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In re United Corp.

October 24, 1957


Author: Kalodner

Before MARIS, MCLAUGHLIN and KALODNER, Circuit Judges.

KALODNER, C.J. - These appeals are from an Order*fn1 of the United States District Court for the District of Delaware approving and enforcing an Order*fn2 of the Securities and Exchange Commission ("Commission") relating to claims for fees and expenses for services rendered in connection with two reorganization plans - the 1944 Exchange Plan and the Investment Company Plan - filed by The United Corporation ("United") pursuant to ยง 11(e) of the Public Utility Holding Company Act of 1935 ("the Act")*fn3

The broad issue presented is whether the District Court erred in its determination, with respect to the allowances made by the Commission in its Order, that the findings of fact and conclusions of law embodied in such Order were (1) adequate, (2) supported by substantial evidence and (3) in accordance with legal standards.

In Appeal No. 12,151, Appellant Joseph B. Hyman ("Hyman"), counsel to the Common Stockholders Group, which was the sole representative of the common stockholders of United, seeks reversal of the District Court's allowance of a $7,000 counsel fee in confirmation of the Commission's Order.

In Appeal No. 12,157, Appellant Randolph Phillips ("Phillips") as a stockholder and as attorney-in-fact for other common stockholders, seeks reversal of an allowance of $50,000 for "fees and expenses" made to him by the District Court in confirmation of the Commission's Order.

In Appeal No. 12,158, Appellant Phillips, "in his own right and as attorney-in-fact for 22,081 stockholders" of United, seeks reversal of allowances totaling $328,500 made to United's counsel and financial advisers by the District Court as per the Commission's Order.

It may be noted parenthetically that the allowances involved in Appeals Nos. 12,151 and 12,158 relate solely to services rendered in connection with the 1949 Investment Company Plan; Appeal No. 12,157 involves fees and expenses claimed by Phillips with relation to both the 1949 Investment Company Plan and the 1944 Exchange Plan and preliminary and intermediate matters not directly related to either of these plans.

By way of background these facts may be stated:

United, a Delaware corporation, was organized in 1929 and has been, since its organization, exclusively a holding company.In 1938, it registered with the Commission as a public utility holding company under the Act. At that time its capitalization consisted of preference stock, common stock and option warrants. In 1941 United filed a plan with the Commission pursuant to Section 11(e) of the Act designed to comply with Section 11*fn4 of the Act and ultimately to change United from a holding company to an investment company. Proceedings on this plan were consolidated with proceedings which had been instituted by the Commission pursuant to Section 11 (b) (1) and (2) of the Act, and public hearings were held during 1941 and 1942. The only litigating parties to the consolidated proceeding were the staff of the Commission and United.On August 14, 1943*fn5, the Commission issued its Findings, Opinion and Order directing United to change its capitalization to one class of stock, namely common stock, and to take such action as would cause it to cease to be a holding company.

Earlier, in February 1943, Phillips, then owner, directly and indirectly, of 1100 shares of United stock, entered into the picture by beginning a proxy-soliciting campaign in connection with the election of directors at the 1943 annual meeting of United's stockholders. In his proxy letter to stockholders Phillips proposed the ouster of George Howard, president of United for some fourteen years, the election of four new directors, including himself, to the seven-member board of directors, and that United "cooperate with the S.E.C. in working out United's problems under the Holding Company Act." Phillips obtained proxies covering about 21% of the votes cast, and the management prevailed at the annual meeting. In the instant appeals Phillips contends that he devoted some 500 hours to this proxy fight for which he requests $30.00 an hour ($15,000) and $7,558 in costs.

In January, 1944, United filed with the Commission the 1944 Exchange Plan which proposed the exchange of common stock of the Philadelphia Electric Company for shares of its outstanding preference stock. Following the filing of this plan Phillips conducted a second unsuccessful proxy contest with United management. He contends he devoted some 800 hours to this contest for which he seeks $30.00 an hour ($24,000) and $15,857 in costs.

Phillips appeared in the proceedings before the Commission on the January 1944 Exchange Plan and opposed its approval and suggested various changes. The Exchange Plan was approved by the Commission with certain amendments on November 29, 1944*fn6, and was consummated shortly thereafter. On appeal by Phillips the Commission's approval was affirmed*fn7, the United States Court of Appeals for the Second Circuit holding that his proposals had no bearing on the approval of the plans.

In 1945 the Commission approved another plan submitted by United providing for a further voluntary surrender of preference stock in exchange for portfolio securities and cash*fn8 A petition for review, filed by Phillips was dismissed upon stipulation*fn9

In January, 1947 United filed an application for modification of certain aspects of the Commission's Order of August 14, 1943. Phillips unsuccessfully opposed the modification which was approved by the Commission*fn10

Phillips waged an unsuccessful proxy fight against United management in connection with its 1947 annual stockholders' meeting. In June, 1947, United filed another Section 11(e) plan providing for the retirement of the balance of its preference stock by the exchange of portfolio securities therefor. Phillips opposed this plant but it was approved by the Commission, after amendment*fn11

In 1948 United filed another plan proposing the distribution to its common stockholders of certain of its portfolio securities. After hearings, in which Phillips participated in opposition, the Commission approved the plan.

Having retired all its preference stock, United, on October 16, 1949, filed its Investment Company Plan. Hearings on the Plan began in January, 1950. It was amended in June, 1950 and again in June, 1951, pursuant to suggestions by the Commission*fn12 On June 26, 1951, the Commission approved the amended Plan*fn13

Various appeals by Phillips culminated in final approval of the Commission's action*fn14 In the interval Phillips was instrumental in inducing Congress to conduct an investigation of charges against United management and the Commission*fn15

On January 16, 1956, the Commission entered an Order under Section 5(d) of the Act*fn16 declaring that United has ceased to be a holding company*fn17 The following day United registered as an investment company and has, since that date, been subject to the provisions of the Investment Company Act of 1940*fn18 Phillips petitioned for review of the Commission's Order of January 16, 1956, because it had not required the ousting of United's management. The petition was dismissed by consent for want of prosecution on April 1, 1957*fn19

During the pendency of the litigation relating to the Commission's approval of the amended Investment Company Plan, hearings were held by a Commission Hearing Examiner, Edward C. Johnson, in January 1955, on applications for allowance of fees and reimbursement of expenses for services in connection with the 1944 Exchange Plan and the Investment Company Plan.

Insofar as these appeals are concerned, the following requests for allowances were made:

Whitman, Ransom & Coulson $238,500.00

Burns, Blake & Rich 30,500.00

The First Boston Corporation 10,000.00

Franklin Cole & Company 10,000.00

Moody's Investors Service 19,952.29

These applicants, the first two being counsel for United, and the latter three its financial advisers, requested fees for their services rendered in connection with the Investment Company Plan.

Phillips requested fees of $39,000 and expenses of $23,415, previously referred to, in connection with the 1943 proxy fight and the 1944 Exchange Plan, and $249,120 fees and $26,925 expenses for services rendered in 1947-1953 relating to the Investment Company Plan and "watchdog" court activities. The $249,120 fee was found by the Hearing Examiner and the Commission to duplicate the $39,000 fee application and, it may immediately be noted, that the record sustains their determination in this respect.

Hyman, applying for fees as counsel for Phillips and others, requested $36,000 for services in connection with the Investment Company Plan.

The Hearing Examiner filed a Recommended Decision on May 31, 1955, details of which will subsequently be discussed. Exceptions thereto were filed by United, Phillips and Hyman to the recommended allowances to the latter two.

On October 4, 1955, the full Commission heard oral argument. It issued its fee Order, as earlier ...

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