Document: 481 U.S. 69 107 S.Ct. 1637 95 L.Ed.2d 67 CTS CORPORATION, Appellantv.DYNAMICS CORPORATION OF AMERICA. INDIANA, Appellant v. DYNAMICS No. 86-71, 86-97. Argued March 2, 1987. Decided April 21, Syllabus The federal Williams Act and implementing regulations govern hostile corporate stock tender offers by requiring, inter alia, that remain open for at least 20 business days. An Indiana applies to certain corporations chartered in have specified levels of shares or shareholders within the State opt into Act's protection. provides acquisition "control shares" such a corporation—shares that, but Act, would bring acquiring entity's voting power above threshold levels—does not include rights unless majority all pre-existing disinterested so agree their next regularly scheduled meeting. However, acquiror can require special meeting 50 days following procedures. Appellee Dynamics Corporation announced offer raised its ownership interest threshold. also filed suit Federal District Court alleging securities violations CTS. After opted amended complaint challenge validity. granted Dynamics' motion declaratory relief, ruling is pre-empted violates Commerce Clause. Appeals affirmed, adopting holding plurality opinion Edgar MITE Corp., 457 624, 102 2629, 73 269 (1982), pre-empts state statutes upset balance between target company management offeror. court based pre-emption finding on view effect, imposes 50-day delay consummation this conflicts with minimum 20-day, hold-open period under Act. held Clause since it deprives nonresidents valued opportunity accept from other nonresidents, conflict-of-laws "internal affairs" doctrine has direct, intended, substantial effect interstate market control. Held: 1. consistent provisions purposes thereby. Pp. 78-87. (a) protects independent coercive aspects allowing them vote as group, thereby furthers basic purpose placing investors an equal footing takeover bidders. Moreover, avoids problems discussed MITE, does give either offeror advantage communicating shareholders, nor impose indefinite offers, allow government interpose views fairness willing buyers sellers. Thus, satisfies even plurality's broad interpretation 81-84. (b) possibility will some mandate pre-emption. neither absolute precludes offerors purchasing soon law permits. If adverse shareholder feared, be conditioned shares' receiving period. Furthermore, assuming additional delay, found only "unreasonable" delays conflict Here, cannot said unreasonable falls 60-day Congress established tendering withdraw unpurchased shares. were construed pre-empt any statute caused delays, variety laws hitherto unquestioned longstanding prevalence regulation area suggests if had intended laws, so. 84-87. 2. violate limited commerce justified State's interests defining attributes corporations' protecting shareholders. 87-94. discriminate against same whether domiciliary resident. That might apply most often out-of-state entities who launch irrelevant, claim discrimination mere fact burden companies. 87-88. create impermissible risk inconsistent different States. It simply evenhandedly exercises firmly authority define corporations, thus subjects one State. 88-89. (c) Appeals' unconstitutionally hinders ignores State, role overseer governance, enacts necessarily affect commerce, particularly respect A promoting stable relationships among parties involved ensuring effective voice affairs. validly these collectively determine advantageous them. argument no legitimate nonresident unavailing, incorporated number 89-93. (d) Even should decrease successful offend prohibit resident offering purchase, purchasing, attempting gain regulatory procedures designed better protection protect particular structure methods operation market. 93—94. 794 F.2d 250 (CA 7 1986), reversed. POWELL, J., delivered Court, which REHNQUIST, C.J., BRENNAN, MARSHALL, O'CONNOR, JJ., joined, Parts I, III-A, III-B SCALIA, joined. concurring part judgment, post, p. ----. WHITE, dissenting opinion, Part II BLACKMUN STEVENS, 97. James A. Strain, Indianapolis, Ind., appellant 86-71. John F. Pritchard, New York City, Lowell E. Sachnoff, Chicago, Ill., appellees both cases. Justice POWELL Court. 