Bond & Share Defense

Keen, mellow and eminent among Federal jurists is 70-year-old Julian William Mack, who sits on the U. S. Circuit Court in New York. A realistic Zionist, Judge Mack overcame his detestation of titular honors last summer to accept honorary presidency of the First World Jewish Congress in Geneva. Devoted to the sanity of the law, he has shown a liberalism no less profound, if less spectacular than that of his old friend, Supreme Court Justice Louis Brandeis. His decision in the famed anti-trust case against the Sugar Institute in 1934 stands as a weighty legal precedent in the interpretation of "fair trade practice." On the morning of Armistice Day last week Judge Mack sat down in the big, airy room of the new Federal District Court in Manhattan's Foley Square to hear arguments in another great test case, this one brought by the Securities & Exchange Commission against the world's biggest electric utility holding company, Electric Bond & Share.

For utility counsel who came primed, after nearly a year of preparation, to convince Judge Mack that the Public Utility Act was unconstitutional, or at least to obtain a ruling on that point in order to appeal it, SEC's smart Attorney Robert Houghwout Jackson immediately opened a tricky gambit. He suggested that since Electric Bond & Share had never registered with SEC as the Utility Act required, the point at issue was not the constitutionality of the Act as a whole but that of its registration provisions. Electric Bond & Share, argued Attorney Jackson, was on an illegal spot. It could not call the constitutionality of the Act in question until it should be in a position to object to SEC's procedure. He prayed the Court either to order registration or to enjoin Bond & Share from interstate business.

On the broader question of SEC's grant of power, Attorney Jackson went into detail on the evils of holding company pyramids discovered in the Federal Trade Commission's survey of 2,300 utilities, on which the Utility Act was based. Conceding that Electric Bond & Share was not necessarily guilty of these evils, he observed that the Bond & Share texture was similar to those in which corporate bubbles had been known to form. He trotted out charts to show that 48% of the gas and 28% of the electricity distributed by Bond & Share's multitudinous subsidiaries were conducted across State lines. He mentioned the inability of State power commissions to deal with utilities operating within their territories but not legally subject to their jurisdiction. Said he, with a nod to Judge Mack's known sentiments on monopoly:

"Can it be that a diseased cow can be kept out of interstate commerce, but this pyramided system for the control of other people's money can be sold without any supervision? . . ."

Attorney Jackson's gambit for a restricted ruling, obviously calculated to delay the decision so anxiously awaited by U. S. utilitarians, was hotly declined by Bond & Share counsel. The provisions of the Act, they argued, were inseparable anyway, and if one were unconstitutional all were unconstitutional. Onetime U. S. Solicitor-General Thomas Day Thacher and Attorney John Fisher MacLane called the interstate contacts of Electric Bond & Share "minor and severable." The holding company's business, they said, was 95% intrastate. Said Mr. MacLane:

"This industry which this Act regulates is predominantly a local industry in the business which it does."

More than that, claimed the utility counsel, the Public Utility Act was not designed to regulate interstate business but to crack down on holding companies as such. A holding company failing to register under Section 5 of the Act would be forced by Section 4 to suspend operations or be fined $200,000 for each prohibited act. If a company registers, said Mr. MacLane, it will die eventually anyway under Section 11, famed "death sentence" clause.

Laden with briefs developing these arguments with citation and formality, Judge Mack gravely promised to give a decision, if possible, before the end of the year, retired to ponder Electric Bond & Share's defense in his Spanish penthouse on lower Fifth Avenue.

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