Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 79-C-200 -- John Powers Crowley, Judge.
Before Sprecher and Cudahy, Circuit Judges, and Dumbauld, Senior District Judge.*fn*
The possibility-and perhaps probability-that different levels of government will take quite dissimilar approaches to similar problems is inherent in federalism. But these divergences are not necessarily dysfunctional; the states in our federal system have long served as laboratories of social experiment-free, within limits, to evolve strategies of their own to meet pressing problems. State prerogatives, however, must remain necessarily circumscribed by the unifying requirements of the national authority as fixed in the Constitution. When Congress has spoken definitively (within its constitutional sphere), state legislatures may not act to obstruct or unsettle the congressional design.
The appeal in the instant case presents the enduring problem of defining the limits of state power within the constraints of national legislation-here involving securities regulation. Specifically, the question before us is whether the Illinois Business Take-Over Act, Ill.Rev.Stat. ch. 121 1/2, § 137.51 et seq. (1979) (the "Illinois Act" or the "Act"), both facially and as applied, may stand under the supremacy and commerce clauses of the United States Constitution and the Securities Exchange Act of 1934 (the "1934 Act"), 15 U.S.C. § 78a et seq. (1976), as amended by the Williams Act.*fn1 The district court held the Illinois Act to be unconstitutional. We affirm.
The basic facts relevant to this appeal though lengthy are undisputed. Plaintiffs-appellees MITE Corporation and MITE Holdings, Inc., are Delaware corporations with their principal executive offices in New Haven, Connecticut. MITE Holdings, Inc. is a wholly-owned subsidiary of MITE Corporation (collectively, "MITE"). Defendant-appellant Alan J. Dixon is the Secretary of State of Illinois and is charged with the administration and enforcement of the Illinois Act. Chicago Rivet & Machine Co. ("Chicago Rivet"), a defendant below but not a party to this appeal, is a publicly-held Illinois corporation with its principal executive offices in Bellwood, Illinois. Chicago Rivet has 866,264 shares of common stock outstanding and 2,181 shareholders of record. Of those shareholders, 589 are residents of Illinois, and they collectively own 377,395 common shares. Chicago Rivet's common stock is traded on the American Stock Exchange.
The scenario for the ensuing legal confrontations opens on January 19, 1979, with MITE preparing to commence a cash tender offer*fn2 for all outstanding shares of Chicago Rivet common stock. Pursuant to Section 14(d)(1) of the Williams Act, 15 U.S.C. § 78n(d)(1) (1976), and Regulation 14D promulgated thereunder, MITE filed a Schedule 14D-1 with the Securities and Exchange Commission (the "SEC"). The Schedule 14D-1 indicated MITE's willingness to pay $28.00 per share for all shares of Chicago Rivet common tendered to it, a premium of more than $4.00 per share over the market price in the period immediately preceding announcement of the offer.
The same day it filed its Schedule 14D-1 with the SEC, MITE also commenced the instant action in the district court, seeking to have the Illinois Act declared null and void on its face because it violated the supremacy and commerce clauses of the United States Constitution. In addition, MITE sought a temporary restraining order, a preliminary injunction and a permanent injunction prohibiting Secretary of State Dixon and Chicago Rivet from enforcing the Illinois Act against it in connection with the proposed tender offer.
The scene then shifted to the courts of Pennsylvania. On January 22, 1979, Chicago Rivet filed a complaint in equity in the Court of Common Pleas of Blair County, Pennsylvania, seeking to enjoin MITE from proceeding with its proposed tender offer because MITE was purportedly in violation of the Pennsylvania Takeover Disclosure Law, 70 Pa.Cons.Stat.Ann. tit. 70, § 71 et seq. (Purdon Supp. 1978) (the "Pennsylvania Act"). Chicago Rivet alleged that MITE's proposed tender offer was subject to the Pennsylvania Act because Chicago Rivet had its principal place of business and substantial assets in Pennsylvania. The court granted Chicago Rivet the relief it requested, issuing an ex parte order enjoining MITE from proceeding with the tender offer pending a further hearing on January 26, 1979.
In addition to initiating its action in Blair County on January 22, 1979, Chicago Rivet that same day also filed a complaint before the Pennsylvania Securities Commission, requesting that that Commission enforce the Pennsylvania Act against MITE. Meanwhile, back in the Northern District of Illinois, still on January 22, Chicago Rivet moved the district court in the instant action to dismiss MITE's challenge to the Illinois Act on the ground that no case or controversy existed between the parties. Chicago Rivet represented to the court that it had no present intention of invoking the Illinois Act, and Secretary of State Dixon represented that he had not decided whether MITE's offer should be exempt from the Act. Pursuant to those representations and by the consent of the parties, the district court ordered that neither Chicago Rivet nor Secretary Dixon would be allowed to initiate any action against MITE under the Illinois Act without first indicating a written intention to do so at least two business days before the proposed action was to be instituted. The district court further ordered that MITE's requests for injunctive relief were to be continued until further notice.
