Empire, Inc. v. Ashcroft, 81-4174-CV-C-W.
| Decision Date | 03 September 1981 |
| Docket Number | No. 81-4174-CV-C-W.,81-4174-CV-C-W. |
| Parties | EMPIRE, INCORPORATED, Plaintiff, v. John ASHCROFT, Attorney General of the State of Missouri, Joseph W. Schoeberl, Commissioner of Securities of the State of Missouri; and Wetterau, Incorporated, Defendants. |
| Court | U.S. District Court — Western District of Missouri |
Steven G. Emerson, Morris, Larson, King, Stamper & Bold, Kansas City, Mo., James Robertson, Wilmer, Cutler & Pickering, Washington, D. C., for plaintiff.
Thomas C. Walsh, Bryan, Cave, McPheeters & McRoberts, St. Louis, Mo., for Wetterau.
Bobby J. Jones, Asst. Atty. Gen., Jefferson City, Mo., for Ashcroft & Schoeberl.
Plaintiff Empire, Incorporated ("Empire") filed this action seeking a temporary restraining order and a preliminary injunction enjoining the defendants from attempting to invoke or enforce the Missouri Takeover Bid Disclosure Act (Takeover Act), Chapter 409, Sections 409.500 through 409.565, RSMo 1978, in connection with Empire's tender offer for certain shares of common stock of Wetterau, Incorporated ("Wetterau"), and restraining defendants from commencing or maintaining, in any other court, litigation bearing on the tender offer or the validity of the Takeover Act as applied to the tender offer. On August 21, 1981, this Court entered the requested temporary restraining order. A hearing on plaintiff's motion for a preliminary injunction was held on August 26, 1981. After considering the arguments, affidavits, and briefs submitted by counsel, the Court concludes that the requested preliminary injunction should be issued.
On August 19, 1981, Empire announced its intention to make a cash tender offer for up to 1,200,000 shares of the common stock of Wetterau at a price of $21 per share. Empire's tender offer is addressed to all of Wetterau's approximately 7,200 shareholders of record throughout the United States.
As a result of publicly announcing its offer, Empire is required under federal law to commence or withdraw the tender offer within five business days of the announcement —no later than August 25. SEC Rule 14d-2(b), 17 C.F.R. § 240.14d-2(b). Under the Missouri Takeover Bid Disclosure Act, Sections 409.500 through 409.565, RSMo 1978, Empire is prohibited from commencing its offer until at least twenty days after filing a disclosure statement with the Commissioner of Securities and registered agent of the target company. Section 409.515, RSMo 1978. There may also be further delay under the Missouri Act because within fifteen days after the filing, the Commissioner may order a hearing which may last for an indeterminate length of time. Section 409.515, RSMo 1978. Thus, Empire filed this action claiming that once it announced its tender offer, it was impossible to comply with both federal and state law.
On August 20, 1981, Wetterau filed suit against Empire in state court, seeking to enjoin Empire from going forward with its tender offer until it complied with the provisions of the Missouri Takeover Act. On August 21, 1981, this Court restrained Wetterau from proceeding with the state court action, and this hearing on the preliminary injunction followed.
Empire argues that the Takeover Act is preempted under the supremacy clause, Article VI, Clause 2 of the United States Constitution, because it is in direct conflict with federal law, specifically, Sections 13(d) and 13(e) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78m(d)-(e) and 78n(d)-(f) (the "Williams Act") and the regulations thereunder, 17 C.F.R. § 240.14d-1 et seq. Plaintiff also argues that the Takeover Act imposes an unconstitutional burden on interstate commerce and is, therefore, invalid under the commerce clause, Article I, Section 8, Clause 3 of the United States Constitution. The defendants contend, first, that the principles of federalism require this Court to abstain from reaching the constitutional issues raised by Empire because they can and should be heard in the pending state action. Second, in the event that this Court refuses to apply the abstention doctrine, defendants argue that the Takeover Act is not in conflict with any federal law, nor is it an unconstitutional burden on interstate commerce. An amicus curiae brief was filed on behalf of the Securities and Exchange Commission (SEC). The SEC takes the position that the Missouri Takeover Act is unconstitutional because it frustrates the purposes of the Williams Act.
