrence to a member of the ‘‘Tenney”’ group; (2) the possible application of sections 9(a)(2) and 10 [15 U.S.C. § 79i(a)(2) and §79j] to the sale of Law- rence to Springfield; (8) the possible violation of the statute by NEES’s submission of a voluntary plan for divestiture more than two years after the divestiture order became ef- fective. AMC must show more than that these were issues which the Commission could have considered. In addition, AMC must show that it presented them in compliance with the Commission’s procedural rules. Rule 9 of the Commis- sion’s Rules of Practice, 17 CFR 201.9, requires that an intervenor state specifically the issues whose resolution re- quires a hearing. The published notice in the instant case called AMC’s attention to that requirement. By timely motion, NEES complained that AMC was not in compliance with Rule 9. ‘eee an uiey Pee ee Re ee Ser So aen ie ae TE on re CTT Dee ee da AMC’s compliance with the published notice was incom- plete. It ignored NEES’s motion, even though AMC’s mo- tion to intervene was vague as to the issues to be raised at any hearing. It did mention NEES’s long delay in dispos- ing of its gas utility stock and expressed suspicion about the fairness of the procedure by which NEES sought bids for the stock. In a letter, copy of whieh was appended to the motion, the president of AMC stated that the instant application raised ‘‘many of the same objections * * * raised against the proposed sale [in the Eastern proceed- ings]’’? (Emphasis supplied) (App. 156). Those three statements gave the oniy definition of the issues which AMC desired to explore in a hearing. AMC did not state that the Commission ignored any anti-competitive effects from the sale to Springfield,® nor did it argue that section 9(a)(2) governed this sale. It was only after the sale had been approved and on a petition for rehearing that AMC introduced those two issues. The requirement that the intervenors specify the issues which demand a hearing serves important purposes. It en- ables the Commission to sereen out frivolous requests for hearings and efficiently conduct hearings. Here, where the subject matter is so complex, poorly framed issues could turn the hearings into a maze in which justice could be lost. The strict application of those procedural rules seems appropriate here, where the intervenors were clearly on notice that they must comply with Rule 9. Nevertheless, since the intervenors argued that they represent important * It is true that in the Eastern proceedings AMC objected to the purchaser and stated that the Bay State sale was subject to ‘‘many of the same objections.’’ Since any potential anticompetitive ef- fects from the sale to the particular buyer stemmed from facts peculiar to each case, the Commission could not have surmised that, though the circumstanees of the buyer in each case were entirely different, AMC wanted to transfer this particular objection from the Eastern proceedings to the Bay State proceedings. The reasonable interpretation was to the contrary. IO PG LMT GO rT MBG Shee ai i- q ‘t x 4 a » 4 ba ‘ < 4 2 % * oh on % A lieazt eS Meee oe Dye eae Zappa art: ‘ | : 6a public interests, out of an abundance of caution we construe their pleadings so as to protect those interests and consider all issues referred to in their original petition. We follow the same course in reviewing the issues mentioned in AMC’s petition for reconsideration. [5,6] After showing that reference was made to an issue in its original petition for a hearing, AMC must show that the resolution of the issue required a hearing and that the denial by the Commission was an abuse of discretion. AMC bears an even heavier burden as to the issues first raised in its petition for reconsideration. Only a clear abuse of dis- erection warrants reversal for failure to grant a request for a rehearing. See United States v. Pierce Auto Lines, 327 U.S. 515, 66 S.Ct. 687, 90 L.Ed. 821 (1946); United States v. 1. C. C., 396 U.S. 491, 90 S.Ct. 708, 24 L.Ed.2d 700 (1970). At the very least, the latter standard requires AMC to show that a potential issue was present and the hearing would have helped resolve it. [7] An issue mentioned in the original petition was whether the Commission erred in allowing NEES to submit a voluntary plan for divestiture five years after the divesti- ture order became effective. AMC submits that, under sec- tion 11(c) [15 U.S.C. § 79k(e)], a holding company has no more than two years in which to comply with a divestiture order. AMC asks that the Commission’s approval of the sale be vacated and that the Commission be directed to pro- ceed pursuant to section 11(d) [15 U.S.C. § 79k(d)]. Phillips v. Securities and Exchange