Lead Opinion
delivered an opinion, Parts I, II, and V-B of which are the opinion of the Court.
The issue in this case is whether the Illinois Business TakeOver Act, Ill. Rev. Stat., ch. 12P/2, ¶ 137.51 et seq. (1979), is unconstitutional under the Supremacy and Commerce Clauses of the Federal Constitution.
HH
Appellee MITE Corp. and its wholly owned subsidiary, MITE Holdings, Inc., are corporations organized under the laws of Delaware with their principal executive offices in Connecticut. Appellant James Edgar is the Secretary of State of Illinois and is charged with the administration and enforcement of the Illinois Act. Under the Illinois Act any takeover offer
On January 19,1979, MITE initiated a cash tender offer for all outstanding shares of Chicago Rivet & Machine Co., a publicly held Illinois corporation, by filing a Schedule 14D-1 with the Securities and Exchange Commission in order to comply with the Williams Act.
Chicago Rivet responded three days later by bringing suit in Pennsylvania, where it conducted most of its business, seeking to enjoin MITE from proceeding with its proposed tender offer on the ground that the offer violated the Pennsylvania Takeover Disclosure Law, Pa. Stat. Ann., Tit. 70, § 71 et seq. (Purdon Supp. 1982-1983). After Chicago Rivet’s efforts to obtain relief in Pennsylvania proved unsuccessful,
MITE then published its tender offer in the February 5 edition of the Wall Street Journal. The offer was made to all shareholders of Chicago Rivet residing throughout the United States. The outstanding stock was worth over $23 million at the offering price. On the same day Chicago Rivet made an offer for approximately 40% of its own shares at $30 per share.
The United States Court of Appeals for the Seventh Circuit affirmed sub nom. MITE Corp. v. Dixon,
I — I h — 1
The Court of Appeals specifically found that this case was not moot,
HH I — I
We first address the holding that the Illinois Take-Over Act is unconstitutional under the Supremacy Clause. We note at the outset that in passing the Williams Act, which is
“Nothing in this title shall affect the jurisdiction of the securities commission (or any agency or officer performing like functions) of any State over any security or any person insofar as it does not conflict with the provisions of this title or the rules and regulations thereunder.” 48 Stat. 903.
Thus Congress did not explicitly prohibit States from regulating takeovers; it left the determination whether the Illinois statute conflicts with the Williams Act to the courts. Of course, a state statute is void to the extent that it actually conflicts with a valid federal statute; and
“[a] conflict will be found ‘where compliance with both federal and state regulations is a physical impossibility . . . ,’ Florida Lime & Avocado Growers, Inc. v. Paul,373 U. S. 132 , 142-143 (1963), or where the state flaw stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’ Hines v. Davidowitz,312 U. S. 52 , 67 (1941); Jones v. Rath Packing Co., [430 U. S. 519 ,] 526, 540-541 [(1977)]. Accord, De Canas v. Bica,424 U. S. 351 , 363 (1976).” Ray v. Atlantic Richfield Co.,435 U. S. 151 , 158 (1978).
Our inquiry is further narrowed in this case since there is no contention that it would be impossible to comply with both
The Williams Act, passed in 1968, was the congressional response to the increased use of cash tender offers in corporate acquisitions, a device that had “removed a substantial number of corporate control contests from the reach of existing disclosure requirements of the federal securities laws.” Piper v. Chris-Craft Industries, Inc.,
To implement this policy of investor protection while maintaining the balance between management and the bidder, Congress required the latter to file with the Commission and furnish the company and the investor with all information adequate to the occasion. With that filing, the offer could go forward, stock could be tendered and purchased, but a stockholder was free within a specified time to withdraw his tendered shares. He was also protected if the offer was increased. Looking at this history as a whole, it appears to us, as it did to the Court of Appeals, that Congress intended to strike a balance between the investor, management, and the takeover bidder. The bidder was to furnish the investor and the target company with adequate information but there was no “intension] to do . . . more than give incumbent management an opportunity to express and explain its position.” Rondeau v. Mosinee Paper Corp., supra, at 58. Once that opportunity was extended, Congress anticipated that the investor, if he so chose, and the takeover bidder should be free to move forward within the time frame provided by Congress.
IV
The Court of Appeals identified three provisions of the Illinois Act that upset the careful balance struck by Congress and which therefore stand as obstacles to the accomplishment and execution of the full purposes and objectives of Congress. We agree with the Court of Appeals in all essential respects.
A
The Illinois Act requires a tender offeror to notify the Secretary of State and the target company of its intent to make a
We agree with the Court of Appeals that by providing the target company with additional time within which to take steps to combat the offer, the precommencement notification provisions furnish incumbent management with a powerful tool to combat tender offers, perhaps to the detriment of the stockholders who will not have an offer before them during this period.
