Leroy v. Great Western United Corporation

• Decision Date: 26 June 1979
• Docket Number: No. 78-759,78-759
• Citation: 99 S.Ct. 2710,443 U.S. 173,61 L.Ed.2d 464
• Parties: David H. LEROY, Attorney General of Idaho, et al., Appellants, v. GREAT WESTERN UNITED CORPORATION
• Court: U.S. Supreme Court

443 U.S. 173

99 S.Ct. 2710

61 L.Ed.2d 464

David H. LEROY, Attorney General of Idaho, et al., Appellants,

v GREAT WESTERN UNITED CORPORATION.

No. 78-759.

Argued April 17, 1979.

Decided June 26, 1979.

Syllabus

After publicly announcing its intent to make a tender offer to purchase shares of stock of a company having substantial assets in Idaho, appellee, a Texas-based corporation which is also engaged in business in New York and Maryland, filed the informational schedule with the Securities and Exchange Commission required by the Securities Exchange Act of 1934 (1934 Act), as amended by the Williams Act, and also filed documents in Idaho in an attempt to satisfy that State's takeover statute. When Idaho officials objected to the filing and delayed the effective date of the tender offer, appellee brought an action in the Federal District Court for the Northern District of Texas against the officials responsible for enforcing Idaho's takeover law, seeking a declaration that the state law was invalid insofar as it purported to apply to interstate tender offers to purchase securities traded on a national exchange. The District Court held that personal jurisdiction over the Idaho defendants had been obtained under the Texas long-arm statute, and that venue could be sustained under the special venue provision in § 27 of the 1934 Act giving federal district courts exclusive jurisdiction of actions brought to enforce "any liability or duty created" by the Act. The court then went on to hold that the Idaho takeover statute was pre-empted by the Williams Act and placed an impermissible burden on interstate commerce. The Court of Appeals affirmed, holding, inter alia, that venue was authorized by § 27 of the 1934 Act, because Idaho's enforcement attempt, by conflicting with the Williams Act, constituted a violation of a "duty" imposed by § 28(a) of the 1934 Act (which provides that nothing in the Act shall affect a state securities regulatory agency's jurisdiction over any security or person insofar as it does not conflict with the Act), and that venue was also proper under 28 U.S.C. § 1391(b) (which permits actions not founded solely on diversity of citizenship to be brought in the district where all defendants reside or "in which the claim arose") because the allegedly invalid restraint against appellee occurred in the Northern District of Texas and that was accordingly the district "in which the claim arose."

Held:

1. There is a sound prudential justification in this case for reversing the normal order of considering personal jurisdiction in advance of venue, since otherwise this Court would have to decide a constitutional law question not previously decided as to whether personal jurisdiction was properly obtained under the Texas long-arm statute. Pp. 180-181.

2. Venue was improper under § 27 of the 1934 Act because § 28(a) of that Act imposed no duty on the Idaho officials. Pp. 181-182.

3. Nor was venue available in the Northern District of Texas under 28 U.S.C. § 1391(b). The District of Idaho, where the actions forming the basis for appellee's claim took place, is the only one in which "the claim arose" within the meaning of § 1391(b). Pp. 183-187.

577 F.2d 1256, reversed.

Peter E. Heiser, Jr., Boise, Idaho, for appellants.

Amy Juviler, New York City, for the State of New York, as amicus curiae.

Ivan Irwin, Jr., Dallas, Tex., for appellee.

Frank H. Easterbrook, Washington D. C., for the Securities and Exchange Commission, as amicus curiae.

Mr. Justice STEVENS delivered the opinion of the Court.

An Idaho statute imposes restrictions on certain purchasers of stock in corporations having substantial assets in Idaho. The questions presented by this appeal are whether the state agents responsible for enforcing the statute may be required to defend its constitutionality in a Federal District Court in Texas and, if so, whether the statute conflicts with the Williams Act amendments to the Securities Exchange Act of 1934,¹ or with the Commerce Clause of the United States Constitution.²

Sunshine Mining and Metal Co. (Sunshine) is a "target company" within the meaning of the Idaho Corporate Takeover Act—a statute designed to regulate takeovers of corporations that have certain connections to the State.³ Sunshine's principal business is a silver mining operation in the Coeur d'Alene Mining District in Idaho. Its executive offices and most of its assets are located in the State. Sunshine is also engaged in business in New York and, through a subsidiary, in Maryland. Its stock is traded over the New York Stock Exchange, and its shareholders are dispersed throughout the country. App. 36. It is a Washington corporation. Great Western United Corp. v. Kidwell, 439 F.Supp. 420, 423-424.

