Nomad Acquisition Corp. v. Damon Corp.

• Decision Date: 21 October 1988
• Docket Number: Civ. A. No. 88-2016-Z.
• Citation: 701 F. Supp. 10
• Parties: NOMAD ACQUISITION CORPORATION; Nomad Partners, L.P.; Ballantrae Partners, L.P. and American Magnetics Corporation v. DAMON CORPORATION.
• Court: U.S. District Court — District of Massachusetts

701 F. Supp. 10

NOMAD ACQUISITION CORPORATION; Nomad Partners, L.P.; Ballantrae Partners, L.P. and American Magnetics Corporation v. DAMON CORPORATION.

Civ. A. No. 88-2016-Z.

United States District Court, D. Massachusetts.

October 21, 1988.

Edward P. Leibensperger, Nancy E. Watters, David Abelman, Nutter, McClennen & Fish, Boston, Mass., for plaintiffs.

James S. Dittmar, Richard J. Yurko, Sanford F. Remz, Widett, Slater & Goldman P.C., Boston, Mass., for defendant.

MEMORANDUM OF DECISION

ZOBEL, District Judge.

Plaintiff Nomad Acquisition Corporation¹ ("Nomad") seeks declaratory and injunctive relief restraining application by defendant Damon Corporation ("Damon") of the powers granted under the statute entitled Regulation of Control Share Acquisitions of Foreign Corporation, Mass.Gen.L. ch. 110E ("the Act") to shares of Damon stock owned or acquired by plaintiffs.² In their complaint, plaintiffs request a declaration that the Act is unconstitutional, an injunction prohibiting the defendant from exercising the powers granted under the Act, and costs and attorney's fees. In the motion presently before the Court, Nomad requests both a preliminary injunction prohibiting Damon from applying or seeking to apply the powers granted under the Act and partial summary judgment declaring the Act unconstitutional. Defendant asserts that the Act is constitutional but that in any event, the issue is not ripe for decision. Because a decision at this time would be premature, the motions for preliminary injunction and partial summary judgment are denied.³

These facts are not in dispute. In late October, 1987, Ballantrae Partners ("Ballantrae") and American Magnetics Corporation ("AMC") began purchasing Damon common stock, and by late March, 1988 had acquired 9.97% of Damon's outstanding shares. Currently, AMC and Ballantrae own in excess of 10% of Damon common stock. On August 18, 1988, following unsuccessful attempts to negotiate an acquisition of Damon, Nomad commenced a cash tender offer for any and all shares not owned by its affiliates. The tender offer was conditioned, in part, on judicial invalidation of the Act.

The Act regulates the acquisition of shares of stock of firms organized under the laws of states other than Massachusetts. It provides that a person who acquires stock in a "control share acquisition" may vote that stock only if the disinterested shareholders of the acquired company vote to approve enfranchisement. Neither the acquiring person nor the officers or employee-directors of the acquired corporation may participate in the enfranchisement vote. A "control share acquisition" results when an acquiring person holds voting rights equal to or greater than any one of three thresholds (20%, 33 1/3 %, 50%) following an acquisition of shares. A person seeking "control shares" may give notice of his intent to do so and request an enfranchisement vote.

To be covered by the Act, corporations must include the appropriate provisions in their bylaws or charter prior to the control share acquisition. Damon has not yet adopted the Act's provisions although a vote of Damon's board of directors could amend Damon's bylaws at any time to allow for coverage. Damon has stipulated that it will not do so without providing Nomad 48 hours notice.

