Mesa Petroleum Co. v. Cities Service Co.

• Decision Date: 18 August 1983
• Docket Number: Nos. 82-1838,82-2615 and 83-1082,82-2614,s. 82-1838
• Citation: 715 F.2d 1425
• Parties: Blue Sky L. Rep. P 71,853, Fed. Sec. L. Rep. P 99,458 MESA PETROLEUM COMPANY, a corporation, Occidental Petroleum Corporation, a corporation, the Bendix Corporation, a corporation, Plaintiffs-Appellees, v. CITIES SERVICE COMPANY, a corporation, Martin Marietta Corporation, a corporation, Defendants, Deanna Burger, Acting Administrator of the Oklahoma Department of Securities, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1425

715 F.2d 1425

Blue Sky L. Rep. P 71,853, Fed. Sec. L. Rep. P 99,458

MESA PETROLEUM COMPANY, a corporation, Occidental Petroleum

Corporation, a corporation, the Bendix

Corporation, a corporation, Plaintiffs-Appellees, v. CITIES SERVICE COMPANY, a corporation, Martin Marietta

Corporation, a corporation, Defendants,

Deanna Burger, Acting Administrator of the Oklahoma

Department of Securities, Defendant-Appellant.

Nos. 82-1838, 82-2614, 82-2615 and 83-1082.

United States Court of Appeals, Tenth Circuit.

Aug. 18, 1983.

Vaughn Williams, of Skadden, Arps, Slate, Meagher & Flom, New York City (Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okl., on brief), for plaintiff-appellee Occidental Petroleum Co.

Burck Bailey, of Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okl. (Margaret McMorrow-Love, of Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okl.; John Held and William R. Burke, Jr., of Baker & Botts, Houston, Tex., on brief), for plaintiff-appellee Mesa Petroleum Co.

John Thompson, Oklahoma City, Okl. (Deanna Burger, Oklahoma City, Okl., on brief), for defendant-appellant Acting Administrator of Okl. Dept. of Securities.

Burck Bailey and Margaret McMorrow-Love and of Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, Okl., submitted a brief for plaintiff-appellee, The Bendix Corp.

Before SETH, SEYMOUR and TIMBERS ^*, Circuit Judges.

TIMBERS, Circuit Judge.

The chief issue presented by these consolidated appeals is the constitutionality of the Oklahoma Take-Over Bid Act, 71 O.S. §§ 431-450 (1981) (Oklahoma Act or the Act).

The District Court for the Western District of Oklahoma, David L. Russell, District Judge, struck down the Act on the ground that it violated the commerce clause of the United States Constitution. We agree. We affirm.

Our task in deciding these appeals has been rendered easier by the recent decision of the Supreme Court in Edgar v. MITE Corp., 457 U.S. 624, (1982), which struck down as unconstitutional a similar Illinois statute, the Illinois Business Take-Over Act, Ill.Rev.Stat., ch. 121 1/2, p 137.51 et seq. (1979) (Illinois Act).

The Acting Administrator of the Oklahoma Department of Securities (Administrator) appeals from an order entered in the Western District of Oklahoma preliminarily enjoining enforcement of the Oklahoma Act, and from that court's permanent injunctions against enforcement of the Act, entered on motions for summary judgment in favor of appellees Mesa Petroleum Company (Mesa), Occidental Petroleum Corporation (Occidental) and Bendix Corporation

                (Bendix). 1  Each of the appellees had made tender offers that were subject to the sanctions of the Act.   The purpose of their actions in the Western District of Oklahoma was to prevent the Administrator from enforcing that Act against them
                

I.

These appeals by the Administrator--four separate appeals ²--have been consolidated for consideration by this Court since all involve the same dispositive issue: whether the Oklahoma Act violates the commerce clause of the United States Constitution as an unreasonable restraint on interstate tender offers for corporate securities.

The Oklahoma Act applies by its terms to any tender offer in which the "target company" (1) is organized under the laws of Oklahoma, or (2) has substantial assets and its principal place of business in Oklahoma, or (3) has substantial assets and significant operations in Oklahoma, or (4) has shareholders in Oklahoma who own, beneficially or of record, an aggregate of ten percent of any class of equity securities which are subject to the take-over bid. 71 O.S. § 433(4)(a)-(d) (1981). Under the Act the Administrator is given the power, most significantly, to pass upon the adequacy of the disclosure made in connection with any tender offer for shares in qualifying target companies and thereby to prohibit or at least delay the consummation of such tender offer. Id. at § 437. To prevent any delay in the consummation of their tender offers for statutory target companies, appellees Mesa, Occidental and Bendix, concurrently with the commencement of their tender offers, each moved to enjoin enforcement of the Oklahoma Act against them. The chronology of the various interrelated actions which we have before us is sufficiently complex to warrant a separate summary of each.

