Sharon Steel Corp. v. Whaland, 80-333

• Decision Date: 30 September 1983
• Docket Number: No. 80-333,80-333
• Citation: 466 A.2d 919,124 N.H. 1
• Parties: , Blue Sky L. Rep. P 71,871, Fed. Sec. L. Rep. P 99,528 SHARON STEEL CORPORATION et al. v. Francis E. WHALAND, Insurance Commissioner.
• Court: New Hampshire Supreme Court

Page 919

466 A.2d 919

124 N.H. 1, Blue Sky L. Rep. P 71,871,

Fed. Sec. L. Rep. P 99,528

SHARON STEEL CORPORATION et al. v. Francis E. WHALAND, Insurance Commissioner.

No. 80-333.

Supreme Court of New Hampshire.

Sept. 30, 1983.

Devine, Millimet, Stahl & Branch P.A., Manchester, and Shearman & Sterling, New York City (Joseph A. Millimet, & a. Manchester, on brief, and Franklyn D. Kimball, New York City, orally), for plaintiffs.

Gregory H. Smith, Atty. Gen. (Marc R. Scheer, Asst. Atty. Gen., orally, and Ronald F. Rodgers, Concord, attorney, on brief), and for the State.

Hamblett & Kerrigan P.A., Nashua, and Davis, Polk & Wardwell, New York City (Joseph Kerrigan & a., Nashua, on brief and Steven F. Goldstone, New York City, orally), for intervenor, Nashua Corp.

Russell B. Stevenson, Jr., Deputy General Counsel (James J. Junewicz, Asst. General Counsel, & a. Washington, D.C. on brief and orally), for the Securities and Exchange Commission, as amicus curiae.

DALIANIS, Justice (sitting by special assignment pursuant to RSA 490:3).

In Sharon Steel Corp. v. Whaland, 121 N.H. 607, 433 A.2d 1250 (1981), we affirmed a decision of the New Hampshire Insurance Commissioner holding that the plaintiffs Sharon Steel Corporation and Summit Systems had made a takeover bid for Nashua Corporation without complying with the provisions of RSA chapter 421-A, the Security Takeover Disclosure Act (the act). We also held that the act did not contravene the supremacy and the commerce clauses of the United States Constitution when applied to the block purchases made by the plaintiffs. The plaintiffs appealed this decision to the United States Supreme Court, which vacated our judgment and remanded "for further consideration in light of Edgar v. Mite Corp. , 102 S.Ct. 2629 (1982)." Sharon Steel Corp. v. Insurance Commissioner of New Hampshire, 458 U.S. 1101, 102 S.Ct. 3474, 73 L.Ed.2d 1361 (1982).

Edgar v. Mite Corp. was decided by the United States Supreme Court after our earlier decision in this case. In Mite, a divided Court declared the Illinois takeover statute unconstitutional.

The underlying facts of this case are set forth in Sharon Steel Corp. v. Whaland, 121 N.H. at 609-13, 433 A.2d at 1251-53, and therefore will not be repeated. However, it is necessary to review the Mite case and to compare RSA chapter 421-A with the Illinois statute.

RSA chapter 421-A was amended by Laws 1983, chapter 144 (effective August 6, 1983). While we have been urged by the plaintiffs to rule on the constitutionality of both the old and this revised statute, we decline to do so and limit our decision in this case to the statute as it existed prior to the amendment.

The Mite case arose out of a tender offer by the Mite Corporation for shares in a corporation which was ostensibly covered by the Illinois Business Takeover Act (the Illinois Act). See Ill.Rev.Stat., ch. 121 1/2%, 137.51 et seq. (1979). Mite Corporation, fearing that a cease-and-desist order would issue from the authorities in Illinois because its tender offer was being made in contravention of the Illinois Act, petitioned the United States District Court for the Northern District of Illinois for injunctive relief, prohibiting the Illinois authorities from interfering with the tender offer. The United States District Court issued the injunction, and subsequently a judgment for Mite Corporation, on the basis that the Illinois Act was preempted by the Williams Act, 15 U.S.C. §§ 78m(d)-(e) and 78n(d)-(f), and that it violated the commerce clause. Those decisions were affirmed by the Seventh Circuit Court of Appeals, and the case was appealed to the United States Supreme Court.

