Baltimore Decision

California brokers lead a hard life. In summer when the East is on daylight saving time they must be at their desks at 6 a. m. for the opening of the Manhattan markets. The rest of the year they may arrive no later than 7 a. m. Their own markets remain open long after members of the New York Stock Exchange have departed for the Racquet Club bar. One night last week San Francisco brokers slaved in Montgomery Street until after midnight to clear up the biggest day's business since the sombre session of Oct. 29, 1929. After Eastern exchanges had closed for that day, a Federal judge in Baltimore declared the Public Utility Act of 1935 unconstitutional "in its entirety." On the strength of the first adverse court opinion on President Roosevelt's favorite reform legislation, speculators poured orders for utility stocks into West Coast markets, which were still open. Electric Bond & Share closed at $16.50 on the New York Curb but spurted above $19 in San Francisco. West Coast trading boosted North American $2 per share from its New York close to $28.25; Pacific Lighting $2.25 per share to $57; United Corp. nearly $1 per share to $7. On the Los Angeles Stock Exchange American Telephone & Telegraph jumped more than $3 to $149 per share. Next day Eastern markets took up the boomlet where the West Coast left off, and power stocks advanced to the highest levels of the year. The man responsible for all this market commotion was U. S. District Judge William Caldwell Coleman. Born in Kentucky 51 years ago, he was graduated from Harvard in 1905, moved to Baltimore five years later, was appointed to the bench by President Coolidge. One of his favorite recreations is fancy skating, particularly at affairs sponsored by the Junior League (see cut). But he is also a golfer, a clubman, a fox hunter, an amateur painter and a pillar in Baltimore civics. Solemn, greying, conservative, he is unpopular with practicing lawyers, who dislike his dogmatic, meticulous courtroom manner. The Public Utility Act was his first case of national interest. Judge Coleman?s decision last week was handed down at the request of the trustees of American States Public Service Co., a weak little holding company being reorganized in his court. Apparently blocked in their reorganization plans by the Public Utility Act, the trustees asked advice on how to proceed. With the assistance of Lawyer John W. Davis, who intervened in behalf of a Baltimore bondholder, the trustees attacked the Act's constitutionality. Its defense was left to an investment trust which wanted the holding company liquidated. Much to the annoyance of the Administration, the Government could appear only as a friend of the court. Nevertheless, SECounsel John J. Burns and two of the Act's coauthors, Thomas Corcoran and Benjamin Victor Cohen, appeared before Judge Coleman, called the case collusive, particularly the intervention of Mr. Davis (TIME, Oct. 7). In his 20,000-word decision Judge Coleman dismissed the collusion charges with a stinging rebuke to Messrs. Burns, Cohen & Corcoran. No more equivocal were the judge's findings on the validity of the Public Utility Act of 1935. He readily conceded that the utility industry was not without sin. But: "It is not to be assumed that . . . punishment for the sins of some should be visited upon all." His objections were based on the use of three broad constitutional powers: "A.) Congress . . . has flagrantly exceeded its lawful power under the commerce clause of the Constitution. . . . The Act aims to regulate virtually everything that such holding companies do ... intrastate as well as interstate. . . . "The theory upon which the Act is predicated is that public utility holding companies and their subsidiaries are affected with a 'national public interest.' But under the Constitution there is no 'national public interest' which permits of Federal regulation, unless the person, corporation or thing affected with such interest is. in fact, involved directly--not in-directly--in some activity over which the Federal Government . . . has jurisdiction. If the Constitution be construed to permit what the Public Utility Act aims to accomplish, then Federal authority would embrace practically all the activities of the people. . . . "B.) Congress . . . has exceeded its lawful authority under the postal power granted to it by the Constitution in that the Act arbitrarily and unreasonably denies completely the use of the mails to all persons and corporations embraced within the Act with respect to all of their activities as penalty for noncompliance and a means of compelling compliance. . . . The exclusion bears no relation, necessarily, to the use itself, but to the user of the mails. "C.) Congress has . . . flagrantly violated the requirements of due process of law under the Fifth Amendment to the Constitution in that many of the Act's provisions are grossly arbitrary, unreasonable and capricious. . . ." Like most important measures, the Public Utility Act carries a "separability" clause, which provides that invalidation of one section of an act shall not affect the rest. Said Judge Coleman: "The invalid provisions of the [Public Utility] Act ... are so multifarious and so intimately and repeatedly interwoven throughout the Act as to render them incapable of separation from such parts of the Act, if any, as otherwise might be valid. . . . Invalid parts of a law may be dropped only if what is retained is fully operative as a law. In the Public Utility Act, invalid provisions are the rule rather than the exception." New Dealers insisted that the Baltimore case was an unfair test of the law because all parties to the dispute and their lawyers are connected in some way with the utility industry. What the Administration wants is a clear-cut case of the U. S. versus a holding company, so that an adverse decision may be appealed by Government counsel. After Judge Coleman's resounding opinion last week, it looked as if the Government could pick its own case after Dec. 1, by which date all holding companies must register with SEC. Then SEC may be confronted with mass rebellion on the part of big holding companies, can prosecute for noncompliance with the law, which to date has not been violated. Sensing the threatened revolt, SEChairman Landis called upon powermen to weigh their plans in the light of the penalties involved, should the Supreme Court eventually sustain the Act. Pointing out that they could reserve full right to challenge the Act while. filing the relatively simple registration, he cried over the powermen's heads to their stockholders: "There lies the simple path of safety!"

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