Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_07-cv-01278/USCOURTS-azd-2_07-cv-01278-0/pdf.json

Nature of Suit Code: 950
Nature of Suit: Constitutionality of State Statutes
Cause of Action: 28:2201 Declaratory Judgment

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Rocket Acquisition Corporation, a

Delaware Corporation

Plaintiff,

vs.

Ventana Medical Systems, Inc., a

Delaware Corporation; and Terry

Goddard, Attorney General of the State of

Arizona

Defendants. 

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No. CIV 07-1278-PHX-MHM

ORDER

Currently before the Court is Plaintiff Rocket Acquisition Corporation’s (“Plaintiff”

or “Rocket”) Motion for Preliminary Injunction. (Dkt.#3). After reviewing the papers and

holding oral argument on August 21, 2007, the Court issues the following Order.

I. Background 

Plaintiff’s Complaint and Motion for preliminary injunction challenge the

constitutionality of certain provisions of the Arizona Anti-Takeover Act. A.R.S. §§ 10-2701

to 2743. Specifically, Plaintiff challenges A.R.S. §§ 10-2721 through 10-2727 (the “Arizona

Control Share Act”) and A.R.S. §§ 10-2741 through 10-2743 (the “Arizona Business

Combination Act”) (collectively “the Arizona statutes”) and contends that such provisions

violate Article I, Section 8, Clause 3 of the United States Constitution (the “Commerce

Clause”). 

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It appears the tender offer has been extended to August 23, 2007. 

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Plaintiff is a Delaware corporation that has been formed for the purpose of making a

tender offer for all of the common stock of Defendant Ventana Medical Systems, Inc,

(“Defendant” or “Ventana”). Plaintiff is a wholly owned subsidiary of Roche Holding Ltd.

(“Roche”), a Swiss Company, involved in the pharmaceutical industry. Defendant is also a

Delaware corporation with its principal place of business in Tucson, Arizona. Defendant

Ventana is involved in medial research technology and develops and manufactures

specialized devices for medial research laboratories.

On June 25, 2007, Plaintiff issued a press release announcing its intent to commence

an all-cash offer for all of the outstanding shares of Defendant at the price of $75 net per

share. On June 27, 2007, Plaintiff formally commenced the tender offer, which was

originally scheduled to expire on July 26, 2007.1

 According to Plaintiff, the tender offer is

the first step in a proposed two-step transaction. If the tender offer is successful, Plaintiff

states that it will be followed by a merger between Plaintiff and Defendant. 

A. Significance of the Arizona Statues at Issue 

As an initial matter, the Arizona Anti-Takeover Act, A.R.S. §§ 10-2701 to 2743,

regulates the activities of “issuing public corporation[s].” Specifically, A.R.S. § 10-2701(11)

defines an “issuing public corporation” to include corporations “incorporated under the laws

of this state” or

[h]as its principal place of business or its principal executive office located in

this state and owns or controls assets located within this state that have a fair

market value of at least one million dollars and has more that five hundred

employees residing in this state.

Plaintiff asserts and neither Defendant Ventana nor the Attorney General contest that

Defendant Ventana, a Delaware corporation, qualifies as an “issuing public corporation”

based upon its principal place of business in Arizona, the fair market value of its assets and

the number of employees employed in Arizona. While the Arizona Takeover Act has a

provision that allows a foreign corporation to opt out by amending its bylaws or by

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shareholder amendment to its articles, Defendant has not elected that option. See A.R.S. §§

10-2721(A)(2), 10-2743(A)(2). 

(1) The Arizona Control Share Act and the Arizona Business

Combination Act

The Arizona Control Share Act regulates the voting rights of shares acquired in a

“control share acquisition” which applies to the acquisition of an “issuing public

corporation’s” shares, which, when added together to all other shares owned by the acquiring

entity entitle it to exercise at least 20%, or at least 33%, or more than 50% of the target

corporation’s voting power. See A.R.S. § 10-2701(9). The Arizona Control Share Act goes

on to direct that any shares acquired in a “control share acquisition” that exceed the

thresholds of voting power described above do not have the right to vote matters affecting

the corporation, save elections of directors, unless approved by a majority of the

shareholders. See A.R.S. § 10-2725(A). 

The Arizona Business Combination Act regulates certain “business combinations,”

including mergers between “issuing public corporation[s]” and “interested shareholder[s].”

