LEROY v. GREAT WESTERN UNITED CORP.
Legal provision: Securities Act of 1933, the Securities and Exchange Act of 1934, or the Williams Act
Argument of Peter E. Heiser, Jr.
Chief Justice Warren E. Burger: We'll hear arguments next in Leroy against Great Western United Corporation.
Before you proceed counsel, I want to inform the counsel in United States against Batchelder, the Solicitor General's office and Mr. Bellows that we will not reach your case this afternoon and you may be excused if you -- at any time you wish.
Mr. Peter E. Heiser, Jr.: Mr. Chief Justice --
Chief Justice Warren E. Burger: Mr. Heiser.
Mr. Peter E. Heiser, Jr.: -- and may it please the Court.
The Idaho official appellants in this case believe that the jurisdiction and venue issues that are brought here before the Court are the most important jurisdiction and venue issues relating to federal court jurisdiction over state officials since the decision in 1908 in ex parte Young.
And that the issues on the merits of this case are very demanding, very interesting in the interrelationship of federal securities laws and state securities laws in a system of cooperative federalism.
This case involves in attempt by the appellee, Great Western United Corporation, a New York Stock Exchange traded, Delaware Corporation with corporate offices in Colorado, executive offices in Texas and which does business throughout the United States to effect a cash partial tender offer for up to two million shares of the outstanding common stock of the Sunshine Mining Company.
A New York Stock Exchange traded, Washington State Corporation with its principle asset, a silver mine located in the State of Idaho, its corporate offices in the State of Idaho, its executive offices in New York and other substantial assets in the states of Maryland and New York.
Though in this case, the proposed tender offer was initiated by Great Western United Corporation in Dallas, Texas.
The tender offer was announced and disseminated through a New York investment banking firm and the shares were to be tendered to a Chicago, Illinois bank.
As far as timing is concerned, on Monday, March 21, 1977, Great Western United Corporation simultaneously filed a Scheduled 14D statement with the Securities Exchange Commission as required by the William Act amendment to the 1934 Securities Exchange Act, which relates to cash tender offers for corporate control.
It voluntarily appeared in the State of Idaho to file a registration statement under the Idaho Corporate Takeover Law which is the subject of the constitutional challenge herein.
And it inquired of the States of Maryland and New York as to whether those states would exercise jurisdiction under their respective state takeover laws.
Four days later, that Friday, the Deputy Administrator of Securities of the State of Idaho responded to Great Western United requesting additional information under the Idaho filing and contemporaneously, appellant McEldowney, the Director of the Idaho Department of Finance, submitted an executive order -- administrative order delaying the effective date of the tender offer.
No other official from any state, including the appellant Kidwell who has been replaced in office by appellant Leroy, took any action or threatened any action.
They were merely officials who were charged under their respective state laws with administering those respective state securities laws.
Nor did Great Western United ever attempt to negotiate or respond in part to the request of Idaho for additional information, despite the fact that one of those requests was merely that the eight missing pages from the Xerox copy of the 14D Statement which had been filed with the SCC, be submitted.
Instead, Great Western United sole response to the request for additional information that was received by them on a Friday was that next Monday morning at 9 o'clock in the morning, to appear in Federal District Court in the Northern District of Texas, Dallas division, seeking an ex parte temporary restraining order in a lawsuit which challenged the constitutionality of the state takeover laws of Idaho, Maryland and New York and asserted that personal jurisdiction and venue were proper over the state officials challenged under the ex parte Young Stripping Doctrine in the Northern District of Texas, rather than in their home states.
Justice William H. Rehnquist: Was the sole basis of this claim of fact that the federal law preempted the Idaho law?
Mr. Peter E. Heiser, Jr.: No, Mr. Justice Rehnquist, the basis for the constitutional challenge was preemption on the one hand, and on the other hand that the Idaho law and the Maryland and New York law is unduly burdened interstate commerce, and were therefore forbidden on that ground as well.
Justice William H. Rehnquist: I suppose the mere existence of an Idaho statute which might ultimately be determined to preempt -- to be preempted by a federal statute wouldn't mean that the state official charged with administering would be “violating” the federal statute within Section 27?
Mr. Peter E. Heiser, Jr.: Mr. Justice Rehnquist that is exactly our contention.
We have a situation here where the officials involved were themselves regulators of securities transactions and are being sought to be held under the jurisdiction and venue portion of the Securities Exchange Act of 1934 to be subject to suit under that as though they had participated in fraudulent activities, or had in fact violated some direct command of that Securities Exchange Act.
Justice Byron R. White: That's one -- on what basis for jurisdiction?
Mr. Peter E. Heiser, Jr.: That is the federal securities law basis for jurisdiction.
That is correct Mr. Justice White.
The other basis for jurisdiction was the Texas long-arm statute and under the Texas long-arm statute, it was alleged that the Idaho and other officials were actually doing business in Texas, and doing business is a jurisdictional prerequisite in that statute.
It has a two-step analysis that must be reached.
The statute defines two categories of doing business.
One of those categories, strange as it may seem, is a tort that occurs in whole or in part in Texas, but that is defined in there as doing business.
The other aspect of doing business in Texas under the Texas long-arm statute that is defined, is a contract, the performance of which occurs all or in part in Texas then the statute opens up the scope and it says that it encompasses other activities that may constitute doing business in Texas.
And it is very much the appellant's contention that their activity in a governmental capacity in being in Idaho, as Idaho officials, charged with an administering Idaho law is certainly not an activity of doing business in Texas with the commercial overtone that that doing business concept necessarily implies.
That is the threshold consideration that must be reached in the Texas long-arm statute for assertion of personal jurisdiction.
The next requirement for inquiry is of course the constitutional due process question.
International Shoe, Hanson versus Denckla, again phrased in terms of minimum contacts, activities that are commercial profit-oriented activities that would subject a company or organization or person engaged in interstate commerce in a profit-oriented mode to be rightfully subjected to jurisdiction in a place where the consequences of that commercial activity were felt.
And we submit that the basis of this Court's determinations in due process really relate to the fact that the entity or person subjected to the jurisdiction of the out of state forum has been one who has sought the profit orientation of commercial activity.
Never before has it been applied to a state official who is merely a regulator.
And in fact the mischief of it being applied really relates to a question that was earlier posed this morning by Justice Marshall about being sued in Maui.
And while it may be nice for a state official to able to vacation in Maui, it certainly is difficult when a state official would be called to defend his action in Idaho in enforcing an Idaho law in Idaho, in Maui or in any other place.
The chilling effect that that would have on the enforcement of state laws, the chilling effect that that would have on legislatures in determining what law that they passed might be deemed to have somewhere in some other jurisdiction of this United States.
An extra territorial effect or consequence would be incredible and the budgetary problems that defending in a foreign jurisdiction present, are also potentially overwhelming.
The cost of sending attorneys and officials who were hired by their state to represent activities within the state, sending them to foreign jurisdictions to defend actions, the expense of the legislature in a small state, such as Idaho trying to figure appropriations that would cover defenses and jurisdictions throughout the United States of allegations that are brought merely because someone feels they've been affected in a foreign jurisdiction.
And the expense in many of the federal districts of the United States where a person cannot be admitted directly to practice before that federal district, but must have -- you sometimes can appear pro hac vise with associate counsel, local counsel.
In other instances, you can not be admitted to practice before the district at all and you must hire a local counsel.
Justice William H. Rehnquist: Mr. Heiser, what if this case had arisen with a plaintiff as one who is contending that the takeover should not be permitted because the corporation had not complied with the Idaho statute?
That plaintiff lived in Texas, otherwise had standing.
Is there any reason why in that sort of a lawsuit where their Idaho officials weren't joined as parties, the District Court in Texas couldn't hold that the federal statute preempted the Idaho statute?
Mr. Peter E. Heiser, Jr.: Mr. Justice Rehnquist if it were procedurally proper to entertain the lawsuit in the Northern District of Texas, there is absolutely no reason why the Idaho law could not be assessed as it affected someone in the Northern District of Texas.
That is correct.
But that is not what happened here.
Unfortunately, and of course we contend that had this lawsuit been brought in the District of Idaho as it should've been, there would be no question that it is a lawsuit that is properly entertainable in Federal District Court in the District of Idaho.
But unfortunately, it was not brought there and that is what poses the very difficult jurisdiction and venue overlaid this case.
Justice Byron R. White: But I suppose New York and Maryland would, on your basis, would have the same objection to jurisdiction in Idaho as you are placing -- objecting to in Texas?
Mr. Peter E. Heiser, Jr.: Mr. Justice White that is absolutely correct and in fact, New York and Maryland very strenuously did object to the jurisdiction and venue being based in Texas, as I'm sure they would have, had it been based in Idaho.
Justice William H. Rehnquist: But you wouldn't go so far as to say that given all the other necessary requirements of federal jurisdiction and venue, only the Federal District Court sitting in Idaho could hold an Idaho statute preempted by a federal statute.
Mr. Peter E. Heiser, Jr.: No, Mr. Justice Rehnquist that is not what I'm -- would not be my contention.
Under proper jurisdiction and venue in raising the federal question that would be proper for a federal court to consider the Idaho law or someone else's law.
And it might -- there might be a situation like that where Idaho would participate as amicus curiae and volunteer to come down.
