Bendix Corp. v. Martin Marietta Corp.

• Decision Date: 03 September 1982
• Docket Number: Civ. No. Y-82-2504.
• Citation: 547 F. Supp. 522
• Parties: The BENDIX CORPORATION v. MARTIN MARIETTA CORPORATION, etc., et al.
• Court: U.S. District Court — District of Maryland

547 F. Supp. 522

The BENDIX CORPORATION v. MARTIN MARIETTA CORPORATION, etc., et al.

Civ. No. Y-82-2504.

United States District Court, D. Maryland.

September 3, 1982.

John H. Lewin, Jr., Baltimore, Md., and Marc P. Cherno, New York City, for plaintiff.

George Beall, James R. Eyler, and Mark D. Gately, Baltimore, Md., for defendant Martin Marietta Corp.

Susan Gauvey, Asst. Atty. Gen., State of Md., Baltimore, Md., for defendant State of Md.

MEMORANDUM OPINION AND ORDER

JOSEPH H. YOUNG, District Judge.

Bendix brought this declaratory judgment suit asking this Court to declare the Maryland Corporate Take-Over Law, Md. Corp. & Ass'ns Code Ann.Code §§ 11-901— 11-908 ("Maryland Law"), unconstitutional on the grounds that it violates the Commerce and Supremacy Clauses of the United States Constitution. On August 25, 1982 after a hearing in chambers, this Court issued a temporary restraining order against enforcement of the Maryland Law, and plaintiff now seeks a ruling on its application for a preliminary injunction.

The Maryland Law.

Enacted in 1976, the Maryland Law defines a "take-over offer," with certain exceptions, as an offer to "acquire or the acquisition of any equity security of a target company, pursuant to a tender offer" in which the "offeror would be directly or indirectly a beneficial owner of more than five percent of any class of the outstanding equity securities" of the target company. § 11-901(h)(1). A take-over offer is not subject to the Maryland Law unless the target company is a Maryland corporation and is doing business in Maryland, § 11-901(i), and 35 or more of the target company's shareholders reside in Maryland. § 11-901(h)(2)(iv). A take-over offer which is approved by the board of directors of the target company is also not subject to the Maryland Law. § 11-901(h)(2)(v).

Under the Maryland Law, an offeror must file a statement with the Maryland Securities Commissioner ("Commissioner") disclosing the same information which is required to be disclosed under the federal securities laws. Cf. § 11-902(b) with 15 U.S.C. §§ 78m(d)-(e), 78n(d)-(f) ("Williams Act"). However, unlike the Williams Act which does not require that a disclosure statement be filed until the date the tender offer is first published, 15 U.S.C. § 78n(d)(1), the Maryland Law requires the filing of a disclosure statement at least 20 days prior to the date the tender offer is first published. § 11-902(a).

The Maryland Law contains anti-fraud provisions as well as other provisions governing the manner in which shares are tendered pursuant to a tender offer. §§ 11-904, 11-905(a)-(d).

Under the Maryland Law, the Commissioner can convene a hearing within 20 days of the filing of a disclosure statement to determine whether a tender offer complies with the Maryland Law. § 11-905(e)(2). In addition, upon request of a target company, "made within 10 days of the filing of a disclosure statement, "if in the opinion of the Commissioner good cause is shown, the Commissioner shall institute an investigation" to determine whether the tender offer complies with the Maryland Law. § 11-906. An offeror is prohibited from making a tender offer or acquiring any shares of a target company pursuant to a tender offer while a hearing or investigation is pending. § 11-905(e)(1). Therefore, since there are no time limits on an investigation and the Commissioner can indefinitely extend a determination following a hearing "for the convenience of the parties or for the protection of offerees i.e. shareholders of the target company in this State," an offeror can be required to wait an indefinite period before it may proceed with its tender offer. §§ 11-905(e)(2), 11-906.

In recognition of a possible conflict with Securities and Exchange Commission ("SEC") rules, the Maryland Law was amended in 1980. The amendment states that "the Commissioner, by rule or order, may modify, suspend, or exempt transactions from particular provisions" of the Maryland Law "to the extent the Commissioner deems such action necessary or appropriate to make their applications reasonably consistent with the Securities Exchange Act of 1934." § 11-902(d).

