Telvest, Inc. v. Bradshaw, s. 79-1568
| Decision Date | 29 April 1980 |
| Docket Number | 79-1569,Nos. 79-1568,s. 79-1568 |
| Citation | 618 F.2d 1029 |
| Parties | Fed. Sec. L. Rep. P 97,329 TELVEST, INC., a Delaware Corporation, Appellee, v. Junie L. BRADSHAW, Thomas P. Harwood, Preston C. Shannon, Commissioners of the Virginia State Corporation Commission; Lewis W. Brothers, Jr., Director, Division of Securities and Retail Franchising, Appellants, and American Furniture Company, Inc., Intervenor-Defendant. TELVEST, INC., a Delaware Corporation, Appellee, v. Junie L. BRADSHAW, Thomas P. Harwood, Preston C. Shannon, Commissioners of the Virginia State Corporation Commission; Lewis W. Brothers, Jr., Director, Division of Securities and Retail Franchising, Defendants. Appeal of AMERICAN FURNITURE COMPANY, INC. |
| Court | U.S. Court of Appeals — Fourth Circuit |
James E. Farnham, Richmond, Va. (Robert P. Buford, Lathan M. Ewers, Jr., Edgar M. Roach, Jr., Hunton & Williams, Richmond, Va., on brief), for appellant, American Furniture Co., Inc.
James E. Moore, Asst. Atty. Gen., Richmond, Va. (Richard D. Rogers, Jr., Lewis S. Minter, Joel H. Peck, Donald G. Owens, State Corp. Commission of Virginia, Richmond, Va., on brief), for State Corp. Commission, appellants.
John F. Kay, Jr., Richmond, Va. (F. Claiborne Johnston, Jr., Anthony F. Troy, Joseph R. Mays, Mays, Valentine, Davenport & Moore, Richmond, Va., Nathan H. Dardick, Chicago, Ill., on brief), for appellee.
Ralph C. Ferrara, Gen. Counsel, Robert C. Pozen, Associate Gen. Counsel, William A. Dietch, Asst. Gen. Counsel, Stephen P. Lamb, Sp. Counsel, Bruce Rinaldi, David Sirignano, Securities and Exchange Commission, Washington, D. C., on brief, as amicus curiae.
Before BUTZNER and WIDENER, Circuit Judges, THOMSEN, Senior District Judge. *
Appellants, Junie L. Bradshaw, Thomas P. Harwood, Preston C. Shannon, Commissioners of the Virginia State Corporation Commission, and Lewis W. Brothers, Jr., Director of its Division of Securities and Retail Financing (all herein referred to as the Commission), and American Furniture Company (American) appeal the issuance of a preliminary injunction in favor of Telvest, Inc. by the United States District Court for the Eastern District of Virginia at Richmond. We are persuaded that the injunction was improvidently issued, and reverse the order of the district court granting the injunction.
Telvest, Inc., plaintiff below and appellee here, sued in the district court seeking injunctive and declaratory relief, contending a 1979 amendment to the Virginia Take-Over-Bid Disclosure Act 1 to be unconstitutional. After a hearing, the district court granted Telvest a temporary injunction, enjoining the enforcement of the 1979 amendment. While it did not in terms find the Virginia statute to be unconstitutional, such is implicit from its opinion.
In 1968 Virginia enacted a Take-Over-Bid Disclosure Act, Va.Code Ann. §§ 13.1-528 to 13.1-541, establishing procedural and disclosure requirements applicable to take-over bids made for any corporation incorporated under Virginia law and doing business in Virginia. A take-over bid under the act is defined as an offer, other than an exempt offer, made to purchase shares of a company that would give the purchaser, in the aggregate, more than 10% of the company's stock. 2
If a purchaser falls within the take-over bid provisions of the act, certain procedures 3 must be followed to protect the target company's shareholders, investors, and the public. Shares deposited pursuant to such a bid may be withdrawn at any time within seven days from the offer or after 60 days if the offeror has not taken up the shares. If more shares are tendered than desired, they must be purchased on a pro rata basis. If the purchaser increases the consideration during the take-over period, the consideration for all shares must be increased, including those already purchased. A disclosure form and all solicitation materials must be filed with the Commission prior to the take-over bid.