This action was filed in the United States District Court for the Western District of Missouri on August 19, 1981. One day later, on August 20, 1981, the defendant Wetterau instituted suit against Empire in the Circuit Court of St. Louis County, requesting that court to enjoin Empire from going forward with its tender offer until it complied with the provisions of the Missouri Takeover Act. The defendants argue that the constitutional questions raised by Empire's motion can be fully and competently adjudicated by the Missouri court in the pending state action, and this Court is stripped of its jurisdiction under the principles of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746, 27 L.Ed.2d 669 (1971). The doctrine enunciated in Younger v. Harris and its progeny1 requires a federal court to abstain from deciding federal constitutional challenges to state statutes when there is a pending parallel state proceeding and the same issues can be decided by the state court.
The Younger case and the subsequent cases following Younger, are inapposite to the case before this Court. The Younger doctrine, "is not jurisdictional in nature, but is an equitable doctrine based upon comity." Hunt v. Roth, 648 F.2d 1148, 1154 (8th Cir. 1981). The doctrine is essentially one of equitable restraint, where a federal court defers judgment to a state court because of the overriding state policies involved. The Younger concept is a system in which there is a balancing of state and federal interests, Younger v. Harris, supra, 401 U.S. at 44, 91 S.Ct. at 750-51; see also, Trainor v. Hernandez, 431 U.S. 434, 448-50, 97 S.Ct. 1911, 1920-21, 52 L.Ed.2d 486 (1977) (concurring, Blackmun, J.) and where the federal interests clearly outweigh the state interests, application of the Younger doctrine is inappropriate.
Unlike Younger and its progeny, this case involves a conflict between state and federal law, and the question presented is whether the federal law has preempted the state law. A preemption case is resolved on an analysis of the policies of federal law, and the Court must determine whether the state's "law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Jones v. Rath Packing Co., 430 U.S. 519, 525-26, 97 S.Ct. 1305, 1310, 51 L.Ed.2d 604 (1977), quoting from Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 404, 85 L.Ed. 581 (1941). A supremacy clause claim is "essentially one of federal policy," and the Supreme Court has recognized that "the federal courts are particularly appropriate bodies for the application of pre-emption principles." Hagans v. Lavine, 415 U.S. 528, 550, 94 S.Ct. 1372, 1385-86, 39 L.Ed.2d 577 (1974); United Mine Workers of America v. Gibbs, 383 U.S. 715, 729, 86 S.Ct. 1130, 1140, 16 L.Ed.2d 218 (1966). The strong federal interest in this case outweighs the state interest, and the federal court is an appropriate forum for Empire's claims.
The defendants also argue that this Court should abstain from deciding the merits of this case on the basis of the Pullman doctrine, set forth in Railroad Commission of Texas v. Pullman Co., 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941). The Pullman doctrine dictates abstention by federal courts whenever it is necessary to interpret ambiguous or unsettled state law and such a decision would obviate the need to reach a federal constitutional question. Under these circumstances, state courts should have the opportunity to construe their own laws. The pending case does not involve an ambiguous or unsettled question of state law, and for the same reasons that Younger v. Harris does not apply to this case, neither does Pullman. See Kennecott Corp. v. Smith, 637 F.2d 181, 184-85 (3d Cir. 1980).
Finally, the defendants argue that the relief sought by plaintiff is barred by the Anti-Injunction Statute, 28 U.S.C. § 2283. This Act generally prohibits a federal court from staying proceedings in a state court. The Act does not prevent issuance of such equitable relief where "expressly authorized by Act of Congress." The Supreme Court, in Mitchum v. Foster, 407 U.S. 225, 92 S.Ct. 2151, 32 L.Ed.2d 705 (1972), has squarely held that claims brought under 42 U.S.C. § 1983 fall within the statutory exception. Empire has asserted its constitutional claims under Section 1983, and the Anti-Injunction Statute does not bar this court's issuance of the requested injunctive relief.
Plaintiff has moved for a preliminary injunction enjoining defendants from invoking or enforcing the provisions of the Takeover Act and enjoining them from commencing or maintaining, in any other court, litigation bearing on the tender offer or the validity of the Takeover Act as applied to the tender offer. The grant or denial of preliminary injunctive relief in the Eighth Circuit involves an evaluation of four factors:
(1) the threat of irreparable harm to the movant; (2) the state of the balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest.
Dataphase Systems, Inc. v. C L Systems, Inc., 640 F.2d 109, 113 (8th Cir. 1981). After evaluating each of these factors, the Court finds that Empire is entitled to the injunctive relief it seeks.
Compliance with the Missouri Takeover Act will result in a delay not...
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