The Illinois Business Take-Over Act requires a tender offeror to
notify the Secretary of State and the target company of its intent
to make a tender offer and the terms of the offer 20 days before
the offer becomes effective. During that time, the offeror may not
communicate its offer to the shareholders, but the target company
is free to disseminate information to its shareholders concerning
the impending offer. The Act also requires any takeover offer to be
registered with the Secretary of State. A target company is defined
as a corporation of which Illinois shareholders own 10% of the
class of securities subject to the takeover offer or for which any
two of the following conditions are met: the corporation has its
principal office in Illinois, is organized under Illinois laws, or
has at least 10% of its stated capital and paid-in surplus
represented within the State. An offer becomes registered 20 days
after a registration statement is filed with the Secretary of State
unless he calls a hearing to adjudicate the fairness of the offer.
Appellee MITE Corp., a corporation organized under Delaware laws
with its principal office in Connecticut, initiated a tender offer
for all outstanding shares of Chicago Rivet & Machine Co., an
Illinois corporation, by filing with the Securities and Exchange
Commission the schedule required by the Williams Act. MITE,
however, did not comply with the Illinois Act, and brought an
action in Federal District Court seeking a declaratory judgment
that the Illinois Act was preempted by the Williams Act and
violated the Commerce Clause, and also seeking injunctive relief.
The District Court issued a preliminary injunction prohibiting
enforcement of the Illinois Act against MITE's tender offer. MITE
then published its offer. Subsequently, the District Court issued
the requested declaratory judgment and a permanent injunction.
Shortly thereafter, MITE and Chicago Rivet entered into an
agreement whereby both MITE's tender offer and an offer made by
Chicago Rivet before the District Court entered its judgment were
withdrawn and MITE was given a specified time to make another
offer. Ultimately, MITE decided not to make another offer. The
Court of Appeals affirmed the District Court.
Held: The judgment is affirmed.
633 F.2d 486, affirmed.
Page 457 U. S. 625
JUSTICE WHITE delivered the opinion of the Court with respect to
Parts I, II, and V-B, concluding that:
1. The case is not moot. Because the Secretary of State has
indicated his intention to enforce the Illinois Act against MITE, a
reversal of the District Court's judgment would expose MITE to
civil and criminal liability for making an offer in violation of
the Act. P.
457 U. S.
630.
2. The Illinois Act is unconstitutional under the Commerce
Clause, because it imposes burdens on interstate commerce that are
excessive in light of the local interests the Act purports to
further.
Pike v. Bruce Church, Inc., 397 U.
S. 137. Illinois' asserted interests in protecting
resident security holders and regulating the internal affairs of
companies incorporated under Illinois law are insufficient to
outweigh such burdens. Pp.
457 U. S. 643-646.
WHITE, J., delivered an opinion, joined in its entirety by
BURGER, C.J., Parts I, II, and V-B of which are the opinion of the
Court. BLACKMUN, J., joined Parts I, II, III, and IV. POWELL, J.,
joined Parts I and V-B. STEVENS and O'CONNOR, JJ., joined Parts I,
II, and V. POWELL, J., filed an opinion concurring in part,
post, p.
457 U. S. 646.
STEVENS, J., filed an opinion concurring in part and concurring in
the judgment,
post, p.
457 U. S. 647.
O'CONNOR, J., filed an opinion concurring in part,
post,
p. 65. MARSHALL, J., filed a dissenting opinion, in which BRENNAN,
J., joined,
post, p.
457 U. S. 655.
REHNQUIST, J., filed a dissenting opinion,
post, p.
457 U. S.
664.
Page 457 U. S. 626
JUSTICE WHITE delivered an opinion, Parts I, II, and V-B of
which are the opinion of the Court.
The issue in this case is whether the Illinois Business
Take-Over Act, Ill.Rev.Stat., ch. 121 1/2, � 137.51
et
seq. (1979), is unconstitutional under the Supremacy and
Commerce Clauses of the Federal Constitution.
I
Appellee MITE Corp. and its wholly owned subsidiary, MITE
Holdings, Inc., are corporations organized under the laws of
Delaware with their principal executive offices in Connecticut.
Appellant James Edgar is the Secretary of State of Illinois, and is
charged with the administration and enforcement of the Illinois
Act. Under the Illinois Act, any takeover offer [
Footnote 1] for the shares of a target
company must be
Page 457 U. S. 627
registered with the Secretary of State. Ill.Rev.Stat., ch. 121
1/2, � 137.54.A (1979). A target company is defined as a
corporation or other issuer of securities of which shareholders
located in Illinois own 10% of the class of equity securities
subject to the offer, or for which any two of the following three
conditions are met: the corporation has its principal executive
office in Illinois, is organized under the laws of Illinois, or has
at least 10% of its stated capital and paid-in surplus represented
within the State. � 37.52-10. An offer becomes registered 20 days
after a registration statement is filed with the Secretary unless
the Secretary calls a hearing. � 137.54.E. The Secretary may call a
hearing at any time during the 20-day waiting period to adjudicate
the substantive fairness of the offer if he believes it is
necessary to protect the shareholders of the target company, and a
hearing must be held if requested by a majority of a target
company's outside directors or by Illinois shareholders who own 10%
of the class of securities subject to the offer. � 137.57.A. If the
Secretary does hold a hearing, he is directed by the statute to
deny registration to a tender offer if he finds that it
"fails to provide full and fair disclosure to the offerees of
all material information concerning the take-over offer, or that
the take-over offer is inequitable or would work or tend to work a
fraud or deceit upon the offerees. . . ."
� 137.57.E.
On January 19, 1979, MITE initiated a cash tender offer for all
outstanding shares of Chicago Rivet & Machine Co., a publicly
held Illinois corporation, by filing a Schedule 141 with the
Securities and Exchange Commission in order to comply with the
Williams Act. [
Footnote 2] The
Schedule 141 indicated
Page 457 U. S. 628
that MITE was willing to pay $28 per share for any and all
outstanding shares of Chicago Rivet, a premium of approximately $4
over the then-prevailing market price. MITE did not comply with the
Illinois Act, however, and commenced this litigation on the same
day by filing an action in the United States District Court for the
Northern District of Illinois. The complaint asked for a
declaratory judgment that the Illinois Act was preempted by the
Williams Act and violated the Commerce Clause. In addition, MITE
sought a temporary restraining order and preliminary and permanent
injunctions prohibiting the Illinois Secretary of State from
enforcing the Illinois Act.
Chicago Rivet responded three days later by bringing suit in
Pennsylvania, where it conducted most of its business, seeking to
enjoin MITE from proceeding with its proposed tender offer on the
ground that the offer violated the Pennsylvania Takeover Disclosure
Law, Pa.Stat.Ann., Tit. 70, § 71
et seq. (Purdon
Supp.1982-1983). After Chicago Rivet's efforts to obtain relief in
Pennsylvania proved unsuccessful, [
Footnote 3] both Chicago Rivet and the Illinois Secretary
of State
Page 457 U. S. 629
took steps to invoke the Illinois Act. On February 1, 1979, the
Secretary of State notified MITE that he intended to issue an order
requiring it to cease and desist further efforts to make a tender
offer for Chicago Rivet. On February 2, 1979, Chicago Rivet
notified MITE by letter that it would file suit in Illinois state
court to enjoin the proposed tender offer. MITE renewed its request
for injunctive relief in the District Court, and on February 2, the
District Court issued a preliminary injunction prohibiting the
Secretary of State from enforcing the Illinois Act against MITE's
tender offer for Chicago Rivet.
MITE then published its tender offer in the February 5 edition
of the Wall Street Journal. The offer was made to all shareholders
of Chicago Rivet residing throughout the United States. The
outstanding stock was worth over $23 million at the offering price.
On the same day, Chicago Rivet made an offer for approximately 40%
of its own shares at $30 per share. [
Footnote 4] The District Court entered final judgment on
February 9, declaring that the Illinois Act was preempted by the
Williams Act and that it violated the Commerce Clause. Accordingly,
the District Court permanently enjoined enforcement of the Illinois
statute against MITE. Shortly after final judgment was entered,
MITE and Chicago Rivet entered into an agreement whereby both
tender offers were withdrawn and MITE was given 30 days to examine
the books and records of Chicago Rivet. Under the agreement, MITE
was either to make a tender offer of $31 per share before
Page 457 U. S. 630
March 12, 1979, which Chicago Rivet agreed not to oppose, or
decide not to acquire Chicago Rivet's shares or assets. App. to
Brief for Appellees 1a-4a. On March 2, 1979, MITE announced its
decision not to make a tender offer.
The United States Court of Appeals for the Seventh Circuit
affirmed
sub nom. MITE Corp. v. Dixon, 633 F.2d 486
(1980). It agreed with the District Court that several provisions
of the Illinois Act are preempted by the Williams Act and that the
Illinois Act unduly burdens interstate commerce in violation of the
Commerce Clause. We noted probable jurisdiction, 451 U.S. 968
(1981), and now affirm.
II
The Court of Appeals specifically found that this case was not
moot, 633 F.2d at 490, reasoning that, because the Secretary has
indicated he intends to enforce the Act against MITE, a reversal of
the judgment of the District Court would expose MITE to civil and
criminal liability [
Footnote 5]
for making the February 5, 1979, offer in violation of the Illinois
Act. We agree. It is urged that the preliminary injunction issued
by the District Court is a complete defense to civil or criminal
penalties. While, as JUSTICE STEVENS' concurrence indicates, that
is not a frivolous question by any means, it is an issue to be
decided when and if the Secretary of State initiates an action.
That action would be foreclosed if we agree with the Court of
Appeals that the Illinois Act is unconstitutional. Accordingly, the
case is not moot.
III
We first address the holding that the Illinois Take-Over Act is
unconstitutional under the Supremacy Clause. We note at the outset
that, in passing the Williams Act, which is
Page 457 U. S. 631
an amendment to the Securities Exchange Act of 1934, Congress
did not also amend § 28(a) of the 1934 Act, 15 U.S.C. § 78bb(a).
[
Footnote 6] In pertinent part,
§ 28(a) provides as follows:
"Nothing in this title shall affect the jurisdiction of the
securities commission (or any agency or officer performing like
functions) of any State over any security or any person insofar as
it does not conflict with the provisions of this title or the rules
and regulations thereunder."