An “interested shareholder” includes any person that beneficially owns 10% or more of the

shareholder voting power of the corporation. See A.R.S. § 10-2701(10). The Arizona

Business Combination Act goes on to prohibit an “interested shareholder” from engaging in

a “business combination” or merger with an “issuing public corporation” for three years after

becoming an “interested shareholder” unless, prior to the date the person has become an

“interested shareholder” a committee comprised of disinterested directors from the “issuing

public corporation” approves either the acquisition of shares made by the “interested

shareholder” or the proposed “business combination” or merger. See A.R.S. § 10-2741(A).

Plaintiff contends that because Defendant Ventana, a Delaware corporation, satisfies

the definition of an “issuing public corporation” the Arizona Anti-Takeover Act applies to

Defendant and the relevant tender offer made by Plaintiff to Defendant. As such, if the

tender offer is successful it would result in the acquisition of more than 50% of the common

stock of Defendant Ventana by Plaintiff and as a result:

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2

 On August 14, 2007, this Court approved a stipulation between Plaintiff and the

Attorney General to dismiss the Attorney General with leave for the Attorney General to

intervene to defend the constitutionality of the Arizona statutes. (Dkt.#31). The Attorney

General has done so with his August 8, 2007 response to Plaintiff’s Motion. (Dkt.#22). 

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(1) the Arizona Control Share Act would prevent Plaintiff from voting the vast

majority of its shares acquired in most situations; and 

(2) the Arizona Business Combination Act would prevent Plaintiff from

completing the merger (the second step of the transaction) for at least three

years. 

(Plaintiff’s Motion, p. 7).

Plaintiff contends that such conditions imposed by the Arizona Anti-Takeover Act run

contrary to the Commerce Clause of the United States Constitution, because they constitute

an impermissible risk of inconsistent regulation by different States and/or impose excessive

burdens on interstate commerce. 

In response to Plaintiff’s position, Defendant and the Attorney General have asserted

a two prong defense. First, Defendant contends that because of the low tender price offered

by Plaintiff that the case is not ripe for judicial review and even if ripe, there is no immediate

harm that warrants the issuance of a preliminary injunction. Second, the Attorney General,

now intervening in this matter, contends that the Arizona Control Share Act and Arizona

Business Combination Act are constitutionally sound and do not run afoul of the Commerce

Clause. 2

III. Analysis 

A. Ripeness of Plaintiff’s Challenge

“[R]ipeness is ‘peculiarly a question of timing,’ designed to ‘prevent the courts,

through avoidance of premature adjudication, from entangling themselves in abstract

disagreements.’” Thomas v. Anchorage Equal Rights Com’n, 220 F.3d 1134, 1138 (9th Cir.

2000) (citations omitted). A determination of judicial ripeness encompasses both an Article

III constitutional and prudential component. See id. First, the constitutional component

demands that a plaintiff “face ‘a realistic danger of sustaining a direct injury as a result of the

statute’s operation or enforcement’” and not merely an “imaginary” or “speculative” injury.

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Id. (citation omitted). Second, the prudential aspect of ripeness serves as a “tool that courts

may use to enhance the accuracy of their decisions and to avoid becoming embroiled in

adjudications that may later turn out to be unnecessary. . . .” American Sav. Bank v. UBS

Fin. Servs. 347 F.3d 436, 440 (2d Cir. 2003). The prudential analysis includes a twopronged inquiry: (1) the “fitness of the issues for judicial decision” and (2) “the hardship to

the parties of withholding court consideration.” Thomas, 220 F.3d at 1141 (citations

omitted). 

Defendant contends that the Court need not reach the constitutional issue regarding

the Arizona statutes associated with Plaintiff’s Motion for preliminary injunction because

Plaintiff’s request for declaratory and injunctive relief is not ripe for judicial review. In

support of this argument Defendant cites what it describes as the “underwater” tender offer

made by Plaintiff to Defendant. Defendant cites the $75 per share tender offer made by

Plaintiff in conjunction with the fact that immediately after Plaintiff’s tender offer on June

25, 2007, Defendant’s share price spiked to $76 per share and on July 10, 2007, Defendant’s

share price closed at $80 per share and has not closed below $80 per share since the offer.

