Hyde Park Partners, L.P. v. Connolly, s. 88-1001

• Decision Date: 06 January 1988
• Docket Number: 88-1002,Nos. 88-1001,s. 88-1001
• Citation: 839 F.2d 837
• Parties: Blue Sky L. Rep. P 72,697, 56 USLW 2439, Fed. Sec. L. Rep. P 93,619 HYDE PARK PARTNERS, L.P., and Hyde Park Holdings, Inc., Plaintiffs, Appellees, v. Michael J. CONNOLLY, Etc., et al., Defendants, Appellees. High Voltage Engineering Corporation, Defendant, Appellant. HYDE PARK PARTNERS, L.P., et al., Plaintiffs, Appellees, v. Michael J. CONNOLLY, Etc., et al., Defendants, Appellants. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 837

839 F.2d 837

Blue Sky L. Rep. P 72,697, 56 USLW 2439,

Fed. Sec. L. Rep. P 93,619

HYDE PARK PARTNERS, L.P., and Hyde Park Holdings, Inc., Plaintiffs, Appellees, v. Michael J. CONNOLLY, Etc., et al., Defendants, Appellees.

High Voltage Engineering Corporation, Defendant, Appellant.

HYDE PARK PARTNERS, L.P., et al., Plaintiffs, Appellees, v. Michael J. CONNOLLY, Etc., et al., Defendants, Appellants.

Nos. 88-1001, 88-1002.

United States Court of Appeals First Circuit.

Heard Jan. 6, 1988.

Decided Feb. 4, 1988.

Thomas J. Dougherty with whom George J. Skelly and Skadden, Arps, Slate, Meagher & Flom, Boston, Mass., were on brief, for defendant, appellant High Voltage Engineering Corp.

Carl Valvo, Asst. Atty. Gen., with whom James M. Shannon, Atty. Gen., and Rosanna Cavallaro, Asst. Atty. Gen., Boston, Mass., were on brief, for state defendants, appellants.

John J. Curtin, Jr., with whom Steven W. Hansen, Randal A. Farrar, Bingham, Dana & Gould, Boston, Mass., Robert E. Juceam, John A. Borek, Fried, Frank, Harris, Shriver & Jacobson, New York City, were on brief, for plaintiffs, appellees.

Before COFFIN, BOWNES and BREYER, Circuit Judges.

COFFIN, Circuit Judge.

This case concerns the constitutionality of section 3 of the Massachusetts Take-Over Bid Regulation Act, Mass.Gen.L. ch. 110C (1986), and the efforts of plaintiffs-appellees Hyde Park Partners, L.P. and Hyde Park Holdings, Inc. (collectively "Hyde Park") to gain control of defendant-appellant High Voltage Engineering Corporation ("High Voltage").

Section 3 of the statute provides that prospective takeover bid "offerors" who fail to disclose their intent to gain control of the target company before acquiring five percent of its stock may not make a takeover bid for that target until one year after the failure to disclose. ¹ High Park failed to comply with the disclosure provision, and sought an injunction in federal district court enjoining the Secretary of the Commonwealth and High Voltage from enforcing section 3 ² on the grounds that it violates the Supremacy and Commerce clauses of the United States Constitution. ³ Relying solely on the Commerce Clause, the district court, 676 F.Supp. 391, granted a preliminary injunction, prompting High Voltage and the state to bring this appeal.

Hyde Park's acquisition of High Voltage's outstanding stock surpassed 5% on December 9, 1987. It is not disputed that Hyde Park did intend to gain control of High Voltage at that time. ⁴ Hyde Park did not disclose its control intent until December 21, 1987, by which time it purportedly owned 6.46% of the stock. Enforcement of section 3 would therefore impose a moratorium on Hyde Park's takeover bid until December 9, 1988. The preliminary relief granted by the district court enjoins enforcement of that section so that Hyde Park may promptly commence purchases of stock pursuant to its tender offer. After this appeal was taken, Hyde Park commenced its tender offer for any and all outstanding High Voltage stock on January 6, 1988. The deadline for expiration of the offer has recently been extended until February 12, 1988.

I. Removal and the Anti-Injunction Act

According to the decision below, the procedural history of this case is as follows:

At 11:05 A.M. on December 21, 1987, Hyde Park filed in the federal district court its verified complaint seeking declaratory and injunctive relief. Hyde Park requested an ex parte hearing on a motion for a temporary restraining order, but Judge McNaught decided not to handle the matter on an ex parte basis. He set a hearing for the next day at 11:00 A.M. At approximately 4:45 P.M. on the 21st, High Voltage presented a complaint in Middlesex Superior Court, seeking to enjoin Hyde Park from purchasing any shares of High Voltage common stock. Such an action is precisely the sort of state statutory enforcement that Hyde Park sought to enjoin in its federal action. The state court declined to grant High Voltage's request for a temporary restraining order that afternoon because of the insufficiency of facts in the complaint.

