National City Lines, Inc. v. LLC Corp., 81-4183-CV-C-W.

• Decision Date: 30 September 1981
• Docket Number: No. 81-4183-CV-C-W.,81-4183-CV-C-W.
• Citation: 524 F. Supp. 906
• Parties: NATIONAL CITY LINES, INC., Plaintiff, v. LLC CORPORATION, a Delaware Corporation, Joseph Schoeberl, in his capacity as Commissioner of the Securities Division of the State of Missouri, and Donald Ainsworth, in his capacity as Director of the Division of Insurance of the State of Missouri, Defendants.
• Court: U.S. District Court — Western District of Missouri

524 F. Supp. 906

NATIONAL CITY LINES, INC., Plaintiff, v. LLC CORPORATION, a Delaware Corporation, Joseph Schoeberl, in his capacity as Commissioner of the Securities Division of the State of Missouri, and Donald Ainsworth, in his capacity as Director of the Division of Insurance of the State of Missouri, Defendants.

No. 81-4183-CV-C-W.

United States District Court, W. D. Missouri, C. D.

September 30, 1981.

Walter Theiss, St. Louis, Mo., for plaintiff.

Alex Bartlett, Jefferson City, Mo., for LLC Corp.

Robert Jones, Asst. Atty. Gen., Jefferson City, Mo., for Schoeberl and Ainsworth.

ORDER AND MEMORANDUM

SCOTT O. WRIGHT, District Judge.

The plaintiff, National City Lines ("National"), challenges the constitutionality of certain provisions of the Missouri Takeover Bid Disclosure Act ("Takeover Act") and the Missouri Insurance Holding Companies Act ("Insurance Act"). National has moved for a temporary restraining order and a preliminary injunction enjoining the defendants from invoking or enforcing certain provisions of the Takeover and Insurance Acts. On September 11, 1981, this Court entered the requested temporary restraining order. A hearing on the plaintiff's motion for a preliminary injunction took place on September 29, 1981. After careful consideration of the arguments, affidavits and briefs submitted by the respective counsel, the Court concludes that a preliminary injunction must issue.

I.

LLC Corporation ("LLC") is engaged, through subsidiaries, in the consumer finance, convenience food and insurance businesses. A subsidiary of LLC, Liberty Loan Corporation of Michigan, owns a credit life insurance company which is organized and operated under the insurance laws of Missouri. About ten percent of LLC's consolidated operating revenues are derived from the insurance business. National is engaged, through subsidiaries, in trucking, truck terminal leasing, and energy and real estate development. Defendant Schoeberl is the Commissioner of the Securities Division of Missouri, and has the statutory responsibility for administering and enforcing the Takeover Act. Defendant Ainsworth is the Director of the Missouri Division of Insurance, and has the statutory responsibility for administering and enforcing the Insurance Act.

On September 8, 1981, National announced its intention to make a cash tender offer at $3.25 net per share for any and all shares of LLC common stock. Two days later, the General Counsel of the Division of Insurance advised National that Section 382.040 of the Insurance Act was applicable to National's tender offer for LLC shares and that the Division would enforce the Insurance Act as it applied to the offer. On September 11, 1981, the Honorable Byron Kinder of the Circuit Court of Cole County, Missouri, issued a temporary restraining order against the consummation of National's announced tender offer until National filed with the Director of Insurance the informational statement required by Sections 382.040 and 382.050 of the Insurance Act, obtained a hearing before the Director of Insurance as required by Section 382.060 of the Act, and obtained the approval of the Director as required by Section 382.060 of the Act. Later that same day, in response to National's motion for a temporary restraining order, this Court enjoined the Director of Insurance from enforcing those provisions of the Insurance Act challenged by National, and enjoined the Commissioner of Securities from enforcing the Takeover Act.

In accordance with the federal law which requires a tender offeror to commence or withdraw its tender offer no later than five business days following the announcement of the material terms of the offer, National formally commenced its tender offer for LLC shares by filing a Schedule 14D-1 with the Securities and Exchange Commission ("SEC") on September 14, 1981. Beginning at midnight, October 2, 1981, National may purchase any shares of LLC common stock tendered to it. By its terms, the tender offer expires on October 9, 1981.

II.

