Cts Corp. v. Dynamics Corp. Of America, 481 U.S. 69 (1987)
CTS Corp. v. Dynamics Corporation of America
No. 86-71
Argued March 2, 1987
Decided April 21, 1987 *
481 U.S. 69
APPEAL FROM THE UNITED STATES COURT OF APPEALS FOR
THE SEVENTH CIRCUIT
Syllabus
The federal Williams Act and implementing regulations govern hostile corporate stock tender offers by requiring, inter alia, that offers remain open for at least 20 business days. An Indiana Act applies to certain business corporations chartered in Indiana that have specified levels of shares or shareholders within the State and that opt into the Act’s protection. The Indiana Act provides that the acquisition of "control shares" in such a corporation -- shares that, but for the Act, would bring the acquiring entity’s voting power to or above certain threshold levels -- does not include voting rights unless a majority of all preexisting disinterested shareholders so agree at their next regularly scheduled meeting. However, the stock acquiror can require a special meeting within 50 days by following specified procedures. Appellee Dynamics Corporation announced a tender offer that would have raised its ownership interest in CTS Corporation above the Indiana Act’s threshold. Dynamics also filed suit in Federal District Court alleging federal securities violations by CTS. After CTS opted into the Indiana Act, Dynamics amended its complaint to challenge the Act’s validity. The District Court granted Dynamics’ motion for declaratory relief, ruling that the Act is preempted by the Williams Act, and violates the Commerce Clause. The Court of Appeals affirmed, adopting the holding of the plurality opinion in Edgar v. MITE Corp., 457 U.S. 624, that the Williams Act preempts state statutes that upset the balance between target company management and a tender offeror. The court based its preemption finding on the view that the Indiana Act, in effect, imposes at least a 50-day delay on the consummation of tender offers, and that this conflicts with the minimum 20-day, hold-open period under the Williams Act. The court also held that the state Act violates the Commerce Clause, since it deprives nonresidents of the valued opportunity to accept tender offers from other nonresidents, and that it violates the conflict-of-laws "internal affairs" doctrine in that it has a direct, intended, and substantial effect on the interstate market in securities and corporate control.
Held:
1. The Indiana Act is consistent with the provisions and purposes of the Williams Act, and is not preempted thereby. Pp. 78-87.
(a) The Indiana Act protects independent shareholders from the coercive aspects of tender offers by allowing them to vote as a group, and thereby furthers the Williams Act’s basic purpose of placing investors on an equal footing with takeover bidders. Moreover, the Indiana Act avoids the problems the plurality discussed in MITE, since it does not give either management or the offeror an advantage in communicating with shareholders, nor impose an indefinite delay on offers, nor allow the state government to interpose its views of fairness between willing buyers and sellers. Thus, the Act satisfies even the MITE plurality’s broad interpretation of the Williams Act. Pp. 81-84.
(b) The possibility that the Indiana Act will delay some tender offers does not mandate preemption. The state Act neither imposes an absolute 50-day delay on the consummation of tender offers nor precludes offerors from purchasing shares as soon as federal law permits. If an adverse shareholder vote is feared, the tender offer can be conditioned on the shares’ receiving voting rights within a specified period. Furthermore, even assuming that the Indiana Act does impose some additional delay, the MITE plurality found only that "unreasonable" delays conflict with the Williams Act. Here, it cannot be said that a 50-day delay is unreasonable, since that period falls within a 60-day period Congress established for tendering shareholders to withdraw their unpurchased shares. If the Williams Act were construed to preempt any state statute that caused delays, it would preempt a variety of state corporate laws of hitherto unquestioned validity. The longstanding prevalence of state regulation in this area suggests that, if Congress had intended to preempt all such state laws, it would have said so. Pp. 84-87.
2. The Indiana Act does not violate the Commerce Clause. The Act’s limited effect on interstate commerce is justified by the State’s interests in defining attributes of its corporations’ shares, and in protecting shareholders. Pp. 87-94.
(a) The Act does not discriminate against interstate commerce, since it has the same effect on tender offers whether or not the offeror is an Indiana domiciliary or resident. That the Act might apply most often to out-of-state entities who launch most hostile tender offers is irrelevant, since a claim of discrimination is not established by the mere fact that the burden of a state regulation falls on some interstate companies. Pp. 87-88.
(b) The Act does not create an impermissible risk of inconsistent regulation of tender offers by different States. It simply and evenhandedly exercises the State’s firmly established authority to define the voting rights of shareholders in Indiana corporations, and thus subjects such corporations to the law of only one State. Pp. 88-89.
(c) The Court of Appeals’ holding that the Act unconstitutionally hinders tender offers ignores the fact that a State, in its role as overseer of corporate governance, enacts laws that necessarily affect certain aspects of interstate commerce, particularly with respect to corporations with shareholders in other States. A State has interests in promoting stable relationships among parties involved in its corporations, and in ensuring that investors have an effective voice in corporate affairs. The Indiana Act validly furthers these interests by allowing shareholders collectively to determine whether the takeover is advantageous to them. The argument that Indiana has no legitimate interest in protecting nonresident shareholders is unavailing, since the Act applies only to corporations incorporated in Indiana that have a substantial number of shareholders in the State. Pp. 89-93.
(d) Even if the Act should decrease the number of successful tender offers for Indiana corporations, this would not offend the Commerce Clause. The Act does not prohibit any resident or nonresident from offering to purchase, or from purchasing, shares in Indiana corporations, or from attempting thereby to gain control. It only provides regulatory procedures designed for the better protection of the corporations’ shareholders. The Commerce Clause does not protect the particular structure or methods of operation in a market. Pp. 93-94.
794 F.2d 250, reversed.
POWELL, J., delivered the opinion of the Court, in which REHNQUIST, C.J., and BRENNAN, MARSHALL, and O’CONNOR, JJ., joined, and in Parts I, III-A, and III-B of which SCALIA, J., joined. SCALIA, J., filed an opinion concurring in part and concurring in the judgment, post, p. 94. WHITE, J., filed a dissenting opinion, in Part II of which BLACKMUN and STEVENS, JJ., joined, post, p. 97.