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HOYLAKE INVS. v. WASHBURN

October 4, 1989

HOYLAKE INVESTMENTS LIMITED, a Bermuda corporation, Plaintiff,
v.
JOHN E. WASHBURN, Director, Illinois Department of Insurance, Defendant



The opinion of the court was delivered by: NORDBERG

MEMORANDUM OPINION AND ORDER

 JOHN A. NORDBERG, UNITED STATES DISTRICT JUDGE.

 Before the court are plaintiff's motion for preliminary injunction and defendant's motion to dismiss. Plaintiff Hoylake Investments seeks to enjoin the Director of the Illinois Department of Insurance from enforcing the Illinois Insurance Holding Company Systems Act. Defendant Director moves the court to abstain from exercising jurisdiction over plaintiff's suit.

 After a full hearing on the motions, the court reviewed the written pleadings, exhibits, and memoranda of the parties and amicus curiae. The court conducted independent research, considering all of the law and evidence presented. The court has sought to draw reasonable inferences from the evidence and evaluate the applicable constitutional and statutory provisions, legal authorities and principles. Therefrom, the court makes the following findings of fact and conclusions of law:

 Facts

 The facts are uncontested. Hoylake Investments Limited ("Hoylake") is a Bermuda subsidiary of an English company. On July 11, 1989, Hoylake announced the largest tender offer in Europe to date, for the shares of B.A.T. Industries. B.A.T. is a multinational conglomerate, incorporated in England, with over 145,000 shareholders. B.A.T. engages in four major business activities: tobacco, paper, retailing, and financial services.

 B.A.T. Industries operates in the United States through a wholly owned subsidiary, BATUS, a Delaware corporation with its principal place of business in Kentucky. BATUS owns Farmers Group, Inc., which controls three insurance exchanges. The exchanges own several property and casualty insurers, among them Illinois Farmers Insurance Company ("Illinois Farmers") -- an Illinois-based insurance company incorporated in Illinois. While Illinois Farmers accounts for only a small percentage of B.A.T.'s total revenue, the company ranked among the six largest home and four largest automobile insurers in Illinois in 1988.

 Defendant Director of the Illinois Department of Insurance ("Director") is responsible for enforcing the Illinois Insurance Holding Company Systems Act, Ill.Rev.Stat. ch. 73, §§ 743.1 -- 743.28. The Act requires the Director to approve any change in control of a domestic insurance company. *fn1" At present, B.A.T. controls Illinois Farmers through intermediate corporate entities. Because Hoylake would assume control of Illinois Farmers upon acquiring B.A.T., the Act obligates the Director to review the proposed acquisition.

 On July 12, 1989, Hoylake filed a Form A with the Illinois Department of Insurance to initiate the Director's review process, as required by the Act. Hoylake attached a letter asking the Director to find the company exempt from the approval procedure. On September 11, 1989, the Director denied Hoylake's request for exemption; three days later, the Director informed Hoylake that hearings would commence on October 6, 1989, to determine whether Hoylake's proposed tender offer may proceed.

 On September 15, 1989, however, London's Panel on Takeovers and Mergers (responsible for administering the City Code) granted Hoylake an extension: the company may take whatever time is necessary to obtain regulatory approval in the United States and then, within 21 days of such approval, renew its tender offer for B.A.T.'s shares. On September 29, 1989, the Appeal Committee of the Takeover Panel affirmed the Panel's ruling.

 The extension notwithstanding, Hoylake asks the court to enjoin the Director of the Illinois Department of Insurance from proceeding any further under the Illinois Insurance Holding Company Systems Act. Hoylake contends that the Act is unconstitutional as applied, and that its enforcement threatens Hoylake with irreparable injury. The Director moves the court to abstain from deciding Hoylake's claims.

 MOTION FOR PRELIMINARY INJUNCTION

 To obtain a preliminary injunction, Hoylake must prove the following: (1) Hoylake has no adequate remedy at law; (2) it will suffer irreparable harm if the preliminary injunction is not issued; (3) the irreparable harm that Hoylake would suffer if the injunction were denied outweighs the irreparable harm that would befall the Director if the injunction were granted; (4) Hoylake has a reasonable likelihood of prevailing on the merits; and (5) the injunction will not harm the public interest. Curtis v. Thompson, 840 F.2d 1291, 1296 (7th Cir. 1988).

 Likelihood of success on the merits

 Hoylake's challenge rests on three theories: first, that the Illinois Act violates the Commerce Clause; second, that it offends the Due Process Clause; and third, that it impermissibly encroaches on the Federal Government's dominion over ...


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