Reply Brief — Lownsbury v. Securities & Exchange Commission

ede DEC 20 19385

vn ani CHASLIS ELRORE oROPL

Supreme Court of the United States

October Term, 1945. No. 601.

Elizabeth C. Lownsbury, Mrs. Evelyn H. Brantley, Richard C.

Hassinger, William H. Hassinger, Mrs. Virginia H. Lange,

Mrs. Leonora McCrossin, Robert Ingalls, Robert Ingalls, Jr.,

Ellen Gregg Ingalls, Ingalls Iron Works Company, Henry R.

Howze, Altred J. Snyder, and The First National Bank of

Birmingham as:—Agent for Kate Porte: Lewis, Agent for

Hugh Kaul, Agent for Virginia Kav: Greene, Trustee for

Crawford T. Johnson, Jr., Trustee cf Estate of Nathan L.

Miller, Trustee of Estate of Charles B. Patrick, Trustee for

Mrs. Virginia E. Hassinger, Trustee for Virginia H. Lange,

Trustee for Mrs. Leonora H. McCrossin, Trustee for Mrs.

Evelyn H. Brantley, Trustee for Mrs. Lucile H. Cabaniss,

Trustee for William H. Hassinger, Trustee for Richard C.

Hassinger, Trustee for Hugh Kaul, Trustee for Mrs. Roy

Head Kaul, Trustee for Mrs. Virginia Kaul Greene, Executor

of Estate of Lafayette R. Hanna and Executor of Estate of

Crawford T. Johnson, Petitioners,

v

Securities and Exchange Commission

and

The Commonwealth and Southern Corporation,

Respondents.

Brief in Reply to the Commission's Brief in Opposition to

Petition and Motion to Defer.

Aurrep J, SNYDER,

1144 Fidelity-Philadelphia Building,

Philadelphia 9, Pennsylvania,

WituamM H. Brantiey, JR.,

Lanor, Surpson, Brantiey & Rosrnson,

1029 Frank Nelson Building,

Birmingham 3, Alabama,

Exvizaseta C, Lownssury,

1144 Fidelity-Philadelphia Building,

Philadelphia 9, Pennsylvania,

Attorneys for Petitioners.

International, 236 Chestnut St., Phila. 6, Pa.

ee a ene

PAGE

EET eT Pee, FORE STP Se 1

1. As to the contentions of ‘‘mootness’’ .......... 2

S Am We Ge Witte 00 TURE vind ccccsecccenscan 8

INDEX OF CASES.

Southern Pacific Terminal Co. v. Interstate Commerce

Commission & E. H. Young, 219 U. 8S. 498; 31

DS Be sab ss cea dnd cea ca kha ce nes 4

INDEX OF STATUTES.

Section 24, of the Holding Company Act of 1935 .. 4 and 7

Cree I a ial oS ea a REPRE PI TRS EE RE MT ESE IL ENG IA TE

IN THE

Supreme Court of the United States.

OctosBerR Term, 1945.

-_

No. 601.

ELIZABETH C. LOWNSBURY, ET AL.,

Petitioners,

v.

SECURITIES AND EXCHANGE COMMISSION anp

THE COMMONWEALTH & SOUTHERN CORPO-

RATION.

On Petition ror a Writ oF CERTIORARI TO THE UNITED

Srares Crrcuir Court or APPEALS FOR THE THIRD

Circult.

BRIEF IN REPLY TO THE COMMISSION’S BRIEF IN

OPPOSITION TO PETITION AND MOTION TO

DEFER.

ARGUMENT.

The Commission in its brief in Opposition to the Peti-

tion for Certiorari raises two contentions:

1. The Commission argues the orders sought to be

reviewed are only interlocutory; hence the petition is

‘*premature,’’ having been taken too soon.

2. The Commission also argues that, since the or-

ders sought to be reviewed have been modified, a re-

view of those orders would be ‘‘moot’’; hence too late.

We considered we have completely answered the first

contention in our brief attached to the Petition for Certi-

orari; hence this brief will be directed to answering the

contention of mootness and also answering the Commis-

sion’s opposition to our Motion to Defer.

