Great Western United Corp. v. Kidwell

• Decision Date: 02 September 1977
• Docket Number: Civ. A. No. CA-3-77-0405-D.
• Citation: 439 F. Supp. 420
• Parties: GREAT WESTERN UNITED CORPORATION, Plaintiff, v. Wayne L. KIDWELL, Attorney General of Idaho, Tom D. McEldowney, Director of the Idaho Department of Finance, Louis J. Lefkowitz, Attorney General of New York, Francis B. Burch, Attorney General of Maryland, and Norman Polovoy, Commissioner of Securities, Maryland Division of Securities, Defendants.
• Court: U.S. District Court — Northern District of Texas

439 F. Supp. 420

GREAT WESTERN UNITED CORPORATION, Plaintiff, v. Wayne L. KIDWELL, Attorney General of Idaho, Tom D. McEldowney, Director of the Idaho Department of Finance, Louis J. Lefkowitz, Attorney General of New York, Francis B. Burch, Attorney General of Maryland, and Norman Polovoy, Commissioner of Securities, Maryland Division of Securities, Defendants.

Civ. A. No. CA-3-77-0405-D.

United States District Court, N. D. Texas, Dallas Division.

September 2, 1977.

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Ivan Irwin, Jr., A. B. Conant, Jr., James V. Grevelle, Shank, Irwin, Conant, Williamson & Grevelle, Dallas, Tex., Manuel F. Cohen, Michael R. Klein, Robert B. McCaw, A. Stephen Hut, Jr., Patricia D. Douglass, Cornelius J. Golden, Jr., Wilmer, Cutler & Pickering, Washington, D. C., James Wm. Moore, New Haven, Conn., for plaintiff.

Dickee Howard Goodman, Asst. Atty. Gen. State of Md., Baltimore, Md., for Burch and Polovoy.

Orestes J. Mihaly, Asst. Atty. Gen. in Charge, Bureau of Security, Louis J. Lefkowitz, Atty. Gen., pro se, New York City, Eugene D. Berman, Sp. Deputy Atty. Gen., Amy Juvilen, Asst. Atty. Gen., William S. Dugan, Deputy Asst. Atty. Gen., for Atty. Gen., State of N. Y.

Wayne L. Kidwell, Atty. Gen. of Idaho, Boise, Idaho, by Peter E. Heiser, Jr., Chief Deputy Atty. Gen., and James P. Kaufman, Asst. Atty. Gen., for Kidwell and McEldowney; Ellis McKay, Los Angeles, Cal., William H. Steinbrink, Robert A. Profusek, Cleveland, Ohio, Special Counsel.

MEMORANDUM OPINION

ROBERT M. HILL, District Judge.

In this case plaintiff challenges the constitutionality of the statutes of the states of Idaho, New York and Maryland which seek to regulate tender offers when the subject of the tender (called the target company) has one of various nexus with the states. These are commonly called "takeover" statutes. Plaintiff contends the takeover statutes are preempted by the Williams Act, the federal statute which controls tender offers, and are also violative of the Commerce Clause of the United States Constitution. For the reasons set forth below, the court does not reach the merits of plaintiff's case against New York and Maryland, but finds that the takeover statute of the State of Idaho is preempted and violates the Constitution.

I. Facts

Great Western United Corporation (Great Western) is a publicly owned Delaware corporation with its principal executive offices located in Dallas, Texas. The principal officers, all directors, and the controlling shareholders of Great Western—W. Herbert Hunt and Nelson Bunker Hunt—reside in Dallas. Great Western's stock is listed on the New York Stock Exchange and the Pacific Stock Exchange.

Sunshine Mining Company (Sunshine) is a publicly owned corporation organized under the laws of the State of Washington. The corporate headquarters, employing about fifteen people in corporate functions, is located in Idaho. Sunshine also owns mining and milling operations in Idaho which constitute over fifty percent of its corporate assets. Sunshine wholly owns its subsidiary, Anchor Post Products, Inc., of Delaware (Anchor Post), which in turn owns subsidiaries incorporated in Florida, Texas,¹ Arkansas, and California. Anchor Post's manufacturing facilities are based in Maryland. Sunshine further has significant business activities in New York which make application of the New York takeover law arguable. Sunshine's shareholders are fairly well distributed across the United States.² At least 489 individual shareholders of Sunshine reside in Texas, and this figure does not include those shares held in street name.

Hecla Mining Company (Hecla) and Silver Dollar Mining Company (Silver Dollar) have non-operating interests in the Sunshine mine in Idaho. In December, 1976, Hecla and Silver Dollar underwrote a proxy fight to oust the present management of Sunshine. In February, 1977, Great Western representatives met with Hecla and Silver Dollar to discuss Great Western's interest in purchasing shares of Sunshine. On March 18, 1977, Great Western announced its agreement to purchase a total of 335,070 shares of Sunshine from Hecla and Silver Dollar. This purchase represents about 6% of Sunshine's outstanding shares. Great Western also agreed that if it were successful in gaining control of Sunshine, it would reimburse Hecla and Silver Dollar for their proxy fight expenses up to $200,000.