48 Stat. 903. Thus, Congress did not explicitly prohibit States
from regulating takeovers; it left the determination whether the
Illinois statute conflicts with the Williams Act to the courts. Of
course, a state statute is void to the extent that it actually
conflicts with a valid federal statute; and
"[a] conflict will be found 'where compliance with both federal
and state regulations is a physical impossibility . . . ,'
Florida Lime & Avocado Growers, Inc. v. Paul,
373 U. S.
132,
373 U. S. 142-143 (1963), or
where the state 'law stands as an obstacle to the accomplishment
and execution of the full purposes and objectives of Congress.'
Hines v. Davidowitz, 312 U. S. 52,
312 U. S.
67 (1941);
Jones v. Rath Packing Co.,
[
430 U.S.
519]
430 U. S. 526,
430 U. S.
540-541 [(1977)].
Accord, De Canas v. Bica,
424 U. S.
351,
424 U. S. 363 (1976)."
Ray v. Atlantic Richfield Co., 435 U.
S. 151,
435 U. S. 158
(1978). Our inquiry is further narrowed in this case, since there
is no contention that it would be impossible to comply with
both
Page 457 U. S. 632
the provisions of the Williams Act and the more burdensome
requirements of the Illinois law. The issue thus is, as it was in
the Court of Appeals, whether the Illinois Act frustrates the
objectives of the Williams Act in some substantial way.
The Williams Act, passed in 1968, was the congressional response
to the increased use of cash tender offers in corporate
acquisitions, a device that had "removed a substantial number of
corporate control contests from the reach of existing disclosure
requirements of the federal securities laws."
Piper v.
Chris-Craft Industries, Inc., 430 U. S.
1,
430 U. S. 22
(1977). The Williams Act filled this regulatory gap. The Act
imposes several requirements. First, it requires that, upon the
commencement of the tender offer, the offeror file with the SEC,
publish or send to the shareholders of the target company, and
furnish to the target company detailed information about the offer.
15 U.S.C. § 78n(d)(1); 17 CFR § 240.24d-3 (1981). The offeror must
disclose information about its background and identity; the source
of the funds to be used in making the purchase; the purpose of the
purchase, including any plans to liquidate the company or make
major changes in its corporate structure; and the extent of the
offeror's holdings in the target company. 15 U.S.C. § 78m(d)(1)
(1976 ed., Supp. IV); 17 CFR § 240.13d-1 (1981).
See also
n 2,
supra. Second,
stockholders who tender their shares may withdraw them during the
first 7 days of a tender offer and, if the offeror has not yet
purchased their shares, at any time after 60 days from the
commencement of the offer. 15 U.S.C. § 78n(d)(5). [
Footnote 7] Third, all shares tendered must
be purchased for the same price; if an offering price is increased,
those who have already tendered receive the benefit of the
increase. 15 U.S.C. § 78n(d)(7). [
Footnote 8]
Page 457 U. S. 633
There is no question that, in imposing these requirements,
Congress intended to protect investors.
Piper v. Chris-Craft
Industries, Inc., supra, at
430 U. S. 35;
Rondeau v. Mosinee Paper Corp., 422 U. S.
49,
422 U. S. 58
(1975); S.Rep. No. 550, 90th Cong., 1st Sess., 3-4 (1967) (Senate
Report). But it is also crystal clear that a major aspect of the
effort to protect the investor was to avoid favoring either
management or the takeover bidder. As we noted in
Piper,
the disclosure provisions originally embodied in S. 2731 "were
avowedly pro-management in the target company's efforts to defeat
takeover bids." 430 U.S. at
430 U. S. 30. But
Congress became convinced
"that takeover bids should not be discouraged, because they
serve a useful purpose in providing a check on entrenched but
inefficient management."
Senate Report at 3. [
Footnote
9] It also became apparent that entrenched management was often
successful in defeating takeover attempts. As the legislation
evolved, therefore, Congress disclaimed any "intention to provide a
weapon for management to discourage takeover bids,"
Rondeau v.
Mosinee Paper Corp., supra, at
422 U. S. 58,
and expressly embraced a policy of neutrality. As Senator Williams
explained: "We have taken extreme care to avoid tipping the scales
either in favor of management or in favor of the person making the
takeover bids." 113 Cong.Rec. 24664 (1967). This policy of
"evenhandedness,"
Piper v. Chris-Craft Industries, Inc.,
supra, at
430 U. S. 31,
represented a conviction that neither side in the contest should be
extended additional advantages
vis-a-vis the investor,
who, if furnished with adequate information, would be in a position
to make his
Page 457 U. S. 634
own informed choice. We, therefore, agree with the Court of
Appeals that Congress sought to protect the investor not only by
furnishing him with the necessary information but also by
withholding from management or the bidder any undue advantage that
could frustrate the exercise of an informed choice. 633 F.2d at
496.
To implement this policy of investor protection while
maintaining the balance between management and the bidder, Congress
required the latter to file with the Commission and furnish the
company and the investor with all information adequate to the
occasion. With that filing, the offer could go forward, stock could
be tendered and purchased, but a stockholder was free within a
specified time to withdraw his tendered shares. He was also
protected if the offer was increased. Looking at this history as a
whole, it appears to us, as it did to the Court of Appeals, that
Congress intended to strike a balance between the investor,
management, and the takeover bidder. The bidder was to furnish the
investor and the target company with adequate information, but
there was no "inten[tion] to do . . . more than give incumbent
management an opportunity to express and explain its position."
Rondeau v. Mosinee Paper Corp., supra, at
422 U. S. 58.
Once that opportunity was extended, Congress anticipated that the
investor, if he so chose, and the takeover bidder should be free to
move forward within the time frame provided by Congress.
IV
The Court of Appeals identified three provisions of the Illinois
Act that upset the careful balance struck by Congress, and which
therefore stand as obstacles to the accomplishment and execution of
the full purposes and objectives of Congress. We agree with the
Court of Appeals in all essential respects.
A
The Illinois Act requires a tender offeror to notify the
Secretary of State and the target company of its intent to make
a
Page 457 U. S. 635
tender offer and the material terms of the offer 20 business
days before the offer becomes effective. Ill.Rev.Stat., ch. 121
1/2, �� 137.54.E, 137.54.B (1979). During that time, the offeror
may not communicate its offer to the shareholders. � 137.54.A.
Meanwhile, the target company is free to disseminate information to
its shareholders concerning the impending offer. The contrast with
the Williams Act is apparent. Under that Act, there is no
precommencement notification requirement; the critical date is the
date a tender offer is "first published or sent or given to
security holders." 15 U.S.C. § 78n(d)(1).
See also 17 CFR
§ 240.14d-2 (1981).
We agree with the Court of Appeals that, by providing the target
company with additional time within which to take steps to combat
the offer, the precommencement notification provisions furnish
incumbent management with a powerful tool to combat tender offers,
perhaps to the detriment of the stockholders who will not have an
offer before them during this period. [
Footnote 10] These consequences are precisely what
Congress determined should be avoided, and, for this reason, the
precommencement notification provision frustrates the objectives of
the Williams Act.
It is important to note in this respect that, in the course of
events leading to the adoption of the Williams Act, Congress
several times refused to impose a precommencement disclosure
requirement. In October 1965, Senator Williams introduced S. 2731,
a bill which would have required a bidder to notify the target
company and file a public statement with the Securities and
Exchange Commission at least 20 days before commencement of a cash
tender offer for more than 5% of a class of the target company's
securities. 111 Cong.Rec. 28259 (1965). The Commission commented on
the bill and stated that "the requirement of a 20-day advance
notice to the issuer and the Commission is unnecessary for the
protection of security holders. . . ." 112 Cong.Rec.19005
(1966).
Page 457 U. S. 636
Senator Williams introduced a new bill in 1967, S. 510, which
provided for a confidential filing by the tender offeror with the
Commission five days prior to the commencement of the offer. S. 510
was enacted as the Williams Act after elimination of the advance
disclosure requirement. As the Senate Report explained:
"At the hearings, it was urged that this prior review was not
necessary, and in some cases might delay the offer when time was of
the essence. In view of the authority and responsibility of the
Securities and Exchange Commission to take appropriate action in
the event that inadequate or misleading information is disseminated
to the public to solicit acceptance of a tender offer, the bill as
approved by the committee requires only that the statement be on
file with the Securities and Exchange Commission at the time the
tender offer is first made to the public."
Senate Report at 4. Congress rejected another precommencement
notification proposal during deliberations on the 1970 amendments
to the Williams Act. [
Footnote
11]
B
For similar reasons, we agree with the Court of Appeals
Page 457 U. S. 637
that the hearing provisions of the Illinois Act frustrate the
congressional purpose by introducing extended delay into the tender
offer process. The Illinois Act allows the Secretary of State to
call a hearing with respect to any tender offer subject to the Act,
and the offer may not proceed until the hearing is completed.
Ill.Rev.Stat., ch. 121 1/2, �� 137.57.A and B (1979). The Secretary
may call a hearing at any time prior to the commencement of the
offer, and there is no deadline for the completion of the hearing.
�� 137.57.C and D. Although the Secretary is to render a decision
within 15 days after the conclusion of the hearing, that period may
be extended without limitation. Not only does the Secretary of
State have the power to delay a tender offer indefinitely, but
incumbent management may also use the hearing provisions of the
Illinois Act to delay a tender offer. The Secretary is required to
call a hearing if requested to do so by, among other persons, those
who are located in Illinois
"as determined by post office address as shown on the records of
the target company and who hold of record or beneficially, or both,
at least 10% of the outstanding shares of any class of equity
securities which is the subject of the take-over offer."
� 137.57.A. Since incumbent management in many cases will
control, either directly or indirectly, 10% of the target company's
shares, this provision allows management to delay the commencement
of an offer by insisting on a hearing. As the Court of Appeals
observed, these provisions potentially afford management a
"powerful weapon to stymie indefinitely a takeover." 633 F.2d at
494. [
Footnote 12] In
enacting the Williams Act, Congress itself "recognized that delay
can seriously impede a tender offer," and sought to avoid it.
Great
Page 457 U. S. 638
Western United Corp. v. Kidwell, 577 F.2d 1256, 1277
(CA5 1978); Senate Report at 4. [
Footnote 13]
Congress reemphasized the consequences of delay when it enacted
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub.L.
94-435, 90 Stat. 1397, 15 U.S.C. § 12
et seq.