SRT SSE SOE IEEE LR EERE PEAR TATA LIM peat ©

2 Argument

1. As to the Contention of ‘‘Mootness.”’

In our Motion to Defer we referred to certain develop-

ments in the proceedings which occurred since the decision

of the Cireuit Court denying a review. These facts are not

in the record as it now stands before this Court. The pur-

pose of the Motion to Defer was to afford an opportunity

to bring these facts properly on the record. Counsel for

the Commission oppose our Motion to Defer, yet see fit to

argue from these facts. We must therefore refer to these

facts as though they were on the record.

On November 1, 1945, the Commission handed down

an order ‘‘modifying’’ its order of June 30, 1945. It should

be noted this was a modification of the order, not a with-

drawal. The modification ordered Commonwealth to re-

move a provision for a vote by the stockholders approving

or disapproving the proposed plan of reorganization. All

other provisions of the order of June 30th remain unaltered.

The effect of the modifying order was to render the order

of June 30, 1945, more objectionable than before. The

Petitioners objected to the order of June 30th because it

provided for approval of the plan of reorganization in a

manner not in keeping with the requirement of the Certifi-

cate of Incorporation (R. 19). The modification removes

even this inadequate provision for approval by the stock-

holders, so that the order now stands with all its objection-

able features and in addition eliminates the fundamental

right of a stockholder in a solvent corporation to voice his

approval or disapproval of a reorganization of his com-

pany under which his contractual and property rights are

to be altered. Certainly this modification by the Commis-

sion cannot be said to render our Petition moot. Its effect

is to make it all the more imperative that our Petition be

granted and that such arbitrary exercise of authority by a

governmental agency be reviewed.

On November 9, 1945, the management of Common-

wealth ‘‘acquiesced in the elimination of the provision for

stockholders approval,’’ but attached a condition that the

PACTS oT

Argument 3

Commission approve certain basic changes in the plan of

reorganization. The Commission has not acted upon this

request, nor has it set a date for a hearing.

Certainly this action by the management of Common-

wealth can not be said to affect our right to review. The

order of June 30th still stands with none of its objection-

able features removed and with the o.jectionable feature

of the order of November Ist added and actually complied

with by Commonwealth. Even were the Commission to

approve the proposed modification of the plan it would

remove only a few of the objections set forth in the Peti-

tion for Review and leave the order of June 30th standing,

» subject to most of the objections made in our Petition for

Review. For example:

That these orders are based upon arbitrary adminis-

tration of the Holding Company Act, without a full and

fair hearing and contra to due process of law; (R. 18-22) :

That these orders are based upon findings not sup-

ported by substantial evidence; (R. 22-25) :

That these orders approve a plan of recapitalization °

which is not fair and equitable to the common stockholders

and the holders of option warrants; (R. 26-28). It should

be noted that the suggested modification of the plan still

carries with it the unfair 85%-15% allocation and elim-

inates the option warrants without consideration:

That the orders are not authorized by the Act, or if

authorized, are not within the power of Congress to regu-

late interstate commerce; (R. 28-29) :

That the orders impair contractual obligations and de-

prive the Petitioners of property rights, without due proc-

ess of law, in violation of the Fifth Amendment to the Con-

stitution; (R. 29-32) :

And that the orders violate the Ninth and Tenth

Amendments; (R. 32-33).

Only a withdrawal of the order in its entirety could

make our Petition moot. We wish we could agree with

the Commission that the matter is moot, for that would

4 Argument

mean the order sought to be reviewed was now without any

legal effect whatsoever. The Commission has the power

to withdraw its order, but it has seen fit only to modify it,

and then only to make it more objectionable. As the matter

stands, the order of June 30th may become the basis of

further proceedings and further action by the Commission.

So long as this is possible the matter can not be said to be

moot, since there remains a real controversy on questions

vitally affecting property rights of these Petitioners.

The Petition for Certiorari presents a preliminary

procedural question which has not yet been determined.

If this Petition for Certiorari is denied, the Commission

may disregard Commonwealth’s modifications and proceed

on its order of June 30, 1945, as modified, by immediate

application to a District Court for enforcement. The effect

of this would be to deny the Petitioners a review and nullify

Section 24 of the Act in its entirety. We hesitate to think

that an agency of our government would adopt such devi-

ous strategy to defeat the right of citizens, endeavoring to

protect their property rights, bat the possibility of such

action remains, so long as the order of June 30, 19465,

remains.

