Great Western United Corp. v. Kidwell

Decision Date10 August 1978
Docket NumberNo. 77-2809,77-2809
PartiesBlue Sky L. Rep. P 71,433, Fed. Sec. L. Rep. P 96,529 GREAT WESTERN UNITED CORPORATION, Plaintiff-Appellee, v. Wayne L. KIDWELL, Attorney General of Idaho, Defendant, Tom D. McEldowney, Director of the Department of Finance of the State of Idaho, Defendant-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

James P. Kaufman, Ellis McKay, Asst. Attys. Gen., Dept. of Finance, State of Idaho, Boise, Idaho, for defendant-appellant.

Ivan Irwin, Al B. Conant, Jr., Dallas, Tex., for plaintiff-appellee.

Harvey L. Pitt, Gen. Counsel, Washington, D. C., amicus curiae for Securities & Exchange Comm.

David J. Della-Bitta, Asst. Atty. Gen. of Conn., Hartford, Conn., amicus curiae for State of Conn.

Donald A. Antrim, Asst. Atty. Gen., Columbus, Ohio, amicus curiae for State of Ohio.

P. Roger Googe, Jr., Asst. Atty. Gen., Jackson, Miss., amicus curiae for State of Miss.

John R. Flowers, Jr., Asst. Atty. Gen., New Orleans, La., amicus curiae for State of La.

Louis J. Lefkowitz, Atty. Gen. of N. Y., New York City, amicus curiae for State of New York.

Michael L. Deamer, Chief Deputy Atty. Gen., Donald B. Holbrook, Salt Lake City, Utah, amicus curiae for State of Utah.

Appeal from the United States District Court for the Northern District of Texas.

Before WISDOM, GODBOLD and CLARK, Circuit Judges.

WISDOM, Circuit Judge:

This appeal involves important issues relating to a state statute regulating corporate takeovers through tender offers. The plaintiff-appellee is Great Western United Corporation (Great Western), a publicly owned Delaware corporation with its major executive offices located in Dallas, Texas. The principal officers, all directors, and the controlling shareholders of Great Western Idaho, as well as thirty-one other states, regulates corporate takeovers through a tender offer. 2 This case presents questions whether the Idaho law, as McEldowney seeks to apply it here, may stand under the supremacy and commerce clauses of the United States Constitution and the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq. (the 1934 Act), as amended by the Williams Act. 3 The basic questions applicable to all state takeover statutes have never been decided by a federal court of appeals. 4 Because this suit was brought in Texas, not Idaho, the case also raises novel questions of jurisdiction and venue. The district court determined that the prerequisites of personal jurisdiction and venue were satisfied. After a hearing on the merits, the

reside in Dallas. The defendant-appellant is Tom D. McEldowney, Director of the Idaho Department of Finance, charged with responsibility for enforcing the Idaho Takeover Statute, Idaho Code §§ 30-1501-13 (Cum.Supp.1977). 1 court declared the Idaho statute unconstitutional because the 1934 Act preempts it and because it creates a burden on interstate commerce forbidden by article I, § 8, cl. 3 of the Constitution. Great Western United Corp. v. Kidwell, N.D.Tex.1977, 439 F.Supp. 420. McEldowney, joined by several states as amici, 5 strongly objects to all these rulings. We affirm the district court's rulings that personal jurisdiction existed and that venue was proper. On the merits, we agree with the position of the Securities and Exchange Commission (SEC) that the Williams Act preempts Idaho's takeover law because the state statute "presents a serious conflict with the administration of the federal program for the regulation of tender offers". SEC amicus brief at 47. We also affirm the district court's commerce clause ruling.

I. FACTS

Sunshine Mining and Metal Co. (Sunshine) is a publicly owned company incorporated in the State of Washington. Its principal executive office and over fifty percent of its assets are located in Idaho. Sunshine has a wholly owned subsidiary with manufacturing facilities based in Maryland. In addition, Sunshine engages in significant business activities in New York. The shareholders of Sunshine live throughout the United States. Its securities are traded on the New York Stock Exchange. They are not registered in Idaho.