Commission, 87 U.S.App.D.C. 380, 185 F.2d 746, 750 (1950) speaks to this question. ‘*Sections 11(¢c) and 11(d) were designed to enable the Commission to deal with a recalcitrant company. But Congress could hardly have intended that an order entered by the Commission should become a trap closing down relentlessly at the end of a two-year period, against the judgment of the Commission, con- ee 7a trary to the provisions of the order entered, and to the damage of the very interests which Congress was en- deavoring to protect—the public interest and that of investors. ‘To give any such interpretation to the stat- ute might well tend to cause the Commission to refrain from issuing any order in a particular case until the situation became ripe for complete and immediate en- forcement.”’ Although NEES was slow in complying, within the two years it did make some progress by creating a subsidiary, the Massachusetts Gas System, to hold the gas utility stock. That progress and the Commission’s satisfaction with the final plan are enough to satisfy the requirements of the Act. [8-10] Another issue mentioned in the original petition was whether NEES maintained competitive conditions in soliciting bids for the stock. On appeal, AMC challenges the propriety of transferring the Commission’s findings on that issue from the Eastern proceedings to the present one, We think that use proper. Since NEES solicited bids for all the utilities as a part of the same transaction, the cir- cumstances of soliciting both bids were identical. Fur- thermore, AMC was not denied an opportunity to shape the record, for it participated in the hearing in the Fastern proceedings. The only complaint that AMC can make is that it would have tried harder in the Eastern hearing if it had known that that would be the only hearing. The Com- mission need not hold a hearing to gain information which has already been gathered. An administrative body may ‘“‘mold its procedures to the exigencies of the particular case,’’ Gulf States Utilities Co. v. Federal Power Commis- sion, 411 U.S. 747, 762, 93 S.Ct. 1870, 1880, 36 L.Ed.2d 635 (1973). Moreover, ‘*[T]he mere fact that the determining body has looked beyond the record proper does not invali- date its action unless substantial prejudice is shown to result.’? United States v. Pierce Auto Freight Lines, Inc., Ub ke RADON eo ee ee 3 i 3 t | 3 4 3 ‘ & 3 Sa 327 U.S. 515, 530, 66 S.Ct. 687, 695, 90 L.Ed. 821 (1946). AMC fails to we why the findings in the Eastern pro- ceedings were wrong, or that the use of those findings was prejudicial. The findings were supported by substantial evidence and, clearly, there was no abuse of discretion, [11] An issue which AMC raised for the first time in its petition for reconsideration was whether the sale would have anticompetitive effects. AMC contends that Spring- field, the purchaser, belongs to an interstate group of gas and electric utilities known as the ‘‘Tenney”’ group. Those utilities have the same chief executive officer—a Mr. Tenney—and have in common several Board of Director members and officers. The Tenney family owns between 5 and 15% of the stock in each company. Although AMC concedes that the ‘*Tenney’’ group does not fit within the statutory definition of a holding company, it argues that the Public Utilities Holding Company Act requires the Com- mission to ensure that any divestment will promote the objectives of the Act. In short, AMC asks this Court to hold that, even though the Commission could not order the ‘*Tenney’’ group to sell the Lawrence stock—if any were owned, it must forbid the group to buy any of the Lawrence stock. We find it unnecessary to resolve that issue. To prevail at a hearing on the matter, AMC would have to show that, although the ‘‘Tenney”’ group was not a statu- tory holding company,® it was a source of the same abuses and vices which led the Congress to enact the Publie Utili- ties Holding Company Act. See $1, 15 U.S.C. § 79a. Elimination of common officers and directors in nonecom- peting utility companies was not the precise purpose of the Act. AMC makes no allegation that the ‘‘Tenney’’ group is the source of any evils set forth in section 1 of the Act (15 U.S.C. $ 79a). AMC having failed to show that there would have been substantial issues raised at the hearing— See the definition of holding company in section 2 of the Act, U.S.C. § 79b. 9a even if its interpretation of the Act were correct (a ques- tion we do not reach), we find that the Commission did not abuse its discretion in refusing to vacate its approval of the sale. [12,13] The remaining issue raised in the petition for reconsideration was whether this transaction fell within the ambit of section 9(a)(2) of the