Had the Commission withdrawn its present order, so

that the immediate controversy might have been considered

moot, it would still be the duty of the Court to determine

the question of our right to a review, since a similar order

might and probably would be repeated. The Supreme Court

in Southern Pacific Terminal Co. v. Interstate Commerce

Commission and E. H. Young (219 U.S. 498; 31 S. Ct. 279),

pointed out that the consideration of controversies involv-

ing questions of government authority should not be de-

feated, or a review evaded, where the order of a govern-

mental agency is capable of repetition, or where the order

may be the basis for further proceedings.

In that matter an order of the Interstate Commerce

Commission required the appellants to desist from grant-

ing certain preferences for a period of two years. It was

SEO IPE I RE PI IE BE ILO BN REIL MERE IY NOT Tak ll

Argument 5

over two years before the matter came to argument. Mr.

Justice McKenna in his opinion reviewed both the facts in

that case and those in several similar cases. His opinion

relates so pertinently to the issue in the case at bar, that,

for the convenience of the Court, that portion of the opinion

follows in its entirety:

“It will be observed that the order of the Com-

mission required appellants to cease and desist from

granting Young the alleged undue preference for a

period of not less than two years from September 1,

1908 (subsequently extended to November 15). It is

hence contended that the order of the Commission has

expired, and that, the case having thereby become moot,

the appeal should be dismissed.

This court has said a number of times that it will

only decide actual controversies, and if, pending an ap-

peal, something occurs, without any fault of the de-

fendant, which renders it impossible, if our decision

should be in favor of the plaintiff, to grant him effectual

relief, the appeal will be dismissed. Jones v. Mon-

tague, 194 U. S. 147, 48 L. ed. 913, 24 Sup. Ct. Rep.

611, and Richardson v. McChesney, decided November

28 of this term, 218 U. S. 487, 54 L. ed. 1121, 31 Sup.

Ct. Rep. 43. But in those cases the acts sought to be

enjoined had been completely executed, and there was

nothing that the judgment of the court, if the suits

had been entertained, could have affected. The case

at bar comes within the rule announced in United States

v. Trans-Missouri Freight Asso., 166 U. S. 290, 308, 41

L. ed. 1007, 1016, 17 Sup. Ct. Rep. 540, and Boise City

Irrig. & Land Co. v. Clark (C. C. App. 9th C.), 65 C. C.

A. 399, 131 Fed. 415.

In the case at bar the order of the Commission

may to some extent (the exact extent it is unnecessary

to define) be the basis of further proceedings. But

there is a broader consideration. The question in-

Se FON EES SON IS LAT NET ye LI PRES LE PR ELSIE LL ES RU RB ly

——7

6 Argument

volved in the orders of the Interstate Commerce Com.

mission are usually continuing (as are manifestly those

in the case at bar), and these considerations ought not

to be, as they might be, defeated, by short-terms orders,

capable of repetition, yet evading review, and at one

time the government, and at another time the carriers,

have their rights determined by the Commission with-

out a chance of redress.

In United States v. Trans-Missouri Freight Asso.,

supra, the object of the suit was to obtain the judgment

of the court on the legality of an agreement between

railroads, alleged to be in violation of the Sherman

law. In the case at bar the object of the suit is to have

declared illegal an order of the Interstate Commerce

Commission. In that case there was an attempt to de-

feat the purposes of the suit by a voluntary dissolution

of the agreement, and of the attempt the court said:

‘The mere dissolution of the association is not the most

important object of this litigation. The judgment of

the court is sought upon the question of the legality

of the agreement itself for the carrying out of which

the association was formed, and if such agreement be

declared to be illegal the court is asked not only to

dissolve the association named in the bill, but that the

defendants should be enjoined for the future. . . .

Private parties may settle their controversies at any

time, and rights which a plaintiff may have had at the

time of the commercement of the action may terminate

before judgment is obtained, or while the case is on

appeal, and in any such case the court, being informed

of the facts, will proceed no further in the action.

Here, however, there has been no extinguishment of

the rights (whatever they are) of the public, the en-

forcement of which the government has endeavored to

procure by a judgment of the court under the provi-

sions of the act of Congress above recited. The de-

fendants cannot foreclose those rights, nor prevent the

EEE LOL IE BESET IEL IEE: ELIE IOLA OI EIN it ie Pl erty < ; ie NE cee ae a . as

_ ea

Argument 7

assertion thereof by the government as a substantial

trustee for the public under the act of Congress, by

any such action has has been taken in this case.’ And,

referring to the agreement as one claimed by the gov-

ernment as illegal, it was further said: ‘That question

the government has the right to bring before the court

and obtain its judgment thereof.’ The interests there

passed upon are no more of a public character than

those involved in the order of the Interstate Commerce

Commission in the case at bar, and there was no greater

necessity for continuing a jurisdiction which had prop-

erly attached; and that the government is the respond-

ent, not complainant, does not lessen or change the

character of the interests involved in the controversy,

or terminate its questions.