"[I]t is clear that this short waiting period [the 10-day period
for proration provided for by § 14(d)(6) of the Securities Exchange
Act, which applies only after a tender offer is commenced] was
founded on congressional concern that a longer delay might unduly
favor the target firm's incumbent management, and permit them to
frustrate many pro-competitive cash tenders. This ten-day waiting
period thus underscores the basic purpose of the Williams Act -- to
maintain a neutral policy towards cash tender offers, by avoiding
lengthy delays that might discourage their chances for
success."
H.R.Rep. No. 94-1373, p. 12 (1976). [
Footnote 14]
Page 457 U. S. 639
As we have said, Congress anticipated that investors and the
takeover offeror would be free to go forward without unreasonable
delay. The potential for delay provided by the hearing provisions
upset the balance struck by Congress by favoring management at the
expense of stockholders. We therefore agree with the Court of
Appeals that these hearing provisions conflict with the Williams
Act.
C
The Court of Appeals also concluded that the Illinois Act is
preempted by the Williams Act insofar as it allows the Secretary of
State of Illinois to pass on the substantive fairness of a tender
offer. Under � 137.57.E of the Illinois law, the Secretary is
required to deny registration of a takeover offer if he finds that
the offer "fails to provide full and fair disclosure to the
offerees . . .
or that the take-over offer is inequitable
. . ." (emphasis added). [
Footnote 15] The Court of Appeals understood the Williams
Act and its legislative history to indicate that Congress intended
for investors to be free to make their own decisions. We agree.
Both the House and Senate Reports observed that the Act was
"designed to make the relevant facts known so that shareholders
have a fair opportunity to make their decision." H.R.Rep. No. 1711,
90th Cong.,
Page 457 U. S. 640
2d Sess., 4 (1968); Senate Report at 3. Thus, as the Court of
Appeals said, "[t]he state thus offers investor protection at the
expense of investor autonomy -- an approach quite in conflict with
that adopted by Congress." 633 F.2d at 494.
V
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.
"[A]t least since
Cooley v. Board of Wardens,
12 How. 299 (1852), it has been clear that 'the Commerce Clause . .
. , even without implementing legislation by Congress, is a
limitation upon the power of the States.'"
Great Atlantic & Pacific Tea Co. v. Cottrell,
424 U. S. 366,
424 U. S.
370-371 (1976), quoting
Freeman v. Hewitt,
329 U. S. 249,
329 U. S. 252
(1946).
See also Lewis v. BT Investment Managers, Inc.,
447 U. S. 27,
447 U. S. 35
(1980). Not every exercise of state power with some impact on
interstate commerce is invalid. A state statute must be upheld if
it
"regulates evenhandedly to effectuate a legitimate local public
interest, and its effects on interstate commerce are only
incidental . . . unless the burden imposed on such commerce is
clearly excessive in relation to the putative local benefits."
Pike v. Bruce Church, Inc., 397 U.
S. 137,
397 U. S. 142
(1970), citing
Huron Cement Co. v. Detroit, 362 U.
S. 440,
362 U. S. 443
(1960). The Commerce Clause, however, permits only incidental
regulation of interstate commerce by the States; direct regulation
is prohibited.
Shafer v. Farmers Grain Co., 268 U.
S. 189,
268 U. S. 199
(1925).
See also Pike v. Bruce Church, Inc., supra, at
397 U. S. 142.
The Illinois Act violates these principles for two reasons. First,
it directly regulates and prevents, unless its terms are satisfied,
interstate tender offers which, in turn, would generate interstate
transactions. Second, the burden the Act imposes on interstate
commerce is excessive in light of the local interests the Act
purports to further.
Page 457 U. S. 641
A
States have traditionally regulated intrastate securities
transactions, [
Footnote 16]
and this Court has upheld the authority of States to enact
"blue-sky" laws against Commerce Clause challenges on several
occasions.
Hall v. Geiger-Jones Co., 242 U.
S. 539 (1917);
Caldwell v. Sioux Falls Stock Yards
Co., 242 U. S. 559
(1917);
Merrick v. N.W. Halsey & Co., 242 U.
S. 568 (1917). The Court's rationale for upholding
blue-sky laws was that they only regulated transactions occurring
within the regulating States.
"The provisions of the law . . . apply to dispositions of
securities within the State, and while information of those issued
in other States and foreign countries is required to be filed . . .
, they are only affected by the requirement of a license of one who
deals with them within the State. . . . Such regulations affect
interstate commerce in [securities] only incidentally."
Hall v. Geiger-Jones Co., supra, at
242 U. S.
557-558 (citations omitted). Congress has also
recognized the validity of such laws governing intrastate
securities transactions in § 28(a) of the Securities Exchange Act,
15 U.S.C. § 78bb(a), a provision "designed to save state blue-sky
laws from preemption."
Leroy v. Great Western United
Corp., 443 U. S. 173,
443 U. S. 182,
n. 13 (1979).
The Illinois Act differs substantially from state blue-sky laws,
in that it directly regulates transactions which take place across
state lines, even if wholly outside the State of Illinois. A tender
offer for securities of a publicly held corporation is ordinarily
communicated by the use of the mails or other means of interstate
commerce to shareholders across the country and abroad. Securities
are tendered and transactions closed by similar means. Thus, in
this case, MITE
Page 457 U. S. 642
Corp., the tender offeror, is a Delaware corporation with
principal offices in Connecticut. Chicago Rivet is a publicly held
Illinois corporation with shareholders scattered around the
country, 27% of whom live in Illinois. MITE's offer to Chicago
Rivet's shareholders, including those in Illinois, necessarily
employed interstate facilities in communicating its offer, which,
if accepted, would result in transactions occurring across state
lines. These transactions would themselves be interstate commerce.
Yet the Illinois law, unless complied with, sought to prevent MITE
from making its offer and concluding interstate transactions not
only with Chicago Rivet's stockholders living in Illinois, but also
with those living in other States and having no connection with
Illinois. Indeed, the Illinois law, on its face, would apply even
if not a single one of Chicago Rivet's shareholders were a resident
of Illinois, since the Act applies to every tender offer for a
corporation meeting two of the following conditions: the
corporation has its principal executive office in Illinois, is
organized under Illinois laws, or has at least 10% of its stated
capital and paid-in surplus represented in Illinois. Ill.Rev.Stat.,
ch. 121 1/2 � 137.52-10(2) (1979). Thus the Act could be applied to
regulate a tender offer which would not affect a single Illinois
shareholder.
It is therefore apparent that the Illinois statute is a direct
restraint on interstate commerce, and that it has a sweeping
extraterritorial effect. Furthermore, if Illinois may impose such
regulations, so may other States; and interstate commerce in
securities transactions generated by tender offers would be
thoroughly stifled. In
Shafer v. Farmers Grain Co., supra,
at
268 U. S. 199,
the Court held that
"a state statute which, by its necessary operation, directly
interferes with or burdens [interstate] commerce is a prohibited
regulation and invalid, regardless of the purpose with which it was
enacted."
See also Hughes v. Alexandria Scrap Corp., 426 U.
S. 794,
426 U. S. 806
(1976). The Commerce Clause also precludes the application of a
state statute to commerce that takes place wholly outside of the
State's borders, whether or not the commerce has effects
Page 457 U. S. 643
within the State. In
Southern Pacific Co. v. Arizona,
325 U. S. 761,
325 U. S. 775
(1945), the Court struck down on Commerce Clause grounds a state
law where the "practical effect of such regulation is to control
[conduct] beyond the boundaries of the state. . . ." The limits on
a State's power to enact substantive legislation are similar to the
limits on the jurisdiction of state courts. In either case,
"any attempt 'directly' to assert extraterritorial jurisdiction
over persons or property would offend sister States and exceed the
inherent limits of the State's power."
Shaffer v. Heitner, 433 U. S. 186,
433 U. S. 197
(1977).
Because the Illinois Act purports to regulate directly and to
interdict interstate commerce, including commerce wholly outside
the State, it must be held invalid as were the laws at issue in
Shafer v. Farmers Grain Co. and
Southern
Pacific.
B
The Illinois Act is also unconstitutional under the test of
Pike v. Bruce Church, Inc., 397 U.S. at
397 U. S. 142,
for even when a state statute regulates interstate commerce
indirectly, the burden imposed on that commerce must not be
excessive in relation to the local interests served by the statute.
The most obvious burden the Illinois Act imposes on interstate
commerce arises from the statute's previously described nationwide
reach which purports to give Illinois the power to determine
whether a tender offer may proceed anywhere.
The effects of allowing the Illinois Secretary of State to block
a nationwide tender offer are substantial. Shareholders are
deprived of the opportunity to sell their shares at a premium. The
reallocation of economic resources to their highest valued use, a
process which can improve efficiency and competition, is hindered.
The incentive the tender offer mechanism provides incumbent
management to perform well so that stock prices remain high is
reduced.
See Easterbrook & Fischel, The Proper Role of
a Target's Management in Responding to a Tender Offer, 94
Harv.L.Rev.
Page 457 U. S. 644
1161, 1173-1174 (1981); Fischel, Efficient Capital Market
Theory, the Market for Corporate Control, and the Regulation of
Cash Tender Offers, 57 Texas L.Rev. 1, 5, 27-28, 15 (1978);
H.R.Rep. No. 94-1373, p. 12 (1976).
Appellant claims the Illinois Act furthers two legitimate local
interests. He argues that Illinois seeks to protect resident
security holders, and that the Act merely regulates the internal
affairs of companies incorporated under Illinois law. We agree with
the Court of Appeals that these asserted interests are insufficient
to outweigh the burdens Illinois imposes on interstate
commerce.
While protecting local investors is plainly a legitimate state
objective, the State has no legitimate interest in protecting
nonresident shareholders. Insofar as the Illinois law burdens
out-of-state transactions, there is nothing to be weighed in the
balance to sustain the law. We note, furthermore, that the Act
completely exempts from coverage a corporation's acquisition of its
own shares. Ill.Rev.Stat., ch. 121 1/2, � 137.52-9(4) (1979). Thus
Chicago Rivet was able to make a competing tender offer for its own
stock without complying with the Illinois Act, leaving Chicago
Rivet's shareholders to depend only on the protections afforded
them by federal securities law, protections which Illinois views as
inadequate to protect investors in other contexts. This distinction
is at variance with Illinois' asserted legislative purpose, and
tends to undermine appellant's justification for the burdens the
statute imposes on interstate commerce.
