Laidlaw Acquisition Corp. v. Mayflower Group, Inc.

• Decision Date: 11 June 1986
• Docket Number: No. IP 86-602-C.,IP 86-602-C.
• Citation: 636 F. Supp. 1513
• Parties: LAIDLAW ACQUISITION CORP., Plaintiff, v. MAYFLOWER GROUP, INC., et al., Defendants. MAYFLOWER GROUP, INC., Counterclaim Plaintiff, v. LAIDLAW ACQUISITION CORP., Laidlaw Transportation Limited, Michael G. DeGroote, Counterclaim Defendants.
• Court: U.S. District Court — Southern District of Indiana

636 F. Supp. 1513

LAIDLAW ACQUISITION CORP., Plaintiff, v. MAYFLOWER GROUP, INC., et al., Defendants.

MAYFLOWER GROUP, INC., Counterclaim Plaintiff, v. LAIDLAW ACQUISITION CORP., Laidlaw Transportation Limited, Michael G. DeGroote, Counterclaim Defendants.

No. IP 86-602-C.

United States District Court, S.D. Indiana, Indianapolis Division.

June 11, 1986.

COPYRIGHT MATERIAL OMITTED

Thomas A. Withrow, Indianapolis, Ind., Donald E. Egan, Chicago, Ill., Paul M. Donovan, Washington, D.C., for Laidlaw Acquisition Corp.

Richard E. Deer, Indianapolis, Ind., Marc P. Cherno, Victor S. Friedman, New York City, for Mayflower Group, Inc.

Arthur T. Perry, Deputy Atty. Gen., Indianapolis, Ind., for State of Ind.

MEMORANDUM OF DECISION

DILLIN, District Judge.

The Court having heard evidence on the cross-motions of the parties for a preliminary injunction, now grants the motion of the counterclaim plaintiff.

Laidlaw Transportation Limited is the largest private contractor in the United States engaged in busing school children. Mayflower Group, Inc. is second largest. On May 7, 1986, Laidlaw Acquisition Corp. (Laidlaw) commenced this action by filing its complaint seeking declaratory and injunctive relief against Mayflower Group, Inc. (Mayflower), the individual members of Mayflower's board of directors, and certain state officials, challenging the constitutionality of the Indiana Takeover Offers Act and certain provisions of the Indiana Business Corporation Law, as amended March 5, 1986. Contemporaneously with its initiation of this litigation Laidlaw announced its intention to commence a cash tender offer for all of the outstanding shares of Mayflower common stock. Laidlaw has since filed an amended complaint adding a claim under Section 14(e) of the Securities Exchange Act and a shareholder derivative claim. However, it seeks no preliminary injunction based on these additional claims, which are not here considered.

On May 20, 1986, Mayflower filed its answer and counterclaim against Laidlaw, Laidlaw Transportation Limited (Laidlaw Transportation), Laidlaw's parent, and Michael G. DeGroote (DeGroote), the chief executive officer of both Laidlaw and Laidlaw Transportation, alleging that: (1) Laidlaw's acquisition of Mayflower through its tender offer will violate Section 7 of the Clayton Act, 15 U.S.C. § 18; (2) Laidlaw manipulated the price of Mayflower stock in violation of Section 14(e) of the Securities Exchange Act of 1934; and (3) Laidlaw's offer to purchase is materially false and misleading in violation of Sections 14(d) and (e) of the Securities Exchange Act of 1934.

A two and one-half day evidentiary hearing on the preliminary injunction motions was held before the Court in three phases. First presented was Laidlaw's constitutional challenge to the above referenced Indiana statutes, followed by Mayflower's Williams Act challenges to Laidlaw's tender offer, and finally Mayflower's Clayton Act challenge to the proposed acquisition. At the conclusion of the hearing, on June 6, 1986, Laidlaw withdrew its constitutional challenge to the Indiana Takeover Offers Act, as moot in the light of certain actions taken by the defendant Indiana Secretary of State.

This Court has a general and basic judicial duty to avoid decision of constitutional questions. See generally J. Nowak, R. Rotunda & J. Young, Handbook on Constitutional Law 83-85 (1978). This is particularly true when, as here, a state statute is under constitutional attack in a federal court. Id. Our determination, discussed below, of the Clayton Act portion of Mayflower's preliminary injunction motion effectively obviates the need for us to consider the constitutionality of the challenged provisions of the Indiana Business Corporation Law. Moreover, that determination effectively moots Mayflower's claims under the Williams Act. Therefore, we need not, and will not, address the various factual and legal issues raised by any of such claims.

Initially, we must consider Laidlaw's argument that the case of Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977), requires us to dismiss the Clayton Act claim because of an alleged lack of standing by Mayflower to bring it. We cannot accept Laidlaw's position, nor, for that matter, the reasoning of the law review article upon which it is based—despite the esteem in which we hold the scholarly authors of that thesis. See Easterbrook & Fischel, Antitrust Suits by Targets of Tender Offers, 80 Mich.L.Rev. 1155 (1982).