In Boise City Irrig. & Land Co. v. Clark, supra,

the period fer which a municipal ordinance fixed a

water rate expired pending the litigation as to its

legality, and it was contended that the case had become

moot. The court replied: ‘But the courts have enter-

tained and decided such cases heretofore, partly be-

cause the rate, once fixed, continues in force until

changed as provided by law, and partly because of the

necessity or propriety of deciding some question of

law presented which might serve to guide the municipal

body when again called upon to act in the matter.’

The motion to dismiss is denied.’’

This matter involves important questions of govern-

mental authority affecting the property rights of 160,000

stockholders. The right of stockholders to a review in

this case should be decided beyond any question. Counsel

for the Commission have set upon a course of practice to

defeat this right by procedural maneuvers calculated to

wear out opposition to the Commission’s orders, Con-

fronted by the clear right of review granted by Congress

under Section 24, a party aggrieved must of necessity seek

a

redress in the United States Circuit Court; otherwise he

could be confronted by the contention that he has not been

diligent and has lost his right of review. This is particu-

larly true since the Act clearly provides that the Circuit

Court only has the jurisdiction to review. It will be noticed

the Commission, in attempting to steer the controversy into

the District Court, does not state that the order will there

be reviewed, but only that the ‘‘order would be subject to

examination.’’ If the question of the Petitioners’ right of

review is not decided at this time they will be forced, under

the penalty of losing their right of review, to proceed in

the same manner again and again, and each time be con-

fronted with a repetition of the same contentions now put

forth by Counsel for the Commission. Certainly citizens

have the right to a clarification of the procedure by which

they may protect their property rights from infringement

by a government agency.

8 Argument

2. As to the Motion to Defer.

In our Motion to Defer we set forth various facts which

had occurred since the decision of the Circuit Court and

the reasons why it was necessary to defer consideration of

the matter until these facts could properly be brought upon

the record. We made no attempt to argue the motion by a

brief, since we considered the Respondents would agree

this should be done in the interest of orderly procedure.

The opposition to the motion by the Commission came as

a surprise especially since they have seen fit to rely upon

the changed facts to support a contention in opposition to

our Petition for Certiorari.

The purpose of the Motion to Defer was to bring the

modification of the order, and the compliance by Common-

wealth with that order, upon the record so that the matter

might be considered by the Court on all the existing facts.

It is submitted that until these facts are properly brought

upon the record the Court is not in position to consider

—

Argument 9

them, even in the manner in which the Commission seeks

to use them; namely, as a basis for its contention of ‘‘moot-

”

ness.

Another reason for the Motion to Defer was the

changed position now adopted by the management. Com-

monwealth now agrees, as we have constantly urged, that

the plan should be changed. The alterations proposed by

the management are not entirely acceptable to our Peti-

tioners, but they afford a basis from which a compliance

with the requirements of the Holding Company Act may

be worked out on a more equitable basis and to the satis-

faction of these Petitioners. Should this much desired re-

sult be attained it would then be unnecessary for this Court

to pass upon either this Petition for Certiorari or the more

important matters presented by our Petition for Review.

It would seem the Commission also should desire such a

result and lend its offices to its attainment, rather than

oppose a deferment.

As the matter now stands, either the matter should be

deferred, to permit the additional facts to be brought upon

the record, and the Petition for Certiorari then considered;

or the Petition for Certiorari should be granted on the

record as it now stands, with the matter ultimately re-

manded to the Circuit Court for the Third Circuit, with

leave to amend the Petition for Review to bring the addi-

tional facts upon the record, and for a review thereon.

Respectfully submitted,

Atrrep J. Sxyper,

Wim H. Brantiey, Ja.,

Evimaseta C. Lownssury,

Attorneys for the Petitioners.

By Aurrep J. Snyper.

December 20, 1945.

BARAT, BT Ey REN, FORT Sg 5 PT a AS Oe