I'm not saying that there is a restraint on the court in entertaining the Idaho law.
In fact I think there's ample Supreme Court precedent for that occurring.
There has been an allegation made that the State of Idaho delayed the effective date of Great Western's tender offer for the shares of Sunshine Mining Company stock and that it therefore interfered with the transaction of $31 million of interstate commerce.
In fact, the delay attributable to action by Idaho was for a period of two days.
From March 28 to March 30, 1977 when after hearing that there was an ex parte temporary restraining order sought, we asked the federal district judge in Dallas to allow us to go on the record, and he postponed the hearing for two days.
All the other delay in this case either resulted as from a lawsuit that was brought by Sunshine Mining Company in the District of Idaho against Great Western United under the Williams Act, charging that Great Western United had not complied with the Williams Act.
And the other delay was occasioned by Great Western's desire to pursue in the Northern District of Texas, this constitutional challenge to the Idaho, New York and Maryland takeover statutes.
We have additionally the venue problems.
Venue was alleged under the Securities Exchange Act of 1934, Section 27 and venue there was sought on the basis that the violations that were alleged to have been committed by the state officials actually occurred in the State of Texas rather than in the State of Idaho.
When in fact the action that did take place was action that was taken in Idaho pursuant to the Idaho law, was transmitted to Texas at the request of Great Western United which had sought the response to be sent to them in Texas.
So it may have come to rest in Texas, but it took place in Idaho and of course creates the awkward situation that if you say that for venue purposes, you have properly a single federal district for venue purposes as the place where the violation occurred, rather than a place were acts in furtherance of a violation occurred, which is not what the venue statute says.
Then you create this strange situation where if venue is proper in the northern district of Texas, then it can not be proper in the district of Idaho and what you're really challenging is the action of the Idaho officials, the Idaho law and the constitutionality of the Idaho law.
Chief Justice Warren E. Burger: Let me ask you a question in two stages.
First, suppose the Idaho Company borrowed money from a Houston Bank in Texas and as usual submitted financial statements, and defaulted on the loan and suit was brought.
Would venue lie in Texas?
Mr. Peter E. Heiser, Jr.: Mr. Chief Justice under the terms of the Texas long-arm statute where you had defined within the doing business context of that statute, a contract to be performed in whole or in part in Texas, it is quite likely that he Federal District Court in Texas would have proper jurisdiction over that action so long as it did not fall within the proscription of U-Anchor Advertising, Inc. versus Burt.
Chief Justice Warren E. Burger: Now eliminate the Texas statute from the hypothetical and have the same loan made, financial statement submitted and it turned out that the financial statements were allegedly false.
Would venue lie on Texas independent of the Texas long-arm statute?
Mr. Peter E. Heiser, Jr.: Under the general venue statute, Your Honor?
Under the general venue statute then you would be proper where all the defendants resided, or where the act or transaction that is the subject matter occurred.
And in this instance, while the loan was sought in Texas, it would appear from the hypothetical you have posed that the default occurred in Idaho and the venue would therefore be --
Chief Justice Warren E. Burger: -- a false statement was rendered, a false statement was delivered to Texas, to the bank, rather the lender.
Isn't that enough?
Mr. Peter E. Heiser, Jr.: That is, you have there a situation of a weight of context problem, where one of the acts in furtherance -- if that is the operative fact, the fault statement and its transmission into Texas, then yes.
There are cases which hold the venue would be proper in Texas.
Although under a weighing of context analysis, it might also be deemed proper that venue would be laid in Idaho.
If that were the --
Chief Justice Warren E. Burger: Well there's no question about it being in Idaho, but the borrower --
Mr. Peter E. Heiser, Jr.: Well, it will be in Idaho under defendants where the defendants resided.
But as far as the where the act or transaction occurred, I think that you can have it either in Idaho or in Texas where there is a deliberate fraudulent activity, because in that context which you pose Your Honor, there you have a deliberate action by the defendant which he wants to have a jurisdiction causing effect in Texas.
Justice Potter Stewart: Well Mr. Heiser, are we talking now about venue or jurisdiction, and are we talking if jurisdiction over the person or over the subject matter?
And are we talking as a matter of what's permissible under the Constitution or what is provided by state statute?
I've been lost in this discussion.
Mr. Peter E. Heiser, Jr.: Mr. Justice Stewart that has been one of the problems of this case from the beginning.
Justice Potter Stewart: Well it is been your contention, I gather.
Mr. Peter E. Heiser, Jr.: It's been our contention that there are several distinct criteria which must be met.
That there are three criteria which must be met --
Justice Potter Stewart: Must be met what?
Under the Constitution or under some state's --
Mr. Peter E. Heiser, Jr.: Must be met under the Constitution as well -- well there are criteria that must be met under the Constitution.
Justice Potter Stewart: Yes.
Mr. Peter E. Heiser, Jr.: Due process standards.
Justice Potter Stewart: Yes.
Mr. Peter E. Heiser, Jr.: There are three criteria which must be met under the Federal Securities Act, jurisdiction and venue provision and there are special criteria which must be met under the Texas long-arm statute.
Under the Securities Act, jurisdiction and venue statute there must be subject matter jurisdiction.
It has been alleged that there is subject matter jurisdiction because the state officials in enforcing, or being charged with the enforcement of a state law allegedly in conflict with federal law, rises somehow to the dignity of a violation of the Securities Exchange Act of 1934.
And that therefore, there is subject matter jurisdiction.
Next, it has been said that there is personal jurisdiction over the officials because the action that they took was having in effect on a corporation in Texas, and that venue was proper in Texas because that was the district where the effect of the action in Idaho was felt.
Justice Potter Stewart: Its subject -- it's a personal jurisdiction over the Idaho officials, which is the big threshold issue here isn't it?
Mr. Peter E. Heiser, Jr.: Absolutely, Your Honor.
Justice Potter Stewart: And it's personal jurisdiction over them, not subject matter jurisdiction over the case.
Personal jurisdiction over the Idaho officials whether there is out of the Constitution of the United States, whether there can be.
Isn't that it?
Mr. Peter E. Heiser, Jr.: Mr. Justice Stewart that is absolutely correct.
There is the one additional problem with that in that the personal jurisdiction that was alleged under the Securities Exchange Act of 1934 was alleged because of the further allegation of subject matter jurisdiction and that they violated the Act, because of the --
Justice Potter Stewart: Well, let's assume they violated the Act.
There's still a threshold question --
Mr. Peter E. Heiser, Jr.: There still is the --
Justice Potter Stewart: -- is whether or not the court had personal jurisdiction over them, isn't it?
Mr. Peter E. Heiser, Jr.: Absolutely, Your Honor.
And under the Texas long-arm statute, that that is the crux of the contention that they did --
Justice Byron R. White: But if there was a violation then there's nationwide service, isn't there?
Mr. Peter E. Heiser, Jr.: Mr. Justice White that --
Justice Byron R. White: Let's just assume there was a violation by the Idaho officers, and I don't suggest that they're -- that I think there was.
Doesn't the securities law provide for nationwide jurisdiction -- service?
Mr. Peter E. Heiser, Jr.: Mr. Justice White that is correct.
It provides for nationwide service of process.
Justice Byron R. White: Does that -- wouldn't that give personal jurisdiction?
Mr. Peter E. Heiser, Jr.: That would give personal jurisdiction in a court where the due process standards were properly applied.
Justice Byron R. White: Right.
Mr. Peter E. Heiser, Jr.: And there again, we go to the crux of the argument.
It has been the contention that sometimes in the case that due process does not obtain in an action such as, as broad under Section 27 of the Securities Act, because there is nationwide service of process.
And therefore a state official can be served anywhere where a court can issue that process.
Justice Potter Stewart: Anybody can be served by a federal court, the only meets and bounds of our nation.
Mr. Peter E. Heiser, Jr.: Absolutely Mr. Justice Stewart.
Anybody can be served by the court.
But that threshold question there is, is that the proper court to issue the service?
Justice Potter Stewart: Well then is that a matter --
Mr. Peter E. Heiser, Jr.: And that's the crux --
Justice Potter Stewart: That's a matter of venue then?
Mr. Peter E. Heiser, Jr.: That is a matter of the -- it's a matter of whether one wants to call it venue or proper assertion of personal jurisdiction.
It is whether that is the proper court.
That's the purpose of trying to stop the form shopping.
Justice William H. Rehnquist: Well, what if Congress says in so many words that if there has been a violation of the Act, as Mr. Justice White's question to assume, process may be served and personal jurisdiction may be obtained in any one of the 93 judicial districts in the United States?
Mr. Peter E. Heiser, Jr.: Mr. Justice Rehnquist, if that is what the statute said, then I would still try to be here before you saying that that statute in assessing personal jurisdiction on such a broad scope was missing the very important due process requirement that allows the federal court to hear the case in the first place.
Justice Byron R. White: Well would you say that even in a case where the prosecution or the action arose in a case where the alleged violation occurred?
Mr. Peter E. Heiser, Jr.: Mr. Justice White, no.
Justice Byron R. White: Of course you wouldn't, it --
Mr. Peter E. Heiser, Jr.: That's the whole point.
Justice Byron R. White: And so if the violation occurs in State A, and the federal law says that you can serve anybody connected with this case anywhere in the country, you wouldn't object to that?
