Electric Bond & Share Co. v. Securities & Exchange Comm'n

delivered the opinion of the Court.

The Securities and Exchange Commission brought this suit to enforce the provisions of §§ 4 (a) and 5 of the

Petitioners insist that the Act is invalid as a whole; that the provisions of §§ 4 (a) and 5 are not separable from the remainder; that these provisions, if separately considered, do not constitute a valid regulation of interstate commerce and the mails; and that the cross bill presented a controversy upon the merits of which the defendants, including intervenors, were entitled to the judgment of the court.

First. The initial question is whether the defendant companies, against which the decree for injunction runs, are engaged in activities which bring them within the ambit of congressional authority. Upon this point there seems to be no serious controversy, and for the purpose of the present decision we do not find it necessary to make a comprehensive statement of the corporate setup and operations of the respective defendants. The facts were fully set forth in an elaborate stipulation which underlay the findings of fact of the trial court. A brief statement addressed to the point now under consideration will suffice.

Electric Bond and Share Company is styled in the findings as “the top holding company” in “a holding-company system” in which all the other defendants and intervening defendants together with numerous other companies are subsidiaries. Electric Bond and Share Company owns substantial minorities of the voting stocks

Until shortly prior to the institution of this suit Electric Bond and Share Company rendered services to both holding and operating companies under service contracts. After the approval of the Act, it formed a wholly-owned subsidiary, Ebasco Services Incorporated, to take over the servicing of the operating companies, and the servicing of the holding companies was discontinued. The performance of service contracts by Ebasco, operating as a subsidiary and on behalf of Electric Bond and Share Company, constitutes an extensive business in rendering continuous expert, specialized, and technical service, advice, and assistance to the serviced companies upon every phase of the utility enterprise. Phoenix Engineering Corporation, a wholly-owned subsidiary of Ebasco, performs construction work for subsidiary public-utility companies in the Bond and Share system. The American Gas and Electric Company also performs services for subsidiary operating companies.

We need not go further in the description of the operations of these Companies, as petitioners concede that the carrying out of these service contracts, as found by the trial court, involves continuous and extensive use of the

Petitioners also state with respect to American Power & Light Company, National Power & Light Company, and Electric Power & Light Corporation, that while it is insisted that these are simply investment holding companies and that their business as such is not interstate commerce, they may “from time to time engage in transactions' in interstate commerce or may use the instru-mentalities of interstate commerce in particular transactions, such as the distribution of securities, in such manner that those particular activities become the subject of federal regulation.”

The trial court found that one or more subsidiary electric-utility companies of Lehigh Power Securities Corporation “are regularly engaged in selling, purchasing, or transmitting some electric energy across state lines”; and that Utah Power & Light Company and Pacific Power & Light Company are both holding companies and electric-utility companies and that the transmission of electric energy across state lines is part of the enterprise of each.

In the fight of the findings supported by the stipulation, we perceive no ground for a conclusion that the defendant companies which are enjoined are not engaged in activities within the reach of the congressional power.

Second. Challenging the validity of the Act in its entirety, petitioners contend that §§ 4 (a) and 5 cannot, be separated from the other provisions of the Act and thus be separately sustained and enforced. They urge that these sections are purely auxiliary to the subsequent or “control provisions” of the Act (§§ 6 to 13); that the

(3) Although there is no practical obstacle to the separate enforcement of the provisions of §§ 4 (a) and 5, the argument is pressed that in reason and design there is an essential unity of these provisions and the so-called “control provisions” which forbids such enforcement. Petitioners urge that §§ 4 (a) and 5 “merely implement the system of controls”; that the policy of the Act as declared in § 1 (c) is to compel “the simplification and the elimini-nation of holding company systems”; and that the objective cannot be attained by informatory processes but only by such regulation or control as will “eliminate” the evils.