The following day, January 23, 1979, the action once more moved to Pennsylvania. MITE removed the action Chicago Rivet had filed in the Court of Common Pleas of Blair County to the United States District Court for the Western District of Pennsylvania, and on January 24 MITE filed its own complaint in the latter forum seeking to have the Pennsylvania Act declared unconstitutional and to have its enforcement by either Chicago Rivet or the Pennsylvania Securities Commission enjoined. Those two actions were consolidated by the federal district court in Pennsylvania.
On January 31, 1979, the Pennsylvania Securities Commission determined that it would not enforce the Pennsylvania Act against MITE's proposed tender offer, and on February 1 the District Court for the Western District of Pennsylvania denied Chicago Rivet's motion for a temporary restraining order. Apparently sensing that the tide of battle in Pennsylvania had turned, defendants then quickly moved to proceed again under the Illinois Act. On February 1, 1979, defendant Dixon issued a temporary cease and desist order and notice of hearing regarding the proposed tender offer. Dixon concluded that MITE was about to violate the Illinois Act by commencing its offer. He notified MITE that he intended to issue an order to it to "cease and desist all further action to make a tender offer" for Chicago Rivet. This order, together with the accompanying notice, was to be served on February 5.
On February 2, 1979, Chicago Rivet notified MITE by letter that it would file suit in the Circuit Court of Cook County, Illinois, to restrain the proposed tender offer because MITE was violating the Illinois Act.
In response to defendants' decisions to invoke the Illinois Act, MITE renewed its request for relief before the district court. Judge Crowley entered an order on February 2 preliminarily enjoining defendant Dixon from issuing a cease and desist order or notice of hearing, or from otherwise enforcing the Illinois Act against MITE. MITE then published its tender offer in the national edition of the Wall Street Journal on February 5. The tender offer, which represented a proposed transaction in interstate commerce in excess of $23,000,000, was made to all of the shareholders of Chicago Rivet residing throughout the United States, including those residing in Illinois.
The district court entered its final judgment order in the instant action on February 9, 1979. The order declared the Illinois Act to be null and void because it was preempted by the Williams Act and because it created an undue burden on interstate commerce in violation of the commerce clause. The district court also permanently enjoined enforcement of the Illinois Act against MITE in connection with its proposed tender offer. From the judgment of the district court, defendant Dixon now appeals.
MITE withdrew its February 5, 1979 tender offer, and the record does not indicate whether MITE intends to make another tender offer for Chicago Rivet's shares. Nevertheless, if this court were to reverse the judgment of the district court, MITE would face both criminal and civil liability for making the February 5, 1979 offer in violation of the Illinois Act. See Illinois Rev.Stat. ch. 121 1/2, §§ 137.63-137.65 (1979). Since the Secretary has indicated that he intends to enforce the Act against MITE, the issues before us are not moot.
The determination whether a challenged state statute is void under the supremacy clause is notoriously complicated. "No simple formula can capture the complexities of this determination; the conflicts which may develop between state and federal action are as varied as the fields to which congressional action may apply." Goldstein v. California, 412 U.S. 546, 561, 93 S. Ct. 2303, 2312, 37 L. Ed. 2d 163 (1973). Prior cases do not always furnish precise guidelines in resolving a particular controversy, "for each case turns on the peculiarities and special features of the federal regulatory scheme in question." City of Burbank v. Lockheed Air Terminal, Inc., 411 U.S. 624, 638, 93 S. Ct. 1854, 1862, 36 L. Ed. 2d 547 (1973). Nonetheless, over the years the general tests to be applied in adjudicating questions of preemption have become reasonably well established. As the Fifth Circuit noted in Great Western United Corp. v. Kidwell, 577 F.2d 1256, 1274 (1978), rev'd on venue grounds sub nom. Leroy v. Great Western United Corp., 443 U.S. 173, 99 S. Ct. 2710, 61 L. Ed. 2d 464 (1979), those tests were summarized by the Supreme Court in Jones v. Rath Packing Co., 430 U.S. 519, 525-26, 97 S. Ct. 1305, 1309-10, 51 L. Ed. 2d 604 (1977):
