# Amicus Curiae Brief — CTS Corp. v. Dynamics Corp. of America > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0294%3A11 ## Record - **Collection:** Supreme Court brief - **Document type:** Amicus Curiae Brief - **Published:** January 1, 1987 - **Citation:** 481 U.S. 69 ## Text Supreme Court of the Pnited Mates Ocroser Term, 1986 CTS CORPORATION, Appellant, — Vs. —— DYNAMICS CORPORATION OF AMERICA, Appellee. STATE OF INDIANA, Intervenor-Appellant, —_ Vs. —= DYNAMICS CORPORATION OF AMERICA. Appellee. ON APPEAL FROM THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT BRIEF AMICUS CURJAE OF THE STATE OF NEW YORK IN SUPPORT OF APPELLANTS OQ. Perer SHERWOOD RoBERT ABRAMS Solicitor General of the Attorney General of the State of New York State of New York Counsel of Record 120 Broadway New York, New York 10271 Mary E.ien Burns (212) 341-2020 Deputy Chief Assistant Attorney General Coivin W. GraNNUM Assistant Attorney General “at Re ‘ eat m FM dhs a Sates PS i TUE oa al hed «he Rs eae ; X 7 ee wake aes 12 Cort v. Ash, 422 U.S. 66, 84 (1975) ....... Salat 7, 14 Cooley v. Board of Wardens, 53 U.S. (12 How.) gg EA a a 12 Dynamics Corp. of America v. CTS Corp., 794 F.2d 250, 262, 264 (7th Cir. 1986) ........... 5, 9, 10 Edgar v. MITE Corp., 457 U.S. 624, 632, 646, EE a Exxon Corp. v. Governor of Maryland, 437 U.S. Nee ce ww dibs Ge 1] Fleet Aerospace Corp. v. Holderman, 796 F.2d ave ckdencveeesssees i 9 Florida Lime and Avocado Growers, Inc. v. Paul, Bee Um. Bam, BORED (IGE... cc cccccccceess 6 Hillsborough County, Florida v. Automated Medical Laboratories, Inc., 471 U.S. 707 (1985) Hines v. Davidowitz, 312 U.S. 52, 67 (1941) Jones v. Rath Packing Co., 430 U.S. 519, 525 CU au es aha e ace eee Leroy v. Great Western United Corp., 443 U.S. , S | Serre re Terrie Lewis v. B.T. Investment Managers, Inc., 447 a Be GE voc own cees Martin-Marietta Corp. v. Bendix Corp., 690 F.2d 558 (6th Cir. 1982).... Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 127 (1973)... Minnesota v. Clover Leaf Creamery Co., 449 of of) | errr Vorerrr rrr ror National City Lines, Inc. v. LLC Corp., 687 F.2d 1122 (8th Cir. 1982) .... a Pacific Gas & Electric Co. v. State Energy Resources Conservation and Development Commission, 461 U.S. 190 (1983) .......... 9 6, 12 Pike v. Bruce Church. Inc., 397 U.S. 137 (1970) .12, 13, 14 Piper v. Chris-Craft Industries, Inc., 430 U.S. 1, 22, 29, 35 (1977).... ere ey oe Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230 (1947) ........ Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58 (1975) ....... PEP Orr Te re TTT Lees Ty Santa Fe Industries, Inc. v. Green, 430 U.S. 462. 478-79 (1977).... Securities and Exchange Commission v. Carter Hawley Hale Stores, Inc., 760 F.2d 945 (9th >. re NPs eh ae TN United States Constitution: Art. VI, cl.2.. Art. I, §8, cl.3 Federal Statutes: Securities Exchange Act of 1934, 15 U.S.C. §§78a et seq (1982) . Section 28(a), 15 U.S.C. §78bb/(a)(1982) The Williams Act, 15 U.S.C., §§78m/(d)-(e). 78n(d)-(f) (1982) State Statutes: IND. CODE ANN. §§23-1-42-1 to 11 (Burns Cum. Supp. 1986) ... KY. REV. STAT. §271A.397-99 (1984) MD. CORPS. & ASS’NS CODE ANN. §§3-601 et seq. (1985) . MICH. COMP. LAWS §§450.177 et seq. (Supp. 1986) 1986 N.J. Sess. Law Serv. Chap. 74 (West) N.Y. BUS. CORP. LAW §912 (McKinney 1986) Page passim 10 10 10 passim PA. STAT. ANN. tit. 15, §1910 (Purdon Supp. St ee ee ae Peale ey EEE Ta # WISC. STAT. §§180.25(9), 180.725 (1986) . Law Review Articles: Coffee, Regulating the Market for Corporate Control: A Critical Assessment of the Tender Offer’s Role In Corporate Governance, 84 Col. = Hf. APPT Tree Lipton, Takeover Bids In The Target’s Board Room, 35 Bus. Law 101 (1979) .......... Note, State Regulation of Tender Offers: Legislating Within The Constitutional Framework, 54 Fordham L. Rev. 885 (1986) .. Sargent, Do The Second Generation State Takeover Statutes Violate The Commerce ClauseP, 8 Corp. L. Rev. 3 (1985). Tushnet, Rethinking The Dormant Commerce Clause, 1979 Wisc. L. Rev. 125..... Miscellaneous: 113 Cong. Rec. 24664 (1967) ............ S. Rep. No. 550, 90th Cong., Ist Sess. (1967) (Senate Report) ......... Le ie ore re Governor's Program Memorandum, 1985 N.Y. Laws Chap. 915....... Page 10 10 18 13 18 9 9 16 INTEREST OF AMICUS CURIAE Amicus, State of New York, by Robert Abrams, Attorney General of the State of New York, respectfully submits this brief in support of appellants pursuant to Supreme Court Rule 36.4. Amicus urges this Court to reverse the judgment of the court of appeals and to affirm the power of a state to enact legisla- tion that adjusts the variety of interests effected by takeovers of local corporations. New York has an interest in the issues presented by this ap- peal because this Court’s decision may affect the validity of a recent amendment to the New York Business Corporation Law (“NYBCL”). The amendment, N.Y. BUS. CORP. LAW §912 (McKinney 1986), and the Indiana law challenged in this litiga- tion, The Control Share Acquisitions