The Government replies that while the other provisions are applicable only to registered companies and their subsidiaries, §§ 4 (a) and 5 are drafted so as to be opera

We think that the manner in which the Act is framed and the variety of provisions it contains, when viewed in the light of the presumption of divisibility, justify that conclusion. The fact that registration underlies the application of subsequent requirements of the statute does not prevent the provisions of §§ 4 (a) and 5 from having a purpose and a value of their own. Section 5 not only

It cannot be denied that a requirement of this sort is a regulation which Congress could have regarded as important in itself and could have made the subject of a separate statute. The fact that it is found in a statute imposing other regulations, or that it precedes the application of the others, does not deprive it of its essential character and its capacity to stand alone. Regulation requiring the submission of information is a familiar category. Information bearing upon activities which are within the range of congressional power may be sought not only by congressional investigation as an aid to appropriate legislation, but through the continuous supervision of an administrative body. See Interstate Commerce Commission v. Brimson, 154 U. S. 447 , 474; Interstate Commerce Commission v. Goodrich Transit Co., 224 U. S. 194 , 211; American Telephone & Telegraph Co. v. United States, 299 U. S. 232 , 235, 237. Congress may use this method in connection with a comprehensive scheme of regulation, as, for example, in the case of the Interstate Commerce Commission and the Federal Communications Commission; or Congress may employ this informatory process independently. An illustration of the latter is found in the statute relating to newspapers and periodicals, enjoying the privileges accorded to second class mail, which requires an annual statement setting forth the names and addresses of the editor, publisher, business manager, owner, and, in case of ownership by a

Petitioners refer to the limitations upon publicity contained in § 22 and contrast this provision with that of the Securities Act of 1933, § 6 (d), 48 Stat. 74 , 78. But § 22 provides that the information shall be available to the public when in the judgment of the Commission its disclosure would be in the public interest or the interest of investors or consumers. The limitations are plainly intended to safeguard particular information which may be regarded as of a private or confidential character and as not directly concerning the public interest. They do not detract from the value which may be deemed to attach to the requirement that the described information should be furnished, whether as an aid to legislation or as facilitating administrative supervision or as securing a desirable publicity.

Both parties invoke the legislative history of the Act. Petitioners contend that this shows that control, not publicity, was intended. The Government insists that the legislative history supports the presumption of separability. It is unnecessary to review the details of the arguments or the cited statements from the legislative halls. The Act speaks for itself with sufficient clarity. The Government points to six groups of regulatory provisions contained in the Act, viz., registration (§§ 4 and 5); issuance of securities (§§ 6 and 7); acquisition of securities and utility assets (§§ 8, 9 and 10); corporate simplification and reorganization (§ 11); service contracts and other inter-company transactions (§§ 12 and 13); and reports and accounts (§§14 and 15). We see nothing in the legislative history of the Act which requires the conclusion that all these groups were intended to constitute a unitary system, no part of which can fail without destroying the

Congress provided in § 18 (f) that the Commission might bring an action to enforce compliance with the Act or any rule, regulation or order thereunder, and that upon a proper showing a permanent or temporary injunction or decree should be granted. In pursuance of that authority, the present action was brought solely to enforce the provisions of §§ 4 (a) and 5. We find no basis for holding that these provisions cannot be separately enforced if they are valid and we turn to that question. In view of this conclusion as to separability, it is unnecessary to go through the statute in order to determine whether other provisions are valid or invalid, and we do not intimate that there would not be found in any event a workable system in addition to the registration sections.

Third. Petitioners contend that, standing by themselves, §§ 4 (a) and 5 transgress constitutional restrictions. These sections have three parts. Section 5 (a) provides for the filing of a notification of registration. Section 5 (b) makes it the duty of every registered holding company to file a registration statement, with documents and certain detailed information, within a reasonable time after registration. Section 4 (a) prescribes the penalty for failure to register under § 5. As the requirement of information is in itself a permissible and useful type of regulation (Interstate Commerce Commission v. Brims on, supra; Interstate Commerce Commission v. Goodrich Transit Co., supra; American Telephone & Telegraph Co. v. United States, supra), the question is whether the par

The findings of the District Court based upon the stipulation of facts leave no room for doubt that these defendants are engaged in transactions in interstate commerce. That they conduct such transactions through the instrumentality of subsidiaries cannot avail to remove them from the reach of the federal power. It is the substance of what they do, and not the form in which they clothe their transactions, which must afford the test. The constitutional authority confided to Congress could not be maintained if it were deemed to depend upon the mere modal arrangements of those seeking to escape its exercise. Compare Northern Securities Co. v. United States, 193 U. S. 197 . We need not now determine to what precise extent these defendants are actually engaged in interstate commerce. It is enough that they do have continuous and extensive operations in that commerce, and Congress cannot be denied the power to demand the information which would furnish a guide to the regulation necessary or appropriate in the national interest. Regulation is addressed to practices which appear to need supervision, correction or control. And to determine what regulation is essential or suitable, Congress is entitled to consider and to estimate whatever evils exist.