On March 21, 1977, Great Western filed a Schedule 13D Statement with the Securities and Exchange Commission pursuant to the Williams Act Amendments to the Securities Exchange Act of 1934, 15 U.S.C. §§ 78m(b)-(e), 78m(d)-(f) (1970). This same day Great Western publicly announced its intention to make a tender offer for 2,000,000 additional shares of Sunshine (approximately 35% of Sunshine's outstanding shares) at $15.75 per share.³

Also on March 21, Great Western contacted through its attorneys the three states whose state officials are named defendants in this lawsuit: Idaho, New York and Maryland. Great Western had evidently concluded that Idaho would certainly assert jurisdiction under its state takeover law but that New York and Maryland might be persuaded not to do so. It accordingly filed an application for registration under the Idaho takeover law and tried to draw indications from the Attorney General of New York and Commissioner of Securities of Maryland that they would not assert jurisdiction.

On March 25, 1977, Great Western received a telecopied letter from the Deputy Administrator of Securities of the Idaho Department of Finance, Melvin J. Baptie, indicating that he found Great Western's disclosures inadequate and that the twenty day time period for a hearing, provided by the Idaho takeover statute, Idaho Code § 30-1503(5), would not start to run until a complete statement was received, completeness to be determined by the Idaho Department of Finance.⁴ Tom McEldowney, the Idaho Director of Finance, simultaneously entered an administrative order delaying the date of Great Western's tender offer.

In New York and Maryland, Great Western was faring little better. Great Western's counsel in New York were advised by the office of the Attorney General that New York was "leaning" toward asserting jurisdiction over the tender offer under its takeover law. In Maryland, counsel for Great Western were informed that Maryland would not comment on the applicability of its takeover laws without a hearing.

On March 28, 1977, because of uncertainty as to when, if ever, the tender offer might go forward, Great Western filed this suit in the Northern District of Texas, Dallas Division, for declaratory and injunctive relief against the state officials of Idaho, New York and Maryland from enforcing the takeover laws of their respective states. Great Western urges in its suit that the state takeover laws violate the Commerce Clause of the United States Constitution and are preempted by the Williams Act.

Besides denying liability on the merits, defendants raised a panoply of defenses in avoidance of Great Western's suit. In their answer, they contended that Great Western lacked standing to bring this action, that the court lacked subject matter jurisdiction and personal jurisdiction over the defendants, that defendants are immune from suit under the doctrine of sovereign immunity, that venue is improper in this district and that service of process is insufficient.

On April 8, 1977, the court held a hearing on jurisdiction and venue. On April 21, 1977, the court entered unpublished findings of fact and conclusions of law holding that Maryland should be dismissed because Great Western had no dispute with Maryland and therefore lacked standing to sue the State. The court also held that jurisdiction and venue existed against the States of Idaho and New York under the Securities Exchange Act of 1934, 15 U.S.C. § 78aa.

Thereafter, the State of New York attempted to take an uncertified appeal to the United States Court of Appeals for the Fifth Circuit which was dismissed on May 16, 1977. On May 23, 1977, a bench trial was held on the merits against New York and Idaho.

The court is of the opinion that Great Western's suit against the State of New York should be dismissed for mootness because New York no longer seeks to enforce its takeover statute against Great Western. The court is further of the opinion that jurisdiction, venue and service are proper against the State of Idaho and that the Idaho takeover statute violates the Commerce Clause, is preempted by the Williams Act and should be enjoined from enforcement. The court's rationale on the issues raised at the jurisdiction and venue hearing and at the merits hearing follows.

II. Standing

The defendants first argue that Great Western lacks standing to bring this suit against them. For the reasons set forth below, the court concludes that Great Western lacks standing against the State of Maryland but has standing against the States of Idaho and New York.

The concept of standing is based on the Article III requirement of the United States Constitution that restricts federal judicial power to "cases and controversies." Through case law, standing has evolved into a rule of judicial self-restraint. Barrows v. Jackson, 346 U.S. 249, 73 S.Ct. 1031, 97 L.Ed. 1586 (1953).

As articulated by the United States Supreme Court, Great Western must meet two standing requirements. First, Great Western must prove an injury in fact, a concrete interest in the outcome of the suit, sufficient to render the matter a case or controversy subject to a federal court's Article III jurisdiction. Second, Great Western must be a proper proponent of the legal rights it seeks to enforce and within the "zone of interest" sought to be protected. Singleton v. Wulff, 428 U.S. 106, 112, 96 S.Ct. 2868, 2873, 49 L.Ed.2d 826, 832 (1976); Data Processing Service Organizations v. Camp, 397 U.S. 150, 153, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970). These will be discussed in reverse...