Edgar v. Mite Corporation
| Decision Date | 23 June 1982 |
| Docket Number | No. 80-1188,80-1188 |
| Citation | 457 U.S. 624,73 L.Ed.2d 269,102 S.Ct. 2629 |
| Parties | James EDGAR, Appellant v. MITE CORPORATION and Mite Holdings, Inc |
| Court | U.S. Supreme Court |
The Illinois Business Take-Over Act requires a tender offeror to notify the Secretary of State and the target company of its intent to make a tender offer and the terms of the offer 20 days before the offer becomes effective. During that time the offeror may not communicate its offer to the shareholders, but the target company is free to disseminate information to its shareholders concerning the impending offer. The Act also requires any takeover offer to be registered with the Secretary of State. A target company is defined as a corporation of which Illinois shareholders own 10% of the class of securities subject to the takeover offer or for which any two of the following conditions are met: the corporation has its principal office in Illinois, is organized under Illinois laws, or has at least 10% of its stated capital and paid-in surplus represented within the State. An offer becomes registered 20 days after a registration is filed with the Secretary of State unless he calls a hearing to adjudicate the fairness of the offer. Appellee MITE Corp., a corporation organized under Delaware laws with its principal office in Connecticut, initiated a tender offer for all outstanding shares of Chicago Rivet & Machine Co., an Illinois corporation, by filing with the Securities and Exchange Commission the schedule required by the Williams Act. MITE, however, did not comply with the Illinois Act, and brought an action in Federal District Court seeking a declaratory judgment that the Illinois Act was pre-empted by the Williams Act and violated the Commerce Clause, and also seeking injunctive relief. The District Court issued a preliminary injunction prohibiting enforcement of the Illinois Act against MITE's tender offer. MITE then published its offer. Subsequently, the District Court issued the requested declaratory judgment and a permanent injunction. Shortly, thereafter, MITE and Chicago Rivet entered into an agreement whereby both MITE's tender offer and an offer made by Chicago Rivet before the District Court entered its judgment were withdrawn and MITE was given a specified time to make another offer. Ultimately, MITE decided not to make another offer. The Court of Appeals affirmed the District Court.
Held : The judgment is affirmed.
633 F.2d 486, affirmed. Justice WHITE delivered the opinion of the Court with respect to Parts I, II, and V-B, concluding that:
1. The case is not moot. Because the Secretary of State has indicated his intention to enforce the Illinois Act against MITE, a reversal of the District Court's judgment would expose MITE to civil and criminal liability for making an offer in violation of the Act. P. 630.
2. The Illinois Act is unconstitutional under the Commerce Clause, because it imposes burdens on interstate commerce that are excessive in light of the local interests the Act purports to further. Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S.Ct. 844, 25 L.Ed.2d 174. Illinois' asserted interests in protecting resident security holders and regulating the internal affairs of companies incorporated under Illinois law are insufficient to outweigh such burdens. Pp. 643-646.
Russell C. Grimes, Jr., Chicago, Ill., for appellant.
Eugene D. Berman, New York City, for State of New York as amicus curiae, by special leave of Court.
Richard W. Hulbert, New York City, for appellees.
Stephen N. Shapiro, New York City, for S.E.C. as amicus curiae, by special leave of Court.
Justice WHITE delivered an opinion, Parts I, II, and V-B of which are the opinion of the Court.*
The issue in this case is whether the Illinois Business Take-Over Act, Ill.Rev.Stat., ch. 1211/2, ¶ 137.51 et seq. (1979), is unconstitutional under the Supremacy and Commerce Clauses of the Federal Constitution.
I
Appellee MITE Corp. and its wholly owned subsidiary, MITE Holdings, Inc., are corporations organized under the laws of Delaware with their principal executive offices in Connecticut. Appellant James Edgar is the Secretary of State of Illinois and is charged with the administration and enforcement of the Illinois Act. Under the Illinois Act any takeover offer 1 for the shares of a target company must be registered with the Secretary of State. Ill.Rev.Stat., ch. 1211/2, ¶ 137.54.A (1979). A target company is defined as a corporation or other issuer of securities of which shareholders located in Illinois own 10% of the class of equity securities subject to the offer, or for which any two of the following three conditions are met: the corporation has its principal executive office in Illinois, is organized under the laws of Illinois, or has at least 10% of its stated capital and paid-in surplus represented within the State. ¶ 137.52-10. An offer becomes registered 20 days after a registration statement is filed with the Secretary unless the Secretary calls a hearing. ¶ 137.54.E. The Secretary may call a hearing at any time during the 20-day waiting period to adjudicate the substantive fairness of the offer if he believes it is necessary to protect the shareholders of the target company, and a hearing must be held if requested by a majority of a target company's outside directors or by Illinois shareholders who own 10% of the class of securities subject to the offer. ¶ 137.57.A. If the Secretary does hold a hearing, he is directed by the statute to deny registration to a tender offer if he finds that it "fails to provide full and fair disclosure to the offerees of all material information concerning the take-over offer, or that the take-over offer is inequitable or would work or tend to work a fraud or deceit upon the offerees. . . ." ¶ 137.57.E.