We are also unconvinced that the Illinois Act substantially
enhances the shareholders' position. The Illinois Act seeks to
protect shareholders of a company subject to a tender offer by
requiring disclosures regarding the offer, assuring that
shareholders have adequate time to decide whether to tender their
shares, and according shareholders withdrawal, proration, and equal
consideration rights. However, the Williams Act provides these same
substantive protections,
compare Ill.Rev.Stat., ch. 121
1/2, �� 137.59.C, D, and E (1979) (withdrawal,
Page 457 U. S. 645
proration, and equal consideration rights),
with 15
U.S.C. §§ 78n(d)(5), (6), and (7) and 17 CFR § 240.14d-7 (1981)
(same). As the Court of Appeals noted, the disclosures required by
the Illinois Act which go beyond those mandated by the Williams Act
and the regulations pursuant to it may not substantially enhance
the shareholders' ability to make informed decisions. 633 F.2d at
500. It also was of the view that the possible benefits of the
potential delays required by the Act may be outweighed by the
increased risk that the tender offer will fail due to defensive
tactics employed by incumbent management. We are unprepared to
disagree with the Court of Appeals in these respects, and conclude
that the protections the Illinois Act affords resident security
holders are, for the most part, speculative.
Appellant also contends that Illinois has an interest in
regulating the internal affairs of a corporation incorporated under
its laws. The internal affairs doctrine is a conflict of laws
principle which recognizes that only one State should have the
authority to regulate a corporation's internal affairs -- matters
peculiar to the relationships among or between the corporation and
its current officers, directors, and shareholders -- because
otherwise a corporation could be faced with conflicting demands.
See Restatement (Second) of Conflict of Laws § 302,
Comment b, pp. 307-308 (1971). That doctrine is of little use to
the State in this context. Tender offers contemplate transfers of
stock by stockholders to a third party, and do not themselves
implicate the internal affairs of the target company.
Great
Western United Corp. v. Kidwell, 577 F.2d at 1280, n. 53;
Restatement,
supra, § 302, Comment
e, p. 310.
Furthermore, the proposed justification is somewhat incredible,
since the Illinois Act applies to tender offers for any corporation
for which 10% of the outstanding shares are held by Illinois
residents, Ill.Rev.Stat., ch. 121 1/2, � 137. 52-10 (1979). The Act
thus applies to corporations that are not incorporated in Illinois
and have their principal place of business in other States.
Illinois has no interest
Page 457 U. S. 646
in regulating the internal affairs of foreign corporations. We
conclude with the Court of Appeals that the Illinois Act imposes a
substantial burden on interstate commerce which outweighs its
putative local benefits. It is accordingly invalid under the
Commerce Clause.
The judgment of the Court of Appeals is
Affirmed.
* THE CHIEF JUSTICE joins the opinion in its entirety; JUSTICE
BLACKMUN joins Parts I, II, III, and IV; JUSTICE POWELL joins Parts
I and V-B; and JUSTICE STEVENS and JUSTICE O'CONNOR join Parts I,
II, and V.
[
Footnote 1]
The Illinois Act defines "take-over offer" as "the offer to
acquire or the acquisition of any equity security of a target
company, pursuant to a tender offer. . . ." Ill.Rev.Stat., ch. 121
1/2, � 137.52-9 (1979).
"A tender offer has been conventionally understood to be a
publicly made invitation addressed to all shareholders of a
corporation to tender their shares for sale at a specified
price."
Note, The Developing Meaning of "Tender Offer" Under the
Securities Exchange Act of 1934, 86 Harv.L.Rev. 1250, 1251 (1973)
(footnotes omitted). The terms "tender offer" and "takeover offer"
are often used interchangeably.
[
Footnote 2]
The Williams Act, 82 Stat. 454, codified at 15 U.S.C. §§
78m(d)-(e) and 78n(d)-(f), added new §§ 13(d), 13(e), and 14(d)-(f)
to the Securities Exchange Act of 1934. Section 14(d)(1) of the
Securities Exchange Act requires an offeror seeking to acquire more
than 5% of any class of equity security by means of a tender offer
to first file a Schedule 14D-1 with the Securities and Exchange
Commission. The Schedule requires disclosure of the source of funds
used to purchase the target shares, past transactions with the
target company, and other material financial information about the
offeror. In addition, the offeror must disclose any antitrust or
other legal problems which might result from the success of the
offer. 17 CFR § 240.14d-100 (1981). Section 14(d)(1) requires the
offeror to publish or send a statement of the relevant facts
contained in the Schedule 14D-1 to the shareholders of the target
company.
In addition, § 13(d), added by the Williams Act, requires a
purchaser of any equity security registered pursuant to § 12 of the
Securities Exchange Act, 15 U.S.C. § 781, to file a Schedule 13D
with the Commission within 10 days after its purchases have
exceeded 5% of the outstanding shares of the security. Schedule 13D
requires essentially the same disclosures as required by Schedule
14D-1.
Compare 17 CFR § 240.13d-101 (1981)
with
17 CFR § 240.14d-100 (1981).
[
Footnote 3]
In addition to filing suit in state court, Chicago Rivet filed a
complaint with the Pennsylvania Securities Commission requesting
the Commission to enforce the Pennsylvania Act against MITE. On
January 31, 1979, the Pennsylvania Securities Commission decided
that it would not invoke the Pennsylvania Takeover Disclosure Law.
The next day, the United States District Court for the Western
District of Pennsylvania, to which MITE had removed the state court
action, denied Chicago Rivet's motion for a temporary restraining
order.
[
Footnote 4]
Chicago Rivet's offer for its own shares was exempt from the
requirements of the Illinois Act pursuant to Ill.Rev.Stat., ch. 121
1/2, � 137.52-9(4) (1979).
[
Footnote 5]
The Secretary of State may bring an action for civil penalties
for violations of the Illinois Act., Ill.Rev.Stat., ch. 121 1/2, �
137.65 (1979), and a person who willfully violates the Act is
subject to criminal prosecution. � 137.63.
[
Footnote 6]
There is no evidence in the legislative history that Congress
was aware of state takeover laws when it enacted the Williams Act.
When the Williams Act was enacted in 1968, only Virginia had a
takeover statute. The Virginia statute, Va.Code § 13.1-528 (1978),
became effective March 5, 1968; the Williams Act was enacted
several months later on July 19, 1968. Takeover statutes are now in
effect in 37 States. Sargent, On the Validity of State Takeover
Regulation: State Responses to
MITE and
Kidwell,
42 Ohio St.L.J. 689, 690, n. 7 (1981).
[
Footnote 7]
The 7-day withdrawal period contained in the Williams Act has
been extended to 15 business days by the Commission. 17 CFR §
240.14d-7(a)(1) (1981).
[
Footnote 8]
The Williams Act also provides that, when the number of shares
tendered exceeds the number of shares sought in the offer, those
shares tendered during the first 10 days of the offer must be
purchased on a
pro rata basis. 15 U.S.C. § 78n(d)(6). The
Act also contains a general antifraud provision, 15 U.S.C. §
78n(e), which has been interpreted to require disclosure of
material information known to the offeror even if disclosure were
not otherwise required.
See, e.g., Sonesta International Hotels
Corp. v. Wellington Associates, 483 F.2d 247, 250 (CA2
1973).
[
Footnote 9]
Congress also did not want to deny shareholders "the
opportunities which result from the competitive bidding for a block
of stock of a given company," namely, the opportunity to sell
shares for a premium over their market price. 113 Cong.Rec. 24666
(1967) (remarks of Sen. Javits).
[
Footnote 10]
See n 11 and
accompanying text,
infra.
[
Footnote 11]
H.R. 4285, 91st Cong., 2d Sess. (1970). The bill was not
reported out of the Subcommittee. Instead, the Senate amendments to
the Williams Act, which did not contain precommencement
notification provisions, were adopted. Pub.L. 9167, 84 Stat.
1497.
The Securities and Exchange Commission has promulgated detailed
rules governing the conduct of tender offers. Rule 14d-2(b), 17 CFR
§ 240.14d-2(b) (1981), requires that a tender offeror make its
offer effective within five days of publicly announcing the
material terms of the offer by disseminating specified information
to shareholders and filing the requisite documents with the
Commission. Otherwise, the offeror must announce that it is
withdrawing its offer. The events in this litigation took place
prior to the effective date of Rule 14d-2(b), and because Rule
14d-2(b) operates prospectively only,
see 44 Fed.Reg.
70326 (1979), it is not at issue in this case.
[
Footnote 12]
Delay has been characterized as "the most potent weapon in a
tender offer fight." Langevoort, State Tender-Offer Legislation:
Interests, Effects, and Political Competency, 62 Cornell L.Rev.
213, 238 (1977).
See also Wachtell, Special Tender Offer
Litigation Tactics, 32 Bus.Law. 1433, 1437-1442 (1977); Wilner
& Landy, The Tender Trap: State Takeover Statutes and Their
Constitutionality, 45 Ford.L.Rev. 1, 9-10 (1976).
[
Footnote 13]
According to the Securities and Exchange Commission, delay
enables a target company to:
"(1) repurchase its own securities;"
"(2) announce dividend increases or stock splits;"
"(3) issue additional shares of stock;"
"(4) acquire other companies to produce an antitrust violation
should the tender offer succeed;"
"(5) arrange a defensive merger;"
"(6) enter into restrictive loan agreements; and"
"(7) institute litigation challenging the tender offer."
Brief for Securities and Exchange Commission as
Amicus
Curiae 10, n. 8.
[
Footnote 14]
Representative Rodino set out the consequences of delay in
greater detail when he described the relationship between the
Hart-Scott-Rodino Act and the Williams Act:
"In the case of cash tender offers, more so than in other
mergers, the equities include time and the danger of undue delay.
This bill in no way intends to repeal or reverse the congressional
purpose underlying the 1968 Williams Act, or the 1970 amendments to
that act. . . . Lengthier delays will give the target firm plenty
of time to defeat the offer by abolishing cumulative voting,
arranging a speedy defensive merger, quickly incorporating in a
State with an anti-takeover statute, or negotiating costly lifetime
employment contracts for incumbent management. And the longer the
waiting period, the more the target's stock may be bid up in the
market, making the offer more costly -- and less successful. Should
this happen, it will mean that shareholders of the target firm will
be effectively deprived of the choice that cash tenders give to
them: either accept the offer, and thereby gain the tendered
premium, or reject the offer. Generally, the courts have construed
the Williams Act so as to maintain these two options for the target
company's shareholders, and the House conferees contemplate that
the courts will continue to do so."