Acting on the authority given to him by the amendment, the Commissioner promulgated Guidelines modifying the disclosure requirements in the Maryland Law. By way of preface to the Guidelines, the Commissioner stated that it is the policy of the Maryland Securities Division "to enter an order on a case by case basis as may be necessary to implement the take-over law so as not to be in conflict with the new federal rules. While the particular facts of each case may require individual review as to the proper order to be entered, the Division intends, in all appropriate instances, to implement this policy by entry of an order incorporating the provisions contained in the ... Guidelines." 1A Blue Sky L.Rep. (CCH) ¶ 30,563 (April 18, 1980). The Guidelines state that the disclosure statement filed at least 20 days prior to the date a tender offer is first published need contain only the name and address of the offeror, the name of the target company and a statement that the offeror intends to make a tender offer.

Courts are authorized to enjoin violations of the Maryland Law, § 11-906, and violations are subject to criminal penalties. § 11-705.

Bendix argues that the recent Supreme Court decision in Edgar v. Mite Corp., ___ U.S. ___, 102 S.Ct. 2629, 73 L.Ed.2d 269 (1982), striking down the Illinois Business Takeover Act compels the conclusion that the Maryland Law is also unconstitutional. In light of Edgar and other federal court decisions invalidating state takeover laws, Bendix argues that: 1) the Maryland Law is violative of the Commerce Clause in that it directly regulates interstate commerce; 2) the Maryland Law is violative of the Commerce Clause in that under the test of Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970), the Maryland Law imposes burdens on interstate commerce that are excessive in relation to the putative local benefits; and 3) the Maryland Law is violative of the Supremacy Clause because several provisions of the Maryland Law stand as obstacles to the accomplishment and execution of the full purposes and objectives of the Williams Act. Specifically, Bendix points to: (a) the requirement that the disclosure statement be filed 20 days in advance of the tender offer, (b) the provisions authorizing the Commissioner to institute a hearing or investigation of unlimited duration, (c) the provision allowing the board of directors of a target company to exempt the tender offer from the Maryland Law, and (d) the provision giving the target company (and others) the right to sue for an injunction, as in conflict with the Williams Act.

Defendants argue that Edgar is distinguishable because, unlike the Illinois Act at issue in Edgar, the Maryland Law neither violates the Commerce Clause nor the Supremacy Clause. Defendants place considerable reliance on the 1980 amendment to the Maryland Law which, as noted above, gives the Commissioner sweeping powers to alter or modify the Maryland Law. Indeed, the defendants argue that because of the sweeping powers given to the Commissioner, the precise contours of the Maryland Law are unsettled and this Court should accordingly abstain from ruling on its constitutionality.

Preliminary Injunction Standard.

This Court addressed the standard to be applied "in determining whether or not to issue a preliminary injunction under Rule 65(a)" in Love v. Hidalgo, 508 F.Supp. 177, 182-83 (D.Md.1981). In that case the Court said that the correct standard to be applied in the Fourth Circuit ...

was set forth in Sinclair Refining Co. v. Midland Oil Co., 55 F.2d 42 (4th Cir. 1932):

"It is sufficient to grant the motion if the court is satisfied that there is a probable right and a probable danger, and that the right may be defeated, unless the injunction is issued, and considerable weight is given to the need of the protection to the plaintiff as contrasted with the probable injury to the defendant." 55 F.2d at 45.

That standard, which requires application of the balance-of-hardship test, has continually been reaffirmed by the Fourth Circuit as the proper trial court standard for interlocutory injunctive relief. Blackwelder Furniture Co. v. Seilig Manufacturing Co., Inc., 550 F.2d 189 (4th Cir. 1977); West Virginia Highlands Conservancy v. Island Creek Coal Co., 441 F.2d 232 (4th Cir. 1971). In Blackwelder, the Court held that a trial court could properly consider the following four general factors in considering whether or not to issue a preliminary injunction:

1. Likelihood of success on the merits;

2. Irreparable harm to be suffered by plaintiff without injunctive relief;

3. Harm to other interested persons if the injunction is issued; and,

4. The public interest.

550 F.2d at 196. However, that Court cautioned that in applying such a test, the court should give those four factors the relative emphasis required by the Sinclair rule:

"The two more important factors are those of probable irreparable injury to plaintiff without a decree and of likely harm to the defendant with a decree. If that balance is struck in favor of plaintiff, it is enough that grave or serious questions are presented; and plaintiff need not show a likelihood of success. Always, of course, the public interest should be considered." 550 F.2d at 196.

Edgar v. MITE Corp.

As in this case, Edgar dealt with a constitutional challenge to a state takeover law. Also, as in this case, the plaintiff argued that the state law was constitutionally defective on three grounds: 1) direct restraint on interstate commerce in violation of the Commerce Clause; 2) indirect restraint on interstate commerce where the burdens on interstate commerce are excessive in relation to the putative local benefits in violation of the Commerce Clause; and 3) conflict with the goals and purposes of...