MESA

On June 7, 1982, Mesa commenced its cash tender offer for the shares of Cities Service Company, a corporation with substantial assets and its principal executive offices in Oklahoma. Mesa made the requisite filings under federal law. ³ Instead of filing an "information statement" with the State of Oklahoma, as required by the Oklahoma Act, 71 O.S. § 425 (1981), Mesa filed its action in the Western District of Oklahoma one day prior to the public announcement of its offer. Simultaneously Mesa filed its motion for a preliminary injunction and for a temporary restraining order. In its complaint Mesa alleged that the Oklahoma Act violated the commerce and supremacy clauses of the United States Constitution and that the Act was preempted by the federal securities laws.

The district court entered a temporary restraining order, which then was amended nunc pro tunc on June 8, 1982. On June 18, the court held a hearing on Mesa's motion for a preliminary injunction. After that hearing, but prior to the court's decision on the motion, the Supreme Court decided MITE, in which it struck down the Illinois Act as violative of the commerce clause.

On June 22, Gulf Oil Company entered the lists for control of Cities Service, making its own cash tender offer. Mesa subsequently withdrew its tender offer. The withdrawal notwithstanding, on July 2 the district court entered the preliminary injunction sought by Mesa on the ground that Mesa thereafter moved for summary judgment. On December 21, the court granted the motion and entered its judgment declaring the Act unconstitutional and permanently enjoining the Administrator from enforcing it. From that judgment, the Administrator filed a notice of appeal on December 23.

                Mesa still was subject to prosecution under the Act for its failure to comply with it.  71 O.S. § 448 (1981). 4  The Administrator on the same day filed a notice of appeal to this Court
                

By order of this Court dated February 15, 1983, the Administrator's appeal from the order granting the preliminary injunction was consolidated with the Administrator's appeal from the summary judgment in favor of Mesa.

OCCIDENTAL

On August 18, 1982, Occidental announced its intention to acquire control of Cities Service by means of a cash tender offer. Like Mesa, Occidental dealt with the filing requirements of the Oklahoma Act by commencing an action in the Western District of Oklahoma to have the Act struck down as unconstitutional. Occidental's grounds for seeking injunctive and declaratory relief in all material respects were the same as those urged by Mesa.

The district court granted Occidental's motion for a temporary restraining order on August 19, the same day Occidental officially commenced its tender offer. The TRO was entered following a hearing at which the Administrator refused to state that he would not enforce the Act against the offeror. ⁵ On September 10, Occidental successfully consummated its tender offer, purchasing some 34.4 million Cities Service shares.

After some sparring among the parties with discovery, Occidental moved for summary judgment. On December 20, the court granted the motion and permanently enjoined enforcement of the Act. From that judgment, the Administrator filed a notice of appeal on December 23.

On January 10, 1983, the Administrator filed a petition for a writ of prohibition in this Court, seeking to prohibit other federal judges in the Western District of Oklahoma from relying on either the Occidental case or the Mesa case in subsequent rulings or judgments. This Court denied the writ on February 8, 1983.

BENDIX

While Mesa, Gulf and Occidental were contending for the hand of Cities Service, Bendix was laying plans for its own ill-starred siege of the Martin-Marietta Corporation. On August 25, Bendix followed the path of Occidental and Mesa to the Western District of Oklahoma courthouse door, where it commenced an action against the Administrator seeking declaratory and injunctive relief. On August 26, the court entered the temporary restraining order requested by Bendix. In the wake of discovery requests by the Administrator, Bendix moved for a protective order. The court stayed discovery on September 16. On December 21, in accordance with its decisions in Occidental and Mesa, the court entered judgment granting to Bendix the same relief granted in Occidental and Mesa. From that judgment, the Administrator filed a notice of appeal on January 3, 1983.

II.

The most important question raised by these appeals is whether it follows a fortiori from MITE that the Oklahoma Act violates the commerce clause. We address that question first. We shall then proceed to the various specific challenges to the propriety of the preliminary injunction and the summary judgments.

In MITE, the Supreme Court held that the Illinois Act violated the commerce clause because its indirect burden on interstate commerce was excessive in relation to the local interests it served under the test of Pike v. Bruce Church, Inc., 397 U.S. 137, 142 (1970). The Court was convinced that the Illinois Act placed a substantial indirect burden on the buying and selling of corporate securities--since it allowed the state, under the guise of assessing the adequacy of disclosure, to delay and thus to frustrate nationwide tender offers--and that this burden was excessive in relation to the legitimate state interests, primarily the protection of domestic shareholders, served by the statute. Perhaps of chief significance, the Illinois Act allowed state enforcement officials to halt a nationwide tender offer--where each extra tick...