122 Cong.Rec. 30877 (1976).
[
Footnote 15]
Appellant argues that the Illinois Act does not permit him to
adjudicate the substantive fairness of a tender offer. Brief for
Appellant 21-22. On this state law issue, however, we follow the
view of the Court of Appeals that � 137.57.E allows the Secretary
of State "to pass upon the substantive fairness of a tender offer.
. . ." 633 F.2d 486, 493 (1980).
[
Footnote 16]
For example, the Illinois blue-sky law, Ill.Rev.Stat., ch. 121
1/2, � 137.1
et seq. (1979 and Supp.1980), provides that
securities subject to the law must be registered "prior to sale in
this State. . . ." � 137.5.
JUSTICE POWELL, concurring in part.
I agree with JUSTICE MARSHALL that this case is moot. In view,
however, of the decision of a majority of the Court to reach the
merits, I join Parts
457 U. S. S.
643|>V-B of the Court's opinion.
I join Part V-B because its Commerce Clause reasoning leaves
some room for state regulation of tender offers. This period in our
history is marked by conglomerate corporate formations essentially
unrestricted by the antitrust laws. Often the offeror possesses
resources, in terms of professional personnel experienced in
takeovers as well as of capital, that vastly exceed those of the
takeover target. This disparity in resources may seriously
disadvantage a relatively small or regional target corporation.
Inevitably there are certain adverse consequences in terms of
general public interest when corporate headquarters are moved away
from a city and State.*
The Williams Act provisions, implementing a policy of
neutrality, seem to assume corporate entities of substantially
equal resources. I agree with JUSTICE STEVENS that the
Page 457 U. S. 647
Williams Act's neutrality policy does not necessarily imply a
congressional intent to prohibit state legislation designed to
assure -- at least in some circumstances -- greater protection to
interests that include, but often are broader than, those of
incumbent management.
* The corporate headquarters of the great national and
multinational corporations tend to be located in the large cities
of a few States. When corporate headquarters are transferred out of
a city and State into one of these metropolitan centers, the State
and locality from which the transfer is made inevitably suffer
significantly. Management personnel -- many of whom have provided
community leadership -- may move to the new corporate headquarters.
Contributions to cultural, charitable, and educational life -- both
in terms of leadership and financial support -- also tend to
diminish when there is a move of corporate headquarters.
JUSTICE STEVENS, concurring in part and concurring in the
judgment.
The question whether this case is moot depends on the effect of
the preliminary injunction entered on February 2, 1979, restraining
the Illinois Secretary of State from enforcing the Illinois
Business Take-Over Act while the injunction remained in effect. If,
as JUSTICE MARSHALL contends in his dissenting opinion, the
injunction granted the MITE Corp. a complete immunity from state
sanctions for any acts performed while the injunction was
outstanding, I would agree that the case is moot. On the other
hand, if the injunction did no more than it purported to do,
setting aside the injunction would remove its protection, and MITE
would be subject to sanctions in the state courts. Those courts
might regard the fact that an injunction was outstanding at the
time MITE violated the Illinois statute as a defense to any
enforcement proceeding, but unless the federal injunction was
tantamount to a grant of immunity, there is no federal rule of law
that would require the state courts to absolve MITE from liability.
I believe, therefore, that to resolve the mootness issue -- which,
of course, is jurisdictional -- we must answer the question that
JUSTICE MARSHALL's dissent raises.
JUSTICE MARSHALL advances various reasons for adopting a rule
that will give federal judges the power to grant complete immunity
to persons who desire to test the constitutionality of a state
statute. His proposed rule would treat any federal judge's
preliminary injunction restraining enforcement of a state statute
on federal grounds as a grant of immunity with respect to any
conduct undertaken while the injunction
Page 457 U. S. 648
was outstanding. Under the rule he proposes,
"if the statute is later determined to be valid, the State will
never be able to prosecute the individual that obtained the
preliminary injunction for action taken while the injunction was in
effect."
Post at
457 U. S. 657,
n. 1. For me, the question is not whether such a rule would be
wise; the question is whether federal judges possess the power to
grant such immunity. In my opinion, they do not.
I
The essential facts of this case are few, and bear repeating. On
February 2, 1979, MITE Corp. and MITE Holdings, Inc., obtained a
preliminary injunction restraining the Illinois Secretary of State
from invoking the provisions of the Illinois Business Take-Over Act
to block MITE's intended takeover of Chicago Rivet & Machine
Co. Three days later, without complying with the provisions of the
Illinois statute, MITE published its offer in the Wall Street
Journal. On February 9, 1979, the District Court entered a judgment
declaring the Illinois statute unconstitutional; the court
permanently enjoined the Secretary from enforcing the Illinois
statute against MITE.
The State contends that the attempted takeover was subject to
the provisions of the Illinois statute, and that MITE violated the
Act by failing to register with the Illinois Secretary of State.
The State further argues that the Take-Over Act is consistent with
federal law. For purposes of deciding the mootness issue, we must
assume that these contentions are correct; a holding that this case
is moot would mean that MITE is completely protected from any
adverse action, whether or not the statute is unconstitutional.
Such a conclusion would be possible only if the District Court's
preliminary injunction granted MITE absolute and permanent immunity
from any prosecution -- civil or criminal -- brought to enforce the
Illinois statute.
Neither the terms of the preliminary injunction nor prior equity
practice provides any support for an interpretation of
Page 457 U. S. 649
the District Court's order as a grant of total immunity from
future prosecution. More fundamentally, federal judges have no
power to grant such blanket dispensation from the requirements of
valid legislative enactments.
A
An injunction restrains conduct. Its effect is normally limited
to the parties named in the instrument. Since a preliminary
injunction may be granted on a mere probability of success on the
merits, generally the moving party must demonstrate confidence in
his legal position by posting bond in an amount sufficient to
protect his adversary from loss in the event that future
proceedings prove that the injunction issued wrongfully. [
Footnote 2/1] The bond, in effect, is the
moving party's warranty that the law will uphold the issuance of
the injunction.
These features of injunctive relief are inconsistent with a
blanket grant of immunity, as this case demonstrates. The
preliminary injunction did not purport to provide permanent
immunity for violations of the statute that occurred during its
effective period. It merely provided that the Secretary of State
was enjoined from "issuing any cease and desist order or notice of
hearing or from otherwise invoking, applying, or enforcing the
Illinois Business Take-Over Act" against MITE. Record 16. It did
not enjoin other parties who are authorized by the Act to enforce
its provisions. Ill.Rev.Stat.,
Page 457 U. S. 650
ch. 121 1/2, �� 137.62, 137.64 (1979). Moreover, the preliminary
injunction was entered without any declaration that the Illinois
statute was unconstitutional. There simply is no basis on which to
conclude that the preliminary injunction issued by the District
Court should be construed as having granted MITE permanent immunity
from future proceedings brought under the Illinois statute.
In
Steffel v. Thompson, 415 U.
S. 452, the Court unanimously held that an individual
who wished to engage in "constitutionally protected activity" but
was threatened with prosecution under a state criminal statute
could obtain a declaratory judgment in federal court declaring the
statute invalid. The Court did not suggest that, armed with such a
judgment from a federal district court, the individual could
violate the statute with impunity; indeed, it stated just the
opposite:
"'[A] federal declaration of unconstitutionality reflects the
opinion of the federal court that the statute cannot be fully
enforced. If a declaration of total unconstitutionality is affirmed
by this Court, it follows that this Court stands ready to reverse
any conviction under the statute.'"
Id. at
415 U. S.
469-470 (quoting
Perez v. Ledesma, 401 U. S.
82,
401 U. S. 124
(separate opinion of BRENNAN, J.)). [
Footnote 2/2] JUSTICE WHITE attached possibly the
greatest significance to a federal declaratory judgment, writing
separately in
Steffel that
"I would anticipate that a final declaratory judgment entered by
a federal court holding particular conduct of the federal plaintiff
to be immune on federal constitutional grounds from prosecution
under state law should be accorded
res judicata effect in
any later prosecution of that very conduct. "
Page 457 U. S. 651
415 U.S. at
415 U. S. 477
(concurring opinion). A declaratory judgment reversed on appeal,
however, certainly would not have such
res judicata
effect.
An individual who is imminently threatened with prosecution for
conduct that he believes is constitutionally protected should not
be forced to act at his peril. One purpose of the federal
declaratory judgment statute is to permit such an individual to
test the legality of a state statute before engaging in conduct
that is prohibited by its terms.
See S.Rep. No. 1005, 73d
Cong., 2d Sess., 2-3 (1934). Recognition of this fact, however,
does not determine the point at which an individual may act with
absolute assurance that he may not be punished for his contemplated
activity. The fact that a federal judge has entered a declaration
that the law is invalid does not provide that assurance; every
litigant is painfully aware of the possibility that a favorable
judgment of a trial court may be reversed on appeal. To repeat the
words of this Court in
Steffel, the most that can be said
is:
"'If a declaration of total unconstitutionality is affirmed by
this Court, it follows that this Court stands ready to reverse any
conviction under the statute.'"
415 U.S. at
415 U. S. 470
(quoting
Perez v. Ledesma, supra, at
401 U. S. 124
(separate opinion of BRENNAN, J.)). [
Footnote 2/3]
Since a final judgment declaring a state statute
unconstitutional would not grant immunity for actions taken in
reliance on the court's decision, certainly a preliminary
injunction -- which on its face does nothing more than temporarily
restrain conduct -- should not accomplish that result. Neither
the
Page 457 U. S. 652
preliminary injunction nor the subsequent judgment declaring the
statute unconstitutional can fairly be construed as a grant of
absolute immunity from enforcement of the Illinois statute.
[
Footnote 2/4]
B
My conclusions concerning the proper nature of injunctive and
declaratory relief are not based upon arcane interpretations
Page 457 U. S. 653
of common law. Federal courts are courts of limited
jurisdiction. [
Footnote 2/5] Before
a federal court exercises any governmental power, it has a duty to
determine its own jurisdiction to act. There simply is no
constitutional or statutory authority that permits a federal judge
to grant dispensation from a valid state law. [
Footnote 2/6]
As I have written before, the federal judiciary can continue to
perform its vital function in our governmental structure only if it
recognizes the limitations on its own legitimate authority.
United States v. New York Telephone Co., 434 U.
S. 159,
434 U. S. 178
(STEVENS, J., dissenting in part). A belief that a particular
result appears reasonable or wise is an insufficient predicate for
the exercise of federal judicial power.