Chapter of the Indiana Business Corporation Law, IND. CODE ANN. §§23-1-42-1 to 11 (Burns Cum. Supp. 1986), operate quite differently, but they advance common legitimate state interests. As amicus, New York seeks to protect those interests. New York emphasizes the power of states to enact legislation, consistent with Edgar v. MITE Corp., 457 U.S. 624 (1982),' that apportions the local interests and rights affected by changes in corporate control and fun- damental corporate events even though the legislation inciden- tally impacts on interstate commerce. The challenged Indiana act, Section 912 and numerous other state laws represent the best efforts of many states to exercise their traditional authori- ty over such matters while complying with the limited guidelines articulated in Edgar v. MITE, Corp. This Court’s response to Indiana's attempt to prescribe rules governing the exercise of the voting rights associated with newly- acquired control shares may eventually guide lower courts’ assessment of New York’s statute. Like Indiana’s law, Section 912 governs internal corporate matters; it does so by setting re- quirements for certain business combinations between New York ' The State of New York also participated as amicus curiae in Edgar v. MITE Corp., and supported the constitutionality of the Illinois law challenged there. resident domestic corporations and certain shareholders of 20 percent or more of the outstanding voting stock (“interested shareholders”) of resident domestic corporations. Authority to regulate the voting rights of shares and prescribe requirements for business combinations traditionally has resided with the state under whose laws the corporation is organized. For example, section 912 restricts interested shareholders’ access to corporate assets by prescribing requirements for mergers, consolidations, dissolutions and other dispositions of significant corporate assets. Its goal is to promote the long-term well-being of New York resident domestic corporations. The type of business combination affected by section 912 usually accompanies highly-leveraged unilateral takeovers. These combinations frequently change the financial structure, character, investment and employment policies, and earnings of the local corporation. Too often such changes are initiated in order to fund the takeover itself and operate to the long-term detriment of the corporation. These combinations may also alter the legal relationships and expectations among and between shareholders of the resident domestic corporation. Interests out- side the corporation may also be significantly affected, par- ticularly those of suppliers and employees of the corporation and other local businesses. Choosing from several approaches, 32 states have enacted statutes that protect and balance the variety of interests implicated by transactions conceived to force major internal corporate changes in corporations deeply rooted in those states.’ Lastly, the State of New York is the home of thousands of corporations and corporate investors of every variety. The New York and American Stock Exchanges are located in New York and are pillars of the State’s economy. As the site of a stagger- ing volume of transactions involving corporate securities, assets and control, the State’s interest in the Court’s decision is ? Alaska, Arkansas, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Hampshire, New Jersey, New York, Ohio, Oklahuma, Pennsylvania, South Carolina, South Dakota, Tennessee, Utah, Virginia, and Wisconsin. keen: the decision may impact on the economy of the State, how people do business within it, and the development of its com- mercial law. In sum, the State of New York has an interest in protecting the power of states to enact statutes which, by constit:tionally permissible means, adjust the variety of local interests affected by corporate takeovers. We believe that the Indiana statute satisfies the requirements of the Commerce and Supremacy clauses. Likewise, we are satisfied that the New York statute is fully compatible with the provisions of the United States Con- stitution, although we recognize that the Court’s decision in this case is not an occasion — and should not be the occasion — to resolve this question. SUMMARY OF ARGUMENT Acting pursuant to powers granted to it under the Supremacy and Commerce Clauses of the Constitution, Congress enacted the Williams Act, 15 U.S.C. §§ 78m/(d)-(e), 78n(d)-(f) (1982), which brought a measure of protection to shareholders of cor- porations that were the targets of takeover efforts. In so doing, Congress did not evince an intention to preempt state statutes covering the same subject matter. It neither sought to impose a national governmental policy regarding corporate takeover contests nor to preclude the states from enacting laws that strike a different balance. Recently, in Edgar v. MITE Corp. this Court considered the effect of the Williams Act on an Illinois statute which regulated certain