1 These cases present questions Control Share Acquisitions Chapter Business Law, Ind. Code § 23-1-42-1 et seq. (Supp.1986), 82 Stat. 454, amended, 15 U.S.C. §§ 78m(d)-(e) 78n(d)-(f) (1982 ed. Supp. III), Constitution, Art. 8, cl. 3. 2 * 3 On 4, 1986, Governor signed revised 23-1-17-1 (Supp.1986). included (Indiana Act). Beginning August 1, 1987, corporation Indiana, 23-1-17-3(a), amends articles incorporation bylaws out 23-1-42-5. Before date, resolution board directors. 23-1-17-3(b). "issuing public corporations." term "corporation" includes businesses Indiana. See 23-1-20-5. corporation" defined as: 4 "a has: 5 "(1) hundred (100) more shareholders; 6 "(2) principal place business, office, assets Indiana; "(3) either: 8 "(A) than ten percent (10%) 9 10 "(B) 11 owned residents; 12 "(C) thousand (10,000) Indiana." 23-1-42-4(a).1 13 focuses issuing corporation. Under entity acquires whenever three thresholds: 20%, 331/3%, 50%. 23-1-42-1. control acquire rights. Rather, gains those "to extent approved corporation." 23-1-42-9(a). Section 23-1-42-9(b) requires disinterested2 each class passage resolution. practical requirement condition approval shareholders.3 14 decide confer specially hold files "acquiring person statement,"4 requests meeting, agrees pay expenses 23-1-42-7. do restore shares, may redeem fair value, required 23-1-42-10(b). Similarly, file statement corporation, may, provide, time after 60 acquiror's last acquisition. 23-1-42-10(a). B 10, appellee America (Dynamics) 9.6% common Corporation, day, six went another million CTS; purchase brought 27.5%. Also United States Northern Illinois, violated respects longer relevant proceedings. 27, directors CTS, elected governed see 23-1-17-3. 16 Four later, 31, moved leave amend allege Clause, sought temporary restraining order, preliminary injunction, relief CTS' use 9, ruled relief. 637 F.Supp. 389 (N.D.Ill.1986). Relying WHITE's concluded "wholly frustrates objective striking investor, management, bidder contests." F.Supp., 399. week 17, issued accepting This rested court's conclusion "the interference created [Act] outweighs articulated local benefits indirect commerce." Id., 406. certified decisions claims final Rule Civil Procedure 54(b). Ibid. 17 appealed Court's holdings Seventh Circuit. Because imminence annual consolidated expedited two appeals. 23—23 first contested application Court—the order affirming judgment followed May 28. (CA7 1986). 18 disposing appeal, examined looked supra, Justices noted commentators disputed concluding instead was "an anti-takeover statute, expressing view, however benighted, takeovers are bad." F.2d, 262. noted: 19 "[I]t big leap saying itself exhibit much hostility implicitly forbids states adopt regulations. . But whatever doubts Williams' preemptive intent we entertain original matter stilled weight precedent." Once decided analysis plurality, case straightforward: 21 "Very few could run gauntlet set up. In event, taken congressional determination month (roughly) enough force kept open, too much; act chooses." 263. 22 addressed Dynamic's Applying balancing test Pike Bruce Church, Inc., 397 137, 90 844, 25 174 (1970), unconstitutional: 23 "Unlike state's blue sky calculated impede transactions residents states. For sake trivial negative depriving nonresidents. 24 ". corporation's tangible immovable, efficiency they employed proportions earnings generate divided depends control—an interstate, indeed international, authorized of, done statute." 264. Finally, doctrine, "principle make sure shall internal affairs association." stated: 26 "We assume without having latitude regulating affairs, when consequence harder take over substantial. [T]hat mode involves jiggering outside scope judicial review clause." 