Court Opinion

ID: 8960260
Source: CourtListenerOpinion
Date Created: 2022-11-27 09:40:16.673855+00
Date Added: 2024-06-11T17:10:11.653707
License: Public Domain

KENNEDY, Circuit Judge,
dissenting.
Because I believe it is clear that Ohio has standing to contest the district court decision that the Ohio statute is unconstitutional on its face and as applied to this case, I cannot agree that the case may be mooted by the other parties’ resolution of their dispute. “[A] State clearly has a legitimate interest in the continued enforceability of its own statutes.” Maine v. Taylor, 477 U.S. 131, 137, 106 S.Ct. 2440, 2447, 91 L.Ed. 2d 110 (1985). Ohio has indicated it intends to enforce the act against Fleet. I would, therefore, reach the merits of the case.
The Supreme Court remanded our prior decision in this case for reconsideration in light of CTS Corp. v. Dynamics Corp. of America, — U.S.-, 107 S.Ct. 1637, 95 L.Ed.2d 67 (1987). In CTS the Court held *725that Indiana’s take-over statute, Ind.Code § 28-1-42-1 et seq, (Supp.1986), was not preempted by the Williams Act and did not violate the Commerce Clause. The majority concluded that the Indiana statute, which restricted voting rights on shares purchased by an offeror until a shareholder meeting fifty days after the commencement of the tender offer, did not prohibit an offeror from consummating an offer on the twentieth business day, the earliest day permitted under applicable federal regulations under the Williams Act. 17 CFR 240.14e-1(a) (1986). The Court pointed out that the Indiana Act did not preclude an offeror from purchasing shares as soon as federal law permits. 107 S.Ct. at 1647. It noted “that the Act does not prohibit any entity — resident or nonresident — from offering to purchase, or from purchasing shares in Indiana corporations...." Id. at 1662. The dissenting justices argued that the practical impact of the restriction on voting rights was to effectively preclude a prospective purchaser from purchasing shares and out-of-state stockholders from selling their stock.
It seems to me that the key aspect of Indiana’s statute, which kept it from running afoul of the Commerce Clause was that it did not restrict sales of stock in interstate commerce, but merely regulated rights of shareholders and their corporations. In this case, however, the Ohio statute prohibits shareholders from selling “control shares” to a tender offeror in interstate commerce. The Ohio Act thus goes beyond Indiana’s legitimate attempt to regulate the right of a shareholder to participate in the administration of the affairs of a corporation; it prohibits an out-of-state shareholder from selling stock to another shareholder. It is difficult to see what interest Ohio could have in prohibiting a New York shareholder from selling his shares to a New Jersey resident. Ohio’s argument that there is no practical difference between restricting voting rights and prohibiting the transfer of shares was rejected by the majority in CTS
The Ohio Act also lacks another crucial requirement of the Indiana statute, Ohio shareholders. In distinguishing Edgar v. MITE, 457 U.S. 624, 106 S.Ct. 2629, 78 L.Ed.2d 269 (1982), the Court in CTS noted that “unlike the Illinois statute in MITE, the Indiana Act applies only to corporations that have a substantial number of shareholders in Indiana,” whom Indiana undisputahly hag an interest in protecting. 107 S.Ct. at 1652. In contrast, the Ohio statute here does not require that any Ohio shareholder be affected for the statute to be invoked. The only requirements are incorporation in Ohio, and principal place of business, principal executive officers, or substantial assets in the state. O.R.C. § 1701.01(Y).
I would hold, therefore, that the Ohio Act is preempted by the Williams Act and that it violates the Commerce Clause.