Defendant further notes that on August 7, 2007, the last full trading day before Defendant

filed its responsive brief, Defendant’s share price closed at $81.67, almost $7 higher than

Plaintiff’s tender offer of $75 per share. Defendant also notes that Defendant possesses

approximately 33,688,000 shares of common stock and despite the fact that Plaintiff has

made a tender offer for all shares, at the time of Defendant’s brief, only 9,936 shares had

been tendered. Defendant cites these facts as evidence that Plaintiff’s action is not ripe

because Plaintiff has not made a serious tender offer but one that will most surely be rejected.

Defendant also contends that because the application of the Arizona statutes hinge on a

contingent future event, i.e., the successful completion of the tender offer, the Arizona

statutes do not apply because Plaintiff does not currently own the minimum number of shares

to trigger the Arizona Control Share Act (at least 20% ownership to qualify) or the Business

Combination Act (at least 10% ownership to qualify). In other words, for the Arizona

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statutes to apply, Plaintiff’s tender offer will have to be successful because Plaintiff currently

only owns approximately 1% of Defendant’s common stock.

Defendant’s argument it is not persuasive with respect to the ripeness issue associated

with Plaintiff’s lawsuit. It is important to note that Plaintiff has commenced a tender offer

for all of Defendant’s shares and that Defendant, the target corporation, is automatically

protected by the Arizona statutes at issue as an “issuing public corporation.” Under such

circumstances, Plaintiff’s declaratory and injunctive relief action is ripe for judicial review.

A review of federal authority that has addressed this issue in the context of similar

constitutional challenges to similar statutes evidences as much. For instance, in Moore

Corp. v. Wallace Computer Servs., 898 F.Supp 1089, 1095 (D. Del. 1995), the district court

noted that “[c]ourts have found sufficient immediacy and reality of harm where a tender

offeror has commenced a tender offer and subsequently seeks to challenge the

constitutionality of a statute governing the transaction.” (citing Black & Decker Corp v.

American Standard, Inc., 679 F.Supp. 1183, 1189-90 (D.Del. 1988)); see also BNS, Inc. v.

Koopers Co., 683 F.Supp 458, 462 n.5 (D.Del. 1988). That is the type of action asserted here

by Plaintiff. Moreover, in Grand Metro. P.L.C. v. Butterworth, 1988 WL 1045191 *4 (N.D.

Fla. 1988), the district found, noting that many courts before it have “recognized that

threatened or potential invocation of a state’s anti-takeover statute presents a justiciable claim

for relief” held that the foreign corporation’s constitutional challenge to Florida’s antitakeover statute to be ripe stating “no . . . invocation or enforcement is necessary” because

“[b]y their own terms, the statutes will apply to the [tender offeror’s] acquisition and

subsequent merger. . . .” Id. . The district court concluded that the controversy was “actual

and not hypothetical” because the plaintiff “made a serious tender offer - an offer vigorously

opposed by [the target] - and the success of that offer will be affected by the Florida antitakeover statutes.” Id. at * 5. In this case, like Grand Metro, the Arizona statutes

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3

In response to Plaintiff’s tender offer, Defendant issued a press release stating that

it will “rigorously resist” the tender offer and has lobbied its stockholders not to tender their

shares. (Plaintiff’s Reply, Dkt.#34, Maureen Beyers’ Affidavit, Exhibit 1). 

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automatically apply to Defendant and the relevant tender offer.3

 Lastly, this Court does not

find persuasive Defendant’s strong reliance on the difference between Plaintiff’s $75 per

share tender offer and the current stock price of Defendant, currently trading above Plaintiff’s

offer. It is noteworthy that in Black & Decker, the district court was presented with a

situation where the value of tender offer was $2.375 below the then current market value of

the target corporation’s stock value. 679 F.Supp at 1193. Although the district court did not

squarely deal with this issue in terms of ripeness, the district court did determine the matter

to be ripe for judicial review. Id. at 1190-91. Further, and more importantly, it would likely

be inappropriate for this Court to make some type of factual finding that Plaintiff’s tender

offer does not pose a legitimate or serious possibility that it will be accepted by Defendant’s

stockholders. It is not the Court’s place to substitute its judgment for the judgment of

Defendant’s stockholders. Even if it were this Court’s place to make such a finding,

Plaintiff’s tender offer constitutes a 44% premium above the closing price of Defendant’s

stock value on the last full trading day before the announcement and a 55% premium above

Defendant’s average stock value over the previous three months. At the very least, the offer

appears to be legitimate and serious and justifies consideration by Defendant’s stockholders.