27 Accordingly, affirmed 28 Both jurisdictional statements. We probable jurisdiction 1254(2), 479 810, 258, 93 (1986), now reverse.5 29 question As stated frequently, absent explicit indication law, " 'where compliance physical impossibility .,' Florida Lime & Avocado Growers, Inc. Paul, 373 132, 142-143 [83 1210, 1217, 248] (1963), where 'law stands obstacle accomplishment execution full objectives Congress.' Hines Davidowitz, 312 52, [61 399, 404, 85 L.Ed. 581] (1941). ." Ray Atlantic Richfield Co., 435 151, 158, 98 988, 994, 55 179 (1978). 30 entirely possible comply law. 31 Our discussion begins brief summary passed 1968 response increasing offers. passage, covered disclosure requirements laws. Piper Chris-Craft Industries, 430 22, 97 926, 939-940, 51 124 (1977). backed SEC, areas. First, disclosing information about offer, including: offeror's background identity; source amount funds used making purchase; including plans liquidate major changes structure; company. 78n(d)(1) (incorporating 78m(d)(1) reference); CFR 240.13d-1, 240.14d-3 (1986). 32 Second, accompany it, establish procedural rules example, stockholders while remains and, purchased commencement offer. 78n(d)(5); 240.14d-7(a)(1) (1986) Fed.Reg. 25873 must 240.14e-1(a) tendered purchases made pro rata basis shareholder. 78n(d)(6); 240.14(8) price purchases; increased before end already receive benefit price. 78n(d)(7). 33 differs Illinois considered (1982). reviewing legislative history joined Chief Burger (the plurality), struck careful companies, "upset" pre-empted. 632-634, S.Ct., 2635-2636. 34 then identified offending features statute. provided 20-day precommencement During time, disseminate upcoming publish provision gave powerful tool combat offers." 635, 2637. contrasted dramatically Act; deleted express notice According determined potentially consequences avoided. "frustrate[d] Act." second criticized feature hearing because deadline, allowed 'to stymie indefinitely takeover,' id., 637, 2638 (quoting Corp. Dixon, 633 486, 494 1980)). 'delay seriously offer,' U.S., Great Western Kidwell, 577 1256, 1277 (CA5 1978) (Wisdom, J.)), "Congress anticipated free go forward delay," 639, 2639. conflicted third troublesome reviewed Secretary Noting own decisions," '[t]he investor expense autonomy—an approach quite adopted 639-640, 2639 494). C 35 did represent Court,6 bound reasoning. need reasoning, however, believe passes muster WHITE MITE. apparent our overriding concern operated favor offerors, detriment By contrast, contending parties. 'plac[ing] bidder,' 30, 943 Senate Report accompanying S.Rep. 550, 90th Cong., 1st Sess., (1967)).7 36 operates assumption, implicit faced disadvantage. If, nontendering depressed price, individual shares—even doubt best themselves being forced sell SEC explains: "The alternative virtual assurance successful, sold lower priced, step." Two-Tier Tender Offer Pricing Non-Tender Purchase Programs, Exchange Rel. 21079 (June 1984), [1984 Transfer Binder] CCH Fed.Sec.L.Rep. ¶ 83,637, 86,916 (footnote omitted) (hereinafter Release 21079). Lowenstein, Pruning Deadwood Hostile Takeovers: Proposal Legislation, 83 Colum.L.Rev. 249, 307-309 (1983). situation acting interest, reject although inclined it. desire Legislature type policy 37 goal, Unlike impending Nothing prohibits consummating 20th earliest day permitted applicable regulations, Nor sellers allows evaluate collectively. D 38 until Appeals, reasons rational carry conferred concludes delay. This, argues, shorter 20-business-day open. 240.14e-1 find alleged illusory. 39 preclude fears conditional time. permits subsequently obtaining approval. E.g., Interpretive Relating Rules, 34-16623 (Mar. 5, 1980), 24,284I, 17,758, quoted MacFadden Holdings, JB Acquisition 802 62, 70 (CA2 1986).8 There reason well.9 40 nothing suggested imposed regulation, short, argued "be delay." (emphasis added). case, confronted potential presented persuasive why deadline established. vested—if eventually occur—within restitution withdrawal 78n(d)(5). say congressionally unreasonable. 