It is important to note in this respect that in the course of events leading to the adoption of the Williams Act, Congress several times refused to impose a precommencement disclosure requirement. In October 1965, Senator Williams introduced S. 2731, a bill which would have required a bidder to notify the target company and file a public statement with the Securities and Exchange Commission at least 20 days before commencement of a cash tender offer for more than 5% of a class of the target company’s securities. Ill Cong. Rec. 28259 (1965). The Commission commented on the bill and stated that “the requirement of a 20-day advance notice to the issuer and the Commission is unnecessary for the protection of security holders . . . .” 112 Cong. Rec. 19005 (1966).
“At the hearings it was urged that this prior review was not necessary and in some cases might delay the offer when time was of the essence. In view of the authority and responsibility of the Securities and Exchange Commission to take appropriate, action in the event that inadequate or misleading information is disseminated to the public to solicit acceptance of a tender offer, the bill as approved by the committee requires only that the statement be on file with the Securities and Exchange Commission at the time the tender offer is first made to the public.” Senate Report, at 4.
Congress rejected another precommencement notification proposal during deliberations on the 1970 amendments to the Williams Act.
B
For similar reasons, we agree with the Court of Appeals
Congress reemphasized the consequences of delay when it enacted the Hart-Scott-Rodino Antitrust Improvements Act of 1976, Pub. L. 94-435, 90 Stat. 1397,15 U. S. C. § 12 et seq.
“[I]t is clear that this short waiting period [the 10-day period for proration provided for by § 14(d)(6) of the Securities Exchange Act, which applies only after a tender offer is commenced] was founded on congressional concern that a longer delay might unduly favor the target firm’s incumbent management, and permit them to frustrate many pro-competitive cash tenders. This ten-day waiting period thus underscores the basic purpose of the Williams Act — to maintain a neutral policy towards cash tender offers, by avoiding lengthy delays that might discourage their chances for success.” H. R. Rep. No. 94-1373, p. 12 (1976).14
C
The Court of Appeals also concluded that the Illinois Act is pre-empted by the Williams Act insofar as it allows the Secretary of State of Illinois to pass on the substantive fairness of a tender offer. Under H137.57.E of the Illinois law, the Secretary is required to deny registration of a takeover offer if he finds that the offer “fails to provide full and fair disclosure to the offerees ... or that the take-over offer is inequitable ...” (emphasis added).
V
The Commerce Clause provides that “Congress shall have Power . . . [t]o regulate Commerce . . . among the several States.” U. S. Const., Art. I, §8, cl. 3. “[A]t least since Cooley v. Board of Wardens,
States have traditionally regulated intrastate securities transactions,
The Illinois Act differs substantially from state blue-sky laws in that it directly regulates transactions which take place across state lines, even if wholly outside the State of Illinois. A tender offer for securities of a publicly held corporation is ordinarily communicated by the use of the mails or other means of interstate commerce to shareholders across the country and abroad. Securities are tendered and transactions closed by similar means. Thus, in this case, MITE
It is therefore apparent that the Illinois statute is a direct restraint on interstate commerce and that it has a sweeping extraterritorial effect. Furthermore, if Illinois may impose such regulations, so may other States; and interstate commerce in securities transactions generated by tender offers would be thoroughly stifled. In Shafer v. Farmers Grain Co., supra, at 199, the Court held that “a state statute which by its necessary operation directly interferes with or burdens [interstate] commerce is a prohibited regulation and invalid, regardless of the purpose with which it was enacted.” See also Hughes v. Alexandria Scrap Corp.,
Because the Illinois Act purports to regulate directly and to interdict interstate commerce, including commerce wholly outside the State, it must be held invalid as were the laws at issue in Shafer v. Farmers Grain Co. and Southern Pacific.
B
The Illinois Act is also unconstitutional under the test of Pike v. Bruce Church, Inc.,
The effects of allowing the Illinois Secretary of State to block a nationwide tender offer are substantial. Shareholders are deprived of the opportunity to sell their shares at a premium. The reallocation of economic resources to their highest valued use, a process which can improve efficiency and competition, is hindered. The incentive the tender offer mechanism provides incumbent management to perform well so that stock prices remain-high is reduced. See Easter-brook & Fischel, The Proper Role of a Target’s Management in Responding to a Tender Offer, 94 Harv. L. Rev.
Appellant claims the Illinois Act furthers two legitimate local interests. He argues that Illinois seeks to protect resident security holders and that the Act merely regulates the internal affairs of companies incorporated under Illinois law. We agree with the Court of Appeals that these asserted interests are insufficient to outweigh the burdens Illinois imposes on interstate commerce.