Page 457 U. S. 654
The District Court in this case entered both an injunction
restraining certain conduct by the Illinois Secretary of State and
a judgment declaring a state statute unconstitutional. It did not
-- because it could not -- grant immunity from the requirements of
a valid state law. [
Footnote 2/7]
As a result, this Court has jurisdiction to consider whether the
judgment and relief entered by the District Court were proper.
[
Footnote 2/8]
II
On the merits, I agree with the Court that the Illinois
Take-Over Act is invalid because it burdens interstate
commerce.
Page 457 U. S. 655
I therefore join Part V of its opinion. I am not persuaded,
however, that Congress' decision to follow a policy of neutrality
in its own legislation is tantamount to a federal prohibition
against state legislation designed to provide special protection
for incumbent management. Accordingly, although I agree with the
Court's assessment of the impact of the Illinois statute, I do not
join its preemption holding.
[
Footnote 2/1]
As provided by Federal Rule of Civil Procedure 65(c):
"No restraining order or preliminary injunction shall issue
except upon the giving of security by the applicant, in such sum as
the court deems proper, for the payment of such costs and damages
as may be incurred or suffered by any party who is found to have
been wrongfully enjoined or restrained. No such security shall be
required of the United States or of an officer or agency
thereof."
In Illinois, damages apparently may be recovered for injuries
caused by a preliminary injunction issued wrongfully by a state
court even in the absence of an indemnity bond or abuse off
process.
See Ill.Rev.Stat. ch. 69, � 12 (1979); Note, 73
Harv.L.Rev. 333, 347 (1959).
[
Footnote 2/2]
See also 415 U.S. at
415 U. S. 480
(REHNQUIST, J., concurring) ("There is nothing in the [Declaratory
Judgment] Act's history to suggest that Congress intended to
provide persons wishing to violate state laws with a federal shield
behind which they could carry on their contemplated conduct");
id. at
415 U. S. 482
("A declaratory judgment is simply a statement of rights, not a
binding order supplemented by continuing sanctions").
[
Footnote 2/3]
The fact that an unreviewed judgment does not provide absolute
protection does not render the declaratory judgment of a district
court or a court of appeals meaningless. As stated in
Steffel:
"'Even where a declaration of unconstitutionality is not
reviewed by this Court, the declaration may still be able to cut
down the deterrent effect of an unconstitutional state statute. The
persuasive force of the court's opinion and judgment may lead state
prosecutors, courts, and legislators to reconsider their respective
responsibilities toward the statute. Enforcement policies or
judicial construction may be changed, or the legislature may repeal
the statute and start anew.'"
415 U.S. at
415 U. S. 470
(quoting
Perez v. Ledesma, 401 U.S. at
401 U. S. 125
(separate opinion of BRENNAN, J.)).
[
Footnote 2/4]
In
Liner v. Jafco, Inc., 375 U.
S. 301, the respondent obtained an injunction from a
state court that restrained picketing at a construction site.
Petitioners moved to dissolve the injunction on the ground that the
state court was without jurisdiction to adjudicate the controversy
because the subject matter of the picketing was exclusively within
the cognizance of the National Labor Relations Board. Petitioners'
motion was denied by the state court, and that decision was
affirmed on appeal. This Court granted a petition for
certiorari.
While the case was pending in the state appellate court,
construction at the site was completed. This Court nevertheless
held that the issue of whether the injunction had issued properly
was not moot, because the respondent remained liable on an
indemnity bond if the injunction had issued wrongfully. The Court
stated:
"The petitioners plainly have 'a substantial stake in the
judgment . . . ,'
Fiswick v. United States, 329 U. S.
211,
329 U. S. 222, which exists
apart from and is unaffected by the completion of construction.
Their interest derives from the undertaking of respondent Jafco,
Inc., in the injunction bond to indemnify them in damages if the
injunction was 'wrongfully' sued out. Whether the injunction was
wrongfully sued out turns solely upon the answer to the federal
question which the petitioners have pressed from the beginning. If
the answer of the Tennessee Court of Appeals to that question may
not be challenged here, the petitioners have no recourse against
Jafco on the bond."
Id. at
375 U. S.
305-306. In this case. it does not appear that MITE is
liable on an injunction bond. The posting of an indemnity bond,
however, merely creates a right of action -- that may or may not
otherwise exist -- for damages caused during the period that a
wrongfully issued injunction was in effect. In this case, such
rights of action exist under an independent state law that we must
presume to be valid. As in
Liner, these rights of action
may be pursued "if the injunction was
wrongfully' sued out";
and
"[w]hether the injunction was wrongfully sued out turns solely
upon the answer to the federal question which the petitioners have
pressed from the beginning."
[
Footnote 2/5]
As stated by Chief Justice Marshall in
Ex parte
Bollman, 4 Cranch 75,
8 U. S. 93:
"As preliminary to any investigation of the merits of this
motion, this court deems it proper to declare that it disdains all
jurisdiction not given by the constitution, or by the laws of the
United States."
"Courts which originate in the common law possess a jurisdiction
which must be regulated by the common law, until some statute shall
change their established principles; but courts which are created
by written law, and whose jurisdiction is defined by written law,
cannot transcend that jurisdiction. It is unnecessary to state the
reasoning on which this opinion is founded, because it has been
repeatedly given by this court; and with the decisions heretofore
rendered on this point, no member of the bench has, even for an
instant, been dissatisfied."
[
Footnote 2/6]
I do not suggest that, if the state law is valid, a federal
court lacks jurisdiction to enter an injunction restraining state
officials from enforcing the statute. Such an injunction may be
appropriate -- and would be binding on the parties -- to permit the
federal court to preserve its jurisdiction pending a final decision
on the constitutionality of the statute.
United States v. Mine
Workers, 330 U. S. 258,
330 U. S.
289-290.
"Although only temporary, the injunction does prohibit state and
local enforcement activities against the federal plaintiff pending
final resolution of his case in the federal court."
Doran v. Salem Inn, Inc., 422 U.
S. 922,
422 U. S. 931.
Such an injunction does not
continue to be binding on the
parties, however, if it is vacated on appeal;
"an order issued by a court with jurisdiction over the subject
matter and person must be obeyed by the parties
until it is
reversed by orderly and proper proceedings."
United States v. Mine Workers, supra., at
330 U. S. 293
(emphasis added).
[
Footnote 2/7]
A conflict between a federal rule of law and a state statute may
nullify the state law. Although such invalidity may not be
recognized or accepted until it is identified in litigation, in my
opinion, the conflict with a paramount rule of federal law
nullifies a state law whether or not litigation is ever commenced.
In other words, it is federal rules of law -- and not the actions
of federal judges -- that may render a state law invalid.
[
Footnote 2/8]
JUSTICE REHNQUIST concludes that this case is moot because the
injunction restrains an enforcement proceeding that has not yet
begun. If his view were accepted, an injunction against a
threatened criminal proceeding,
see Dombrowski v. Pfister,
380 U. S. 479,
would never be appropriate, for the controversy between the parties
would not yet be "ripe." MITE sought an injunction not only to
prevent the Illinois Secretary of State from interfering with its
attempted takeover of Chicago Rivet, but also to bar the Secretary
from proceeding against MITE for actions taken in violation of the
statute. What is critical to the mootness question in this case is
not that MITE abandoned the takeover before it was completed, but
that MITE engaged in conduct that violated the terms of the
Illinois statute. The
extent of MITE's violation of state
law cannot be determinative of its interest in avoiding an
enforcement proceeding based on what MITE believed was
constitutionally protected activity.
Oil Workers v. Missouri, 361 U.
S. 363, relied on by JUSTICE REHNQUIST, does not compel
a contrary result. In that case, the party subject to the
injunction terminated the activity that had been enjoined. As a
result, this Court refused to consider whether the injunction had
issued properly, even though a resolution of that question would
also have resolved other matters -- based on similar questions of
law -- pending in another proceeding between the same parties. In
this case, the party subject to the injunction -- the Illinois
Secretary of State -- has not abandoned his desire to do what the
injunction currently restrains him from doing.
JUSTICE O'CONNOR, concurring in part.
I agree with the Court that the case is not moot, and that
portions of the Illinois Business Take-Over Act, Ill.Rev.Stat., ch.
121 1/2, � 137.51
et seq. (1979), are invalid under the
Commerce Clause. Because it is not necessary to reach the
preemption issue, I join only Parts I, II, and V of the Court's
opinion, and would affirm the judgment of the Court of Appeals on
that basis.
JUSTICE MARSHALL, with whom JUSTICE BRENNAN joins,
dissenting.
The jurisdiction of this Court depends upon the existence of a
live controversy. We may resolve a particular dispute only if the
parties have a real interest in the outcome of that dispute.
Otherwise, the case is moot, and must be dismissed.
Roe v.
Wade, 410 U. S. 113,
410 U. S. 125
(1973);
SEC v. Medical Committee for Human Rights,
404 U. S. 403,
404 U. S. 407
(1972). In my view, this case should have been dismissed. The
parties to this appeal have no adversary interest in the outcome of
this case. Their positions would be the same whether the Court
approved the Illinois Business Take-Over Act or struck it down.
Because the Court finds that the Illinois Act is unconstitutional,
there will be no further litigation. However, even if the Court had
held that the Illinois Act is constitutional, and had lifted the
permanent injunction that now restrains enforcement of the Act
against MITE, there would be no basis for continued litigation. The
Secretary stated that, if the decision below were reversed, he
would initiate enforcement proceedings against MITE in
Page 457 U. S. 656
state court, seeking civil and criminal penalties for its
failure to comply with the Illinois Act. But a preliminary
injunction was in effect at the time the alleged violations
occurred. As I explain below, I believe that this injunction would
have barred the Secretary from seeking either civil or criminal
penalties for violations of the Act that occurred during that
period. MITE would have a complete defense to such an action.
I
The Secretary argues that the case is not moot because the
preliminary injunction would not be a complete defense to a state
enforcement action. He contends that the preliminary injunction
merely barred him from commencing an enforcement action during the
period the injunction was in effect. Thus, if this Court had
decided that the statute is constitutional and had lifted the
permanent injunction, the State would have been able to commence an
action seeking penalties for any violations that occurred during
the period the preliminary injunction was in effect. In other
words, argues the Secretary, the preliminary injunction only
provided temporary security. It enabled MITE to go forward with the
tender offer -- subject to the risk that, at some later stage, the
constitutionality of the statute would be upheld and the State
would commence enforcement proceedings.