41 note validity limit exercise commonly permit stagger terms Model (1969 draft) Ann. (2d 1971) MBCA); American Bar Foundation, Revised 8.06 (1984 (1985) RMBCA).10 staggering directors, elections year, provide cumulative voting. MBCA 33, 4; RMBCA 7.28.11 enabling minority assure representation further ability untrammeled Hochman Folger, Deflecting Charter By-Law Techniques, Bus.Law. 537, 538-539 (1979). 42 insufficient explicitly. conditions places text III 43 decision, Constitution. address holding. face, grant "[t]o regulate several .," been settled century taking actions respecting action. See, e.g., Cooley Board Wardens, How. 299, 996 (1852). "these great silences Constitution," H.P. Hood Sons, Du Mond, 336 525, 535, 657, 663, 865 (1949), always easy follow. volume complexity grown country, tests attempt describe difference prohibits. Raymond Motor Transportation, Rice, 434 429, 441, n. 15, 787, 794, 54 664 44 objects dormant scrutiny commerce. Lewis BT Investment Managers, 447 36-37, 100 2009, 2015-2016, 64 702 (1980); Philadelphia Jersey, 437 617, 2531, 2535-2536, 57 475 generally Regan, Supreme Protectionism: Making Sense Dormant 84 Mich.L.Rev. 1091 effects "visits equally upon business," 36, 2015. 45 nevertheless contends discriminatory entities. rests contention matter, launched avails little. companies not, itself, Exxon Maryland, 117, 126, 2207, 2214, 91 Minnesota Clover Leaf Creamery 449 456, 471-472, 101 715, 727-728, 66 659 (1981) (rejecting challenged "regulate[d] regard [commerce came] State"); Commonwealth Edison Co. Montana, 453 609, 619, 2946, 2954, 884 "tax [was] borne according consumed distinction in-state consumers"). greater similarly situated discriminates 46 recent invalidated adversely subjecting activities Brown-Forman Distillers Liquor Authority, 476 573, 583-584, 106 2080, 2086-2087, 552 (1986); 642, 2640-2641 (plurality J.); Kassel Consolidated Freightways 450 662, 671, 1309, 1316-1317, 580 J.). Southern Pacific Arizona, 325 761, 774, 65 1515, 1522-1523, 89 1915 (1945) (noting "confusion difficulty" attend "unsatisfied uniformity" setting maximum limits train lengths); How., 319 (stating "are nature national, admit uniform system, plan regulation"). poses problem. So long regulates created, subject No principle practice domestic Restatement (Second) Conflict Laws 304 (1971) (concluding incorporating "determine right participate administration corporation"). conclude 47 unconstitutional reasons. decision hinder think failed appreciate significance governance whose very existence product Marshall explained: 48 "A artificial being, invisible, intangible, existing contemplation Being creature possesses properties charter creation confers expressly, incidental existence. supposed object created." Trustees Dartmouth College Woodward, Wheat. 518, 636, 518 (1819). 49 First National Bank Boston Bellotti, 765, 822-824, 1407, 1439-1441, 707 (1978) (REHNQUIST, dissenting). Every country enacted governance. prohibiting transactions, others, true incorporation. Large listed national exchanges, regional many traded frequently. markets facilitate international participation essential providing capital new enterprises expand businesses. beneficial system core corporation—except rarest situations—is organized under, by, single jurisdiction, traditionally directly transactions. Mergers typical example. merger shareholders' supermajority votes approve mergers. (requiring rather cast); 11.03 (same). requiring mergers difficult merge. "dissenters' rights" disagree entitled value. 