While protecting local investors is plainly a legitimate state objective, the State has no legitimate interest in protecting nonresident shareholders. Insofar as the Illinois law burdens out-of-state transactions, there is nothing to be weighed in the balance to sustain the law. We note, furthermore, that the Act completely exempts from coverage a corporation’s acquisition of its own shares. III. Rev. Stat., ch. 12114, ¶ 137.52-9(4) (1979). Thus Chicago Rivet was able to make a competing tender offer for its own stock without complying with the Illinois Act, leaving Chicago Rivet’s shareholders to depend only on the protections afforded them by federal securities law, protections which Illinois views as inadequate to protect investors in other contexts. This distinction is at variance with Illinois’ asserted legislative purpose, and tends to undermine appellant’s justification for the burdens the statute imposes on interstate commerce.
We are also unconvinced that the Illinois Act substantially enhances the shareholders’ position. The Illinois Act seeks to protect shareholders of a company subject to a tender offer by requiring disclosures regarding the offer, assuring that shareholders have adequate time to decide whether to tender their shares, and according shareholders withdrawal, proration, and equal consideration rights. However, the Williams Act provides these same substantive protections, compare Ill. Rev. Stat., ch. 121A, ¶¶ 137.59.C, D, and E (1979) (with
Appellant also contends that Illinois has an interest in regulating the internal affairs of a corporation incorporated under its laws. The internal affairs doctrine is a conflict of laws principle which recognizes that only one State should have the authority to regulate a corporation’s internal affairs — matters peculiar to the relationships among or between the corporation and its current officers, directors, and shareholders — because otherwise a corporation could be faced with conflicting demands. See Restatement (Second) of Conflict of Laws §302, Comment b, pp. 307-308 (1971). That doctrine is of little use to the State in this context. Tender offers contemplate transfers of stock by stockholders to a third party and do not themselves implicate the internal affairs of the target company. Great Western United Corp. v. Kidwell,
We conclude with the Court of Appeals that the Illinois Act imposes a substantial burden on interstate commerce which outweighs its putative local benefits. It is accordingly invalid under the Commerce Clause.
The judgment of the Court of Appeals is
Affirmed.
Notes
The Chief Justice joins the opinion in its entirety; Justice Black-mun joins Parts I, II, III, and IV; Justice Powell joins Parts I and V-B; and Justice Stevens and Justice O'Connor join Parts I, II, and V.
The Illinois Act defines “take-over offer” as “the offer to acquire or the acquisition of any equity security of a target company, pursuant to a tender offer . . . .” Ill. Rev. Stat., ch. 121'/z, ¶ 137.52-9 (1979). “A tender offer has been conventionally understood to be a publicly made invitation addressed to all shareholders of a corporation to tender their shares for sale at a specified price.” Note, The Developing Meaning of “Tender Offer” Under the Securities Exchange Act of 1934, 86 Harv. L. Rev. 1250, 1251 (1973) (footnotes omitted). The terms “tender offer” and “takeover offer” are often used interchangeably.
The Williams Act, 82 Stat. 454, codified at 15 U. S. C. §§78m(d)-(e) and 78n(dMf), added new §§ 13(d), 13(e), and 14(d)-(f) to the Securities Exchange Act of 1934. Section 14(d)(1) of the Securities Exchange Act requires an offeror seeking to acquire more than 5% of any class of equity security by means of a tender offer to first file a Schedule 14D-1 with the Securities and Exchange Commission. The Schedule requires disclosure
In addition, § 13(d), added by the Williams Act, requires a purchaser of any equity security registered pursuant to § 12 of the Securities Exchange Act, 15 U. S. C. § 781, to file a Schedule 13D with the Commission within 10 days after its purchases have exceeded 5% of the outstanding shares of the security. Schedule 13D requires essentially the same disclosures as required by Schedule 14D-1. Compare 17 CFR §240.13d-101 (1981) with 17 CFR §240.14d-100 (1981).
In addition to filing suit in state court, Chicago Rivet filed a complaint with the Pennsylvania Securities Commission requesting the Commission to enforce the Pennsylvania Act against MITE. On January 31,1979, the
Chicago Rivet’s offer for its own shares was exempt from the requirements of the Illinois Act pursuant to Ill. Rev. Stat., ch. 121%, ¶ 137.52-9(4) (1979).-
The Secretary of State may bring an action for civil penalties for violations of the Illinois Act., Ill. Rev. Stat., ch. 121V2, ¶ 137.65 (1979), and a person who willfully violates the Act is subject to criminal prosecution. ¶ 137.63.
There is no evidence in the legislative history that Congress was aware of state takeover laws when it enacted the Williams Act. When the Williams Act was enacted in 1968, only Virginia had a takeover statute. The Virginia statute, Va. Code § 13.1-528 (1978), became effective March 5, 1968; the Williams Act was enacted several months later on July 19, 1968. Takeover statutes are now in effect in 37 States. Sargent, On the Validity of State Takeover Regulation: State Responses to MITE and Kidwell, 42 Ohio St. L. J. 689, 690, n. 7 (1981).
The 7-day withdrawal period contained in the Williams Act has been extended to 15 business days by the Commission. 17 CFR §240.14d-7(a)(l) (1981).