The first inquiry is whether Congress, pursuant to its power to regulate commerce, U.S.Const., Art. 1, § 8, has prohibited state regulation of the particular aspects of commerce involved in this case.... (W)hen Congress has "unmistakably ... ordained," Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142, 83 S. Ct. 1210, 1217, 10 L. Ed. 2d 248 (1963), that its enactments alone are to regulate a part of commerce, state laws regulating that aspect of commerce must fall. This result is compelled whether Congress' command is explicitly stated in the statute's language or implicitly contained in its structure and purpose. City of Burbank v. Lockheed Air Terminal, Inc., 411 U.S. 624, 633, 93 S. Ct. 1854, 1859, 36 L. Ed. 2d 547 (1973); Rice v. Santa Fe Elevator Corp., (331 U.S. 218,) 230, 67 S. Ct. 1146, 1152, 91 L. Ed. 1447 (1947).*fn3
Congressional enactments that do not exclude all state legislation in the same field nevertheless override state laws with which they conflict. U.S.Const., Art. VI. The criterion for determining whether state and federal laws are so inconsistent that the state law must give way is firmly established in our decisions. Our task is "to determine whether, under the circumstances of this particular case, (the State's) 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, 67, 61 S. Ct. 399, 404, 85 L. Ed. 581 (1941). Accord, De Canas v. Bica, 424 U.S. 351, 363, 96 S. Ct. 933, 940, 47 L. Ed. 2d 43 (1976); Perez v. Campbell, 402 U.S. 637, 649, 91 S. Ct. 1704, 1711, 29 L. Ed. 2d 233 (1971); Florida Lime & Avocado Growers, Inc. v. Paul, supra, 373 U.S. at 141, 83 S. Ct. at 1216; id., at 165, 83 S. Ct. at 1229 (White, J., dissenting). This inquiry requires us to consider the relationship between state and federal laws as they are interpreted and applied, not merely as they are written. See De Canas v. Bica, supra, 424 U.S. at 363-365, 96 S. Ct. at 940; Swift & Co. v. Wickham, 230 F. Supp. 398, 408 (S.D.N.Y.1964), appeal dismissed, 382 U.S. 111, 86 S. Ct. 258, 15 L. Ed. 2d 194 (1965), aff'd on further consideration, 364 F.2d 241 (CA2 1966), cert. denied, 385 U.S. 1036, 87 S. Ct. 776, 17 L. Ed. 2d 683 (1967).
Congress has not chosen in the Securities Exchange Act of 1934 expressly to bar the states from regulating tender offers. Indeed, the Supreme Court has noted that § 28(a) of the 1934 Act*fn4 "was plainly intended to protect, rather than to limit, state authority." Leroy v. Great Western United Corp., supra, 443 U.S. at 182, 99 S. Ct. at 2716.*fn5 Nor is the federal scheme of regulating tender offers so pervasive that an implicit congressional intent to preempt parallel state legislation may fairly be inferred. As discussed infra, the Williams Act is essentially a minimum disclosure statute. It is not analogous, for example, to the detailed and comprehensive scheme of federal regulation of aircraft noise which led to a finding of preemption in City of Burbank v. Lockheed Air Terminal, Inc., 411 U.S. 624, 93 S. Ct. 1854, 36 L. Ed. 2d 547 (1973).*fn6
Of course, even federal legislation that is not pervasive will preempt supplemental state enactments if Congress has legislated in an area of paramount federal importance. In the realms of national security and foreign affairs, state legislation has been held implicitly preempted because both areas are of unquestionably vital significance to the nation as a whole. See Pennsylvania v. Nelson, 350 U.S. 497, 76 S. Ct. 477, 100 L. Ed. 640 (1956) (national security); Hines v. Davidowitz, 312 U.S. 52, 61 S. Ct. 399, 85 L. Ed. 581 (1941) (foreign affairs). But federal securities regulation is not of equivalent paramountcy, as an area of federal concern, to the security of the nation or to the conduct of its international relations. On the contrary, the absence of an exclusive federal interest in the field of securities regulation is persuasively demonstrated by the historically coordinate role of state regulation in the field.*fn7
Thus, in the absence of explicit or implicit preemption, our task is to determine whether the Illinois Act conflicts with the Williams Act, to ascertain "whether, under the circumstances of this particular case, (the State's) 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, 67, 61 S. Ct. 399, 404, 85 L. Ed. 581 (1941); Ray v. Atlantic Richfield Co., 435 U.S. 151, 158, 98 S. Ct. 988, 994, 55 L. Ed. 2d 179 (1978); Jones v. Rath Packing Co., 430 U.S. 519, 526, 97 S. Ct. 1305, 1310, 51 L. Ed. 2d 604 (1977). Accord, De Canas v. Bica, 424 U.S. 351, 363, 96 S. Ct. 933, 940, 47 L. Ed. 2d 43 (1976); Perez v. Campbell, 402 U.S. 637, 649, 91 S. Ct. 1704, 1711, 29 L. Ed. 2d 233 (1971); Florida Lime & Avocado Growers, Inc. v. Paul, 373 U.S. 132, 141, 83 S. Ct. 1210, 1216, 10 L. Ed. 2d 248; id., at 165, 83 S. ...