Federal courts undoubtedly have the power to issue a preliminary
injunction that restrains enforcement of a state statute, subject
to the condition that, if the statute is later found to be valid,
the State is free to seek penalties for violations that occurred
during the period the injunction was in effect. In my view,
however, federal courts also have the power to issue a preliminary
injunction that offers permanent protection from penalties for
violations of the statute that occurred during the period the
injunction was in effect. [
Footnote
3/1] Determining
Page 457 U. S. 657
whether a particular injunction provides temporary or permanent
protection becomes a question of interpretation.
I believe that, in the ordinary case, unless the order contains
specific language to the contrary, it should be presumed that an
injunction secures permanent protection from penalties for
violations that occurred during the period it was in effect; the
burden should be on the State to show that the injunction provided
only temporary security. [
Footnote
3/2] A presumption
Page 457 U. S. 658
in favor of permanent protection is likely to reflect the
intentions of the court that granted the motion. In acting upon a
request for an injunction, it will recognize that short-term
protection is often only marginally better than no protection at
all. Parties seek to restrain the enforcement of a state statute
not just because they want short-term protection, but because they
desire permanent immunity for actions they take in reliance on the
injunction. If they are contemplating action that might violate a
state statute, they will take little solace from temporary immunity
-- when they know that, if they decide to act, enforcement
proceedings might be initiated at some later stage. [
Footnote 3/3]
Page 457 U. S. 659
Here, the preliminary injunction does not expressly state that
it provides permanent immunity from penalties for violations of the
Illinois Act that may occur during its effective period. The
injunction provides only that the Secretary of State is enjoined
from "issuing any cease and desist order or notice of hearing or
from otherwise invoking, applying, or enforcing the Illinois
Business Take-Over Act" against MITE. Record 16. However, I see no
reason why the presumption in favor of permanent protection should
not be applied here. In this context, as the District Court must
have recognized, permanent protection was needed. MITE sought an
injunction not just because it desired protection from enforcement
actions during the period it was actually making the tender offer,
but also because it desired protection from such actions in the
future. The Act provides for substantial civil and criminal
penalties. MITE would have been reluctant to go forward with its
offer, which entailed considerable expense, if there were some risk
that it would be penalized later. Indeed, in the Schedule 14D-1
filed with the SEC, MITE expressly stated that it would not
commence the tender offer unless it obtained injunctive relief. It
also reserved the right to withdraw its offer if injunctive relief
were initially granted, but later withdrawn.
See Record,
Plaintiff's Exhibit 14. [
Footnote
3/4]
Page 457 U. S. 660
Interpreting the injunction to provide permanent protection also
ensures that MITE could never be penalized for acting in reliance
on the injunction. [
Footnote 3/5]
MITE went forward with the tender offer, reasonably believing that
the District Court's order provided complete immunity. Under the
circumstances, it would be improper to permit the State to penalize
action taken while the injunction was in effect. In the past, this
Court has recognized that reasonable reliance on judicial
pronouncements may constitute a valid defense to criminal
prosecution.
See, e.g., Marks v. United States,
430 U. S. 188
(1977). [
Footnote 3/6]
In addition to arguing that the preliminary injunction should be
interpreted to provide only temporary protection from a state
enforcement action, the Secretary argues that resolution of the
mootness issue in this case should be controlled by
Leroy v.
Great Western United Corp., 443 U. S. 173
(1979). In that case, Great Western announced its intention to make
a tender offer to purchase stock in another corporation. Idaho
officials responsible for administering an Idaho statute governing
corporate takeovers,
see Idaho Code § 30-1501
et
seq. (1980), objected to the offer and delayed its effective
date. Great Western brought an action in
Page 457 U. S. 661
Federal District Court, seeking a declaration that the Idaho
takeover law was unconstitutional, and an injunction restraining
Idaho officials from enforcing the statute. The District Court
granted injunctive relief that enabled Great Western to complete
the acquisition. This Court, in reviewing the case, held that the
controversy was not moot.
"[T]he question whether Great Western has violated Idaho's
statute will remain open unless and until the District Court's
judgment is finally affirmed."
Id. at
443 U. S. 178.
[
Footnote 3/7]
Leroy v. Great Western United Corp. is easily
distinguishable from this case. Unlike MITE, Great Western took
actions that might have violated the state takeover statute before
it obtained injunctive relief. If this Court had decided that the
Idaho statute was valid, Idaho officials might have been able to
seek penalties for those preinjunction violations. [
Footnote 3/8]
Leroy v. Great Western United
Corp. can also be distinguished on the ground that the
takeover offer in that case was successful. If the Idaho statute
had been found to be valid, then Idaho officials would have been
able to seek a rescission of the takeover. [
Footnote 3/9] Here, since the acquisition was never
completed, Illinois officials could not seek rescission. [
Footnote 3/10]
Page 457 U. S. 662
Finally, this case does not fall within the exception to the
mootness doctrine for cases that "are capable of repetition, yet
evading review." Unless a class action is involved, that exception
applies only when the challenged action is too short to be fully
litigated before its cessation, and when there is a reasonable
expectation or a demonstrated probability that the same complaining
party will be subject to the same action in the future.
Illinois State Board of Elections v. Socialist Workers
Party, 440 U. S. 173,
440 U. S. 187
(1979);
Weinstein v. Bradford, 423 U.
S. 147,
423 U. S. 149
(1975). The second requirement has not been satisfied here. MITE
has agreed not to renew its efforts to acquire Chicago Rivet. Thus,
unless MITE breaches its agreement, [
Footnote 3/11] the State will never again have occasion
to prevent MITE from making a takeover offer for Chicago Rivet. In
addition, there has been no showing that MITE plans to acquire
another corporation with substantial connection to Illinois. Thus,
there is no demonstrated probability that the State will have
occasion to prevent MITE from making a takeover offer for some
other corporation.
II
The majority disposes of the mootness issue in a short
paragraph. It concedes that the only possible basis for continued
litigation in this case would be a state action for penalties. It
further concedes that the preliminary injunction issued by the
District Court may be a complete defense to an action for civil or
criminal penalties. It argues, however, that the effect to be given
the preliminary injunction should not be reached in this case.
Rather, that question should be decided in a state enforcement
action, if it is raised as a defense. Thus, contends the majority,
the case is not moot.
Page 457 U. S. 663
I am completely unpersuaded by the majority's facile analysis.
In deciding whether a case is moot, the Court must determine
whether there is a live controversy. There is a live controversy in
this case only if the State could seek penalties from MITE. Here,
the State could not seek penalties from MITE. It may be true that
the State could file a complaint if this Court were to lift the
permanent injunction. However, this fact is not enough to keep the
case alive where, as a matter of federal law, the complaint
must be dismissed. If the action that the State plans to
commence in state court lacks any merit -- if MITE has an automatic
defense to that action -- then there simply is no controversy.
This case is made more difficult because the Court has never
before decided what effect should be given to preliminary
injunctions. But the fact that we must decide a novel question does
not make the case any less moot. Certainly, if the Court had
already held that a preliminary injunction provides permanent
immunity, the case would be moot even though the State could go
into state court and seek penalties. Such a suit, which would be
clearly frivolous, could not keep the dispute alive.
The Court's refusal to confront the question whether a
preliminary injunction would provide a complete defense is
particularly ironic, given its recent decision in
Lane v.
Williams, 455 U. S. 624
(1982). Respondents in that case had pleaded guilty in unrelated
Illinois state court prosecutions for burglary, an offense
punishable by imprisonment and a mandatory 3-year parole term.
Neither respondent was informed during his plea acceptance hearing
that the negotiated sentence included the mandatory parole term.
Each respondent completed his prison sentence, but was
reincarcerated for parole violation. While in custody, they filed
petitions for federal habeas corpus, alleging that their guilty
pleas were invalid because they were not informed of the mandatory
parole requirement. The District Court decided to enter an order
declaring the parole term void, and the United States
Page 457 U. S. 664
Court of Appeals for the Seventh Circuit affirmed. By the time
the cases reached this Court, both respondents had completed their
sentences, and their parole terms had expired. This Court held that
the claims for relief were moot. In reaching this conclusion, the
Court determined that, as a matter of Illinois law, no collateral
consequences would flow from the parole revocations. Thus, there
would be no point in declaring the parole terms void. In other
words, the Court reached out to decide a question of state law in
order to hold that the case was moot. Here, by contrast, the Court
refuses to confront an important question of federal law --
deciding instead that the question should be left to a state court
-- so that it can avoid holding that the case is moot.
III
The parties to this appeal have no adversary interest in the
resolution of the merits of this controversy. The majority acts
without jurisdiction when it addresses the question whether the
Illinois Business Take-Over Act is constitutional. Because I
believe the case is moot, I would have vacated the judgment of the
Court of Appeals, with instructions that it remand the case to the
District Court with instructions to dismiss.
[
Footnote 3/1]
Unless the federal courts can grant preliminary injunctions that
provide permanent protection, challenges to questionable state
statutes may be deterred. A state statute may be either repugnant
to the Constitution or preempted by some federal law. Parties who
wish to engage in conduct proscribed by state statutes may be
reluctant to challenge their validity unless they can obtain
permanent immunity from penalties. But there is a strong federal
interest in encouraging such challenges: the Constitution itself
provides that the Constitution and federal statutes shall be "the
supreme Law of the Land." Grants of permanent immunity help ensure
that federal law will remain paramount.
Holding that federal courts have power to grant permanent
protection would not substantially limit state power. In fact, the
impact on state power will be relatively insignificant. A federal
court may grant a preliminary injunction prohibiting the
enforcement of a state statute only when there is substantial doubt
about the validity of the statute, and when the party seeking
relief is able to show that he will suffer irreparable injury if an
injunction is not granted. It is true that, under the rule I
propose, if the statute is later determined to be valid, the State
will never be able to prosecute the individual that obtained the
preliminary injunction for action taken while the injunction was in
effect. However, the State will be free to prosecute him for
actions occurring either before or after the injunction, and will
also be able to prosecute other persons who violated the statute.
In other words, the State will be barred only from prosecuting the
particular individual who requested the injunction for conduct
undertaken during the pendency of the injunction. Moreover, it will
be barred from prosecuting that individual only because there was
serious doubt about the constitutionality of the statute, and
because he was able to show that he would suffer irreparable injury
if an injunction was not granted.
