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People v. Phelps





APPEAL from the Circuit Court of Wayne County; the Hon. HENRY LEWIS, Judge, presiding.


Defendant-Appellant, Barry C. Phelps, an attorney engaged in the venture capital business, was acquitted of theft charges but convicted of eight charges of violating the Illinois Public Utilities Act (Ill. Rev. Stat. 1975, ch. 111 2/3, par. 1 et seq.) after a bench trial in the Circuit Court of Wayne County. *fn1 Defendant was sentenced to pay a fine and serve a period of probation. He appeals from the convictions, raising numerous issues.

Although the transcript of the testimony at trial takes up several volumes, the facts of the case are relatively simple and in large part uncontradicted. In 1972, defendant obtained controlling interest in two corporations: Water Securities Company (hereinafter referred to as Water) and Eastern Illinois Water Company (hereinafter referred to as Eastern). Eastern had as its principal function the furnishing of water to the cities of Lawrenceville and Palestine, Illinois. Water was a nonoperating holding company and had investments in companies other than Eastern. Eastern was the wholly owned subsidiary of Water. Defendant was chairman of the board and chief executive officer of both companies.

In 1973 and 1974, defendant arranged for loans in an aggregate amount exceeding $1 million to be made to Eastern by various Illinois banks. The money was then transferred to Water. All of the loans were evidenced by promissory notes with maturity dates of less than one year. No approval of the Illinois Commerce Commission was asked for or obtained for the transfers from Eastern to Water.

So far as pertinent here, the indictments charged that the defendant violated certain provisions of the Illinois Public Utilities Act by knowingly arranging for the transfer of funds from Eastern to Water without filing for or obtaining the consent of the Illinois Commerce Commission, and by knowingly causing to be issued notes of indebtedness of the credit of Eastern without obtaining Illinois Commerce Commission approval and thereafter applying the proceeds of the notes for an improper purpose.

A public utility is a private enterprise clothed with the public interest. One who devotes his property to such a use grants to the public an interest in that use and must submit to public regulation for the common good. By statute, the Illinois Commerce Commission has the duty to keep informed as to the conduct of business by public utilities and their compliance with the law. As section 20 of the Public Utilities Act states:

"The power of public utilities to issue stocks, stock certificates, bonds, notes and other evidences of indebtedness and to create liens on their property is a special privilege, the right of supervision, regulation, restriction and control of which is and shall continue to be vested in the State, and such power shall be exercised by the Commission hereby created according to the provisions of this Act and under such rules and regulations as the Commission may prescribe." Ill. Rev. Stat. 1975, ch. 111 2/3, par. 20.

As our supreme court stated in United Airlines, Inc. v. Illinois Commerce Com., 32 Ill.2d 516, 522, 207 N.E.2d 433, 436 (1965):

"* * * Service to the public is the very reason for the existence of a public utility. The legislature, as the representative of the public, must necessarily concern itself with the continued financial responsibility and ability of the utility to render its service, and must likewise insure that those who operate it do not `lead it into paths of ruin.' (German-American Coffee Co. v. Diehl, 216 N.Y. 57, 109 N.E. 875, 877.)"

In order to insure the continued financial responsibility of public utilities, the legislature has granted to the Illinois Commerce Commission the power of oversight of transactions between utilities and certain "affiliated interests" as defined in section 8a of the Public Utilities Act. It is undisputed that Water is an affiliated interest of Eastern as defined in the Act. Section 8a(3) of the Act states in pertinent part:

"No * * * financial or similar contract and no contract or arrangement for the purchase, sale, lease or exchange of any property or for the furnishing of any service, property or thing, hereafter made with any affiliated interest * * * shall be effective unless it has first been filed with and consented to by the Commission. The Commission may condition such approval in such manner as it may deem necessary to safeguard the public interest. * * * Every contract or arrangement not consented to or excepted by the Commission as provided for in this section is void." Ill. Rev. Stat. 1975, ch. 111 2/3, par. 8a(3).

Section 77 of the Act (Ill. Rev. Stat. 1975, ch. 111 2/3, par. 81) provides in pertinent part:

"Every person who, either individually, or acting as an officer, agent, or employee of a public utility or of a corporation other than a public utility, violates or fails to comply with any provision of this Act, * * * or who procures, aids or abets any public utility in its violation of this Act or in its failure to obey, observe or comply with this Act * * * in a case in which a penalty is not otherwise provided for in this Act, is guilty of a Class A misdemeanor."

• 1 Defendant argues on appeal that section 8a(3) does not prohibit anything, but merely makes certain transactions void. Thus, the argument goes, defendant could not have failed to comply with that section, and therefore could not be punished under section 77. We cannot agree. It is manifest that the arrangement between Eastern and Water is prohibited by section 8a(3), and that defendant failed to comply with that provision of the Act. To hold as defendant would have us that the legislature did not intend to ...

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