Mr. Peter E. Heiser, Jr.: Absolutely not Your Honor, and that's the whole point.
If this were brought in the District of Idaho, and for some reason the Idaho officials had to be served in Hawaii or Alaska or wherever, nationwide service of process, absolutely no problem whatsoever.
Chief Justice Warren E. Burger: And that doesn't determine where the venue is going to lie.
Mr. Peter E. Heiser, Jr.: That is correct Your Honor.
That's where the claim or the Act in violation occur, is to where the venue of the case is laid.
Chief Justice Warren E. Burger: And all of these colloquies address to the federal statute, is it not?
Mr. Peter E. Heiser, Jr.: All of this is --
Chief Justice Warren E. Burger: No, our case is involves --
Mr. Peter E. Heiser, Jr.: -- directed to jurisdiction under Section 27 of the Security Exchange Act.
Chief Justice Warren E. Burger: Our case involves the Texas statute doesn't it?
Mr. Peter E. Heiser, Jr.: That was one basis for jurisdiction, and the other basis -- the one basis for jurisdiction over the state officials was Section 27 of the Securities Exchange Act of 1934.
The alternative basis for jurisdiction over the state officials was under the long-arm -- Texas long-arm statute and its accompanying venue statute.
So what the two courts below found was that jurisdiction was proper in the Northern District of Texas by coming down these two avenues, either one of them.
Justice William H. Rehnquist: Well don't you agree that if your opponents can sustain either one of those, the Court of Appeals was correct?
Mr. Peter E. Heiser, Jr.: Mr. Justice Rehnquist if, if this Court would sustain either one of those then the Court of Appeals was correct, but it's our --
Justice William H. Rehnquist: They're independent basis of jurisdiction.
Mr. Peter E. Heiser, Jr.: Absolutely Your Honor.
But it's our contention that both of them are absolutely wrongly decided because both of them misapplied not only the due process standards, but fail to come to grips with the doing business prerequisite on the one hand and the Texas long-arm statute.
And created this incredible fiction that state officials who were enforcing a state law in Idaho themselves regulators of securities transaction were somehow guilty of the same type of activity that people who were subject to the Williams Act and the other portions of the Securities Exchange Act violate.
Justice William H. Rehnquist: But that -- that's answering the question that Mr. Justice White earlier asked you to assume.
But supposing that they go into the Northern District of Texas and alleged that you have -- that you have made -- violated the Securities Act and alleged venue and jurisdiction under Section 27.
Now, don't you think that Congress has a right to allow that sort of jurisdiction and venue if it's expressly says so, and if it can satisfactorily -- if the plans can satisfactorily make out a case that you have violated the thing?
Justice Byron R. White: In Texas.
Justice William H. Rehnquist: In Texas?
Mr. Peter E. Heiser, Jr.: Mr. Justice Rehnquist, yes.
If the prerequisites that you say, if there has been a violation, truly a violation, if it -- the statute were framed in such a way the law, the underlying law were framed in such a way that a violation truly could be said to have occurred, yes that Congress can structure it how they want to.
Justice Byron R. White: Well Mr. Heiser, in so far as you are having violated the statute or not, and I don't suggest one way or another.
Your position or your status is the same in Idaho as it is in Texas.
You have violated it in Texas just as much as you have in Idaho but no more and no less.
Mr. Peter E. Heiser, Jr.: You have violated it, Mr. Justice White, any place in the United States.
Justice Byron R. White: Exactly.
Mr. Peter E. Heiser, Jr.: But the venue would not necessarily --
Justice Byron R. White: If you violated it at all, but you say that --
Mr. Peter E. Heiser, Jr.: If you violated it at all, but then you would not necessarily be proper in the United States then you're back to venue.
Justice Byron R. White: I understand.
Mr. Peter E. Heiser, Jr.: I reserve the rest of my time.
Justice Harry A. Blackmun: Mr. Heiser before you sit down, just to detail.
Is the Attorney General properly here?
Mr. Peter E. Heiser, Jr.: Mr. Justice Blackmun, it's my contention the Attorney General is properly here.
The decision of the Fifth Circuit Court of Appeals, although the Attorney General did not make the formal appeal from the District Court decision, at all times during the -- in the context and in the writings of the Fifth Circuit, it treated the officials.
And the plural was that both of them were before the Court.
It affirmed the decision of the court below that related to both the officials and it's our contention that the Attorney General is properly before this Court, because the Fifth Circuit wrongly or rightly certainly did assert jurisdiction over him and adjudged the case with regard to him.
Chief Justice Warren E. Burger: Speaking of Attorney's General, I think in your brief, you have ex parte Young as the Attorney General of Minnesota, sometimes we at Minnesota might be glad to yield that Michigan as you've described it.
But -- or one of the briefs did I think yours --
Mr. Peter E. Heiser, Jr.: In the summary of argument, my --
Chief Justice Warren E. Burger: -- the Attorney General of Minnesota.
Mr. Peter E. Heiser, Jr.: In the summary of argument, my printer got Michigan and there -- in my argument he did it right in Minnesota.
Argument of Amy Juviler
Chief Justice Warren E. Burger: Mrs. Juviler.
Ms Amy Juviler: Mr. Chief Justice, and may it please the Court.
The unprecedented decisions below with which you have just been grappling with Mr. Heiser, changed the law with regard to jurisdiction and venue so as to expose the states, their officials and the laws enacted by citizens of this country through their state representatives to unfair trial as occurred in this case.
There was no reason whatever, none to warp the established procedures to accommodate Great Western United, a multi-state corporation seeking to expand its Idaho operations.
Suit in the District Court in Idaho was possible and was convenient for the defendants as we demonstrated in our brief.
The only reason that these problems are presented to Your Honors, that of subject matter jurisdiction under the Securities Act, personal jurisdiction under the Securities Act and the long-arm statute, and the limits on those statutes posed by due process.
And the questions of venue not only under the general venue statute of this Court in issues have never been presented before.
And then you wonder the Securities Act, the only reason was that because the lower courts were impatient to exercise their own jurisdiction, the personal jurisdiction of the Northern District Court and the jurisdiction of the Fifth Circuit in order to decide a superficial and intellectual question only.
And that is whether the law of Idaho was preventing shareholders of Sunshine Mining Company, who personally resided in other states, from selling their shares to Great Western United.
Those shares we must remember throughout this case were in a company whose major asset is the largest silver mine in the United States and a very important resource of the State of Idaho, and permanently located in Idaho.
Chief Justice Warren E. Burger: Mrs. Juviler, your friend Mr. Heiser in response to Justice Blackmun said very definitely, the appellant is here.
Could he have taken an appeal to the Court of Appeals from the District Court judgment, could he?
We know that he didn't, if I recall it correctly.
Ms Amy Juviler: Yes, Mr. Chief Justice, I believe that appellant Kidwell could.
That's an interesting question to pose to the representative of the Attorney General of New York who sat in our office and debated whether we could take an appeal, because we have to -- had to expend public moneys, and may I say my own profit funds, because the controller didn't think that I was really on state business in Dallas and New Orleans.
He thought I was on some frolic in detour for my own amusement.
Also the people who provided us the transcripts have similarly suffered the skepticism of the controller of the State of New York.
But we determined that we wouldn't burden this Court with yet another jurisdictional problem in a case already bothered, and we chose not to appeal but to appear as amicus throughout.
Although we feel personally aggrieved, I mean the Attorney General feels personally aggrieved for having to defend his statute in Texas when there was no reason whatever to do so leading aside all of the legal objections in the Constitution.
In along the way in doing this, we're not only dealing here with statutes that failed to provide jurisdiction and venue over the state officials.
But the policy that is reflected by Congress' utter lack of interest in securing this kind of jurisdiction over state officials, is part of the way our Government is organized.
I'm not going to go so far here because it is unnecessary to say that if Congress wrote the kind of statute that Mr. Justice Rehnquist was talking about, it would be unconstitutional, it's the violation of our federal rights we'd first have to see it.
Or perhaps unconstitutional as a violation of due process of the individual state officials sued under the doctrine of ex parte Young, as to whether they were given adequate notice that they would be exposed in foreign jurisdictions for their actions in good faith compliance with their own laws.
Justice William H. Rehnquist: You don't deny that a private citizen could be made subject to suit anywhere in the United States by Congress, do you?
Ms Amy Juviler: No, of course Mr. Justice Rehnquist, I don't deny that it would be possible for Congress to establish nationwide service over state officials.
If the statute not only gave full notice but was based on some reasonableness and the action also had some basis in the jurisdiction in which --
Justice William H. Rehnquist: But if Congress just said in so many words there should be nationwide service of process on everyone who is alleged to have violated statute when didn't purport to make any finding of reasonableness, they just -- this is what the law is going to be?
Ms Amy Juviler: If Congress had done that, and well one of the basic questions, you used the word violate and it has been used here a great many times.
It is not conceded and I think it is -- does not do credit to the language of the statute.
The states are not violators, the language for a state statute which is in conflict with the Williams Act is -- or the many aspect of the securities law is precisely that conflict.
The word violation does not fairly apprise a state official that what he does is in conflict or in fact if someone sought to sue the official of the Securities Exchange Commission under the same grounds, I don't think he would be given due process notice that he would be exposed to suit as a violator, unless Congress also said a violation means that you act in conflict with the statute.