Great Western United Corp. (Great Western) is an "offeror" within the meaning of the Idaho statute.⁴ Great Western is a publicly owned Delaware corporation with executive headquarters in Dallas, Tex., and corporate offices in Denver, Colo. App. 131. In early 1977, Great Western decided to make a public offer to purchase 2 million shares of Sunshine stock for a premium price. Because consummation of the proposed tender offer would cause Great Western to own more than 5% of Sunshine's outstanding shares, Great Western was required to comply with certain provisions of the Williams Act and arguably also to comply with the Idaho Corporate Takeover Act as well as with similar provisions of New York and Maryland.

On March 21, 1977, Great Western publicly announced its intent to make a tender offer for 2 million shares of Sunshine, and its representatives took simultaneous steps to implement the proposed tender offer. They filed a Schedule 13D with the Securities and Exchange Commission in Washington, D.C disclosing the information required by the Williams Act. They consulted with state officials in Idaho, New York, and Maryland about compliance with the corporate takeover laws of those States. And they filed documents with the Idaho Director of Finance in an attempt to satisfy Idaho's statute.

On March 25, 1977, Melvin Baptie, who was then the Deputy Administrator of Securities of the Idaho Department of Finance, sent a telecopy letter of objections to Great Western's filing to the company's offices in Dallas. The letter stated that certain pages of Great Western's SEC Form 13D were missing, asked for several additional items of information, and indicated that no hearing would be scheduled, nor other action taken, until all of the requested information had been received. App. to Juris. Statement A-156 to A-164. On the same day, Tom McEldowney, the Director of Finance of Idaho, entered an order delaying the effective date of the tender offer. Id., at A-165 to A-166. Great Western made no response to Baptie's letter or to McEldowney's order.

On March 28, 1977, Great Western filed this action in the United States District Court for the Northern District of Texas, naming as defendants the state officials responsible for enforcing the Idaho, New York, and Maryland takeover laws. The complaint prayed for a declaration that the state laws were invalid insofar as they purported to apply to interstate cash tender offers to purchase securities traded on the national exchange. App. 1-36. The claims against the Maryland and New York defendants were dismissed because the former did not attempt to enforce their statute against Great Western and the latter expressly stated that they would not assert jurisdiction over the proposed tender offer. 439 F.Supp., at 428-429. The two Idaho defendants—McEldowney, the Director of Finance, and Wayne Kidwell, then Attorney General of the State ⁵ —appeared specially to contest jurisdiction and venue, and later filed an answer contesting the merits of the claim.

The District Court found four separate statutory bases for federal jurisdiction.⁶ It held that personal jurisdiction over the Idaho defendants had been obtained by service pursuant to the Texas long-arm statute.⁷ It concluded, however, that venue was improper under the general federal venue statute, 28 U.S.C. § 1391(b),⁸ because the defendants obviously did not reside in Texas and the claim arose in Idaho rather than in Texas. Nonetheless, it decided that venue could be sustained under the special venue provision in § 27 of the Securities Exchange Act of 1934 (1934 Act). 48 Stat. 902, as amended, 15 U.S.C. § 78aa. See nn. 9 and 10, infra, and accompanying text.

On the merits, the District Court held that the Idaho Corporate Takeover Act is pre-empted by the Williams Act and places an impermissible burden on interstate commerce. It granted injunctive relief that enabled Great Western to acquire the desired Sunshine shares in the fall of 1977. 439 F.Supp., at 434-440. That acquisition did not moot the case, however, because the question whether Great Western has violated Idaho's statute will remain open unless and until the District Court's judgment is finally affirmed.

A divided panel of the Court of Appeals for the Fifth Circuit affirmed. The court sustained federal subject-matter jurisdiction on the same four grounds relied upon by the District Court. See n. 6, supra. It then advanced alternative theories in support of both its determination that the District Court had personal jurisdiction over the defendants and its conclusion that venue lay in the Northern District of Texas. First, it noted that the Texas long-arm statute authorized the assertion of personal jurisdiction over nonresidents to the fullest extent allowable under the Due Process Clause of the Fourteenth Amendment. It then held that an Idaho official who seeks to enforce an Idaho statute to prevent a Texas-based corporation from proceeding with a national tender offer has sufficient contacts with Texas to support jurisdiction. Second, it held that jurisdiction was available under § 27 of the 1934 Act,⁹ which gives the federal district courts exclusive jurisdiction over suits brought ...