The opinion of the court was delivered by: KENNEDY
The plaintiff, Security and Exchange Commission, applies for a temporary injunction restraining the defendant, its agents, servants and employees, from 'directly or indirectly consummating or carrying out, or taking any action or steps to consummate or carry out or effectuate', a certain plan of reorganization readjusting the rights of its preferred and common stockholders.
The prayer for relief plainly states that the temporary injunction sought here and the final injunction sought in the action are identical.
The plaintiff, which was created by Section 4 of the Securities Exchange Act of 1934, Act of June 6, 1934, c. 404, 48 Stat. 881, 15 U.S.C.A. § 78a et seq. is charged with the administration of the Public Utility Holding Company Act of 1935, Act of August 26, 1935, c. 687, 49 Stat. 803, 15 U.S.C.A. § 79 et seq.
On November 7, 1935, the Long Island Lighting Company, the defendant here, applied to the plaintiff under Section 3(a)(1) for exemption from the act. On March 27, 1936, the Commission granted such exemption, reserving, however, in its findings and opinion, the right to amend its order if it should find that the exemption is detrimental to the public interest because of the defendant's activity, or that of any subsidiary company, or because a burden was placed upon interstate commerce.
The motion is based upon the complaint, and the complaint alone, and although the defendant appeared by attorney, it submitted no papers in opposition.
However, extended argument was had, and counsel supplied me with a number of facts not in dispute which underlie the application.
The preferred stock of the company has never had voting rights. Arrears have been piling up on this preferred stock, and since March 27, 1936, the date when the defendant was exempted from the provisions of the Public Utility Holding Company Act, these arrears aggregate more than ten million dollars (Complaint, p. 4).
Evidently there has been desire on the part of everybody to make some adjustment in the corporate structure.
On February 29, 1944, the defendant submitted to the Public Service Commission of the State of New York a plan of readjustment, which, on April 25, 1944, its stockholders approved. This plan apparently was never acceptable to some of the preferred stockholders, who undoubtedly, in view of the increasing arrears, desired much greater control than the common stockholders were willing to give them. On July 27, 1944, the Public Service Commission of the State of New York acknowledged that it was helpless to compel the company to readjust its voting rights in accord with what could be considered 'sound finance and equitable considerations' (Complaint, p. 7).
Nevertheless the defendant continued its effort to secure approval of this plan from the Public Service Commission. Thereupon, and on November 4, 1944, a protective committee of preferred stockholders applied to the plaintiff. This committee asked that proceedings under Section 3(a) of the Act be reopened, and on November 10, 1944, the Commission directed that a hearing be held to determine whether the exemption of the defendant was detrimental to the public interest and whether its order of March 27, 1936, should be revoked or amended (Complaint p. 4). Still later, and on November 21, 1944, the plaintiff on its own motion instituted a proceeding under Section 2(a)(VII)(B) of the Act to determine whether certain persons and corporations exert a controlling influence on the policy of the defendant, and whether they should not be subject to the obligations of the statute. On November 22, 1944, the two proceedings then pending were consolidated and a hearing ordered on November 27, 1944. This hearing was adjourned (not on the application of the defendant) to December 19, 1944.
In the meantime, and on December 14, 1944, the Public Service Commission of the State of New York approved the plan of reorganization, and an order effectuating the plan was filed on December 16, 1944. It was conceded on the argument by the plaintiff's attorneys that on the date last mentioned the rights of the stockholders under the corporate structure theretofore existing came to an end under New York State law. The attorney for the New York Curb Exchange, appearing specially at the argument, stated to the Court that trading in the old securities ceased on December 16, 1944, and transactions in the company's stock as modified by the reorganization commenced on December 18, 1944. In the early afternoon of December 19, 1944, there was submitted to me for signature an order to show cause containing an ex parte restraining clause as broad as the prayer for relief in the complaint itself. The motion was returnable on December 20, 1944. As will more fully appear later I had doubts about my power to grant even a temporary restraining order to the plaintiff. Nevertheless I did so.
From the argument of counsel for the plaintiff I conclude that specific jurisdiction to grant the injunction sought by the motion is not to be found in the act itself. Certainly the defendant had violated no order, rule or regulation of the plaintiff; during all the times mentioned it was specifically exempt from the jurisdiction of the commission. Defendant's proceedings in the Public Service Commission were taken openly, and apparently in full compliance with the law of the State of New York and of the administrative body to whose jurisdiction it was subject, namely, the Public Service Commission. These proceedings, as indicated, stretched over the period between February 29, 1944, and terminated on December 16, 1944. Nor did the defendant, so far as either the complaint or the argument discloses, flout or ignore any order of the plaintiff with respect to the hearing ordered under Section 3(a), or 2(a)(VII)(B) of the act. No such claim was made. The plaintiff urges, however, that during the period between the final hearings in the Public Service Commission (September 27, 1944) and the final approval of the plan (December 14, 1944) the defendant was on notice that proceedings to revoke its exemption had been set in motion. Plaintiff says that these proceedings might result ultimately in bringing the defendant within the jurisdiction of the Commission, and that if this happened the Commission might not approve the reorganization plan. Meanwhile, says the plaintiff, security holders will proceed with exchanges under the reorganization plan 'without disclosure of the fact that proceedings under the Act may require a radically different plan' (Complaint, p. 13). This in turn may result in confusion to security holders as well as substantial difficulties to the Commission in the discharge of its duties.
The defendant, among other contentions, urges that to grant even a temporary restraining order here would be to subject the defendant to intolerable difficulty. It has sought and secured the approval of the necessary State authorities to the plan and has terminated the rights of the stockholders as they formerly existed. Nothing can revive the old set of rights and liabilities; no one can substitute a new set. Meanwhile it will be impossible for the corporation, or anyone else, to determine how its stockholders shall vote.
If, as I have indicated, there is no specific statutory authority for the kind of order which the plaintiff seeks (and perhaps even if there were), it would be incumbent upon the plaintiff under general principles of equity to show that irreparable harm would result from the denial of the temporary injunction, and I use 'would' in the sense that more than a bare possibility exists. I cannot say that such a showing has been made. Moreover, the plaintiff, without specific statutory authority, is asking that on the bare complaint itself I should determine that it is entitled to all of the final relief which it seeks. Plaintiff's counsel ...