The next morning, two hours before the federal hearing was to commence, High Voltage presented an amended complaint to the state court clerk. At 9:20 A.M. on December 22, a certified petition for removal of the state court action was hand-delivered by counsel for Hyde Park to the Middlesex County court clerk. Copies of the removal petition were distributed to counsel for High Voltage at 9:45 A.M., and a certificate of removal was filed in the federal court. Notwithstanding the removal petition, the state court proceeded to its hearing on High Voltage's motion for a temporary restraining order. At some point on the 22nd, High Voltage, in hopes of defeating complete diversity, amended its state court complaint to add other plaintiffs, including a New York corporation, in support of a motion to remand the removed case. Counsel for Hyde Park filed a "Notice of Nullity" in the state court, alleging that this amended complaint was not verified, and thus improper. On December 23rd, Superior Court Justice William H. Welch granted High Voltage's motion for a temporary restraining order, and scheduled a state court hearing on a preliminary injunction for December 29th. In a memorandum issued the next day, he wrote that, despite the removal petition, "the court believe[d] it ha[d] a right to complete the hearing on the T.R.O. initially requested December 21, 1987."

Judge McNaught conducted a hearing on Hyde Park's federal application on December 22nd and 23rd, at the end of which all counsel agreed that the motion be converted into one for preliminary injunction. Judge McNaught was informed on December 24th of Justice Welch's "temporary restraining order."

On December 29th, Judge McNaught denied High Voltage's motion for remand in the state case, and granted the preliminary injunction requested by Hyde Park in the federal case. That injunction, the merits of which are before us now on appeal, in essence prohibits the very state court enforcement action which had already been commenced by High Voltage. Thus the question arises whether we are faced with a substantial conflict implicating the Anti-Injunction Act, 28 U.S.C. Sec. 2283. ⁵

But concerns about the proper balance between federal and state courts, and the deference due the latter by the former, all but evaporate under inspection of the peculiar removal procedures that transpired in this chaotic flurry of litigation. Under 28 U.S.C. Sec. 1446(e) removal is "effect[ed]" as soon as the petition is filed, bond is posted, notice is given to all adverse parties, and a copy of the petition is filed with the clerk of the state court. At that point, "the State court shall proceed no further unless and until the case is remanded."

In this case, therefore, removal was effected at 9:45 A.M. on December 22nd, when the last of the removal requirements was met. At that point, the jurisdiction of the state court "absolutely ceased, and that of the [federal court] immediately attached." Steamship Co. v. Tugman, 106 U.S. 118, 122, 1 S.Ct. 58, 60, 27 L.Ed. 87 (1882). The subsequent hearing and temporary restraining order by the Superior Court were void ab initio. Polyplastics, Inc. v. Transconex, Inc., 713 F.2d 875, 880 (1st Cir.1983). In fact, the state court had a "duty ... to proceed no further in the cause. Every order thereafter made in that court was coram non judice, unless its jurisdiction was actually restored." Tugman, 106 U.S. at 122, 1 S.Ct. at 60. This is so even if it eventually is determined that removal was improper. Id. Thus, even if the district court later were to decide to remand because of the addition of a non-diverse state plaintiff, the temporary restraining order previously issued is of no legal effect. Judge McNaught's preliminary injunction does not deprive High Voltage of the protection of that earlier restraining order, because the latter "was a nullity anyway, with or without the order against further [state] proceedings." Polyplastics, 713 F.2d at 880.

Even if the temporary restraining order had properly been entered prior to effectuation of removal, that order would still have had no binding effect on Judge McNaught. 28 U.S.C. Sec. 1450 establishes the authority of the federal district court to dissolve or modify all injunctions and orders issued prior to removal. See Granny Goose Foods, Inc. v. Brotherhood of Teamsters, Local 70, 415 U.S. 423, 437, 94 S.Ct. 1113, 1123, 39 L.Ed.2d 435 (1974); Ex parte Fisk, 113 U.S. 713, 725, 5 S.Ct. 724, 729, 28 L.Ed. 1117 (1885). Judge McNaught's preliminary injunction of December 29th effectively terminated the temporary restraining order earlier granted. This does not violate the Anti-Injunction Act, because the restraining order was itself transferred to federal court jurisdiction once the case was removed. 28 U.S.C. Sec. 1450. Removal was proper even if it was done in order to escape the strictures of the Anti-Injunction Act. See Bondurant v. Watson, 103 U.S. (13 OTTO) 281, 287-88, 26 L.Ed. 447 (1880). ⁶

We now proceed to consider the merits of the appeal.

II. Standard of Review

We review the grant of a preliminary injunction for an abuse of discretion. Planned Parenthood League of Mass. v. Bellotti, 641 F.2d 1006, 1009 (1st Cir.1981) (quoting Charles v. Carey, 627 F.2d 772, 776 (7th Cir.1980)). Such a review may encompass a consideration of whether the district court applied an improper legal standard or misapplied the law to particular facts. Id.

The district court granted Hyde Park's motion for a preliminary injunction based on the following conclusions:

(1) Hyde Park is likely to succeed on the merits of its claim that section 3 of Mass.Gen.L. ch. 110C conflicts with the Commerce Clause;

(2) Hyde Park will suffer immediate irreparable harm if the injunction is not granted because the state has declared that it intends to enforce section 3, which would at least delay, and likely prevent, a...