80, 81; 13.02. inhibit engaging transactions.12 accepted landscape prescribe powers, acquired charters, well 52 reflects concerns. primary corporations. affording made, resulting change perceive desirable. important interests; opportunity. autonomy especially coerce 53 responds arguing prospect illusory, favored reallocate hands effectively.13 Easterbrook Fischel, Proper Role Target's Management Responding Offer, 94 Harv.L.Rev. 1161 (1981). indicated 82—83, Indiana's groundless. Indeed, recognized 21079, 86,916, scholarly commentators, see, Bradley Rosenzweig, Defensive Stock Repurchases, 99 1377, 1412-1413 Macey McChesney, Theoretical Analysis Corporate Greenmail, Yale L.J. 13, 20-22 (1985); Colum.L.Rev., 307-309. Constitution subscribe economic theory. second-guess empirical judgments lawmakers concerning utility legislation," 679, 1321 (BRENNAN, judgment). coercion bids justification promote argues event 'no shareholders.' Brief 644, 2641-2642). relies heavily "[i]nsofar burdens there weighed sustain law." 2641. comment reference applied preventing form becoming shield unfair dealing. unlike 23-1-42-4(a)(3) every residents, whom indisputably protecting. ultimately little evidence occur. true, result substantially analysis. reiterate entity—resident rejected "notion market." 127, 2215. commodity characteristics "market control"—the corporation—is owes commodities do; access done. Clause.14 IV 56 determines To affects never questioned matters. offends reverse Appeals. ordered. 58 judgment. 59 I join opinion. found, do, "discriminates commerce," ante, 88, "create[s] States," 89, invalid While become standard consider, addition factors, "is clearly excessive relation putative benefits," 142, 847, inquiry ill suited function undertaken rarely all. good illustration point. Whether "protects corporations," 86-97, incumbent seems me highly debatable question, extraordinary constitutionality depend answer. says entrenched less "putative benefit" know what qualifies us judgment—or related how achieving objective—or ultimate (and ineffable) whether, given importance-level x, effectiveness-level y, worth "outweighed" impact-on-commerce z. One commentator mean declare threat multiple nonetheless "balancing" test. he correct, ought be. governs interests, survive promotes welfare industrial stagnation. Beyond invalidity. 61 reach entering debate statutes. antipre-emption Securities 1934, 78bb(a), contains "shall commission (or agency officer performing like functions) security insofar chapter thereunder." Unless serves function, language forecloses conflicting "purpose" opposed "provision." literal (because, perhaps, responsible matters enforcement responsibility legislation), refutes proposition meant displace purpose. And survive, surely States' codes peculiar pursued issue here through blue-sky pursue sacrosanct Prescribing state-chartered traditional never, my knowledge, intentionally interfered. far available concededly 62 share high estimation beneficence here. folly constitutional. latter. therefore concur 63 STEVENS II, dissenting. today upholds Chapter, predictably foreclose completely undermines effectively circumstances, selling stock. addition, ownership, follow lead therefore, inhibits prevent. today, affirmed. expressed Congress' sufficient informed choice problem adopts equates investors, focus group. undoubtedly helps terms, instances, prevent his premium. "furthe[r] protection," added), claims. discussing (1977), offerors: sponsors legislation plainly sensitive suggestion measure side contests; clear solely get needed constant focal point committee hearings." 30-31, 943-944. specifically shows "takeover serve useful function." 943. majority, 82, bidder.' Piper, design, frustrate investment decisions. Concededly, block thwart desires context deal states: "In it." Ante, 83. dispute helping maintain status quo. scheme balance, want deny 'the opportunities competitive bidding company,' namely, premium 113 Cong.Rec. 24666 (1967) (remarks Sen. Javits)." 633, 2636, 68 corporate-control fundamental Chapter: provisions, ever place. transactional nature, characterized involving "[T]his name, description characterization [a statute] legislature courts State,' impact Hughes Oklahoma, 441 322, 336, 1727, 1736, (1979) Lacoste Louisiana Dept. Conservation, 263 545, 186, 188, (1924)). circumstances leads Given sale Exchange, people buy daily. Yet, scheme, prospective purchaser precluded crosses Chapter's refuse countenance restraint trade. States, amicus curiae, written transferability way changing meaning. Since transfer [in ], restrains 'transfers party.' Commission Amici Curiae 26. agree. merely 94. sees trees forest. 