Sec v. Chenery Corp.
By: LN on May 02, 2012 09:45:28 AM

Citation:  332 U.S. 194, 67 S.Ct. 1575, 91 L.Ed. 1995.

Summary:  Respondents resubmitted a reorganization plan for approval to the commission on remand by the United States Supreme Court. Petitioners claimed that it had not passed an order based on judicial decisions.

Facts:  Respondents, Federal Water Service Corp. was a company of public utility holding which was incorporated in Delaware. Its assets consisted of securities of subsidiary water, gas, electric and other companies. Respondent was controlled through Utility Operators Company which held all the shares of respondent. Respondent which was registered as a public utility company had filed for a reorganization. His plan and other plans were submitted to the commission for approval. All the plans were found to be not proper hence all the plans were withdrawn by the respondent. Another plan was submitted for approval by the commission. During the pendency of the approval of the plans before the commission respondents purchased 12,407 shares of federal's preferred stock. The transaction was made at lesser price than the book value. Respondents admitted that they brought the stock for protecting their interests in the company. The commission did not approve the plan on remand by the United States Supreme Court. Respondents filed an appeal in the appellate court which reversed the decisions of the commission. Petitioners sought review of the decision passed by the appellate court.

Issue:  Whether the appellate court was correct in holding that the commission's order was grounded in the judicial authority?

Holding:  No, appellate court was not correct in holding that the commission's order was grounded in the judicial authority?

Procedure:  Judgment of the appellate court was reversed by the United States Supreme Court.

Rule:  A reviewing court while dealing with the determination or while judging, an administrative agency alone was authorized to make has to judge the propriety of such an action on the grounds which the agency has invoked. If the court finds that those grounds were not proper the court cannot affirm the administrative action by substituting the proper basis.

Rationale:  Commission reexamined the problem based on the purposes and standards of the Holding Company Act and found the proposed transactions to be inconsistent with the standards of §§ 7 and 11 of the Act. There was a reasonable basis for a judgment that benefits and profits which accrued to the management from purchases of stock had to be prohibited. The commission's order was fair and equitable since it protected the interests of the public, investors and the consumers. It was a judgment based on public policy and the congress too had indicated such a type of judgment the commission was supposed to make.

Dissent:  Two judges in dissent, opined that there had been a shift in the attitude of the controlling membership of the court when the case was presented to it for the first time with that of the membership the second time. The judicial review of administrative orders becomes hopeless under the circumstances for the litigant. The opinion does not have adherence of the majority court. If the pronouncements become governing principles then the administrative orders are put over and above the law.

 

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