And then I think if Congress did that securities administrators would know that a new era has come into the United States and state statutes governing securities instead of giving the heavy presumption in favor of them that they are presently given now are to be treated as substantively suspect.
And without -- and because we have a procedural system that reflects the substantive law of securities regulation in this country, as well as corporate regulation, one can expect that an ordinary state statute which governs the affairs of corporations within that state, actually within that state, and the affairs of securities trading regarding such a corporation, such a statute is presumed correct and is not presumed to be a violation unless Congress held hearings and thought about it a lot and did it.
But Congress hasn't threatened us with that nor is there any suggestion that Congress went so far.
And all of this -- Your Honors might want to manipulate, as the courts below did, the law to get at the issue if there wasn't a court sitting that could get at the issue.
But we've conceded from the beginning that there was subject matter jurisdiction under the Supremacy Clause under 1331, and subject matter jurisdiction was available in Idaho.
Justice William H. Rehnquist: You know us better than to think we would want to manipulate statute, Mrs. Juviler.
Ms Amy Juviler: I used the wrong -- well we feel that it's very difficult to look at the decisions below and not think that the laws of jurisdiction and venue have been manipulated.
Now, one single decision has a direct precedent.
Nothing in the finding jurisdiction and venue over the defendant here has a precedent in any previous decision.
None of it is required by the language of any statute except by interpretation that is overlaid and is not supported by precedent.
Just as an example of the most minor aspect of the venue decision of the court below, look what it did to a multi-state corporation doing business all over the country.
Suddenly it can now sue where its board of directors reside.
Even though it's conceded, it was doing business in Idaho and it was its Idaho business that was at issue.
Suddenly in a federal court, venue now lies for this kind of action in Texas and the court below implies that that's the only place it can lie.
That applies not only to actions against state officials but to actions against federal officials and to actions against people who have commercial dealings with Great Western United.
Indeed when Sunshine Mining sued Great Western under the Williams Act in the District of Idaho following -- or sued Herco, the successor company, after the completion of this tender offer, Great Western United said “Oh no!
You got to sue us in the Northern District of Texas.
We have special rights.
We can only be sued in the Northern District of Texas.
We now own controlling interest in Sunshine Mine.
And your cause of action is about Sunshine Mining Company, but we get sued where we live in Texas.”
This does terrible violence to the system that has been established by for instance, the Texas long-arm statute, and also for instance by Section 27.
Nationwide service of process under Section 27 has a purpose and its purpose is to make Great Western United be serviceable where its securities are issued and Sunshine Mining be served where its service is issued.
It does not have the purpose of making the officials of Idaho enforcing their own state statute serviceable where their decisions may have an effect.
The precedential effect of that kind of decision below is overwhelming.
And for those of us who represent state officials with regularity, we know that this will change radically the way that states are able to defend themselves.
Chief Justice Warren E. Burger: Your time has expired now, Mrs. Juviler.
Ms Amy Juviler: Thank you very much.
Argument of Ivan Irwin, Jr.
Chief Justice Warren E. Burger: Mr. Irwin.
Mr. Ivan Irwin, Jr.: Mr. Chief Justice, and may it please the Court.
I represent here the interest of Great Western United Corporation, the appellee.
In March of 1977, as Mr. Heiser has stated, Great Western United Corporation proposed an interstate tender offer for shares of stock of Sunshine Mining Company.
Great Western is a Delaware Corporation with its headquarters and principal ownership in Dallas, Texas.
Sunshine Mining Company was and is a Washington corporation with business operations in Idaho, in Maryland and in New York.
And I mentioned the fact that Sunshine had its place of incorporation in Washington, because Washington had and has no state takeover statute.
The shares of Sunshine stock were held by citizens across the nation about 2.5% residing in Idaho, about 6% in Washington, some 7% in Texas and elsewhere.
Shares were lifted and traded on the facilities of the national securities marketplace.
Great Western was proposing to pay a premium over the market of $15.75 per share for up to two million of those shares.
With that backdrop, Great Western complied in all respects with the provisions of federal law governing the regulation of interstate cash tender offers pursuant to the Williams Act amendments to the Securities Exchange Act of 1934.
Nevertheless, because Sunshine had operations in these other three states; Idaho, Maryland, and New York and each one of those states had a state takeover statute, Great Western could not make the offer upon filing with the Securities Exchange Commission its Schedule 13D, now a 14D-1.
The Idaho Act, which is typical of state takeover statute, contains and express extra territorial provision which states that no tender offer can be made for shares of a target company, as defined in the Act, anywhere -- that is anywhere in the world to any shareholder, until the Idaho statute has been complied with.
Now the extra territorial application of that statute combined with the fact that Maryland and New York had similar statutes constitute the most critical facts which permeate all of the issues before this Court to this day.
Justice Potter Stewart: And the coverage of the Idaho statute was of a corporations with their principle place of business in Idaho, corporations incorporated in Idaho and what else?
Mr. Ivan Irwin, Jr.: Having substantial assets in Idaho.
Justice Potter Stewart: And this is principle place of business?
Mr. Ivan Irwin, Jr.: This was principle place of business and assets.
There was an office as well as the mining operation --
Justice Potter Stewart: No question of the -- as to the coverage of the --
Mr. Ivan Irwin, Jr.: No question that it was covered.
But I also would make the point that the triggering mechanism of the Idaho statute was not the presence of any Idaho shareholder of Sunshine.
It was rather the business contacts between Sunshine and the state.
I feel that I should turn to the questions of jurisdiction and venue because that was all that was opened with, and I'm --
Justice Lewis F. Powell: May I ask you a question before you go ahead?
Mr. Ivan Irwin, Jr.: Yes.
Justice Lewis F. Powell: I understood you to say that the Idaho statute was typical of these state statutes.
In your brief on page 20, the first sentence under summary of argument is “unlike any other state statutes” --
Mr. Ivan Irwin, Jr.: Any other state statutes other than state takeover statutes.
Justice Lewis F. Powell: Well I see.
Mr. Ivan Irwin, Jr.: I'm sorry, Your Honor.
Justice Lewis F. Powell: Right.
Mr. Ivan Irwin, Jr.: Certainly.
Justice Lewis F. Powell: So you say this is typical of the 22 or 25 other state statutes?
Mr. Ivan Irwin, Jr.: I think all but about five have this same extra territorial reach, and I think there are 32 states now which have state takeover statutes.
Justice Lewis F. Powell: Yes, that too.
Mr. Ivan Irwin, Jr.: The District Court had personal jurisdiction over this case and venue was proper.
Great Western had two avenues available, as has been discussed.
One avenue was utilizing the general venue statute, 1391 (b) and the Texas long-arm statute.
The other avenue, if we had subject matter jurisdiction under the 1934 Act, an issue of course which is being controverted, was through the nationwide service of process under the provisions of Section 27 of the 1934 Act and service in accordance with Rule 4.
Justice William H. Rehnquist: But even there, you had to show that the defendant was “found”, did you not?
Mr. Ivan Irwin, Jr.: I had to show under Section 27 that an act or transaction had occurred within the district which constituted a violation or breach of duty.
Justice William H. Rehnquist: Well, will you turn to page 6 of the jurisdictional statement please, where I believe Section 77 of the Securities Act is sent out the district.
It begins on page 5 and ends on page 6.
Mr. Ivan Irwin, Jr.: Yes.
Justice William H. Rehnquist: And it talks first about criminal proceeding and then it says “any suit or action to enforce at any liability.”
This is beginning at the top of page 6, “or duty created by this chapter, rules and regulations there under, or to enjoin any violation of such chapter rules and regulation maybe brought in any such district or in the district wherein the defendant is found.”
Now you say that you can bring it in a district where the defendant is found or in such district?
Mr. Ivan Irwin, Jr.: In any such district referring back to the leading sentence concerning “a criminal proceeding maybe brought in the district where in any act or transaction following -- constituting the violation occurred.”
Now that's the criminal proceeding.
And then you --
Justice William H. Rehnquist: So you say the civil adds on -- is broader than the criminal?
Mr. Ivan Irwin, Jr.: Yes, it refers back to the criminal district as one place and then goes further.
And the criminal district is where the act or transaction complained of occurred.
As I was saying --
Justice William J. Brennan: I won't remind you to do this but you're going to tell us what the violation was, aren't you?
Mr. Ivan Irwin, Jr.: And breach of duty, if it may be characterized that way.
Justice William J. Brennan: I see you are going to tell us just by the way -- yes.
Mr. Ivan Irwin, Jr.: Yes, yes.
Would you like me to do that now or wait?
Justice William J. Brennan: Yes, I think it's kind of the heart of the case.
Mr. Ivan Irwin, Jr.: Alright.
Section 28 (a) of the 1934 Act addresses itself specifically to the question of what securities regulators can do.
It reserved to state securities commissioners or their counterparts, the jurisdiction within their states over securities transactions, so long as the activities of those commissioners were not in conflict with federal law.
The language itself speaks in terms of jurisdiction is preserved, so long as it doesn't conflict.