The threshold question for the Court is whether the plaintiff's allegations present a case or controversy within the meaning of Article III of the United States Constitution or only abstract questions not currently justiciable by a federal court. Babbitt v. United Farm Workers Nat'l Union, 442 U.S. 289, 297, 99 S.Ct. 2301, 2308, 60 L.Ed. 2d 895 (1979). The contentions of the parties must "`present a real, substantial controversy ..., a dispute definite and concrete, not hypothetical or abstract.'" Id. at 298, 99 S.Ct. at 2308 (quoting Railway Mail Ass'n v. Corsi, 326 U.S. 88, 93, 65 S.Ct. 1483, 1487, 89 L.Ed. 2072 (1945)). However, under the ripeness doctrine, a court may exercise discretion when determining whether judicial resolution would be desirable under all of the circumstances. Brown v. Ferro Corp., 763 F.2d 798, 801 (6th Cir.), cert. denied, 474 U.S. 947, 106 S.Ct. 344, 88 L.Ed.2d 291 (1985). The Supreme Court's two-prong test for ripeness requires that a case present issues fit for judicial determination at the time of suit and that a denial of judicial review would cause hardship to the plaintiff. Abbott Laboratories v. Gardner, 387 U.S. 136, 149, 87 S.Ct. 1507, 1515, 18 L.Ed.2d 681 (1967). The First Circuit has adopted the Supreme Court's summary of this two-prong ripeness test that requires a "realistic danger of sustaining a direct injury as a result of the statute's operation or enforcement." McCollester v. City of Keene, N.H., 668 F.2d 617, 619 & n. 4 (1st Cir.1982) (quoting Babbitt, 442 U.S. at 298, 99 S.Ct. at 2308 (citing O'Shea v. Littleton, 414 U.S. 488, 494, 94 S.Ct. 669, 675, 38 L.Ed.2d 674 (1974))). The policy behind the ripeness doctrine is to avoid consideration of a case that "`involves uncertain contingent future events that may not occur as anticipated, or indeed may not occur at all.'" Metzenbaum v. FERC, 675 F.2d 1282, 1289 (D.C.Cir.1982) (quoting 13 C. Wright, A. Miller & E. Cooper, Federal Practice and Procedure: Jurisdiction § 3532, at 237-38 (1975)).

Nomad forcefully argues that absent injunctive relief, the possibility of enforcement of the Act will cause it irreparable harm because if Damon opts for coverage under the Act, Nomad will suffer a delay in voting or possibly a complete deprivation of its right to vote the shares acquired in its tender offer. The First Circuit has noted that "timing is everything with tender offers, and ... delay can effectively kill a takeover bid." Hyde Park Partners v. Connolly, 839 F.2d 837, 853 (1st Cir.1988). But Nomad may never suffer any deprivation or appreciable delay. If Damon never opts in to the Act, Nomad suffers no delay caused by the Act. If Damon adopts the Act's provisions, then Nomad faces delay or deprivation only if Damon's board of directors votes not to reverse its decision to opt in to the Act. Furthermore, following adoption of the Act by Damon and a control share acquisition by Nomad, plaintiff may again apply for injunctive relief and summary judgment. If the Act is deemed constitutional, then Nomad has suffered and will suffer no unconstitutional delay. And if the Act is held unconstitutional, Nomad suffers only that delay imposed by the Williams Act and the relatively minor delay associated with obtaining the necessary relief. Thus, at least three plausible contingencies exist that result in no serious delay for Nomad.

Nomad also argues that it suffers irreparable harm because of the uncertainty surrounding a successful enfranchisement vote and because of the uncertainty regarding applicability of the Act. According to Nomad, this uncertainty "chills" its tender offer, making shareholders less willing to tender their stock. Nomad implicitly attributes any "chill" to the uncertainty regarding the Act. But in fact Nomad conditions its tender offer on no fewer than seven special conditions⁴ and a host of conditions that commonly accompany any tender offer.⁵ For example, the Delaware Legislation Condition creates obstacles to the takeover similar to those that the Act imposes.⁶ Similarly, Nomad conditions its offer on Damon not infusing capital into Damon Biotech, Inc. (the Restructuring Condition). The record before this Court simply does not allow a determination that one rather than another condition has caused the "chill" that Nomad perceives. Thus, I cannot conclude that the Act alone or even in large measure has put the "nip in the air" surrounding this takeover attempt.

In support of its position, Nomad punctuates its briefs with several cases in which courts have dealt with challenges to various antitakeover statutes or portions thereof. However, the posture of each of those cases differed from the posture of this case in that the acquiror's takeover action had proceeded beyond where a "realistic danger" of harm to the plaintiff was created. For example, in Hyde Park Partners v. Connolly, 839 F.2d 837 (1st Cir.1988), the acquiror had clearly violated the terms of the notice portion of the Massachusetts antitakeover statute. At the time the acquiror commenced its court action, enforcement of the statute...