Although the justices of the Supreme Court did not agree as to whether the Williams Act preempted the Illinois Act, a majority of them did concur in Justice White's opinion that the Illinois Act failed the balancing test set forth in Pike v. Bruce Church, Inc, 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970), and therefore imposed an unconstitutional indirect burden on interstate commerce. Edgar v. Mite Corp., 102 S.Ct. at 2641. Accordingly, we must apply this test to RSA chapter 421-A. See Agency Rent-A-Car, Inc. v. Connolly, 686 F.2d 1029, 1036 (1st Cir.1982).

The commerce clause is a limitation on the power of the States to regulate interstate commerce. But, as Justice White says in Mite "Not every exercise of state power with some impact on interstate commerce is invalid. A state statute must be upheld if it 'regulates even-handedly to effectuate a legitimate local public interest, and its effects on interstate commerce are only incidental ... unless the burden imposed on such commerce is clearly excessive in relation to the putative local benefits.' Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970), citing Huron Cement Co. v. Detroit, 362 U.S. 440, 443, 80 S.Ct. 813, 815, 4 L.Ed.2d 852 (1960)."

Edgar v. Mite Corp., 102 S.Ct. at 2640.

Under the Pike test, we are to measure the burdens imposed on interstate commerce by RSA chapter 421-A and decide whether they are excessive in relation to the local interests that the act was designed to further.

With respect to the Illinois Act that was the subject of the analysis in Mite, the Supreme Court stated that the most obvious burden imposed "on interstate commerce arises from the statute's previously-described [sic] nationwide reach which purports to give Illinois the power to determine whether a tender offer may proceed anywhere." Id. 102 S.Ct. at 2641-42. The focus, therefore, was put upon the extent of the reach of the Illinois Act and the breadth of the power which that statute gives to the person charged with enforcement, the Illinois Secretary of State.

The reach of RSA chapter 421-A, like that of the Illinois Act, is coextensive with the definition of what constitutes a target company. In New Hampshire, a target company may be a corporation: (1) organized under the laws of this State; or (2) having its principal place of business in this State; or (3) having its principal executive office within this State. RSA 421-A:2, VI and VII.

Commenting on the reach of the Illinois Act, Justice White stated:

"[T]he Illinois law on its face would apply even if not a single one of [the target company's] shareholders were a resident of Illinois, since the Act applies to every tender offer for a corporation meeting two of the following conditions: the corporation has its principal executive office in Illinois, is organized under Illinois laws, or has at least 10% of its stated capital and paid-in surplus represented in Illinois.... Thus the Act could be applied to regulate a tender offer which would not affect a single Illinois shareholder."

Edgar v. Mite Corp., 102 S.Ct. at 2641.

This criticism applies equally to New Hampshire's statute because there is no requirement that any of the shares of a target company be held by New Hampshire residents.

A comparison of the enforcement powers held, respectively, by the Illinois Secretary of State and the New Hampshire Insurance Commissioner indicates that there is no significant difference between the two statutes. Both persons possess the power to prevent the purchase of shares from taking place anywhere upon a finding that the purchaser has not complied with their State's takeover statute. See RSA 421-A:6; Ill.Rev.Stat., ch. 121 1/2% 137.62

Although the Illinois Act grants the Secretary of State the additional power to pass judgment on the substantive fairness of the offer and to block the offer from going forward if he deems it inequitable, see id. at p 137.57 E, the absence of this power in the New Hampshire Insurance Commissioner mitigates only slightly his "power to determine whether a tender offer may proceed." Edgar v. Mite Corp., 102 S.Ct. at 2642. The delay caused by the exercise of his authority itself interferes with the trading of securities and thus indirectly burdens interstate commerce. See National City Lines, Inc. v. LLC Corp., 687 F.2d 1122, 1131 (8th Cir.1982).

Against these burdens on interstate commerce, we must examine under the Pike test the local interests that the act was designed to further in order to determine whether a proper balance has been struck. See Edgar v. Mite Corp., 102 S.Ct. at 2641-43. In Mite, Illinois argued that its statute was enacted (1) to protect resident security holders and (2) to regulate the internal affairs of Illinois corporations. Id. 102 S.Ct. at 2642. New Hampshire makes similar claims with respect to its act. In Mite, however, the majority of justices were not convinced of the cogency of these asserted local interests and concluded that the Illinois Act added...