The Williams Act also provides that when the number of shares tendered exceeds the number of shares sought in the offer, those shares tendered during the first 10 days of the offer must be purchased on a pro rata
Congress also did not want to deny shareholders “the opportunities which result from the competitive bidding for a block of stock of a given company,” namely, the opportunity to sell shares for a premium over their market price. 113 Cong. Rec. 24666 (1967) (remarks of Sen. Javits).
See n. 11 and accompanying text, infra.
H. R. 4285, 91st Cong., 2d Sess. (1970). The bill was not reported out of the Subcommittee. Instead, the Senate amendments to the Williams Act, which did not contain precommencement notification provisions, were adopted. Pub. L. 91-567, 84 Stat. 1497.
The Securities and Exchange Commission has promulgated detailed rules governing the conduct of tender offers. Rule 14d — 2(b), 17 CFR § 240.14d-2(b) (1981), requires that a tender offeror make its offer effective within five days of publicly announcing the material terms of the offer by disseminating specified information to shareholders and filing the requisite documents with the Commission. Otherwise the offeror must announce that it is withdrawing its offer. The events in this litigation took place prior to the effective date of Rule 14d — 2(b), and because Rule 14d-2(b) operates prospectively only, see 44 Fed. Reg. 70326 (1979), it is not at issue in this case.
Delay has been characterized as “the most potent weapon in a tender-offer fight.” Langevoort, State Tender-Offer Legislation: Interests, Effects, and Political Competency, 62 Cornell L. Rev. 213, 238 (1977). See also Wachtell, Special Tender Offer Litigation Tactics, 32 Bus. Law. 1433, 1437-1442 (1977); Wilner & Landy, The Tender Trap: State Takeover Statutes and Their Constitutionality, 45 Ford. L. Rev. 1, 9-10 (1976).
According to the Securities and Exchange Commission, delay enables a target company to:
“(1) repurchase its own securities;
“(2) announce dividend increases or stock splits;
“(3) issue additional shares of stock;
“(4) acquire other companies to produce an antitrust violation should the tender offer succeed;
“(5) arrange a defensive merger;
“(6) enter into restrictive loan agreements; and
“(7) institute litigation challenging the tender offer.” Brief for Securities and Exchange Commission as Amicus Curiae 10, n. 8.
Representative Rodino set out the consequences of delay in greater detail when he described the relationship between the Hart-Scott-Rodino Act and the Williams Act:
“In the case of cash tender offers, more so than in other mergers, the equities include time and the danger of undue delay. This bill in no way intends to repeal or reverse the congressional purpose underlying the 1968 Williams Act, or the 1970 amendments to that act. . . . Lengthier delays will give the target firm plenty of time to defeat the offer, by abolishing cumulative voting, arranging a speedy defensive merger, quickly incorporating in a State with an antitakeover statute, or negotiating costly lifetime*639 employment contracts for incumbent management. And the longer the waiting period, the more the target’s stock may be bid up in the market, making the offer more costly — and less successful. Should this happen, it will mean that shareholders of the target firm will be effectively deprived of the choice that cash tenders give to them: Either accept the offer and thereby gain the tendered premium, or reject the offer. Generally, the courts have construed the Williams Act so as to maintain these two options for the target company’s shareholders, and the House conferees contemplate that the courts will continue to do so.” 122 Cong. Rec. 30877 (1976).
Appellant argues that the Illinois Act does not permit him to adjudicate the substantive fairness of a tender offer. Brief for Appellant 21-22. On this state-law issue, however, we follow the view of the Court of Appeals that ¶ 137.57. E allows the Secretary of State “to pass upon the substantive fairness of a tender offer . . . .”
For example, the Illinois blue-sky law, Ill. Rev. Stat., ch. 12172, ¶ 137.1 et seq. (1979 and Supp. 1980), provides that securities subject to the law must be registered “prior to sale in this State . . . .” ¶ 137.5.
Concurrence Opinion
concurring in part.
I agree with Justice Marshall that this case is moot. In view, however, of the decision of a majority of the Court to reach the merits, I join Parts I and V-B of the Court’s opinion.
I join Part V-B because its Commerce Clause reasoning leaves some room for state regulation of tender offers. This period in our history is marked by conglomerate corporate formations essentially unrestricted by the antitrust laws. Often the offeror possesses resources, in terms of professional personnel experienced in takeovers as well as of capital, that vastly exceed those of the takeover target. This disparity in resources may seriously disadvantage a relatively small or regional target corporation. Inevitably there are certain adverse consequences in terms of general public interest when corporate headquarters are moved away from a city and State.
The Williams Act provisions, implementing a policy of neutrality, seem to assume corporate entities of substantially equal resources. I agree with Justice Stevens that the
concurring in part and concurring in the judgment.