Thomas Corcoran, one of the principal draftsmen of the 1934 Act, stated at the time that Section 28 (a) was adopted that the purpose was to establish and to utilize traditional preemption, under the Supremacy Clause, statement was that “the state may legislate in addition but may not legislate inconsistently.”
It was the very foundation of the Supremacy Clause.
It is our view that the attempted enforcement by appellants in this case of a statute which conflicted with the substantive provisions, the disclosure provisions and indeed the approaches of Congress as expressed in the Williams Act amendments, constitutes a breach of the very affirmative duty which was placed upon securities regulators not to enact statutes which conflicted.
Justice William H. Rehnquist: What affirmative duty was placed on them?
Your talking -- are you talking about 28 (a)?
Justice Potter Stewart: Yes.
Mr. Ivan Irwin, Jr.: Yes.
Justice William H. Rehnquist: Well I would not read that as placing any affirmative duty on them, because nothing in this chapter show effect the jurisdiction except such and such.
Now that may negate their right to do a particular one, but certainly it doesn't place any duty on them, do they?
Mr. Ivan Irwin, Jr.: I would view it differently.
I would view it in terms of as the Fifth Circuit said, the Commerce Clause is expressed only as an affirmative grant to Congress but it contains self-executing restrictions on state power.
Justice Byron R. White: You're saying a -- an officer who tries to enforce a state statute that is in conflict with the federal statute is --
Justice Potter Stewart: It violates it.
Justice Potter Stewart: -- is violating a duty which is under the federal law?
Mr. Ivan Irwin, Jr.: Under the 1934 Act.
If it is a statute which it conflicts with the federal law as embraced within the Securities Exchange Act of 19 --
Justice Byron R. White: Or in -- the terms you had right to be free from state regulation?
Mr. Ivan Irwin, Jr.: Well, I think the shareholders of Sunshine had the right to be free from regulation which blocked this tender offer until it was -- until the state statute was declared unconstitutional.
Justice Byron R. White: Well so did you client, I take it?
Mr. Ivan Irwin, Jr.: My client of course wanted the opportunity.
I'm not saying we had a right to make a tender offer free of state regulation, I think states can regulate in certain areas in tender offers.
I don't think that this particular statute with its infirmities will stand constitutional muster.
Justice Thurgood Marshall: Well, normally if your company in Texas has a gripe against a state official in Iowa, they would litigate where?
Mr. Ivan Irwin, Jr.: It would depend on where the defendant was acting.
Justice Thurgood Marshall: I said normally, normally.
You go to where the place --
Mr. Ivan Irwin, Jr.: Normally, you would go to where the defendant is located. Now --
Justice Thurgood Marshall: Now, you attack the statute there wouldn't you?
Mr. Ivan Irwin, Jr.: You could, and --
Justice Thurgood Marshall: And there -- is your -- solely because of Williams Act, or are you relying on both?
Mr. Ivan Irwin, Jr.: Well we are relying upon constitutional privileges as well as a violation of the Act.
And, well I've referred a moment ago to the extra territorial --
Justice Thurgood Marshall: Constitutional, do you mean due process?
Mr. Ivan Irwin, Jr.: The Supremacy Clause and the Commerce Clause which we believe the Idaho Act violates.
Justice Thurgood Marshall: You are not arguing the due process here?
Mr. Ivan Irwin, Jr.: I'm sorry?
Justice Thurgood Marshall: You are not arguing the due process here?
Mr. Ivan Irwin, Jr.: I think there is some element of due process in here, but that was not specifically how we brought our suit.
A state can not regulate the affairs of another state.
That is certainly the due process argument which is implicit.
Justice Thurgood Marshall: Well the way I understand their policy is that's exactly what you're doing.
That the federal court in Texas is administering the laws of Iowa -- Idaho willing to stand.
Mr. Ivan Irwin, Jr.: I think what the District Court in Texas was doing was --
Justice Thurgood Marshall: -- they never -- they say --
Mr. Ivan Irwin, Jr.: Was making the --
Justice Thurgood Marshall: -- that you're into -- that the Federal District Court in Dallas is in interfering with the laws and the officials of Idaho, that's their complaint.
Mr. Ivan Irwin, Jr.: And our complaint is that the Idaho regulators by seeking to regulate extra territorially were damaging the plaintiffs, the federal plaintiffs who brought the suit in the Northern District of Texas where the very restraint occurred.
It's tit for tat, its fair play.
If the Idaho regulators stay at home and regulate within their state, they're only going to be subject to being sued in their state.
If they purport to regulate for the rest of the world and say “You can't make a tender offer Great Western.
You can't buy a single shore of Sunshine stock from any shareholder anywhere until you come comply with our law and you have to wrap all these commerce around us.”
Then they should be subject to suit in the place where they caused their consequences.
Justice Byron R. White: And you would say if each of the other 50 states had exactly the same law and issued the same order, you think every state should be subject to suit in at least one place?
Mr. Ivan Irwin, Jr.: Yes, I do under the 1966 amendments to the general venue statute allowing suit to be brought where the claim arose.
For the first time the federal plaintiff could bring multi-defendants into a single forum just as we did in this case through the application of the general venue statute.
We were faced with New York, Maryland and Idaho at the incipient stages of this litigation.
Chief Justice Warren E. Burger: And it's inevitable that if you spread that over widely, it's going to be quite inconvenient for someone.
Mr. Ivan Irwin, Jr.: Very inconvenient for someone and we do not think that any policy of judicial economy would be served by Great Western being required to sue one time in Idaho, one time in Maryland and one time in New York.
Particularly when the focal point of all --
Justice Byron R. White: Well how many states have takeover statute?
Mr. Ivan Irwin, Jr.: Approximately 32 or 33, I'm not sure of the exact number.
Mr. Heiser says 36, I'll take his count.
Justice Byron R. White: That would be four more suits for you.
Mr. Ivan Irwin, Jr.: Yes, right.
Justice William J. Brennan: Mr. Irwin, of course you don't have to have them all held unconstitutional in this transaction, I take it?
Mr. Ivan Irwin, Jr.: No.
Justice William J. Brennan: Only three of them affected you.
But the violation, to getting back to the question I asked before.
The violation I think it was committed when Mr. Baptie mailed the letter into Texas, was that right?
Mr. Ivan Irwin, Jr.: I think it's a little broader than that.
The -- Mr. Baptie sent a letter into Texas which required the disclosure of substantial additional information over and above federal law.
And one -- or two of the disclosures which he sought, if we had complied would've triggered federal enforcement action.
We would've violated federal law if we've complied, that's one point.
Accompanying the letter was an order.
Justice William J. Brennan: Right.
Mr. Ivan Irwin, Jr.: That order had been entered without any notice, hearing, posting a bond or other security which is held by both courts below restrain Great Western from going forward anywhere.
Justice William J. Brennan: Well now, did Mr. McEldowney when he signed that order violate the federal statute?
Mr. Ivan Irwin, Jr.: I think by seeking to enforce this statute, he breached the duty or violation either one --
Justice William J. Brennan: Did he commit a crime?
Mr. Ivan Irwin, Jr.: No, Your Honor, no he did not commit a crime.
Justice William H. Rehnquist: Well yet you're relying on the -- such district language from 27 that provides for criminal jurisdiction, aren't you?
Mr. Ivan Irwin, Jr.: But it is repeated when the civil jurisdiction provisions of Section 28 come into play.
The first sentence is “in the district where the violation occurred in criminal proceedings” then it goes to “may also be brought” -- and this is the civil side of the docket as I read it Your Honor, where the violation of a civil violation occurred, where the breach of duty occurred or to collect a liability -- enforce a liability.
Justice William H. Rehnquist: No it says “may be brought in any such district or in the district wherein the defendant is found, or is an inhabitant or transacts business.”
Justice Byron R. White: But such -- do you think it refers back to any district in which a criminal violation could be prosecuted?
Mr. Ivan Irwin, Jr.: Where any act or transaction occurred which would constitute the violation.
Justice William H. Rehnquist: Do you think it would be limited by the vicinage requirement of the Sixth Amendment?
Mr. Ivan Irwin, Jr.: I'm not sure I'm yielding.
Justice William H. Rehnquist: Well, the Sixth Amendment says as you know doubt know as well as I do that in all criminal prosecutions the accused shall enjoy the right to speedy in public trial by an impartial jury of the state and district wherein the crime shall have been committed.
Now, I take that Congress is bound by that in allocating criminal jurisdiction under the Securities Act?
Mr. Ivan Irwin, Jr.: Yes.
Justice William H. Rehnquist: And do you think a crime was committed in Texas in this case by the state defendants?
Mr. Ivan Irwin, Jr.: No I do not think a crime was committed.
I do not and I think it's important for me to remember and advise that there have been a number of cases where venue has been proper under Section 27, although there was no criminal violation involved.
Justice William H. Rehnquist: From this Court?
You say a number of cases --
Mr. Ivan Irwin, Jr.: Though not in this Court, not in this Court but in the lower courts.
And I think the reasoning of the lower courts is sound in the 16 (b) area for example.
Suits may be brought under Section 27 to collect the profits which must be discoursed for illegal short swing trading.
But there is no criminal sanction for such prohibited activity.
But the lower courts have reasoned that it doesn't mean only that there has to be a criminal violation under Section 27, it can also be a civil violation or breach of duty or something that would lead to the enforcement of a liability.