71 Framers protectionism represents: 72 simple words Clause—'The Power .'—reflected central immediate calling Constitutional Convention: conviction succeed, Union avoid tendencies toward Balkanization plagued relations Colonies later Articles Confederation." Hughes, 325-326, 1730-1731. brief, admits goals notes offeror] remove State." 19. repeats brief: Statute (who community employees suppliers corporation) intentions liquidation removal 90. stockholders, control, archetype kind forbids. 74 above, inevitably "interstate market" securities, (1978), interferes market, 75 With due respect, dissent. thresholds higher 5% brings coverage 78n(d)(1). "Interested acquiror, officer, inside director "may direct election directors." 23-1-42-3. record date pursuant "interested meaning "exercise power" usually pass hands. (SEC) commences. seeks early issue—as acquirors will—the calendar commences, weeks purchased. "as promptly reasonably practicable meeting." 23-1-42-8(a). likely obligation delayed sending passed. suggest 23-1-42-9(b)(1) record. 6; 2-3, 5. disputes 29, provides: "[T]he by: group separately proposal cast holders outstanding separate proposed would, fully carried out, described [Indiana 23-1-38-4(a) (describing organization) ]." section clause specifies groups unnecessary appropriate section. statement" describing, identity 23-1-42-6. associated moot, still affirm, continue unconstitutional. Settlement Agreement, 7, par. 12, reprinted letter Counsel Joseph Spaniol, Jr., Clerk 1987). issue, 630-640, 2634-2640, BURGER BLACKMUN. Two disagreed conclusion. 646-647, 2642-2643 (POWELL, part); 655, 2647 (STEVENS, question. (O'CONNOR, 664, 2652 (MARSHALL, dissenting); 667, 2653 finds 23-1-17-3(b), grants strategic reluctant expensive steps efforts subjected requirements. option months enactment interim during automatically. short duration, offered transition significance. added offeror, costs meetings rights, 23-1-42-7(a). fairly charged pays holds discuss offeror—who official position corporation—desires Of course, makes deters somewhat, reasonable alter significant way. deliberate merits accord Although appear spoken authoritatively point, similar uncommon. Hanson Trust recently SCM "lockup option" diminished value Corporation. PLC, HSCM ML L.B.O., 81 264, 272, adequate extra weeks, "free rein defensive diminish shares." 37. contention. unlikely incur liability Neither suffer mismanagement officers Cf. Cort Ash, 422 66, 84, 2090-2091, (1975). except Arkansas California classification office. 8.06, 830 (3d ed., Supp.1986). "Cumulative means devised minorities method assures minority, sufficiently purposeful cohesive, roughly proportionate minority's size. achieved permitting total candidate board, distribute candidates multiplied elected)." comment. 7.28, pp. 675-677 Numerous Specified assets. 79; 12.02. staggered years abrupt management. 37; 8.06. Various classes differences dividends liquidation. 15; 6.01(c). Provisions 7.28; supra. Corporations restrictions payment ensure ratios liabilities maintained bonds notes. restrict dividends); 6.40 Where incorporation, alike wherever reside domiciled. unusual partnership consent owners. Uniform Partnership U.L.A. 353 (1969); Limited (1916 draft), 603 702, 704 (1976 259, 261 provisions—in States—bear resemblance case. demerits generalizations qualification. diversification. conglomerate repetitive otherwise divergent literature—and debated Congress—reflect reality vary widely. situations cash prior Clause—regardless commerce—because purely "private" activity beyond grounds, occasion consider argument.

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