L.P. Acquisition Co. v. Tyson, 85-1640
| Citation | 772 F.2d 201 |
| Decision Date | 26 August 1985 |
| Docket Number | No. 85-1640,85-1640 |
| Parties | Blue Sky L. Rep. P 72,290, Fed. Sec. L. Rep. P 92,271 L.P. ACQUISITION COMPANY, et al., Plaintiffs-Appellants, v. Carl L. TYSON, Acting Director of the Corporation and Securities Bureau of the Department of Commerce of the State of Michigan, et al., Defendants-Appellees. |
| Court | United States Courts of Appeals. United States Court of Appeals (6th Circuit) |
John C. Elam, Vorys, Sater, Seymour & Pease, Columbus, Ohio, Michael W. Schwartz, argued, Wachtell, Lipton, Rosen & Katz, New York City, for plaintiffs-appellants.
Diane Sanger, Asst. Gen. Counsel, S.E.C., Washington, D.C., for amicus curiae (SEC).
William Saxton, Butzel, Long, Gust, Klein & Van Zile, Phillip Kessler, argued, Detroit, Mich., Joe Sutton argued, (Kelley, Ross & Tyson) Asst. Atty. Gen., Lansing, Mich., for defendants-appellees.
Before MERRITT, MARTIN and CONTIE, Circuit Judges.
Plaintiffs L.P. Acquisition Company and L.P. Media, Inc. appeal from a judgment of the district court denying their motion for a preliminary injunction and dismissing their complaint challenging the constitutionality of the Michigan Take-Over Offers Act, M.C.L.A. Secs. 451.901-917, and the Michigan Uniform Securities Act, M.C.L.A. Secs. 451.501-818, pursuant to 28 U.S.C. Secs. 1331(a), 1337(a), 2201. We reverse.
On July 29, 1985, plaintiffs L.P. Acquisition Company and L.P. Media, Inc. (hereinafter L.P.) filed a motion in the United States District Court for the Eastern District of Michigan against defendants Carl L. Tyson, Acting Director of the Corporation and Securities Bureau of the Department of Commerce of the State of Michigan; Frank J. Kelley, Attorney General of the State of Michigan; Doug Ross, Director of the Department of Commerce of the State of Michigan; and the Evening News Association (ENA), a Michigan corporation, seeking to enjoin defendants from enforcing M.C.L.A. Secs. 451.501-818, et seq., 451.901-917.
The first amended complaint, filed August 6, 1985, alleged that L.P. Acquisition and L.P. Media were incorporated on July 26, 1985 for the purpose of acquiring ENA, and that L.P. Acquisition, a Delaware corporation, is a wholly owned subsidiary of L.P. Media. The complaint alleged that L.P. Acquisition had commenced a cash tender offer for any and all of the approximately 450,000 shares of ENA from ENA's 333 shareholders for $1,000 per share. An examination of the tender offer transmitted to shareholders reveals that the offer was not conditioned upon any minimum number of shares being tendered. The complaint further alleged that about half of the shareholders were Michigan residents with about half of the shares being owned by Michigan residents. The offer was due to expire on August 23, 1985. L.P. also alleged that "ENA shares are not listed on any registered securities exchange or widely traded on the over-the-counter market."
In the complaint, L.P. admitted that it had not complied with all the provisions of Michigan's securities laws, but had filed copies of the tender offer documents with the Michigan Department of Commerce without prejudice to its claims that the Act is unconstitutional. In Count I, L.P. alleged that the Michigan statute violated the Commerce Clause, U.S. Constitution Art. I Sec. 8 cl. 3. Specifically, L.P. cited the requirement that L.P. file a registration statement with respect to the tender offer, the fact that the statute empowers Michigan officials to enjoin the sale and purchase of securities pursuant to the terms of the tender offer, and the expense incurred by L.P. in litigating the applicability of the statute. L.P. asserted that the statute was a direct burden on the free flow of interstate commerce to the extent it hindered the sale of securities by a non-Michigan seller to a non-Michigan buyer, and that the statute indirectly burdened interstate commerce because the burdens on interstate commerce outweighed the benefits the state sought from the statute. In Count II, L.P. asserted that the Michigan statute violated the Supremacy Clause to the extent that it delayed the purchase and sale of securities past the 20-day minimum period established by 17 C.F.R. Sec. 240.14e-1(a), promulgated pursuant to 15 U.S.C. Sec. 78n(e). In Count III, L.P. challenged the M.C.L.A. Sec. 451.808, as unconstitutional as applied to interstate transactions, and, in Count IV, alleged that ENA had violated 15 U.S.C. Sec. 78n(e).