If I may -- if I've answered that question, I'll get back to this question of the first wrap which we took, which was the general venue statute where the claim arose.
We believe that the Northern District of Texas was the focal point of all of appellant's regulatory activity as well as that of Maryland and New York.
Jurisdiction was obtained under the Texas long-arm statute which has been definitively construed by the Texas Supreme Court, in U-Anchor versus Burt, as going to the full limitation of constitutional due process.
Judge Dietrich in writing for the Texas Supreme Court on that state issue said that “The construction does not involve and abstruse definitions of what constitutes doing business.”
The United States District Court which heard this case said “The statute has no commercial import.”
Appellants would argue that they were not doing business.
The statute uses doing business as a pickup to pull in every activity other than what is already specifically described, and as I said goes to the full limits of constitutional due process.
In any event the duty, as the Fifth Circuit, I mean the business of the Idaho officials, as Judge Wisdom said was to regulate.
Hearing oral argument has been held to be doing business.
I don't have this case in my brief, and I'd like to put in to the record, Wisconsin Telephone Company versus Wisconsin Department Industry, Labor and Human Relations, 228 NW.2d, at 649 Wisconsin, 1975.
We then turn to a minimum contact analysis under the long-arm statute.
It seemed to us that the activities of the appellants were certainly purposeful.
There was nothing accidental about the comment letter or the order which was sent in which restrained this.
The results on Great Western were certainly foreseeable, they could certainly see that if they restrained this -- it restrained this, it locked up the funds, lost the opportunity to go forward.
The cause of action arose directly out of those activities of the Idaho regulators.
The causing of purposeful consequences in a foreign district has been held sufficient under many applications of minimum contact analysis.
The other avenue which we preceded was Section 27, its interrelationship with Section 28 (a), our view and the courts below that there was a violation or a breach of duty by the enforcement of this statute.
Therefore, minimum contacts analysis was not required because we had from Congress the availability of nationwide service of process.
The sovereign United States can exercise in personam jurisdiction over its inhabitants.
It would only be a minimum contact now since required if we've been seeking to sue someone outside of the continental limits of the United States and its territories.
Under the Section 27 construction by the lower courts, the act or transaction does not have to be the core of any wrongdoing or even illegal, as long as it's something more than immaterial.
Here, the most material aspect of the Idaho regulation was with -- was happened in Texas, that is the order which enjoined us.
And we would further say that even if a minimum contact or weight of effects analysis were proper under Section 27, it would be satisfied under the same analysis under the Texas long-arm statute.
Justice Byron R. White: What -- do you think Section 27 gives you right to sue?
Mr. Ivan Irwin, Jr.: Yes.
Justice Byron R. White: A so-called private cause of action then?
Mr. Ivan Irwin, Jr.: We would think so.
Great Western's --
Justice Byron R. White: Do you have to find some section that's -- to do that right in those securities law or?
Mr. Ivan Irwin, Jr.: In order to have subject matter jurisdiction under the 1934 Act, we would have to find a Section, yes.
Justice Byron R. White: Well, you're suing a state official, aren't you?
Mr. Ivan Irwin, Jr.: Yes.
Justice Byron R. White: For interference with what you claim as a federal right?
Mr. Ivan Irwin, Jr.: Yes, for violating the federal right, the federal regulation of tender offers as expressed in the Williams Act through a statute which conflicts.
Justice Byron R. White: Well all this section says is that actions may be brought -- any suit or actions to enforce any a viability or duty maybe brought in some -- does that automatically say any -- does that automatically provide for a private causes of action?
Mr. Ivan Irwin, Jr.: I don't think it --
Justice Byron R. White: Under this entire chapter?
Mr. Ivan Irwin, Jr.: I do not think it automatically does.
I think that --
Justice William H. Rehnquist: But your authority and for saying there is a private cause of action here.
Mr. Ivan Irwin, Jr.: It was Great Western's tender offer which was in fact stopped.
It was --
Justice William H. Rehnquist: But you don't you have to go back to find out what Congress intended that you have a private cause of action, rather than relating the facts of this case?
Mr. Ivan Irwin, Jr.: Oh, I see.
I understand the cause of action -- there have been implied causes of action under the 1934 Act, and --
Justice William H. Rehnquist: There have been -- if we ever held there was one under this particular section?
Mr. Ivan Irwin, Jr.: Not under this section, no.
No, this is not -- this is a case of first impression in that respect.
The -- I think it also maybe important for me to bring to the Court's attention, something I'm bringing late but nevertheless I think it would be sending the Court with one to look at in its own motion.
Idaho came here, appellants came here under the provisions of Section 1254 (2) but that is by way of an appeal as opposed to making an application for a writ of certiorari.
That appeal invoked this Court's obligatory jurisdiction and under the language of the statute, precludes a writ of certiorari.
The review on the appeal is limited to the federal questions.
There is no authority on how wide that federal question issue is.
We would submit it may be.
And again I think this is a case of first impression, that the only federal issue is the validity of the Idaho statute which was held unconstitutional, which furnishes the basis for the utilization of 1254 (2).
If that is so, then the provisions of the issues brought here on jurisdiction and venue are not the federal question which was to be reviewed under the provisions of 1254 (2).
Justice William H. Rehnquist: But if you had no right to sue as a plaintiff under this statute then there was never any occasion to pass on the validity of the Idaho statute.
Mr. Ivan Irwin, Jr.: May I say that we were not basing our right to sue on just the 1934 Act.
We were also basing our right to sue on constitutional privileges under the Supremacy Clause and under the Commerce Clause.
There we felt we certainly had standing.
Justice William H. Rehnquist: But then you certainly couldn't invoke Section 27 jurisdiction.
Mr. Ivan Irwin, Jr.: That's true.
If we don't have standing to bring this action because of violation of 28 (a) we can't use 27, and we have to go to the other alternative, which was the general venue statute plus the application of Texas long-arm.
In brief fashion, I would ask the Court to bear with me for a moment on a preemption analysis very quickly.
The Williams Act was brought into play in 1968 after Congress had been deliberating the subject for some three years.
It was not an area which had been regulated before by either states or the federal government.
At the time of the adoption of the Williams Act amendments, there was one state takeover statute, Virginia which had been -- had become effective about two months before.
Congress said it closed the gap in an area which had not been regulated.
Cash tender offer phenomenon really didn't occur until the mid 60's or maybe early 60's, so this was not an area which had been traditionally state-regulated.
Congress took a market approach allowing the tender offeror to make his filing and go direct to the shareholder at the same time that the incumbent management was going direct to the shareholder to tell their story to let the shareholder make his informed decision about taking cash for his shares.
As a result, Congress considered but rejected prior agency approvals, considered but rejected pre-effective filing requirements.
Idaho took exactly the opposite course, and has an extensive hearing and pre-filing requirement which causes the very delay which Congress didn't want to happen because of the weapon it would give to incumbent management, to discourage delay, take defensive maneuvers to defeat a tender offer.
Congress also did not seek to have the shareholder decision made by any fiduciary.
Idaho took the opposite approach where the tender offeror must satisfy either the target management and get their recommendation, or the state regulators.
And this particular statute suffers a further vice and that the incumbent management can determine whether the state regulator acts or not.
If they accept the offer, state regulator can not call a hearing.
If they do accept -- if they set the offer, you can't call a hearing.
If they don't accept the hearing -- the offer, they have to call a hearing.
The enforcement of these differing substantive and disclosure provisions between Idaho and the Williams Act and the difference and approaches as found by the majority opinion in the Fifth Circuit and by the United States district judge demonstrates that this tips the balance of regulatory power in favor of the target management, which was not the policy Congress had in mind and the Idaho statute stands as an obstacle to the full accomplishment and execution of congressional purposes.
The preemption analysis was just one of the analysis that the courts below went through, just tells one half of the story.
The Commerce Clause was also violated, we believe, by Idaho's direct regulation out of state of a cash tender offer involving some $31 million.
Great Western and shareholders throughout the country could not do business with each other until the Idaho law was satisfied.
Justice Lewis F. Powell: If the Idaho statue had been limited to intrastate activities, would it be preempted in your view?
Mr. Ivan Irwin, Jr.: I don't think so, because I think it would then operate like a state Blue Sky Law.
Justice Lewis F. Powell: Exactly.
Mr. Ivan Irwin, Jr.: The constitutionality of which this Court upheld in 1917 in Hall versus Geiger-Jones.
The effect of the Idaho regulation put Great Western to a Hobson's choice.
We could either ignore the letter that came in to the Northern District of Texas and the order, and risk substantial civil and criminal penalties.
Or we could comply and accept the delay and the additional burdens and the jeopardy which would be caused.
We chose to go forward with the lawsuit because we believe that the enforcement of the statute had interfered with the area of free trade, which had been established by the commerce clause, and that there were no legitimate local interest being protected.
Idaho has stated in the brief that they're protecting shareholders, but that analysis is as -- is a little thin.
The Idaho statute does not require the presence in Idaho of any Idaho investor in a target company.
So the very class of persons Idaho says they're protecting don't have to exist.
Even if -- I see my time is up.
Justice Lewis F. Powell: May I ask this question?
Mr. Ivan Irwin, Jr.: Yes, sir.