The question whether this case is moot depends on the effect of the preliminary injunction entered on February 2, 1979, restraining the Illinois Secretary of State from enforcing the Illinois Business Take-Over Act while the injunction remained in effect. If, as Justice Marshall contends in his dissenting opinion, the injunction granted the MITE Corp. a complete immunity from state sanctions for any acts performed while the injunction was outstanding, I would agree that the case is moot. On the other hand, if the injunction did no more than it purported to do, setting aside the injunction would remove its protection and MITE would be subject to sanctions in the state courts. Those courts might regard the fact that an injunction was outstanding at the time MITE violated the Illinois statute as a defense to any enforcement proceeding, but unless the federal injunction was tantamount to a grant of immunity, there is no federal rule of law that would require the state courts to absolve MITE from liability. I believe, therefore, that to resolve the mootness issue — which, of course, is jurisdictional — we must answer the question that Justice Marshall’s dissent raises.
Justice Marshall advances various reasons for adopting a rule that will give federal judges the power to grant complete immunity to persons who desire to test the constitutionality of a state statute. His proposed rule would treat any federal judge’s preliminary injunction restraining enforcement of a state statute on federal grounds as a grant of immunity with respect to any conduct undertaken while the injunc
I
The essential facts of this case are few and bear repeating. On February 2, 1979, MITE Corp. and MITE Holdings, Inc., obtained a preliminary injunction restraining the Illinois Secretary of State from invoking the provisions of the Illinois Business Take-Over Act to block MITE’s intended takeover of Chicago Rivet & Machine Co. Three days later, without complying with the provisions of the Illinois statute, MITE published its offer in the Wall Street Journal. On February 9, 1979, the District Court entered a judgment declaring the Illinois statute unconstitutional; the court permanently enjoined the Secretary from enforcing the Illinois statute against MITE.
The State contends that the attempted takeover was subject to the provisions of the Illinois statute and that MITE violated the Act by failing to register with the Illinois Secretary of State. The State further argues that the Take-Over Act is consistent with federal law. For purposes of deciding the mootness issue, we must assume that these contentions are correct; a holding that this case is moot would mean that MITE is completely protected from any adverse action whether or not the statute is unconstitutional. Such a conclusion would be possible only if the District Court’s preliminary injunction granted MITE absolute and permanent immunity from any prosecution — civil or criminal — brought to enforce the Illinois statute.
Neither the terms of the preliminary injunction nor prior equity practice provides any support for an interpretation of
A
An injunction restrains conduct. Its effect is normally limited to the parties named in the instrument. Since a preliminary injunction may be granted on a mere probability of success on the merits, generally the moving party must demonstrate confidence in his legal position by posting bond in an amount sufficient to protect his adversary from loss in the event that future proceedings prove that the injunction issued wrongfully.
These features of injunctive relief are inconsistent with a blanket grant of immumty, as this case demonstrates. The preliminary injunction did not purport to provide permanent immunity for violations of the statute that occurred during its effective period. It merely provided that the Secretary of State was enjoined from “issuing any cease and desist order or notice of hearing or from otherwise invoking, applying, or enforcing the Illinois Business Take-Over Act” against MITE. Record 16. It did not enjoin other parties who are authorized by the Act to enforce its provisions. Ill. Rev.
In Steffel v. Thompson,
“‘[A] federal declaration of unconstitutionality reflects the opinion of the federal court that the statute cannot be fully enforced. If a declaration of total unconstitutionality is affirmed by this Court, it follows that this Court stands ready to reverse any conviction under the statute.’” Id., at 469-470 (quoting Perez v. Ledesma,401 U. S. 82 , 124 (separate opinion of Brennan, J.)).2
Justice White attached possibly the greatest significance to a federal declaratory judgment, writing separately in Steffel that “I would anticipate that a final declaratory judgment entered by a federal court holding particular conduct of the federal plaintiff to be immune on federal constitutional grounds from prosecution under state law should be accorded res judicata effect in any later prosecution of that very conduct.”
An individual who is imminently threatened with prosecution for conduct that he believes is constitutionally protected should not be forced to act at his peril. One purpose of the federal declaratory judgment statute is to permit such an individual to test the legality of a state statute before engaging in conduct that is prohibited by its terms. See S. Rep. No. 1005, 73d Cong., 2d Sess., 2-3 (1934). Recognition of this fact, however, does not determine the point at which an individual may act with absolute assurance that he may not be punished for his contemplated activity. The fact that a federal judge has entered a declaration that the law is invalid does not provide that assurance; every litigant is painfully aware of the possibility that a favorable judgment of a trial court may be reversed on appeal. To repeat the words of this Court in Steffel, the most that can be said is: “ Tf a declaration of total unconstitutionality is affirmed by this Court, it follows that this Court stands ready to reverse any conviction under the statute.’ ”
Since a final judgment declaring a state statute unconstitutional would not grant immunity for actions taken in reliance on the court’s decision, certainly a preliminary injunction— which on its face does nothing more than temporarily restrain conduct — should not accomplish that result. Neither the
B
My conclusions concerning the proper nature of injunctive and declaratory relief are not based upon arcane interpreta
As I have written before, the federal judiciary can continue to perform its vital function in our governmental structure only if it recognizes the limitations on its own legitimate authority. United States v. New York Telephone Co.,
1 — 1 H — 1
On the merits, I agree with the Court that the Illinois Take-Over Act is invalid because it burdens interstate com
concurring in part.
