Before: MARIS, GOODRICH and HASTIE, C.J.J.
GOODRICH, C.J.: The object of this appeal is to determine who is to get $570,000. The District Court said it was to go to the owners of publicly held shares of North American Light & Power Company. That company and the North American Company object.
This litigation is, it is to be hoped, the epilogue in the liquidation proceedings dealt with by this Court under the title In re North American Light & Power Company, 170 F.2d 924 (3d Cir. 1948). In that case we upheld as fair and equitable a plan submitted by the North American Company for the liquidation of its subsidiary, North American Light & Power Company, pursuant to the Public Utility Holding Company Act of 1935, 15 U.S.C.A. § 79. By that plan the owners of publicly held shares of the Light & Power Company were to receive, for each Light & Power share held, three-tenths of a share of Illinois Power Company common stock*fn1
The plan was the fruition of a long series of negotiations, compromises and the like. It will be found described in detail in our opinion cited above. During the period between approval by the Securities and Exchange Commission, District Court approval and our approval there was inevitably some delay. The dates are as follows: Commission approval was June 25, 1947*fn2; District Court approval was October 27, 1947*fn3; our opinion approving the plan was filed on December 5, 1948. The effective date of the amended plan was January 14, 1949.
In this interval between the approval of the plan by the Commission and its final going into effect by the distribution of the shares of Illinois Power, that company declared a series of dividends. The question in this case is, who gets those dividends? The plan, everyone agrees, does not specifically allocate the dividends to anyone. The claim by the owners of the publicly held shares is for the dividends which were distributed in the period from December 18, 1947 (note that this is subsequent to the District Court order enforcing the plan) to January 14, 1949, which was the date for the plan's becoming effective, following the approval of the various courts as outlined above.
The litigants agree upon one point. A District Court may not rewrite or modify a plan as approved by the Securities and Exchange Commission. S.E.C. v. Chenery Corp., 318 U.S. 80, 91 (1943); In re Engineers Public Service Co., 168 F.2d 722, 739 (3d Cir. 1948), reversed sub nom. S.E.C. v. Central-Illinois Securities Corp., 338 U.S. 96 (1949). Likewise, they all agree that under Section 11 (e) of the Act, 15 U.S.C.A. § 79k(e), the District Court may make orders appropriate to the carrying out of a plan. Appellants say that the District Judge in allocating the dividends described above to the publicly held common shares modified the plan which the Commission, the District Court and this Court had approved. The appellees say he did no such thing, that what he did was to make an order within the framework of the plan to carry out what the Commission had approved. The Commission, itself, seems not to care who gets the dividends. It takes the position that the plan is fair and equitable either way and that in its opinion the District Court's order was not a modification of the plan.
In spite of the unusually able argument for the appellants our consideration of the problem convinces us beyond doubt that the District Judge was correct. It is true that the Commission made no order specifically referring to the dividends, but we have no doubt that the matter was in the minds of its members when the plan was approved. Illinois Power had not paid dividends on the common stock for a considerable period of time. It had a good sized issue of preferred stock upon which dividends were long in arrears. Part of the plan of liquidation, which is not before us, got rid of the preferred stock and all of its arrearages. It also got rid of claims and counter-claims asserted among North American, North American Light & Power and Illinois Power. The Commission, in approving the plan, pointed out in considering why the plan was a good thing for the shareholders of North American Light & Power that Illinois Power was now in a position to pay dividends and, therefore, of course, its stock would be attractive to the persons who received it in distribution in this liquidation proceeding. Also, it is in the record that one dividend had been declared on the common shares during the time the plan was in the hands of the Commission and before it was approved. We feel little doubt that in the Commission's looking over this plan and considering its fairness to the people who were to give up their North American Light & Power shares, it considered Illinois Power's dividend prospects as part of that which made the plan a fair one*fn4
Dividends from when? It is to be noted that the appellee shareholders were to get a specific thing, that is, shares in Illinois Power. North American was to get everything else for itself. Dividends since the plan became effective, of course, go to the people to whom the distribution was made, or their successors in title. The narrow question here has to do with those dividends which were declared between District Court approval of the plan and its subsequent going into operation. It is to be borne in mind, too, that the group of shareholders who appealed to this Court, attacking the fairness of the plan, were but exercising a legal right given them by the statute. Nor do we see, although argument intimated to the contrary, that appellants were somehow in default in not putting the plan into effective operation pending the appeal, since no stay order was asked for or entered.We do not agree with that argument and find nothing in any charge made against either North American or North American Light & Power which would indicate lack of good faith in carrying out the plan.
Nevertheless, we have no doubt that the appellees are entitled to these dividends. We think that the shares and their ability to produce dividends were in the minds of both the Commission and the courts in approving the plan. The shares were specifically allocated, under the plan, to these shareholders and we think they are entitled to the fruit as well as the tree. To change the figure into another rustic analogy, the tail goes with the hide.
The analogy of the situation in probate law was talked between Court and counsel at the argument and appears in appellants' brief. We think the analogy excellent, although we do not find that the application of it comes out the way the appellants say it should. We think the plan, in this case, is comparable to a testator's will. The testator makes a specific legacy of a cow to one friend and his residuary estate to another friend. In the period between the death of the testator and the final order of distribution by the probate court there is, of course, some delay for the collection of assets, presentation and payment of claims, etc. During this period the cow bears a calf. Whose calf is it? The authorities are clear that the calf belongs to the specific legatee, not the residuary legatee*fn5 And, of course, it is equally well settled that a will, when admitted to probate, speaks from the time of the testator's death*fn6 We do not have to get into as fine a question as that in this litigation. The testator's death might be comparable to the approval of the plan by the Commission, in which case the admission to probate would be comparable to the approval of the plan as fair and equitable by the District Judge. But here the shareholders are only claiming dividends declared subsequent to the approval of the plan by the District Court. Therefore, we do not have to face the question of dividends which accrued between Commission approval and Court approval of the plan. As indicated above, we think the probate analogy is a sound one. We think that dividends naturally go with the specific allocation of a given asset to a given group of shareholders. We do not think a testator would find it necessary to add "with increase" when he left a cow as a specific legacy to his friend. Nor do we think the Commission had to say "with dividends" when it approved the allocation of Illinois Power shares to a certain group of Light & Power shareholders.
This, we think, disposes of the case. There are no authorities directly on the point to cite because evidently the question has not come up in litigation. We think the order of the District Court was strictly within the framework of the plan.All it did was to write an order making effective what we think was the necessary interpretation of the allocation of the Illinois Power stock to the owners of the publicly held shares of North American Light & Power.
The order of the District Court will be affirmed.
HASTIE, C.J., concurring: I agree that the order of the district court should be affirmed. I am unable to agree that judicial action awarding the dividends in controversy to the public common stockholders amounts to no more than interpretation and enforcement of the approved plan of reorganization. Nor do I ...