Justice Lewis F. Powell: Your complaint also alleged the cause of action under 1983, what's the basis of that?
Mr. Ivan Irwin, Jr.: We believe that the delegation by Idaho under the Idaho Act to the target management of the right to determine whether or not the Idaho Act would come into play constituted an unlawful delegation to a vitally interested private party, and violation of the Civil Rights Act as expressed in 1983.
Justice Lewis F. Powell: What civil rights?
Mr. Ivan Irwin, Jr.: We believe that there is a discrimination involved if an outside party is subject to state regulation only at the behest of another private party.
Justice Lewis F. Powell: You still rely on 1983?
Mr. Ivan Irwin, Jr.: We have not brought that forward in the brief, Your Honor.
Justice Lewis F. Powell: Does that mean you've abandoned it?
Mr. Ivan Irwin, Jr.: We've abandoned it.
Justice Byron R. White: You haven't brought that forward in the brief but it's in your complaint, it's a jurisdictional question.
Mr. Ivan Irwin, Jr.: Yes.
Justice Byron R. White: And aren't you claiming that you have a right under the Federal Securities Law that's being violated?
Mr. Ivan Irwin, Jr.: Yes, but not only under 1983.
Justice Byron R. White: Well I understand, but that refers to the federal constitution whether you certainly are claiming that one of your constitutional rights are being violated --
Chief Justice Warren E. Burger: That's right.
Justice Byron R. White: -- under the Commerce Clause.
Mr. Ivan Irwin, Jr.: Yes and the Supremacy Clause --
Justice Byron R. White: Well and you're suing a state official?
Mr. Ivan Irwin, Jr.: Yes.
Justice Potter Stewart: Right.
Justice William J. Brennan: And they're also claiming the violation of federal laws, and 1983 speaks of constitutional laws of the United States, doesn't it?
Mr. Ivan Irwin, Jr.: Yes ,sir.
Justice William J. Brennan: Are you sure you're abandoning it?
Mr. Ivan Irwin, Jr.: I'll reinstate it.
Justice William J. Brennan: Yes.
Argument of Frank H. Easterbrook
Chief Justice Warren E. Burger: Mr. Easterbrook.
Mr. Frank H. Easterbrook: Mr. Chief Justice, and may it please the Court.
The interest of the Securities and Exchange Commission in this case is in determining the validity of the application of state takeover laws, rather than in identifying the proper forum for this suit.
I will therefore devote my time to the Commerce and Supremacy Clause arguments.
Justice William H. Rehnquist: If our interest is in identifying the proper forum for the suit, I suppose your argument is largely wasted then?
Mr. Frank H. Easterbrook: My -- Mr. Justice Rehnquist, my argument would be entirely wasted if you find that there is no jurisdiction over this case.
But in the event that five justices concluded there is jurisdiction, I think the Commission would like to be heard on the merits.
Justice Byron R. White: Go on then.
Mr. Frank H. Easterbrook: I will -- I'll address the commerce clause first, and then I'll take up the Supremacy Clause arguments.
The point of the Commerce Clause is we think the creation of a common market.
It forbids states from Balkanizing the stream of commerce.
More than that, it forbids states from reaching outside their borders to affect the flow of commerce elsewhere.
Idaho's law affects an interstate market and securities.
Its laws law applies to securities that are being traded on the New York Stock Exchange.
Its law applies to an offer by somebody residing in Texas to buy shares from somebody else residing in Texas.
And the application of this law doesn't simply, as in most commerce clause cases that come to this Court affect local commerce, but produce ripples elsewhere that are felt in other states.
This is a case in which the very purpose of the state rule is to reach outside the borders of Idaho and tell people in Texas, in New York and Florida whether and when they can buy securities from one another.
It's as if the state passed the Blue Sky Law and said “Ordinarily, you can decide not to deal in our state if you decide not to file our state registration statement.”
But we conclude that in order to protect the residents of Idaho from being eliminated or excluded from valuable opportunities to buy stock, no one can offer stock for sale in Texas unless he files a registration statement and sells it in Idaho as well.
Otherwise, our residents are left out.
Idaho indeed extols the extra territorial reach of its laws as being justified by just such a purpose.
That kind of justification has been rejected by this Court, we think.
Maybe that the best example of that is Baldwin against G.A.F. Seelig, one of the incredible series of New York milk cases that detained this Court for some 20 years.
New York tried to increase the selling price of milk in New York by requiring New York wholesalers of milk to treat the wholesale price of milk, even if bought out of state, the same as the New York control price of milk.
As the Court analyzed the case, New York was trying to tell buyers and sellers in Vermont what price they should charge for milk if the milk ended up in New York.
And the fact that the milk ended up in New York produced a very substantial contact with the State of New York.
A substantiality of which was not disputed by any one.
The milk had contacts with New York, just as Sunshine has substantial contacts with Idaho.
But the Court rejected any notion that New York could attempt to influence the course of commerce in Vermont no matter how much the course of commerce in Vermont might ultimately have an effect on what happened in New York.
That's exactly what Idaho is trying to do here.
It's trying to influence the course of conduct in Texas and New York on the ground that that conduct ultimately has repercussions in Idaho.
And the statute fails for the same reason, we think.
But even if the statute were treated as one that applied wholly to a state's domestic commerce and merely produced its ripples elsewhere, it would be invalid because the ripples are great and the justifications for the act small.
Idaho argues for example that it has the goal of protecting Idaho shareholders.
One of the anomalies of the statute though is that it has -- it's not triggered by the presence of any shareholder in Idaho, would apply if there were no shareholder in Idaho.
On the other hand, the statute does not apply if the takeover offer is consented to by the management of the company, even if the management of the company is found in Washington State.
And so in those cases, Idaho shareholders receive no protection.
What's more is that what Idaho tries to do in a case like this, is protect the 2% of the shareholders who live in Idaho.
Only be requiring the 98% of the shareholders who live in New York and Texas and Florida to forego what they may find to be a valuable opportunity.
The only other justification advanced by the state is that its statute will protect civic-minded businesses, or local commerce, health and safety and the like.
That amounts to, we think, discrimination against interstate commerce for its own purpose.
It's an exaltation of the values of local isolationism from the stream of commerce.
And that's the kind of justification that was rejected in Philadelphia against New Jersey last term.
The point of this argument has been that Idaho has had substantial extra territorial intent, in fact in scope of its statute, those kinds of things that ought to be regulated by Congress, if they're regulated at all.
In fact, Congress has regulated them and that brings me to the point under the supremacy clause.
In order to evaluate the argument which we make here that the state law is preempted by the Williams Act, its necessary first we think to understand why people make tender offers.
Tender offer is a public offer to buy shares at more than they will fetch in the market.
A person ordinarily makes such an offer only if he's persuaded that the shares will be worth more in his hands than they are worth held and distributed to the public at large.
That may be because incumbent management is inefficient and mismanaging the company, and that event, the value of the shares will increase if new management is substituted by the offeror.
Maybe the tax considerations would make the shares more valuable in some hands than others if for example the target has some operating loss carryovers.
Whatever the reason, and there may be many, the offeror is relying on an increment in value.
The problem is that it's very costly for firms to go out and identify such cases where there may be an increment in value, and they don't accept those costs unless there's some prospect of return.
And the prospect of return has to be discounted by the risk that the offer will be a failure.
The greater the risk, the more return there has to be to make the offer worthwhile.
But in order to realize the gain that he's identified, the offeror has to make the public offer and pay more than the shares bring in the market.
Not too much more though, and this is the difficulty from the offeror's point of view, because if he offers the entire increment of profit to the current shareholders, the highest possible price, there's nothing left for him.
No incentive to do the searching.
No incentive to make the offer.
And without an offer of course, shareholders will get nothing at all.
So the closer any rule tries to drive the price, to the maximum price, to what its worth to the offeror, the less likely the offer is to occur in the first place, the more likely the shareholder is to end up with nothing.
Time is of the essence in the tender offer process, and so is the opportunity to have a fair fight between the offeror and the incumbent management.
It's most likely that the incumbent management feels its own personal prerequisites and position at stake.
Justice Lewis F. Powell: Mr. Easterbrook, if tender offers are always so beneficial to stockholders as you suggest, well why did Congress enact the Williams Act?
Mr. Frank H. Easterbrook: Mr. Justice Powell, there is substantial legislative history to indicate that Congress thought that tender offers were quite beneficial if conducted under a set of rules that allowed the shareholders to make an informed judgment.
Justice Lewis F. Powell: They've often been beneficial, but they've often been quite adverse.
Mr. Frank H. Easterbrook: The -- that's right.
The difficulty lies in determining how that judgment is going to be made.
One can construct the set of rules, there's going to be an offer there's going to be a response by the target management.
One can construct a set of rules under which someone, usually the shareholders have to make up his mind whether to the offer is beneficial or not, whether there is that incremented value.
And the Williams Act was an attempt to set up that set of rules under which shareholders could make that determination.
The prorative provisions, the seven-day withdrawal provisions, the disclosure provisions were intended to allow shareholders to make that judgment.
But it was a judgment that was to be made in the context of information from both offeror and the target management, the ultimate decision to be decision to be made by the shareholders.