In March 1977, Great Western decided to make a tender offer for 2,000,000 shares of Sunshine common stock. 6 The tender offer of a net price of $15.75 a share was offered Sunshine shareholders across the United States. Because the tender offer was national in scope and the means and facilities of interstate commerce and the mails were necessary tools in making the tender offer, Great Western was required to comply with the provisions of the Securities Exchange Act of 1934 governing corporate tender offers. 7

The Williams Act includes disclosure requirements, substantive restrictions on tender offers, and a general antifraud provision. It also confers broad rule-making authority upon the SEC. 8 The disclosure provisions of § 14(d) (1), 15 U.S.C. § 78n(d)(1), require specified information from any party making a tender offer which would result in that party's ownership of more than five percent of a class of equity securities registered under the 1934 Act. That information includes the purchaser's identity and background, the amount and source of the funds used for the purchase, the purpose of the purchase, any plans for liquidation, merger, or other significant changes in business or corporate structure of the target company, the number of shares the purchaser owns, and the details of any agreements with other parties concerning shares in the target corporation. 9

On March 21, 1977, Great Western filed a Schedule 13D with the SEC disclosing the Had only the Williams Act regulated Great Western's proposed tender offer, the offer would have commenced on March 21, 1977. 11 Idaho's takeover statute, however, also applied to Great Western's offer. 12 In addition, the laws of New York and Maryland arguably applied to the offer.

information specified in the Williams Act. 10 The same day, Great Western publicly announced its intention to make a tender offer for 2,000,000 shares of Sunshine.

Idaho's takeover law required Great Western, among other things, (1) to submit to the Director of the Idaho Department of Finance a preeffective filing disclosing Great Western's intention to make a tender offer and the terms of the offer; 13 (2) to transmit, at the same time, a copy of that filing to Sunshine; 14 (3) to publish an advertisement describing the intention to make an offer and the proposed material terms; 15 (4) to pay the Idaho registration fee; 16 (5) to participate in a hearing, which would be mandatory if Sunshine requested one; 17 and (6) to delay its tender offer until the final determination of any administrative or injunctive proceeding brought by the Director of Finance for violation of the Idaho takeover law. 18 No time limitation is placed on whether, or when, the director must rule on the effectiveness of a registration statement. 19 The director may summarily delay the effectiveness of an offer if he determines that the registration statement is insufficient. 20 Great Western's offer would not have been subject to these requirements if the terms of the tender offer had been accepted by Sunshine's board of directors. 21

Idaho Code § 30-1503(1) states, in part, that "It is unlawful for any person to make a take-over offer involving a target company in this state, or to acquire any equity securities of a target company pursuant to the offer, unless the offer is effective under this chapter or is exempted by rule or order of the director". As interpreted by the Idaho Department of Finance, this provision would prevent Great Western from making a tender offer to anyone in the world if it did not comply with the Idaho statute. Violations of the Idaho takeover law can result in criminal penalties of up to $5000 in fines and three years imprisonment. 22

Great Western initially tried to comply with Idaho law. The company made informal inquiries about the Idaho requirements. On March 21, 1977, Great Western filed documents with the Idaho Commissioner of Finance in an attempt to satisfy Idaho's statute. This was the first filing ever made under the Idaho takeover law. On March 25 Melvin Baptie, then the Director of the Idaho Department of Finance, wrote Great Western raising numerous objections to the Compliance with the state statutes on tender offers would have required Great Western to wait for New York and Maryland to rule on the applicability of their laws, to attempt to add the amendments proposed by Baptie, and to wait for the Idaho hearing and judicial review procedures to take place. To avoid this delay and also to avoid conflicting requirements, Great Western filed suit in the Northern District of Texas, on March 28, 1977, against the state officials responsible for enforcing the Idaho, New York, and Maryland takeover laws. The suit sought an order declaring that the Idaho, New York, and Maryland takeover acts were invalid insofar as they purport to apply to interstate cash tender offers for the purchase of securities traded on a national securities exchange. On April 1, 1977, the district judge issued a temporary restraining order directing the officials of the three states not to assert jurisdiction over the tender offer for Sunshine. The defendants sought emergency relief in this Court. On April 5, 1977, this Court stayed the TRO and directed the district court to make findings on personal jurisdiction and venue before deciding the merits of Great Western's complaint.

disclosure Great Western had made and asking that amendments be made. He summarily ordered a delay of the effective date of the Idaho registration and the proposed tender offer. At about the same time, Great Western's counsel in New York were advised by the New York Attorney General's office that New York was "leaning" toward asserting jurisdiction over the offer for Sunshine. In Maryland, counsel for Great Western were informed that Maryland would not comment on the applicability of its...

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