Act [15 U.S.C, $ 79i(a)(2)] and, hence, required Commission approval (see $10 of the Act, 15 U.S.C. §79j). Since Springfield merged into Northampton after it had bought the Lawrence stock, for an instant there were three entities—Northampton, Law- rence and Springfield. Thus, AMC argues that Springfield, which was already av affiliate of Northampton, was buying the stock of a utility company. Section 9(a)(2) forbids such a purchase without Commission approval. The Com- mission concluded that the merger of Springfield into Nor- thampton was so closely related to the sale that the transac- tion should be viewed as one in which Northampton, a com- pany without an affiliate, obtained the Lawrence stock. We find the Commission’s reasoning persuasive. In assessing interrelated corporate adjustments, comparison should be made of the situation just prior to and immediately follow- ing the adjustments. The sequence of relatively simul- taneous corporate adjustments whose order has no prac- tical effect do not govern the applicability of section 9(a)(2). The same result would not obtain where the se- quence of corporate adjustments had a harmful effect on investors or the public. Finding no reversible error, we affirm the judgment of the Commission. Affirmed. ¢ ‘£ > 2 ie st ce i II CL cee NETRA RS ALES 10a Pvusuic Utinrry Hotprne Company Act or 1935 Release No. 18149/October 31, 1973 Admin. Proce. File No. 3-4053 In the Matter of New Ewncuanp Evectric System MassacHvUsetts Gas SysTteM Westborough, Massachusetts (54-248) (70-5275) MemoranpuM Opryion ApprovinG Section 11(e) Pian This proceeding relates to a plan of New England Elec- tric System (‘*‘NEES’’), a registered holding company, and its subsidiary holding company, Massachusetts Gas System (‘‘ Mass Gas’’), filed pursuant to Section 11(e) of the Public Utility Holding Company Act of 1935 (‘‘Act’’) and other applicable provisions and rules thereunder, in- eluding Section 12(d) and Rule 44. The plan proposes that NEES sell its capital stock interest in the Lawrence Gas Company (‘‘Lawrence’’), a subsidiary company, to Spring- field Gas Light Company (‘‘Springfield’’), an exempt hold- ing company under the Act pursuant to Rule 2 thereunder.' It also provides for the liquidation of Mass Gas and the elimination of the minority shareholder interest in Law- rence. A notice of the filing was issued,” and the Association of Massachusetts Consumers (‘‘AMC’’), a non-profit organi- zation, requested that a hearing be held. It also requested that we consolidate this hearing with the hearing which we ordered at the request of AMC and others on the Section 1See, New England Electric System, 41 S.E.C. 888 (1964), af- firmed SEC y. New England Electric System, 390 U.S. 207 (1968). 2? Holding Company Act Release No. 17906 (March 14, 1973). DRI ES AOS ort 1S 2 lla 11(e) plan of NEES proposing to sell its stock interests in its other gas subsidiaries.* Subsequently, the contro- versy as to the latter plan was settled, and AMC and the other parties to the settlement have withdrawn from the proceeding.*| AMC gave no reasons to support its request for hearing, as directed by our notice. The record is sufti- cient to render a decision in this proceeding without a hearing. The request for such hearing is hereby denied. Under the plan, Mass Gas, which is to be liquidated, will transfer to NEES its holdings of 90.42% of the capital stock of Lawrence. NEES will then sell the Lawrence stock to Springfield, a Massachusetts Gas utility,® for $6,638,000 in cash. Concurrently with the Lawrence ac- quisition Springfield will be merged into Bay State Gas Company (‘‘Bay State’’), presently a Springfield subsidi- ary company, and Lawrence will be retained by Bay State as a subsidiary company.* Bay State proposes to claim an exemption as a holding company under Rule 2 of the Act. The minority shareholders of Lawrence will be paid the same price per share as that paid to NEES, Lawrence is a gas utility company which supplies gas service to over 30,000 customers in four communities in northeast Massachusetts, with an estimated population of 140,700. In 1972 Lawrence had a net operating income of $977,858, net income of $462,865, and net utility plant of $14,767,993. Gas sales by Lawrence totaled 4,353,298 Mef for that year. Lawrence has outstanding 188,000 shares of common stock, of which 170,002, is owned indirectly by % Holding Company Act Release No. 17908 (March 16, 1973). * Holding Company Act Release No. 18133 (October 25, 1973). * The acquisition of the Lawrence stock was approved by the Massachusetts Department of Public Utilities in D.P.U. 17726, dated October 10, 1973. * As a result of the concurrent merger, Lawrence will be Bay State’s