Thus, this Court, like others before it, finds that this matter is ripe for judicial review

as Plaintiff has presented a realistic claim presenting a viable risk of danger or direct injury

based upon the application of the Arizona statutes as well a claim that is fit for judicial

review taking into account the hardship imposed were this Court to defer such a ruling.

B. Preliminary Injunction Analysis 

The standard for granting a preliminary injunction balances the plaintiff's likelihood

of success against the relative hardship to the parties. To obtain a preliminary injunction, a

party must demonstrate either: “(1) a likelihood of success on the merits and the possibility

of irreparable injury; or (2) that serious questions going to the merits were raised and the

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balance of hardships tips sharply in its favor. . . . These two alternatives represent ‘extremes

of a single continuum,’ rather than two separate tests . . . Thus, the greater the relative

hardship to [the party seeking the preliminary injunction,] the less probability of success

must be shown.” Clear Channel Outdoor, Inc. v. City of Los Angeles, 340 F.3d 810, 813 (9th

Cir. 2003) (citation omitted). Courts also must consider the public interest as a relevant

factor. See Carribean Marine Servs. Co. v. Baldridge, 844 F.2d 668, 674 (9th Cir. 1988). 

(1) Irreparable Harm 

Defendant contends that even if this matter is ripe for judicial review, the Court,

without visiting the merits of Plaintiff’s constitutional challenge, should deny Plaintiff’s

request for preliminary injunction because Plaintiff cannot demonstrate a “real or immediate

threat” of injury or irreparable harm. Camarena v. Maricopa County Correctional Health

Servs., 2007 WL 899742 * 2 (D.Ariz. March 23, 2007) (J. Murguia); see also Oakland Trib.,

Inc. v. The Chronicle Publishing Co., 762 F.2d 1374, 1376 (9th Cir. 1985) (noting that court

need not reach merits of case if moving party cannot show a “significant threat of irreparable

harm” in the absence of an injunction). Defendant again relies on the “underwater” stock

value of Plaintiff’s tender offer and the unlikelihood that such a tender offer will be accepted

given the current value of the Defendant’s stock. Defendant notes that the harms against

Plaintiff of not being able to vote its shares or the delay in any merger is contingent on the

tender offer being approved or accepted. Thus, according to Defendant, because the tender

offer is so low there can be little doubt that the tender offer will be rejected, thus eliminating

any potential for harm against Plaintiff.

For many of the same reasons explained above regarding the “ripeness” of Plaintiff’s

suit, Defendant’s argument is not persuasive. First, several courts have found injunctive

relief based upon the existence of irreparable harm created by the unconstitutional

application of a states’ anti-takeover statute to be appropriate . See, e.g., Edgar v. MITE

Corp., 457 U.S. 624, 629 (1982) (granting preliminary injunction based upon finding that

Illinois business takeover statute violated commerce clause); Tyson Foods Inc. v.

McReynolds, 865 F.2d 99, 101 (6th Cir. 1989) (granting preliminary injunction based upon

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4

At oral argument, Defendant cited Black & Decker to support its position that the

value of Plaintiff’s tender offer was not viable or realistic thus negating the existence of

irreparable harm. 679 F.Supp.1183. This Court does not find that the Black & Decker

holding somehow demonstrates the absence of the irreparable harm in this case. For

instance, unlike Black & Decker, this Court is not dealing with irreparable harm based upon

possible consumer confusion regarding the constitutionality of the Arizona statues. Id. at

1193. Rather, as explained above, based upon the reach and impact of the Arizona statutes,

Plaintiff’s tender offer will be significantly frustrated in the absence of injunctive relief. 

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finding that Tennessee anti-takeover statutes violated commerce clause); Grand Metro, 1988

at *8 (granting preliminary injunction based upon finding that Florida anti-takeover statutes

violated commerce clause); TLX Acquisition Corp. v. Telex Corp., 679 F.Supp 1022, 1033

(W.D.Okl. 1987) (granting preliminary injunction based upon finding that Oklahoma Control

Shares Act violated commerce clause). If this Court were not to enjoin the application of the

Arizona statutes, Plaintiff would either face the decision to abandon its tender offer or

proceed with the offer and face losing the intended benefit of offer, i.e., voting rights and

potential merger. See Tyson Foods, 865 F.2d at 103 (“[S]ubjecting [tender offers] to an

unconstitutional application of [state laws regulation tender offers] amounts to irreparable

injury.”) (quoting Martin Marietta Corp. v. Bendix Corp., 690 F.2d 558, 568 (6th Cir. 1982)).