I agree with the Court that the case is not moot, and that portions of the Illinois Business Take-Over Act, Ill. Rev. Stat., ch. 12114, ¶ 137.51 et seq. (1979), are invalid under the Commerce Clause. Because it is not necessary to reach the pre-emption issue, I join only Parts I, II, and V of the Court’s opinion, and would affirm the judgment of the Court of Appeals on that basis.
The corporate headquarters of the great national and multinational corporations tend to be located in the large cities of a few States. When corporate headquarters are transferred out of a city and State into one of these metropolitan centers, the State and locality from which the. transfer is made inevitably suffer significantly. Management personnel — many of whom have provided community leadership — may move to the new corporate headquarters. Contributions to cultural, charitable, and educational life — both in terms of leadership and financial support — also tend to diminish when there is a move of corporate headquarters.
As provided by Federal Rule of Civil Procedure 65(c):
“No restraining order or preliminary injunction shall issue except upon the giving of security by the applicant, in such sum as the court deems proper, for the payment of such costs and damages as may be incurred or suffered by any party who is found to have been wrongfully enjoined or restrained. No such security shall be required of the United States or of an officer or agency thereof.”
In Illinois damages apparently may be recovered for injuries caused by a preliminary injunction issued wrongfully by a st;> o court even in the absence of an indemnity bond or abuse of process. See Ill. Rov. Stat., ch. 69, ¶ 12 (1979); Note, 73 Harv. L. Rev. 333, 34" u°59).
See also
The fact that an unreviewed judgment does not provide absolute protection does not render the declaratory judgment of a district court or a court of appeals meaningless. As stated in Steffel:
“ ‘Even where a declaration of unconstitutionality is not reviewed by this Court, the declaration may still be able to cut down the deterrent effect of an unconstitutional state statute. The persuasive force of the court’s opinion and judgment may lead state prosecutors, courts, and legislators to reconsider their respective responsibilities toward the statute. Enforcement policies or judicial construction may be changed, or the legislature may repeal the statute and start anew.’ ”415 U. S., at 470 (quoting Perez v. Ledesma,401 U. S., at 125 (separate opinion of Brennan, J.)).
In Liner v. Jafco, Inc.,
While the case was pending in the state appellate court, construction at the site was completed. This Court nevertheless held that the issue of whether the injunction had issued properly was not moot because the respondent remained liable on an indemnity bond if the injunction had issued wrongfully. The Court stated:
“The petitioners plainly have ‘a substantial stake in the judgment . . . ,’ Fiswick v. United States,329 U. S. 211 , 222, which exists apart from and is unaffected by the completion of construction. Their interest derives from the undertaking of respondent Jafco, Inc., in the injunction bond to indemnify them in damages if the injunction was ‘wrongfully’ sued out. Whether the injunction was wrongfully sued out turns solely upon the answer to the federal question which the petitioners have pressed from the beginning. If the answer of the Tennessee Court of Appeals to that question may not be challenged here, the petitioners have no recourse against Jafco on the bond.” Id., at 305-306.
In this case it does not appear that MITE is liable on an injunction bond. The posting of an indemnity bond, however, merely creates a right of action — that may or may not otherwise exist — for damages caused during the period that a wrongfully issued injunction was in effect. In this case, such rights of action exist under an independent state law that we must presume to be valid. As in Liner, these rights of action may be pursued “if the injunction was ‘wrongfully’ sued out”; and “[wjhether the injunction was wrongfully sued out turns solely upon the answer to the federal question which the petitioners have pressed from the beginning.”
As stated by Chief Justice Marshall in Ex parte Bollman, 4 Cranch 75, 93:
“As preliminary to any investigation of the merits of this motion, this court deems it proper to declare that it disdains all jurisdiction not given by the constitution, or by the laws of the United States.
“Courts which originate in the common law possess a jurisdiction which must be regulated by the common law, until some statute shall change their established principles; but courts which are created by written law, and whose jurisdiction is defined by written law, cannot transcend that jurisdiction. It is unnecessary to state the reasoning on which this opinion is founded, because it has been repeatedly given by this court; and with the decisions heretofore rendered on this point, no member of the bench has, even for an instant, been dissatisfied.”