The difficulty in regulating in that way is to set up a system of regulations so that the shareholder can make that choice, without at the same time so setting up regulatory rules that the number of beneficial tender offers is reduced and there are fewer opportunities for shareholders to make their judgments.
Congress' assessment was that the best combination of protection for shareholders and insurance that tender offers would not be eliminated all together, was a set of disclosure rules coupled with prompt start of the offer.
And Congress explicitly considered and just as explicitly rejected a variety of pre-offer notification rules or a variety of rules of the sort that would require the Securities and Exchange Commission to pass on the adequacy of disclosure before the tender offer could begin.
But given the necessity of making the kind of balance, actually a rather fine tuned one that Congress had in mind in the Williams Act, it must follow we think that a state can not use the very devices that Congress rejected as detrimental to the interests of investors, because then the state defeats precisely what it was that Congress had in mind to achieve.
Idaho simply is not free to strike a different balance on how best to achieve that.
Congress recognized however that what it said in the Williams Act was not the last word.
And it gave the Securities and Exchange Commission a substantial rule-making power.
In fact, almost every one of the provisions of the Williams Act is coupled with the grant of rule-making power that the Commission to alter it to change it in some way.
In entrusting that rule-making task, the fine tuning task, to the Securities and Exchange Commission, Congress set up a system of regulation that is very closely related in concept to the system this Court considered last year in Ray against ARCO, the Washington Super Tanker case.
In Ray, the Secretary of Transportation had decided not to set up a rule under which Super Tanker is -- were forbidden to enter Puget Sound, and had decided not to use his rule-making powers, although he surely had them, to set up a rule requiring double bottoms, twin screws and the like.
Washington then required those things and gave as a rationale the argument that it was simply increasing protection of the environment, the very thing Congress had in mind in passing its statute.
And it wanted to view that congressional statute and the secretary's regulations as minimum guarantees of environmental safety with the state adding additional guarantees of environmental safety.
This Court rejected that argument.
The reason it rejected it is because the secretary of the treasury had the same power to assess and weigh the benefits of safety against the convenience of commerce.
And it said that the state could not add where the secretary had said there should not be additional protections.
And that's really the same set up as works under the Williams Act, the Commission is free to provide additional period to increase the length during which a tender offer may be open.
It's free to promulgate a great number of other regulations that will have the effect of assessing the benefit to investor against whatever detriment to commerce may be caused.
And it's because the Commission has that authority and because it has decided to exercise it in a way that does not provide the kinds of things that Idaho has provided, the Idaho statute is preempted, we submit.
And therefore, under both the Supremacy Clause and the Commerce Clause, if the Court reaches the merits here, we submit that it should affirm the judgment of the Court of Appeals.
Justice Lewis F. Powell: Mr. Easterbrook, do you agree with Mr. Irwin that if the Idaho statute had been limited to intrastate activities that it would have been valid?
Mr. Frank H. Easterbrook: The Commission's position is that even if it were limited to intrastate activities, it would be preempted by the Williams Act.
Justice Lewis F. Powell: Has the Commission taken that position previously to this case?
Mr. Frank H. Easterbrook: I'm sorry Mr. Justice, I don't know whether they took it before this case, but that is the Commission's position, but commerce --
Justice Lewis F. Powell: So the Commission's position is that all 36 state laws are invalid?
Mr. Frank H. Easterbrook: It is, Your Honor.
The -- that should be distinguished though I think from the Commission's position under the Commerce Clause.
The position under the Commerce Cause allows states substantial authority to regulate within the state for the same reason that in Hall against Geiger-Jones, the Commerce Clause permitted Blue Sky Laws.
On top of that, I think it's important to point out that the Commission does not argue that all state laws touching on takeovers are preempted.
For example, a state law requiring any statements by offeror or management to be fair, adequate and so on, similar to or tracking federal law could be enforced and on --
Justice Lewis F. Powell: Any state law that makes addition as to the requirements, the Williams Act could be invalid under that analysis?
Mr. Frank H. Easterbrook: In -- no, I think the Commission is not of that view.
It's any state law that makes additions of the sort that disrupt the balance of investor protection established in the Williams Act and --
Justice Lewis F. Powell: Even if limited only to stockholders within the state?
Mr. Frank H. Easterbrook: Yes, Your Honor.
But it's -- but I think it's important to point out, and I'm -- I think it should be clear that in the Commission's view there are a number of possible state statutes that would not disrupt the balance.
Take for example a state statute that says any corporation incorporated in this state shall respond to tender offers only by two-thirds vote of the board of directors, or any of the other things regulating that the affairs between the corporation and its shareholders would in most cases not be preempted by the Williams Act.
That the test is not simply does it touch tender offers.
We're not making a field preemption argument.
The test is whether it upsets or undermines the careful balancing that Congress has done of the -- and its assessment of where the interest of investors lie.
Justice Lewis F. Powell: Would it make a difference if the state statute is limited to corporations incorporated under the laws of that state?
Mr. Frank H. Easterbrook: I think that would substantially reduce the opportunities for disrupting the balance that's been created by Congress.
The difficulties in allowing a state to regulate even those offers that are made with some citizens might arise if for example New York, where 35% of shareholders lie, has a statute saying you must do A.
California where there're another 30% has a statute saying you can't do A, and each tries to tug the balance in a slightly different way.
The opportunities for that when more than one state can enter the picture or one tender offer are really quite substantial, and it's for that reason that the Commission says that even as applied to shareholders within the state, the Acts are in many cases preempted by the Williams Act.
Rebuttal of Peter E. Heiser, Jr.
Chief Justice Warren E. Burger: Mr. Heiser, you have a few minutes left.
Mr. Peter E. Heiser, Jr.: As a preliminary matter, Mr. Chief Justice, I would like to point out to the Court that the typewritten brief of the Securities Exchange Commission was only received by as on the 5th of April with corrections on the 9th of April.
The printed brief we were able to pick up a copy here yesterday, have not received it yet and I would like to request that I have an opportunity to respond to that brief in a written form if the Court would grant me that opportunity.
Chief Justice Warren E. Burger: You may respond if you wish in the usual way.
Mr. Peter E. Heiser, Jr.: Thank you, Your Honor.
The one of the frustrations that the Idaho appellants have in this case is that the Securities Exchange Commission where it had a real opportunity to provide enlightenment for this Court as to what Section 27 really involves and what Section 28 conflict may mean in their terms ignored those issues.
And like the courts below, because of the fascination of the merits, which certainly are fascinating left right into the constitutional questions.
But unfortunately in doing that they used some of the clichés and terms that have been used all along with regard to these state laws which have had a salutary effect.
Talk about the term delays, state laws have prolonged the period during which tender offers are open.
The net result of that has been in the period between 1974 and 1976, a $1.2 billion premium to the shareholders as a result of that extended period of time.
But the point that we really have focused here is that we have a Texas corporation that wanted to take over a controlling interest in a corporation that was subject to jurisdiction under the Idaho Corporate Takeover Law, and the Texas Corporation, the corporation with operations in Texas knew and recognized that Idaho law was going to have jurisdiction.
They came to Idaho to submit themselves to the jurisdiction of that Idaho law, and then when they didn't get the immediate approval that they wanted, their reaction to test the constitutionality of the Idaho law was down in Texas.
And that is unfortunately what creates the problem in this case.
We shouldn't be having to be concerned about defending the action in Texas because it shouldn't have been brought in Texas.
It should have been brought in Idaho.
And if a corporation like Great Western United wants to do, as it does, business in many states, then it should be prepared to conform to the problems that it may be presented with by the laws of those states.
And if it has constitutional challenges to the laws of those states, it is perfectly free to go into the federal courts in those states or the state courts in those states and raise those constitutional challenges.
Justice Potter Stewart: By the same token of course, the respondent company says that what Idaho did had a direct impact upon what the respondent wanted to do in the State of Texas.
Mr. Peter E. Heiser, Jr.: Well, Mr. Justice Stewart what the respondent wanted to do was not only in the State of Texas.
Justice Potter Stewart: And the other 49 states also.
Mr. Peter E. Heiser, Jr.: Exactly.
And under the rationale advanced by the courts below then because of the effect in all of the other 49 states, they more than likely could've brought suit in any of the other 49 states, and we could've been defending an action in Vermont or Hawaii or Alaska or Florida as well as Texas because Great Western United wanted to secure shares of stock from shareholders in those states.
So the problem becomes the forum shopping problem and that really is not what we feel the federal law was designed for, and it's certainly isn't what we feel that the Texas long-arm statute and the accompanying federal venue statute were designed for.
That's the whole point.
The U-Anchor case that the Texas Supreme Court recently brought or recently decided that construe the Texas long-arm statute, it is absolutely true that they said that the Texas long-arm statute goes to the full limits of due process.
But what was the context of the case?
A contract, one of the specifically defined terms that constitutes doing business under the Texas long-arm statute.
The threshold first level of inquiry under the Texas long-arm statute was satisfied.
So they didn't have to waste time on deciding whether it was an act of doing business in Texas, because it fell within the actual definition.
But what the Court did do in U-Anchor was finding that yes, it technically, the facts technically satisfy our jurisdictional prerequisite in the Texas long-arm statute as a doing business context -- I see I'm out of time.
Thank you, Your Honor.
Chief Justice Warren E. Burger: Thank you gentlemen.
The case is submitted.