National challenges several sections of the Takeover Act, Section 409.500 et seq., RSMo (1978), on the grounds that they violate the Supremacy and Commerce clauses of the Constitution, and deprive National of rights, privileges and immunities secured by federal law. In particular, National alleges that Section 409.515.1 is void under the Supremacy Clause because its pre-commencement notification requirement conflicts with Rule 14d-2 of the Williams Act, that Sections 409.515.1 and 409.530 are void under the Supremacy Clause because their administrative and hearing review procedures conflict with Rule 14d-7 of the Williams Act, that Sections 409.510(6) and 409.515.2 are void under the Supremacy Clause because they require a tender offeror to provide information not required to be disclosed under the Williams Act, that Section 409.505(3)(d) is void under the Supremacy Clause because it exempts from regulation those tender offers recommended by the target company's board of directors while subjecting to further regulation those offers not approved by the target company's board, that Sections 409.515.3 and 409.520 are void under the Supremacy Clause because they upset the neutral balance between the offeror and the offeree company required by the Williams Act by discriminating with respect to the ability of the offeror and offeree to communicate with the shareholders of the company, that Section 409.510(2) is void under the Supremacy Clause because its requirement that shareholders' deposit rights must be extended for at least twenty-one days after the amendment of any offer conflicts with Rule 14e-1(b) of the Williams Act, that Section 409.510(3) is void under the Supremacy Clause because its requirement that shareholders' withdrawal rights must be extended for at least twenty-one days after the amendment of any offer conflicts with Rule 14d-7 of the Williams Act, and that Sections 409.505(3)(d), 409.510(2)-(6), 409.515 and 409.520 are void under the Commerce Clause because they excessively burden interstate commerce.

The defendants have decided not to introduce proof or submit arguments in support of the constitutionality of the Takeover Act in light of this Court's recent ruling in a similar case. See, Empire, Inc. v. Ashcroft, 524 F.Supp. 898 (W.D.Mo.1981). The defendants have not consented to the entry of a preliminary injunction with respect to defendant Schoeberl's enforcement of the Takeover Act; rather, they have asked the Court to incorporate on their behalf the defense arguments raised in the Empire case. The Court has reviewed those arguments, but is, nonetheless, compelled to adhere to its reasoning in Empire. Since the grounds asserted by National in support of its challenge of the constitutionality of those provisions of the Takeover Act previously cited are identical to the grounds considered by this Court in Empire, this Court enters its order finding Sections 409.505(3)(d), 409.510(2)-(6), 409.515 and 409.520 of the Takeover Act unconstitutional and enjoins the defendants LLC and Schoeberl from invoking or enforcing those provisions of the Takeover Act against National.

III.

National also challenges several sections of the Insurance Act, Section 382.040 et seq., RSMo (1978), on the grounds that they violate the Supremacy and Commerce clauses of the Constitution, and deprive National of rights, privileges and immunities secured by federal law. In particular, National alleges that Sections 382.040 and 382.060 are void under the Supremacy Clause because their administrative hearing and review procedures conflict with Rule 14d-7 of the Williams Act, that Section 382.050 is void under the Supremacy Clause because it requires a tender offeror to provide information not required to be disclosed under the Williams Act, that Section 382.060.1(4) is void under the Supremacy Clause because the power of the Director of Insurance to evaluate the fairness of the offer conflicts with federal policy which permits investors to make their own decisions with respect to tender offers, and that Sections 382.040, 382.050 and 382.060 are void under the Commerce Clause because they excessively burden interstate commerce.

The defendants contend that these Insurance Act provisions are valid under the Supremacy Clause because a state may validly regulate in an area of commerce even though Congress has passed legislation in the same field, that the provisions do not excessively burden interstate commerce because they serve a legitimate state interest and are applied non-discriminatorily, and that Section 1983 of the Civil Rights laws provides no basis for injunctive relief. The General Counsel for the Missouri Division of Insurance advised National that the Division would seek to enforce the Insurance Act to the extent that the Act applied to National's tender offer. National, having been granted a temporary restraining order enjoining enforcement of the Insurance Act, now seeks a preliminary injunction.

In order to determine whether a preliminary injunction should be issued or denied, the Eighth Circuit requires this Court to evaluate the circumstances of a particular case in accordance with the following four factors:

1. The probability that the moving party will succeed on the merits of the case;

2. The threat of irreparable harm to the moving party;

3. The state of the balance between the harm that granting the preliminary injunction will inflict on other parties to the litigation; and

4. The public interest.

Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 113 (8th Cir. 1981). An analysis of the circumstances posed by this case in light of those four factors compels this Court to conclude that a preliminary injunction enjoining the enforcement of the Insurance Act against National's tender offer must issue.

A. Probability that National Will Succeed on the Merits

The director of the Division of Insurance can presently impose all the...