I do not suggest that, if the state law is valid, a federal court lacks jurisdiction to enter an injunction restraining state officials from enforcing the statute. Such an injunction may be appropriate — and would be binding on the parties — to permit the federal court to preserve its jurisdiction pending a final decision on the constitutionality of the statute. United States v. Mine Workers,
A conflict between a federal rule of law and a state statute may nullify the state law. Although such invalidity may not be recognized or accepted until it is identified in litigation, in my opinion the conflict with a paramount rule of federal law nullifies a state law whether or not litigation is ever commenced. In other words, it is federal rules of law — and not the actions of federal judges — that may render a state law invalid.
Justice Rehnquist concludes that this case is moot because the injunction restrains an enforcement proceeding that has not yet begun. If his view were accepted, an injunction against a threatened criminal proceeding, see Dombrowski v. Pfister,
Oil Workers v. Missouri,
Dissenting Opinion
with whom Justice Brennan joins, dissenting.
The jurisdiction of this Court depends upon the existence of a live controversy. We may resolve a particular dispute only if the parties have a real interest in the outcome of that dispute. Otherwise, the case is moot, and must be dismissed. Roe v. Wade,
I
The Secretary argues that the case is not moot because the preliminary injunction would not be a complete defense to a state enforcement action. He contends that the preliminary injunction merely barred him from commencing an enforcement action during the period the injunction was in effect. Thus, if this Court had decided that the statute is constitutional and had lifted the permanent injunction, the State would have been able to commence an action seeking penalties for any violations that occurred during the period the preliminary injunction was in effect. In other words, argues the Secretary, the preliminary injunction only provided temporary security. It enabled MITE to go forward with the tender offer — subject to the risk that at some later stage, the constitutionality of the statute would be upheld, and the State would commence enforcement proceedings.
Federal courts undoubtedly have the power to issue a preliminary injunction that restrains enforcement of a state statute, subject to the condition that if the statute is later found to be valid, the State is free to seek penalties for violations that occurred during the period the injunction was in effect. In my view, however, federal courts also have the power to issue a preliminary injunction that offers permanent protection from penalties for violations of the statute that occurred during the period the injunction was in effect.
I believe that in the ordinary case, unless the order contains specific language to the contrary, it should be presumed that an injunction secures permanent protection from penalties for violations that occurred during the period it was in effect; the burden should be on the State to show that the injunction provided only temporary security.
In addition to arguing that the preliminary injunction should be interpreted to provide only temporary protection from a state enforcement action, the Secretary argues that resolution of the mootness issue in this case should be controlled by Leroy v. Great Western United Corp.,
Leroy v. Great Western United Corp. is easily distinguishable from this case. Unlike MITE, Great Western took actions that might have violated the state takeover statute before it obtained injunctive relief. If this Court had decided that the Idaho statute was valid, Idaho officials might have been able, to seek penalties for those preinjunction violations.
HH H-t
The majority disposes of the mootness issue in a short paragraph. It concedes that the only possible basis for continued litigation in this case would be a state action for penalties. It further concedes that the preliminary injunction issued by the District Court may be a complete defense to an action for civil or criminal penalties. It argues, however, that the effect to be given the preliminary injunction should not be reached in this case. Rather, that question should be decided in a state enforcement action, if it is raised as a defense. Thus, contends the majority, the case is not moot.
. This case is made more difficult because the Court has never before decided what effect should be given to preliminary injunctions. But the fact that we must decide a novel question does not make the casé any less moot. Certainly, if the Court had already held that a preliminary injunction provides permanent immunity, the case would be moot even though the State could go into state court and seek penalties. Such a suit, which would be clearly frivolous, could not keep the dispute alive.
The Court’s refusal to confront the question whether a preliminary injunction would provide a complete defense is particularly ironic, given its recent decision in Lane v. Williams,
HH f-H
The parties to this appeal have no adversary interest m the resolution of the merits of this controversy. The majority acts without jurisdiction when it addresses the question whether the Illinois Business Take-Over Act is constitutional. Because I believe the case is moot, I would have vacated the judgment of the Court of Appeals, with instructions that it remand the case to the District Court with instructions to dismiss.
dissenting.
I agree with Justice Marshall that this case does not present a justiciable controversy, but for a different reason.
MITE obtained an injunction in order to effect a cash tender offer for the stock of Chicago Rivet. The injunction restrained the Illinois Secretary of State from interfering with the Chicago Rivet tender offer by enforcing the Illinois Business Take-Over Act against MITE. Three days after the District Court issued a permanent injunction, MITE and Chicago Rivet reached an agreement and MITE withdrew its extant offer. Approximately one month later, MITE announced its decision not to make any tender offer. MITE is
Despite these developments which have occurred after the District Court issued the injunction, the Court concludes that the present controversy between the Illinois Secretary of State and MITE over the constitutionality of the Illinois Business Take-Over Act is not moot. According to the Court, the Illinois Secretary of State’s intention to bring an enforcement action against MITE keeps the present controversy alive. The possibility of a future enforcement action, however, is insufficient for me to conclude that the controversy that is before the Court is not moot.