Congress has set forth in the Act what it considers to be the factual situation and the need of federal supervision. The following statement is found in paragraph (a) of § 1:

“Public-utility holding companies and their subsidiary companies are affected with a national public interest in that, among other things, (1) their securities are widely marketed and distributed by means of the mails and in-strumentalities of interstate commerce and are sold to a

Congress has further declared in paragraph (b) of that section, upon the basis of facts disclosed by the reports of the Federal Trade Commission and of the Committee on Interstate and Foreign Commerce of the House of Representatives, and otherwise ascertained, the circumstances in which the national interest and the interest of investors and consumers may be adversely affected by the operation of public utility holding companies. And after this catalogue of the abuses which may exist in the circumstances described, Congress declares it to be its policy “to meet the problems and eliminate the evils as enumerated in this section, connected with public-utility holding companies which are engaged in interstate commerce or in activities which directly affect or burden interstate commerce.” Without attempting to state the limits of permissible regulation in the execution of this declared policy, we have no reason to doubt that from these defendants, with their highly important relation to interstate commerce and the national economy, Congress was entitled to demand the fullest information as to organization, financial structure and all the activities which could have any bearing upon the exercise of congressional authority. The regulation found in § 5 (b)

Section 4 (a) prescribes the penalty for failure to register under § 5, and that section as an incident to registration imposes the duty to file the described registration statement. Treating the requirements of §§ 4 (a) and 5 as a separable part of the Act, the question is whether that penalty may be validly imposed.

In the imposition of penalties for the violation of its rules, Congress has a wide discretion. Sanctions may be of various types. See Helvering v. Mitchell, ante, p. 391. They may involve the loss of a privilege which would otherwise be enjoyed. Id. Note 2. When Congress lays down a valid rule to govern those engaged in transactions in interstate commerce, Congress may deny to those who violate the rule the right to engage in such transactions. Champion v. Ames, 188 U. S. 321 ; United States v. Delaware & Hudson Co., 213 U. S. 366 , 415; Brooks v. United States, 267 U. S. 432 , 436, 437; Gooch v. United States, 297 U. S. 124 ; Kentucky Whip & Collar Co. v. Illinois Central R. Co., 299 U. S. 334 , 346, 347. And while Congress may not exercise its control over the mails to enforce a requirement which lies outside its constitutional province, when Congress lays down a valid regulation pertinent to the use of the mails, it may withdraw the privilege of that use from those who disobey. Champion v. Ames, supra; Lewis Publishing Co. v. Morgan, 229 U. S. 288 .

In the instant case, the penalty attaches to the use of the instrumentalities of commerce and of the mails by those who, engaged in that use, refuse to submit to § 5 and thus through registration and the statement which is incident to registration to supply the information which Congress is entitled to demand, and has demanded, with respect to their organization and practices. Each one of the paragraphs of § 4 (a), as related to the requirements of § 5, is addressed to those in that class. We think

The decree enforces this penalty by injunction as the Act itself authorizes. § 18 (f). The terms of the injunction follow closely the provisions of § 4 (a) and do not extend beyond them. To escape the penalty and the enforcing provisions of the decree, all that the defendants have to do is to register with the Commission and assume, under § 5, the obligation to file the described registration statement. All their rights and remedies with respect to other provisions of the statute remain without prejudice. Their objections to the affirmative provisions of the decree are untenable.

Fourth. The District Court did not err in dismissing the cross bill. Defendants are not entitled to invoke the Federal Declaratory Judgment Act in order to obtain an advisory decree upon a hypothetical state of facts. See New Jersey v. Sargent, 269 U. S. 328 ; United States v. West Virginia, 295 U. S. 463 ; Ashwander v. Tennessee Valley Authority, 297 U. S. 288 , 324; Anniston Manufacturing Co. v. Davis, 301 U. S. 337 , 355. By the cross bill, defendants seek a judgment that each and every provision of the Act is unconstitutional. It presents a variety of hypothetical controversies which may never become real. We are invited to enter ipto a speculative inquiry for the purpose of condemning statutory provisions the effect of which in concrete situations, not yet developed, cannot now be definitely perceived. We must decline that invitation. Anniston Manufacturing Co. v. Davis, supra.

The decree is

Affirmed.

Mr. Justice McReynolds dissents.

Mr. Justice Cardozo and Mr. Justice Reed took no part in the consideration and decision of this case.