[
Footnote 3/2]
It might be argued that, because a party seeking a preliminary
injunction must ordinarily post bond, there should be a presumption
in favor of recovery of damages caused by a wrongfully issued
preliminary injunction. However, the fact that an injunction bond
is ordinarily required does not necessarily imply that the party
against whom the injunction was issued is automatically entitled to
damages. That party must still prove that damages are appropriate;
the injunction bond merely provides security, when the party is
able to make such a showing.
It is true that, when an injunction bond has been posted, and
when the party challenging the injunction has a right to recover
damages on the bond, the question whether an injunction was
properly issued is not moot.
See Liner v. Jafco, Inc.,
375 U. S. 301
(1964). The District Court record does not reveal that a bond was
posted in this case. Even if a bond had been posted, however, this
case would probably be moot; I believe that the State would not
have a cause of action for damages. If this Court had determined
that the injunction was wrongfully entered, the State might argue
that it was damaged because it was unable to recover penalties for
violations of the Take-Over Act that occurred during the period the
preliminary injunction was in effect. Such an argument should not
prevail. Lost penalties do not constitute the sort of damages
recoverable on a bond. In any event, as I suggest in this dissent,
I believe that the preliminary injunction should be interpreted as
protecting MITE from penalties. Thus, it should also protect MITE
from liability for "damages" sustained by the State because it
could not bring an action for penalties.
If a bond had been posted, the State might be able to recover
costs or nominal damages on the bond. However, where there is no
other basis for challenging the validity of an injunction, the
possibility of such recovery is not sufficient to keep a case
alive. If it were, then almost no case challenging an injunction
could become moot.
See Washington Market Co. v. District of
Columbia, 137 U. S. 62 (1890)
(court costs);
Hernandez v. European Auto Collision, Inc.,
487 F.2d 378, 387 (CA2 1973) (nominal damages);
Kerrigan v.
Boucher, 450 F.2d 487 (CA2 1971) (nominal damages).
[
Footnote 3/3]
Cf. Steffel v. Thompson, 415 U.
S. 452,
415 U. S. 462
(1974) (federal court intervention is appropriate where the
applicant for relief is situated "between the Scylla of
intentionally flouting state law and the Charybdis of forgoing what
he believes to be constitutionally protected activity in order to
avoid becoming enmeshed in a criminal proceeding").
See also
Hygrade Provision Co. v. Sherman, 266 U.
S. 497,
266 U. S. 500
(1925);
Terrace v. Thompson, 263 U.
S. 197,
263 U. S. 216
(1923);
Salem Inn, Inc. v. Frank, 501 F.2d 18, 21 (CA2
1974),
aff'd in relevant part sub nom. Doran v. Salem Inn,
Inc., 422 U. S. 922
(1975).
[
Footnote 3/4]
I also find it significant that the District Court's final order
granting a permanent injunction declares that the Illinois Act is
"null and void and of no force and effect." App. to Juris.Statement
41a. A reasonable construction of the order granting a preliminary
injunction is that it was also intended to render the act "null and
void" while the injunction was in effect.
[
Footnote 3/5]
It is relevant to note that, although MITE sought injunctive
relief prior to engaging in any action that could subject it to
civil or criminal penalties, the State never sought a stay of the
District Court's injunction either in that court or in the Court of
Appeals, and never expressed an intent to do so.
[
Footnote 3/6]
In
Marks, a conviction for transporting obscene
materials was overturned where the materials were not obscene at
the time of transportation, but were rendered obscene at the time
of trial by an intervening decision of this Court.
See also Cox
v. Louisiana, 379 U. S. 559,
379 U. S.
569-571 (1965) (conviction for illegal picketing
reversed where defendant had relied on permission from police
officer);
Raley v. Ohio, 360 U. S. 423,
360 U. S.
437-439 (1959) (conviction for refusal to testify before
state commission reversed because witness had relied on opinion of
commission chairman that he was privileged to remain silent);
United States v. Mancuso, 139 F.2d 90 (CA3 1943)
(defendant could not be held liable for ignoring induction notices
issued while
ex parte order staying induction was in
effect).
[
Footnote 3/7]
The Court did not reach the question whether the Idaho statute
was unconstitutional. It concluded that the action should have been
dismissed on grounds of improper venue.
[
Footnote 3/8]
See Idaho Code §§ 30-1502 to 30-1504, 30-1510
(1980).
[
Footnote 3/9]
See Idaho Code § 30-1509 (1980) (allowing State to
institute action for rescission). The Illinois Act also empowers
the State to seek a court order rescinding sales that are unlawful
under the Act. Ill.Rev.Stat., ch. 121 1/2, � 137.62 (1979).
[
Footnote 3/10]
It is true that a rescission action would have been predicated
on acts that were taken under cover of the preliminary injunction.
However, I believe that injunctions should ordinarily be
interpreted only as providing permanent protection from
penalties. The State should be barred from penalizing the
offeror for acts that took place during the period the injunction
was in effect. However, if a court determines that the state
statute is valid, the State should be free to provide a remedy for
the continuing effects of acts that violated the statute. In
particular, a State should be permitted to dismantle a successful
acquisition that violated a valid statute.
[
Footnote 3/11]
The possibility that MITE will breach its agreement does not
bring this case within the "capable of repetition, yet evading
review" exception. The likelihood that such a breach will occur is
relatively small. The exception applies only when there is a
reasonable expectation that the same action will occur in the
future.
JUSTICE REHNQUIST, dissenting.
I agree with JUSTICE MARSHALL that this case does not present a
justiciable controversy, but for a different reason.
MITE obtained an injunction in order to effect a cash tender
offer for the stock of Chicago Rivet. The injunction restrained the
Illinois Secretary of State from interfering with the Chicago Rivet
tender offer by enforcing the Illinois Business Take-Over Act
against MITE. Three days after the District Court issued a
permanent injunction, MITE and Chicago Rivet reached an agreement
and MITE withdrew its extant offer. Approximately one month later,
MITE announced its decision not to make any tender offer. MITE
is
Page 457 U. S. 665
not presently engaging in activity that is regulated by the
Illinois statute, and there is no indication that MITE intends to
engage in any such activity in the future. Therefore, the facts
that gave rise to
this controversy over the
constitutionality of Illinois' anti-takeover statutes no longer
exist, and it is unlikely that they will be repeated in the future.
As the tender offer has met its demise for reasons having nothing
to do with the validity of the Illinois statute, the injunction is
no longer necessary to accomplish the purposes for which it was
obtained. MITE no longer needs an injunction in order to effect a
tender offer for the shares of Chicago Rivet or any other
corporation subject to the Illinois Act. Nor does MITE need the
injunction in order to preclude the Secretary from rescinding a
completed tender offer.
Despite these developments which have occurred after the
District Court issued the injunction, the Court concludes that the
present controversy between the Illinois Secretary of State and
MITE over the constitutionality of the Illinois Business Take-Over
Act is not moot. According to the Court, the Illinois Secretary of
State's intention to bring an enforcement action against MITE keeps
the present controversy alive. The possibility of a future
enforcement action, however, is insufficient for me to conclude
that the controversy that is before the Court is not moot.
[
Footnote 4/1]
This Court has no power over a suit not pending before it.
"
Our power only extends over and is limited by the conditions
of the case now before us.'" Oil Workers v. Missouri,
361 U. S. 363,
361 U. S. 370
(1960), quoting American Book Co. v. Kansas ex rel.
Nichols, 193 U. S. 49,
193 U. S. 52
(1904). A case pending in this Court may not be kept alive simply
because similar or identical issues are currently ripe for decision
in a controversy between the same parties in another court. See
Oil
Page 457 U. S. 666
Workers v. Missouri, supra, at
361 U. S.
370-371;
American Book Co. v. Kansas ex rel.
Nichols, supra, at
193 U. S. 51.
A fortiori, this case may not be kept alive simply because
there may exist a presently unripened controversy between these
same parties over the constitutionality of the same Act. This is so
even if our resolution of the merits of the instant case will
resolve certain defenses that MITE could raise in an enforcement
action were one to be brought by the Secretary. It follows that
this case is not alive simply because a decision on the merits in
this case will determine whether or not the Secretary's threatened
enforcement action may ever ripen into a live controversy.
If an enforcement action were brought by the Secretary, "there
is no way to know what the outcome of such a proceeding in the
[Illinois] courts might be."
Oil Workers v. Missouri,
supra, at
361 U. S. 371.
The Illinois courts may well conclude that the injunction
constitutes a defense either on state law grounds or upon the
grounds suggested by JUSTICE MARSHALL in his dissent. The Illinois
courts may also agree with MITE that the Business Take-Over Act is
preempted by the Williams Act, or that Illinois' regulation of
interstate tender offers runs afoul of the Commerce Clause. The
possibility that this Court might disagree with the Illinois
courts' ultimate resolution of the issues arising in a presently
unripe, but threatened, enforcement action hardly justifies the
Court's resolution of important constitutional issues in the
abstract posture in which they are currently presented. [
Footnote 4/2]
Page 457 U. S. 667
The Secretary and MITE dispute the propriety of the injunction
issued by the District Court in this case only with respect to a
controversy that may ripen in another court. Because the
controversy that is before the Court is no longer alive, I would
vacate the judgment of the Court of Appeals and order that court to
remand this case to the District Court with instructions to dismiss
the complaint.
See Weinstein v. Bradford, 423 U.
S. 147,
423 U. S. 149
(1975);
United States v. Munsingwear, Inc., 340 U. S.
36,
340 U. S. 39
(1950).
[
Footnote 4/1]
This case is unlike those in which this Court has found
justiciable an action to enjoin a threatened criminal prosecution.
The plaintiff in the present posture of this case no longer intends
to engage in, or is presently engaging in, what is asserted to be
federally protected activity.
[
Footnote 4/2]
Bus Employees v. Missouri, 374 U. S.
74 (1963), and
Super Tire Engineering Co. v.
McCorkle, 416 U. S. 115
(1974), are clearly distinguishable. In each case, subsequent
developments did not moot the controversy, because the challenged
statute affected the challenging party's current or planned
activities. There is no suggestion in the instant case that the
Illinois Business Take-Over Act has such an effect on MITE. Nor do
I believe that this case remains alive merely because it is the
enjoined party who seeks appellate review. Otherwise, an enjoined
party could always litigate the legal bases for the injunction even
though the party who sought the injunction no longer needs the
injunction for the purposes for which it was obtained.
Cf.
University of Texas v. Camenisch, 451 U.
S. 390 (1981).