This Court has no power over a suit not pending before it. ‘“Our power only extends over and is limited by the conditions of the case now before us.’” Oil Workers v. Missouri,
If an enforcement action were brought by the Secretary, “there is no way to know what the outcome of such a proceeding in the [Illinois] courts might be.” Oil Workers v. Missouri, supra, at 371. The Illinois courts may well conclude that the injunction constitutes a defense either on state law grounds or upon the grounds suggested by Justice Marshall in his dissent. The Illinois courts may also agree with MITE that the Business Take-Over Act is pre-empted by the Williams Act or that Illinois’ regulation of interstate tender offers runs afoul of the Commerce Clause. The possibility that this Court might disagree with the Illinois courts’ ultimate resolution of the issues arising in a presently unripe, but threatened, enforcement action hardly justifies the Court’s resolution of important constitutional issues in the abstract posture in- which they are currently presented.
Unless the federal courts can grant preliminary injunctions that provide permanent protection, challenges to questionable state statutes may be de
Holding that federal courts have power to grant permanent protection would not substantially limit state power. In fact, the impact on state power will be relatively insignificant. A federal court may grant a preliminary injunction prohibiting the enforcement of a state statute only when there is substantial doubt about the validity of the statute, and when the party seeking relief is able to show that he will suffer irreparable injury if an injunction is not granted. It is true that under the rule I propose, if the statute is later determined to be valid, the State will never be able to prosecute the individual that obtained the preliminary injunction for action taken while the injunction was in effect. However, the State will be free to prosecute him for actions occurring either before or after the injunction, and will also be able to prosecute other persons who violated the statute. In other words, the State will be barred only from prosecuting the particular individual who requested the injunction for conduct undertaken during the pendency of the injunction. Moreover, it will be barred from prosecuting that individual, only because there was serious doubt about the constitutionality of the statute, and because he was able to show that he would suffer irreparable injury if an injunction was not granted.
It might be argued that because a party seeking a preliminary injunction must ordinarily post bond, there should be a presumption in favor of recovery of damages caused by a wrongfully issued preliminary injunction. However, the fact that an injunction bond is ordinarily required does not necessarily imply that the party against whom the injunction was issued is automatically entitled to damages. That party must still prove that dam
It is true that when an injunction bond has been posted, and when the party challenging the injunction has a right to recover damages on the bond, the question whether an injunction was properly issued is not moot. See Liner v. Jafco, Inc.,
If a bond had been posted, the State might be able to recover costs or nominal damages on the bond. However, where there is no other basis for challenging the validity of an injunction, the possibility of such recovery is not sufficient to keep a case alive. If it were, then almost no case challenging an injunction could become moot. See Washington Market Co. v. District of Columbia,
Cf. Steffel v. Thompson,
I also find it significant that the District Court’s final order granting a permanent injunction declares that the Illinois Act is “null and void and of no force and effect.” App. to Juris. Statement 41a. A reasonable construction of the order granting a preliminary injunction is that it was also intended to render the act “null and void” while the injunction was in effect.
It is relevant to note that although MITE sought injunctive relief prior to engaging in any action that could subject it to civil or criminal penalties, the State never sought a stay of the District Court’s injunction either in that court or in the Court of Appeals, and never expressed an intent to do so.
In Marks, a conviction for transporting obscene materials was overturned, where the materials were not obscene at the time of transportation, but were rendered obscene at the time of trial by an intervening decision of this Court. See also Cox v. Louisiana,
The Court did not reach the question whether the Idaho statute was unconstitutional. It concluded that the action should have been dismissed on grounds of improper venue.
See Idaho Code §§30-1502 to 30-1504, 30-1510 (1980).
See Idaho Code §30-1509 (1980) (allowing State to institute action for rescission). The Illinois Act also empowers the State to seek a court order rescinding sales that are unlawful under the Act. Ill. Rev. Stat., ch. 12P/2, ¶ 137.62 (1979).
It is true that a rescission action would have been predicated on acts that were taken under cover of the preliminary injunction. However, I believe that injunctions should ordinarily be interpreted only as providing permanent protection from penalties. The State should be barred from penalizing the offeror for acts that took place during the period the injunction was in effect. However, if a court determines that the state statute is valid, the State should be free to provide a remedy for the continuing effects of acts that violated the statute. In particular, a State should be permitted to dismantle a successful acquisition that violated a valid statute.
The possibility that MITE will breach its agreement does not bring this case within the “capable of repetition, yet evading review” exception. The likelihood that such a breach will occur is relatively small. The exception applies only when there is a reasonable expectation that the same action will occur in the future.
This case is unlike those in which this Court has found justiciable an action to enjoin a threatened criminal prosecution. The plaintiff in the present posture of this case no longer intends to engage in, or is presently engaging in, what is asserted to be federally protected activity.
Bus Employees v. Missouri,