Resignation to Revolt

Summoned for a special meeting in Philadelphia one day last week were the rich and conservative directors of United Gas Improvement Co., oldest public utility holding company in the U. S. (1882). They assembled to ponder a question which worried every other director, in every other utility holding company in the land: to register or not to register with the Securities & Exchange Commission under the Public Utility Act of 1935?

SEC cannot force a holding company to register but Title I of the Act states that "after Dec. 1, 1935, unless a holding company is registered . . . it shall be unlawful for such holding company, directly or indirectly" to transact normal business. Maximum fine for each violation: $200,000. SEChairman James McCauley Landis has made registration easy, insisting that filing will not impair the powermen's right to challenge the Act's constitutionality at a later date. Last week in a final effort to woo the industry under the wire Chairman Landis offered to accept "conditional" registration which would be null & void should the courts eventually find that the powermen had really surrendered their constitutional rights by filing. Pointedly hinting at the serious liabilities involved if the Act were upheld, SEC wheedled: "No possible ground in reason remains for any company to fail to file a simple notification and registration under these circumstances as a sheer precautionary matter for the protection of its investors."

UGI directors, however, had their own notion of their duties to their 120,000 stockholders. They had at hand the opinion of Baltimore's Federal District Judge William Caldwell Coleman, who had pronounced the Act unconstitutional "in its entirety" (TIME, Nov. 18). They also had the opinion of a Philadelphia law firm and of a Philadelphia lawyer, onetime (1922-27) U. S. Senator George Wharton Pepper. A stanch Republican, a devout Episcopalian whose portly figure is as familiar in Philadelphia as the facade of Independence Hall, Lawyer Pepper set a U. S. record for per-vote campaign expenditures when he ran unsuccessfully for re-election in 1926 ($2.42 per Bepper ballot).

In his joint opinion, with the firm of Morgan, Lewis & Bockius, Lawyer Pepper held the Public Utility Act unconstitutional, informing UGI directors: "Because we are convinced that this title cannot be sustained under the commerce power, the postal power or any other [power in the constitution], we have no hesitation in advising the United Gas Improvement Co. and its subsidiary holding companies to refuse to register under the Act."

Accepting this unqualified advice, UGI directors unanimously put their $800,000,000 concern on record as the first holding company to refuse flatly to register. Promptly sought by UGI Lawyer Pepper were injunctions to restrain SEC, the Department of Justice, numerous individuals, including the Philadelphia postmaster, from enforcing the Act against UGI and subsidiaries.

Following UGI's defiance, Consolidated Gas of New York let it be known that it, too, would ignore the law.

With the statutory deadline only a week away the New Deal resigned itself to revolt. Judge Coleman's Baltimore decision was appealed last week but the Administration is not satisfied with the case because the appellant is not the Government but a private corporation with utility connections. Both SEC and Attorney General Cummings announced their own legal plans:

1) Until the Act is tested no criminal suits will be instituted against powermen or their companies.

2) Civil suits will be launched against one or more important holding companies as test cases. "It is . . . not the purpose of the Government to harass the utility industry with a needless multiplicity of suits," Attorney General Cummings instructed his local prosecutors. "Equally, however, there is no public interest to be served by vexing the Government with a multiplicity of injunction suits which . . . might result in the presentation of the issue of constitutionality on the basis of an inadequate record or a record not fairly typical of the situation covered by the Act."

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