Open market purchases 4 such as the ones previously made here by Telvest were originally exempt from the take-over bid provisions of the 1968 Act. In July 1979, however, a new provision of the Virginia act became effective, 5 which the Commission describes as an effort to regulate "creeping tender offers." That provision limited previously exempt open market purchases of stock by making non-exempt open market purchases if the purchaser had acquired more than one percentage of the outstanding shares of the class within the preceding six months. If the purchase at hand and the purchaser's other stock aggregated more than ten percent of such shares, then the take-over bid provisions of the statute came into effect. So, the restriction of the 1979 amendment was very narrow. To purchase more stock than 1% per six-month period through the open market, the purchaser can now seek an exemption from the State Corporation Commission by showing that it is not the purpose or effect of the offer to change or influence control of the target corporation. 6 Once such an exemption is obtained, the purchaser is allowed to proceed with his offer through the open market without complying with the take-over-bid provisions. If a purchaser wishes to take control and therefore cannot obtain an exemption from the Commission, the purchaser must either restrict his purchases so that they are more than six months apart, or purchase less than 1% in a six-month period, or comply with the requirements of the take-over-bid provisions if the aggregate amount of his stock following the purchase in question will exceed 10%.
The Williams Act 7 amendments to the Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., were enacted by Congress in 1968 to deal with the "growing use of cash tender offers as a means for achieving corporate take overs." Like the Virginia statute complained of, its purpose was to protect "the (stockholders) of the target corporation." (Italics in original). Piper v. Chris-Craft Ind. Inc., 430 U.S. 1, 22, 39, 97 S.Ct. 926, 939, 948, 51 L.Ed.2d 124 (1977). Under § 13(d)(1) of the Williams Act, 15 U.S.C. § 78m(d) (1), anyone acquiring more than 5% of the stock of a company must file a disclosure form with the SEC. The form must be filed within ten days after the stock acquisition. Those Schedule 13D forms must be filed regardless of how the 5% of the stock is acquired. Thus, purchasers through the open market must file Schedule 13D forms. In no other way, however, does the Williams Act regulate open market transactions so far as the purchase and sale of the security is concerned, which does not imply that the statute requires no other duties.
The Williams Act also sets out procedural and disclosure requirements for tender-offer purchases. Tender offers are not defined in the act, however. Any person making a tender offer for any class of covered securities through the mails, interstate commerce, or any facility of a national securities exchange must file with the SEC a Schedule 14D-1 form if the purchaser, in the aggregate, will own more than 5% of the class of stock sought after the consummation of the offer. 15 U.S.C. § 78n(d)(1).
Like the Virginia Act, the Williams Act contains procedures for the withdrawal of securities by the holder (§ 78n(d)(5)), the pro rata purchase of securities if more is offered than sought by the offeror (§ 78n(d)(6)), and the increase of consideration for all security holders whose securities are taken up should the consideration offered be increased during the tender-offer period (§ 78n (d)(7)). The act also prohibits the use of any false or misleading statements during the tender offer period (§ 78n(e)).
In late 1978, Telvest, a Delaware corporation, began purchasing stock in American Furniture, a Virginia corporation, through the open market. By May 1979, Telvest had acquired 5% of American's stock. Thereupon, Telvest filed the necessary Schedule 13D forms with the SEC under the Williams Act. By August 1979, Telvest had acquired 9.9% of American's stock, the Commission in the meantime, in July, having advised Telvest of the 1979 Virginia amendment and its options under it.
Telvest did not seek an exemption under the act but sued the Commission in the district court, seeking to have the 1979 amendment held unconstitutional on preemption, supremacy clause, and commerce clause grounds. Telvest argued that Congress, through the Williams Act, intended that no restraint be placed upon open market purchases; therefore, Virginia could not validly limit such purchases by the 1979 amendment. Conversely, American, which intervened, and the Commission contended that Virginia was merely regulating an area outside the scope of the Williams Act, so that no preemption problem arose. As noted, the district court granted a temporary injunction enjoining enforcement of the 1979 amendment to the Virginia take-over bid act or any other state statute or regulation applicable to Telvest's open market purchases of American stock made under the exemption to the take-over bid statute as it existed prior to the 1979 amendment.
On appeal, American and the Commission contend that the district court erred by failing to consider properly the harm to the defendants and by considering the likelihood of success on the merits before considering the question of irreparable harm. They further claim error in that the district court did not properly consider the public interest in its decision to issue the injunction and that no necessary conflict exists between the State and federal statutes.
The issue before us, strictly speaking, is not whether the 1979 amendment is unconstitutional, rather whether the district court erred in granting the temporary injunction enjoining the enforcement of the 1979 amendment until a decision on the merits was reached.
The standard in this circuit when considering whether to issue a temporary injunction is the...
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