L.P. sought a temporary restraining order, a preliminary injunction, and a permanent injunction restraining defendants from attempting to enforce the Michigan statutes and enjoining ENA from making further misleading statement about the L.P. tender offer. L.P. also sought a declaratory judgment that the statutes are unconstitutional as applied. The motion for a temporary restraining order was accompanied by an affidavit from L.P. Media counsel Grover C. Cooper representing that application of the Michigan statute would delay FCC approval for the transfer of control of the ENA licenses as parent of a number of FCC media facilities.
On August 7, 1985, 616 F.Supp. 1186, the district court entered judgment denying injunctive relief and dismissing the complaint. The court order represented that The court disposed of L.P.'s Supremacy Clause and fraud claims (Counts II and III) by finding that 15 U.S.C. Sec. 78n(e) of the Williams Act only applied to registered securities. The court held that
to interpret Sec. 14(e) broadly would render an absurd result by extending coverage of its provisions to foreign and totally intrastate tender offers, as well as those made for the securities of closely held corporations. That Congress would intend for only one subsection of an extensive regulatory scheme to have this cosmic scope defies logic. The court would suggest that Congress' choice of the phrase "any tender offer" was intended to refer to the form tender offers take--whether for cash or securities, for all or a portion of the outstanding shares, and the type of transmittal through which the tender offer is made.
(footnote omitted). With respect to L.P.'s Commerce Clause challenge, the court held:
The protection of resident shareholders of a Michigan corporation is a legitimate state interest. This is particularly true in the absence of any applicable federal regulation and under the facts of this case. The ENA is a closely held corporation with 50 percent of its shares and shareholders located in Michigan. The corporation owns a major newspaper that impacts upon the entire state and two radio stations in Michigan's largest city. Each of these factors underscore the need for regulation of a hostile tender offer. These state interests outweigh the incidental burden the application of the Take Over Act will have an interstate commerce.
(footnote omitted). The court found further support in its findings that 17 C.F.R. Sec. 240.14e-1(a) is inapplicable to the ENA unregistered securities and that Congress, in enacting the Williams Act, had not changed the provisions of 15 U.S.C. Sec. 78bb(a) which reserved some regulatory power for the states.
On August 7, 1985, L.P. moved for an expedited appeal and a preliminary injunction pending appeal, and on August 20, 1985, we heard argument in the case. L.P. appealed pursuant to 28 U.S.C. Secs. 1291, 1292(a)(1). At oral argument, counsel for L.P. represented that the tender offer had been increased to $1,250 per share and that the offer would expire August 30, 1985. Counsel also represented that this offer was subject to the condition that none of the tendered shares would be purchased unless more than half of the shares were tendered.
Prior to consideration of the constitutional issues argued before us, we review the scope of the statute in issue. M.C.L.A. Sec. 451.903(4) defines "target company" as an issuer of securities which may be the subject of a take-over offer. The statute defines "take-over offer" as an offer directed at an issuer who either is "organized under the laws of this state" or has "its principal place of business in this state" and where acceptance of the offer would make the offeror "a beneficial owner of more than 5% of the outstanding shares of the class of the security offered or acquired." M.C.L.A. Sec. 451.904(1). However, excluded from the definition of "take-over offer" are (1) "an offer made to not more than 15 persons in this state during any 12 consecutive months," (2) "an offer made by a person other than an issuer which is initiated or approved by the board of directors of the issuer of the security which is the subject of the offer if the offer is made when a take-over offer with respect to the security by another person is not effective or was not publicly disclosed under section 3," and (3) an offer "[b]y the issuer of the security." Section 451.904(2)(a), (d), (f).
An offer may not be made unless it is "effective" or "exempt." Section 451.905(1). An offer becomes "effective" 10 days after the offeror files a registration statement with the department of commerce, delivers the statement to the target company, and publicly discloses the terms of the offer. Section 451.905(3). Once the offer becomes "effective" "it shall remain open for acceptance by the offerees for not less than 60 days." Section 451.905(2). The effective date is stayed if the administrator, the department of commerce, section 451.902(1), "orders a hearing for an alleged violation of this act." Section 451.905(4). The hearing must be held not more than 20 days after filing of the registration statement and a "summary determination" is to be made within 20 days after the hearing. Section 451.907(1), (2), (4). "The administrator may summarily order the delay of the effective...
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