sole statutory affiliate. The proposed acquisition is there- fore not subject to Sections 9(a) (2) or 10 of the Act. aes Sib 5 eps A AEB LRG BG eT OF RS eS PEE SRG Ore aR Aa TRE Ray Sey PRB RL iN NTN Tia ile IM 7 Ba BORER ST i Sd i nel alae 12a NEES through Mass Gas. The balanee of 17,998 is pub- licly held. Lawrence's pipeline natural gas is supplied by Tennessee Gas Pipeline Company, which also supplied Springtield. We find, as required by Section 11(e), that the plan is necessary to comply with Section 11(b). Our order there- under directed NEES to divest its interests in its gas util- ity companies, including Lawrenee, and the sale of Law- renee does that. The retirement of the minority shares of Lawrence, as we have held in other cases,’ is required un- der Section 11(b) (2). We also find under Section 11(e) that the plan is ‘‘fair and equitable’? to NEES and the minority shareholders of Lawrence. The highest bid received by NEES was the one from Springfield, in the amount of $6,638,000, plus or minus a dollar for dollar adjustment by the amount of any in- crease or decrease in the underlying book value of the shares between December 31, 1971, of the Lawrence shares to be sold by NEES.* The minority shareholders will re- ceive the same premium as NEES. This premium over book value compares very favorably when tested against the sales of securities of similar companies. The per share price to be paid is 14.82 and 13.96 times Lawrence’s earnings for the years 1972 and 1971, respectively. The sale of the Lawrence stock is also subject to Section 12(d) of the Act and Rule 44 promulgated thereunder, in- cluding the requirement that competitive conditions shall be maintained with respect to the sale.2. NEES solicited ex- 7 Northeast Utilities, Holding Company Act Release No. 15448 (April 13, 1966); Lynn Electrie Company, 40 S.E.C. 828, 833 fn. 9 (1961); New Orleans Public Service, 40 S.E.C. 887 (1961). *The adjusted contract price would represent 183% of the underlying book value of the shares at December 31, 1972. ® By order, dated November 23, 1971, we granted NEES an ex- emption from the competitive bidding requirements of Rule 50. Holding Company Act Release No. 17371. i i 13a pressions of interest, either for the separate purchase of Lawrence or together with its other remaining gas proper- ties, by individual letters and by newspaper advertise- ments. NEES conducted exploratory discussions with those who expressed an interest in Lawrence, and at vari- ous times sent additional information to them. Through- out the prebidding period NEES provided the same basie information to all who continued to have a serious inter- est in the acquisition of Lawrence. NEES received sealed bids for Lawrence at the same time and it reviewed them at the same time. These procedures afforded a fair oppor- tunity for all persons seriously interested to make offers and for NEES to secure the maximum price reasonably ob- tainable. We conclude that NEES maintained competi- tive conditions in offering to sell Lawrence and in choos- ing Springfield as the successful bidder. The liquidation of Mass Gas and the transfer of its as- sets and liabilities to NEES will be recorded at the values carried on the books of Mass Gas. NEES proposes to record the sale of the common stock of Lawrence by (1) a debit to its cash account in the amount of the sales price; (2) a credit to its investment account in the amount of the book value of the shares sold and (3) a credit to dividend income in an amount equal to the undistributed income having accrued from the time the NEES system first ac- quired the Lawrence shares. An amount equal to cash in excess of the above credits will be credited to the earned surplus account representing the gain to NEES from the sale. Among other things, the order by the Massachusetts Department of Public Utilities approving the acquisition by Springfield requires it to segregate the excess of aequi- sition price over the book value of the Lawrence assets and to amortize that amount over the life of the associated property. NEES and Mass Gas have requested that our order en- tered herein recite that each of the transactions, exchanges, ee Te te l4a sales and investments proposed in the plan are necessary or appropriate to effectuate the provisions of Section 11(b)(1) of the Act, in accordance with the requirements of Sections 1081 through 1083 of the Internal Revenue Code of 1954, as amended. This request will be granted. No fees or commissions will be paid by NEES or Mass Gas in connection with the sale. Certain services, incident to the transactions, have been or will be performed by New England Power Service Company, the system service com- pany, at cost.