On January 19, 1979, MITE initiated a cash tender offer for all outstanding shares of Chicago Rivet & Machine Co., a publicly held Illinois corporation, by filing a Schedule 14D-1 with the Securities and Exchange Commission in order to comply with the Williams Act.2 The Schedule 14D-1 indi- cated that MITE was willing to pay $28 per share for any and all outstanding shares of Chicago Rivet, a premium of approximately $4 over the then-prevailing market price. MITE did not comply with the Illinois Act, however, and commenced this litigation on the same day by filing an action in the United States District Court for the Northern District of Illinois. The complaint asked for a declaratory judgment that the Illinois Act was pre-empted by the Williams Act and violated the Commerce Clause. In addition, MITE sought a temporary restraining order and preliminary and permanent injunctions prohibiting the Illinois Secretary of State from enforcing the Illinois Act.
Chicago Rivet responded three days later by bringing suit in Pennsylvania, where it conducted most of its business, seeking to enjoin MITE from proceeding with its proposed tender offer on the ground that the offer violated the Pennsylvania Takeover Disclosure Law, Pa.Stat.Ann., Tit. 70, § 71 et seq. (Purdon Supp.1982-1983). After Chicago Rivet's efforts to obtain relief in Pennsylvania proved unsuccessful,3 both Chicago Rivet and the Illinois Secretary of State took steps to invoke the Illinois Act. On February 1, 1979, the Secretary of State notified MITE that he intended to issue an order requiring it to cease and desist further efforts to make a tender offer for Chicago Rivet. On February 2, 1979, Chicago Rivet notified MITE by letter that it would file suit in Illinois state court to enjoin the proposed tender offer. MITE renewed its request for injunctive relief in the District Court and on February 2 the District Court issued a preliminary injunction prohibiting the Secretary of State from enforcing the Illinois Act against MITE's tender offer for Chicago Rivet.
MITE then published its tender offer in the February 5 edition of the Wall Street Journal. The offer was made to all shareholders of Chicago Rivet residing throughout the United States. The outstanding stock was worth over $23 million at the offering price. On the same day Chicago Rivet made an offer for approximately 40% of its own shares at $30 per share.4 The District Court entered final judgment on February 9, declaring that the Illinois Act was preempted by the Williams Act and that it violated the Commerce Clause. Accordingly, the District Court permanently enjoined enforcement of the Illinois statute against MITE. Shortly after final judgment was entered, MITE and Chicago Rivet entered into an agreement whereby both tender offers were withdrawn and MITE was given 30 days to examine the books and records of Chicago Rivet. Under the agreement MITE was either to make a tender offer of $31 per share be- fore March 12, 1979, which Chicago Rivet agreed not to oppose, or decide not to acquire Chicago Rivet's shares or assets. App. to Brief for Appellees 1a-4a. On March 2, 1979, MITE announced its decision not to make a tender offer.
The United States Court of Appeals for the Seventh Circuit affirmed sub nom. MITE Corp. v. Dixon, 633 F.2d 486 (1980). It agreed with the District Court that several provisions of the Illinois Act are pre-empted by the Williams Act and that the Illinois Act unduly burdens interstate commerce in violation of the Commerce Clause. We noted probable jurisdiction, 451 U.S. 968, 101 S.Ct. 2043, 68 L.Ed.2d 347 (1981), and now affirm.
II
The Court of Appeals specifically found that this case was not moot, 633 F.2d, at 490, reasoning that because the Secretary has indicated he intends to enforce the Act against MITE, a reversal of the judgment of the District Court would expose MITE to civil and criminal liability 5 for making the February 5, 1979, offer in violation of the Illinois Act. We agree. It is urged that the preliminary injunction issued by the District Court is a complete defense to civil or criminal penalties. While, as Justice STEVENS' concurrence...
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