In addition, the fact that the stock value of Defendant’s stock is currently trading above the

tender offer is not per se evidence that the tender offer will fail. As stated above, to accept

Defendant’s argument would require this Court to substitute its judgment as to the viability

of the offer for the judgment of the Defendant’s shareholders. Under such circumstances,

the Court finds that irreparable harm to Plaintiff would result based upon the application of

the Arizona statutes, in the absence of a preliminary injunction.4

 Thus, the Court finds that

the irreparable harm element of Plaintiff’s declaratory and injunctive suit is satisfied

supporting the issuance of a preliminary injunction enjoining the application of the Arizona

statutes. 

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5

 The Attorney General appears to argue that the risk of inconsistent regulation should

be included with any court’s analysis of whether the indirect regulation’s burden exceeds the

state’s interest in implement such regulation. See Pike v. Bruce Church, Inc., 397 U.S. 137,

142 (1970). However, as noted in CTS Corp. such risk of inconsistent regulation amounts

to an independent basis to invalidate any law or statute. 481 U.S. at 88. 

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(2) Likelihood of Success on the Merits 

The Commerce Clause provides that “Congress shall have Power . . . [t]o regulate

Commerce ... among the several States.” U.S. Const. art. I, § 8, cl.3. The Supreme Court has

generally adopted “what amounts to a two-tiered approach to analyzing state economic

regulation under the Commerce Clause. When a state statute directly regulates or

discriminates against interstate commerce, or when its effect is to favor in-state economic

interests over out-of-state interests, [the Supreme Court] has generally struck down the

statute without further inquiry. When . . . a statute has only indirect effects on interstate

commerce and regulates evenhandedly, [the Supreme Court] ha[s] examined whether the

State's interest is legitimate and whether the burden on interstate commerce clearly exceeds

the local benefits.” Brown-Forman Distillers Corp. v. New York State Liquor Auth., 476

U.S. 573, 578-79 (1986) (citations omitted). In addition, the Supreme Court in CTS Corp

v. Dynamics Corp. of America, set forth that its cases “also have invalidated statutes that

may adversely affect interstate commerce by subjecting activities to inconsistent

regulations.” 481 U.S. 69, 88 (1987); see also NCAA v. Miller, 10 F.3d 633, 640 (9th Cir.

1993) (striking down Nevada statute “both because it regulates a product in interstate

commerce . . . and because it puts the NCAA . . . in jeopardy of being subject to inconsistent

legislation.”) (Emphasis added).5

 As noted above, the Arizona Control Share Act and Arizona Business Combination

Act apply to Defendant, a Delaware corporation, because Defendant, an “issuing public

corporation,” under Arizona law, making its principal place of business in Arizona, with

significant assets in Arizona, employs a significant number of employees in Arizona and has

not opted out of the protection of the Arizona Anti-Takeover Act. As such, the Defendant

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and tender offer, in its simplest terms, are currently impacted by the Arizona Anti-Takeover

Act even though the tender offer is made by a Delaware corporation to that of another

Delaware corporation. Precedent demonstrates that such regulation by a state upon a foreign

corporation runs contrary to what the Commerce Clause permits. Specifically, Plaintiff

asserts two challenges to the Arizona statutes: (1) that they are constitutionally flawed

because they subject foreign target corporations such as Defendant Ventana and the tender

offer to an impermissible risk of inconsistent regulation; and (2) that they are constitutionally

defective because the burden on interstate commerce clearly outweighs any state interest in

protecting target corporations and their Arizona shareholders. The Court finds both

arguments provide independent grounds demonstrating the constitutional defect in the

Arizona statues. 

There is strong persuasive authority demonstrating that the Arizona statues constitute

an impermissible risk of inconsistent regulation in violation of the Commere Clause because

of the statutes’ reach and application to foreign corporations, such as Defendant. For

instance, in TLX, the district court granted a tender offeror corporation’s request for

preliminary injunctive relief enjoining the enforcement of Oklahoma’s Control Shares Act

because it violated the Commerce Clause. 679 F.Supp. 1022 . The Oklahoma Control Share

Act applied to its corporations as well as corporations with their principal place of business

in Oklahoma. The district court invalidated the Oklahoma Act, on one ground, because it

“create[d] an impermissible risk of inconsistent regulation of tender offers and voting rights

in stock by different states” Id. at 1029. With respect to the inconsistency created, the district

court stated that “[i]t follows that when a state attempts to regulate voting rights in

corporations other than those it has created, such corporations will be subject to the law of

more than one state, which poses an impermissible risk of inconsistent regulations by

different states that may adversely affect interstate commerce.” Id. at 1030. This Court finds

such reasoning persuasive and applicable to the case at hand. Notably, the Arizona statues,

like the Oklahoma statutes, apply to foreign corporations as well as Arizona corporations.