Mayflower seeks an injunction to prevent violation of § 7 of the Clayton Act. Brunswick held (not surprisingly) that a plaintiff seeking damages under § 4 of the Clayton Act must prove a personal antitrust injury, but it specifically permitted the respondents/plaintiffs in that case to seek equitable relief pursuant to § 7 on remand. 429 U.S. at 491, 97 S.Ct. at 698. To argue that this Court should hold May-flower to be without standing on the basis of so frail a reed as Brunswick would be to invite an exercise in judicial activism which we quickly decline.

Since Brunswick, at least two judges of this circuit have held that § 16 of the Clayton Act confers a private right of action to obtain injunctive relief against an unlawful acquisition to the target of a hostile takeover bid. Whittaker Corp. v. Edgar, 535 F.Supp. 933, 950 (N.D.Ill.) (opinion by now Circuit Judge Flaum), aff'd mem., Nos. 82-1305 and 1307 (7th Cir.1982); Chemetron Corp. v. Crane Co., 1977-2 Trade Cas. (CCH) ¶ 61,717 (N.D.Ill.1977) (opinion by District Judge Marshall); see also Grumman Corp. v. LTV Corp., 665 F.2d 10, 11 (2d Cir.1981) ("Even though the true concerns of the `private attorney general' may be more `private' than `attorney general' ,if the effect of a proposed takeover may be substantially to lessen competition, the target company is entitled to fend off its suitor.") In fact, the Seventh Circuit has indicated that it is the duty of a board of directors to file an antitrust suit when it believes that a proposed combination would be illegal. Panter v. Marshall Field & Co., 646 F.2d 271, 297 (7th Cir.), cert. denied, 454 U.S. 1092, 102 S.Ct. 658, 70 L.Ed.2d 631 (1981).

Having determined that Mayflower has standing to pursue its antitrust claim, we turn to its request for a preliminary injunction. After an extensive review of Seventh Circuit decisions concerning the proper standard for granting a preliminary injunction, a panel of that Court recently has identified four factors which are to be considered on a preliminary injunction motion: (1) whether the plaintiff has an adequate remedy at law and whether he will suffer irreparable harm if the preliminary injunction is not granted; (2) whether the threatened irreparable injury to the plaintiff outweighs the threatened irreparable injury the preliminary injunction may inflict upon the defendant; (3) whether the plaintiff has some likelihood of succeeding on the merits and, if so, how likely that success is (the more likely the plaintiff is to win, the less heavily need the balance of harms weigh in his favor; the less likely he is to win, the more need it weigh in his favor); and (4) what impact, if any, the preliminary injunction (or lack thereof) will have on the "public interest." Roland Mach. Co. v. Dresser Indus., 749 F.2d 380, 386-88 (7th Cir.1984); see also American Hosp. Supply Corp. v. Hospital Prods. Ltd., 780 F.2d 589 (7th Cir.1986). We have been assured that "these decisions ... represent a continued affirmation of the traditional equitable factors governing injunctions and the classic roles of both district and appellate courts." Lawson Prods., Inc. v. Avnet, Inc., 782 F.2d 1429, 1441 (7th Cir.1986).

As a threshold matter, the movant must establish that it has no adequate remedy at law and that it will suffer irreparable harm if the preliminary injunction is not granted. Lawson, 782 F.2d at 1433; Roland, 749 F.2d at 386. The virtual impossibility of "unscrambling the scrambled eggs," once these parties are joined in corporate (shotgun) matrimony, if Mayflower should prevail on the merits or if a subsequent government action results in an order of divestiture, constitutes the irreparable harm and inadequacy of remedy required. See Chemetron, supra; see also Easterbrook and Fischel, supra ("It is possible to argue, with fair support, that unless a merger is enjoined ... before consummation, we may as well forget about attempting to disestablish the resulting firm.")

Even if it were possible to put asunder the parties once joined, Mayflower would still incur irreparable damage. See Marathon Oil Co. v. Mobil Corp., 530 F.Supp. 315, 320-21 (N.D.Ohio), aff'd, 669 F.2d 378 (6th Cir.1981), cert. denied, 455 U.S. 982, 102 S.Ct. 1490, 71 L.Ed.2d 691 (1982). For example, it is an inevitable consequence of a takeover that the acquiring company will gain access to the target's confidential information. Grumman, 665 F.2d at 16. This could be devastating in the instant case which finds the principals engaged in head to head bidding wars for private school busing contracts, utilizing such sophisticated bidding techniques as special computer programs. We find, as have other courts of this circuit in similar circumstances, that Mayflower has demonstrated the requisite irreparable injury required by this threshold factor. See, e.g., Chemetron, supra; Harnischfeger Corp. v. Paccar, Inc., 474 F.Supp. 1151, 1153 (E.D.Wis.), aff'd w/o opinion, 624 F.2d 1103 (7th Cir.1979).

Another threshold that the movant must cross is to demonstrate that it has some likelihood of succeeding on the merits. Lawson, 782 F.2d at 1433; Roland, 749 F.2d at 387. As demonstrated by our discussion below, we find that Mayflower not only has some likelihood of succeeding on its Clayton Act claim, but rather a substantial likelihood of doing so.

Section 7 of the Clayton Act is an extraordinarily clear statute. It provides, in pertinent part, that:

No person shall

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