Because of such broad application, there is an inherent risk of inconsistent regulation upon

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Defendant between Arizona, the place of Defendant’s principal place of business, and

Delaware, the place of Defendant’s incorporation. Moreover, as in TLX, Arizona’s opt-out

provision, A.R.S. §§ 10-2721(A)(2), 10-2743(A)(2), does not somehow eliminate the risk

of inconsistent regulation. 679 F.Supp. at 1031. In fact, the opt-out provision itself

“represents regulation of the internal affairs of a foreign corporation.” Id. 

The Court also finds that the district court’s decision in Grand Metro, supports the

existence of the risk of impermissible inconsistent regulation. 1988 WL 1045191. In Grand

Metro, the district court granted the offeror corporation’s motion for preliminary injunction

to enjoin the application of Florida’s Affiliated Transaction Act and Control Share

Acquisition Act. The Florida statutes, like the Arizona statues, applied to target corporations

that were incorporated in Florida as well as those that had their principal place of business

in Florida but were incorporated in other states. Id. at * 2. The district court found the

Florida statutes to run contrary to the Commerce Clause because the Florida statutes

purported to regulate “the internal affairs of out-of-state corporations even though Florida

[had] no legally cognizable interest in doing so . . . . [thus] the statutes create[d] the risk of

inconsistent regulation” which the court held to be an “intolerable burden on interstate

commerce.” Id. at *6. In light of the similarity of the circumstances surrounding the Arizona

statutes and those presented in Grand Metro, it would be inconsistent to find that the Arizona

statutes are somehow free from defect under a commerce clause analysis. Because of the

Arizona statutes broad application to foreign corporations, they clearly create the risk of

inconsistent regulation which as acknowledged in CTS Corp., is not acceptable under a

commerce clause analysis. 481 U.S. at 88. 

The Court also finds instructive the distinguishing authority in the Supreme Court’s

holding in CTS Corp. 481 U.S. 69. In CTS Corp., the Supreme Court upheld the

constitutionality of Indiana’s Control Share Acquisition statute, which would impact the

voting rights of an acquiring corporation in the event of a takeover of a target corporation,

largely because the Indiana statute applied only to corporations organized under the laws of

Indiana. The Supreme Court explained in pertinent part:

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 Although the decision was a plurality, the Commerce Clause analysis finding the

statute to be unconstitutional was joined by a majority of the justices with respect to the

balancing analysis under Pike.

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So long as each State regulates voting rights only in the corporations it has

created, each corporation will be subject to the law of only one State. No

principle of corporation law and practice is more firmly established than a

State’s authority to regulate domestic corporations, including the authority to

define the voting rights of shareholders . . . Accordingly, we conclude that the

Indiana Act does not create an impermissible risk of inconsistent regulation by

different States. 

Id. at 89 (emphasis added).

The instant case is obviously distinguishable from CTS Corp., because the Arizona

statutes, unlike the Indiana statue in CTS Corp., do apply and regulate the affairs of foreign

corporations, such as Defendant. As clearly implied in CTS Corp., the “risk of inconsistent

regulation” does exist in this case and is impermissible under the Commerce Clause. Id.

In addition, there is strong authority demonstrating that the Arizona statutes violate

the Commerce Clause because the burden on interstate commerce “is clearly excessive in

relation to the putative local benefits” to Arizona. See TLX, 679 F.Supp. at 1031 (quoting

Pike, 397 U.S. at 142. In this case the burden on interstate commerce created by the broad

application of Arizona statues includes the frustration and regulation generated by a tender

offer made to a foreign corporation, such as Defendant. While Arizona clearly has an interest

in protecting businesses that have significant contacts with Arizona, such as Defendant,

Arizona clearly has “no interest in protecting nonresident shareholders of nonresident

corporations.” MITE Corp., 457 U.S. at 644. In balancing such competing interests, the

interference with interstate commerce created by the regulation of a foreign corporation

controls. See, e.g., Id. at 644-45 (finding Illinois Business Takeover Act to violate

Commerce Clause because benefit from any indirect regulation did not outweigh burden

created on interstate commerce)6

; Tyson Foods, 865 F.2d at 103 (finding Tennessee Control

Share Acquisition Act and Business Combination Act to violate commerce clause because

statutes constituted a burden on interstate commerce excessive in relation to local interests

served by the statute); TLX 679 F.Supp. at 1029 (finding Oklahoma’s Control Shares Act to

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7

 At oral argument, the Attorney General acknowledged that it was unable to locate

any federal authority to support its position regarding the constitutionality of the Arizona

statutes.

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violate Commere Clause because it “impose[d] an indirect burden on interstate commerce

that is excessive in relation to Oklahoma’s interest in protection of resident shareholders and

businesses.”). The instant case, based upon the Arizona statutes and their application to

foreign corporations, is no different than the cases presented above as the Arizona statutes,

while protecting businesses with significant contacts with Arizona, unreasonably interfere

with interstate commerce based upon the regulation of businesses that are not incorporated

in Arizona. 

In finding the Arizona statutes to run contrary to the Commerce Clause, the Court

finds unpersuasive the arguments advanced by the Arizona Attorney General, the only party

to argue that the Arizona statutes are constitutionally sound. The Attorney General relies

primarily on state law and avoids the overwhelming federal case law, cited above, indicating

that the Arizona statutes are constitutionally deficient For instance, the Attorney General

first cites the Court to the California Court of Appeal’s decision in Wilson v. LouisianaPacific Res., Inc., where the court upheld the state regulation to foreign corporations based,

in part, upon the corporation’s contacts with the state. 138 Cal.App.3d 216, 226-27 (1982).

 However, this decision came before the Supreme Court’s holdings in MITE and CTS Corp,

which call into question the validity of such a holding. In addition, the Attorney General

relies upon State Farm Mut. Auto Ins. Co. v. Superior Court, where the California Court of

Appeal stated that “a California court can apply local law to a foreign corporation that has

sufficient contacts with the state, such as conducting business or having an office.” 114

Cal.App.4th 434, 448 (2003). However, the California court went on to hold that Illinois

law, the place of the foreign corporation’s incorporation, applied and observed that “[i]n all

but a handful of cases, the law of the state of incorporation is applied to disputes involving

internal affairs in spite of the various choice-of-law theories.” Id. 7

 In sum, the Court finds

that the Attorney General fails to controvert the strong authority suggesting that the Arizona

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statutes violate the Commerce Clause based upon the risk of inconsistent regulation and the

balancing of burden and benefit on interstate commerce.

 As such, the Court finds that Plaintiff has made a strong showing of success on the

merits with respect to its challenge to the constitutionality of the Arizona Control Share Act

and Arizona Business Combination Act. 

(3) Public Interest 

In addition to a high likelihood of success on the merits and existence of irreparable

harm, the Court is satisfied that enjoining the application of the Arizona statutes serves the

public interest. The Court sees no benefit to the public in allowing the unconstitutional

application of the Arizona Control Shares Act and Arizona Business Combination Act to be

applied to frustrate the tender offer to Defendant. See Tyson Foods, 865 F.2d at 103 (“[I]t

is not in the public interest to perpetuate the unconstitutional application of a statute.”). 

IV. Summary

The Court finds that Plaintiff has presented a justiciable declaratory and injunctive

action challenging the constitutionality of the Arizona Control Share Act and the Arizona

Business Combination Act. In addition, based upon a strong showing of a high likelihood

of success on the merits, the existence of irreparable harm and consideration of the public

interest, the Court finds that it is appropriate to grant Plaintiff’s Motion for preliminary

injunction enjoining the application of the Arizona statutes to the Defendant and tender offer.

Accordingly,

IT IS HEREBY ORDERED granting Plaintiff’s Motion for preliminary injunction.

(Dkt.#3). 

IT IS FURTHER ORDERED enjoining Defendant from taking any action to invoke,

apply, or enforce the provisions of the Arizona Control Share Act, A.R.S. §§ 10-2721

through 10-2727, and the Arizona Business Combination Act, A.R.S. §§ §§ 10-2741 through

10-2743, with respect to Plaintiff’s tender offer for all of Defendant’s outstanding shares of

common stock commenced on June 27, 2007.

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DATED this 22nd day of August, 2007.

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