takeover contests and declined to hold that the Williams Act preempts state regulation in this area or otherwise imposes an overriding national policy respecting takeovers. Nevertheless, the court of appeals devined the existence of such a policy and invalidated the Indiana statute which sought to regulate the exercise of voting rights in connection with takeovers of cor- porations having substantial contacts with that state. In so doing, the lower court cast grave doubt on the traditional power of a state to enact legislation that affects transactions designed to capture corporate control, alter corporate governance and reallocate substantial assets of corporations firmly connected to that state. Its decision should be reversed. Under the Williams Act, disclosure is required of persons who acquire more than five percent of certain classes of securities or commence a tender offer which would give them ownership of more than five percent of certain classes of securities. 15 U.S.C. §§78m/(d)(1), 78n(d)(1). The information that must be disclosed includes: the background and identity of the acquiror; the source of the funds to be used in making the purchase; the purpose of the purchase, including any plans to liquidate the company or make major changes in cor- porate structure; and the extent of the acquiror’s holdings in the target (Footnote continued) When Congress amended the Securities Exchange Act of 1934 (“1934 Act”), 15 U.S.C. §§78a et seq. by enacting the Williams Act, the amendment did not disturb section 28(a) of the 1934 Act, 15 U.S.C. §78bb(a). In pertinent part, Section 28(a) pro- vides as follows: Nothing in this title shall affect the jurisdiction of the securities commission (or any agency or officer per- forming like functions) of any State over any securi- ty or any person insofar as it does not conflict with the provisions of this title or the rules and regulations thereunder. Section 28(a) clearly expresses Congress’ intent to limit the preemptive effect of the federal securities laws. This intent is grafted onto the Williams Act. Thus, any inquiry into the preemptive effect of the Williams Act must be illuminated by the unmistakeable fact that section 28(a) is intended to “pro- tect, rather than limit, state authority.” Leroy v. Great Western United Corp. 443 U.S. 173, 182 (1979); see Agency-Rent-A-Car, Inc. v. Connolly, 686 F.2d 1029, 1038 (1st Cir. 1982). The Indiana control share acquisitions law does not conflict with the Williams Act or frustrate its objectives in a substan- tial way. The statutes operate in related, but separate arenas. The Indiana law defines the post-acquisition voting rights of certain controlling shares while the sole purpose of the Williams Act is to provide investors with full and fair disclosure regard- ing tender offers. Piper v. Chris-Craft Industries, Inc. , 430 U.S. at 35; Rondeau v. Mosinee Paper Corp., 422 U.S. 49, 58 (Footnote continued) company. 15 U.S.C. §78m(d)(1). With respect to tender offers: (1) stockholders who tender their shares may withdraw them during the first 7 days of a tender offer and if the offeror has not yet purchased their shares, at any time after 60 days from the commencement of the offer, 15 U.S.C. §78n(d)(5); and (2) all shares tendered must be purchased for the same price; if an offering price is increased, those who have already tendered receive the benefit of the in- crease. 15 U.S.C. §78n(d)(7). See Edgar v. MITE Corp., 457 U.S. at 632. (1975); 113 Cong. Rec. 24664 (1967)(Comments of sponsor, Senator Williams); S. Rep. No. 550, 90th Cong., Ist Sess. (1967)(Senate Report). Moreover, the Indiana law protects a broader range of interests than those protected by the Williams Act, including local economic and social interests likely to be affected by transfers of corporate control. See Edgar v. MIT™ Corp., 457 U.S. at 647 (Powell, J., concurring in part). The court of appeals swept aside the Indiana law on the ground that it frustrated an objective of the Williams Act — the “delicate balance” struck between the tender offeror and incumbent rnanagement. Dynamics Corp. of America v. CTS Corp., 794 F.2d 250, 262 (7th Cir. 1986). However, in Piper v. Chris-Craft Industries, Inc., this Court stated: Congress was indeed committed to a policy of neutrality in contests of control, but its policy of evenhandedness does not go to either the purpose of the legislation or to whether a private cause of ac- tion is implicit in the statute. Neutrality, is, rather, but one characteristic of legislation directed toward a different purpose — the protection of investors. 430 U.S. at 29. Moreover, in Edgar v. MITE Corp., Justice White’s conclusion that the policy of neutrality underlying the Williams Act should be accorded preemptive effect failed to command a majority of this Court.* See Edgar v. MITE Corp.., 457 U.S. at 646 (Powell, J., concurring); Jd. at 655 (Stevens, J., concurring). In brief, the decision to strike down the Indiana act was supported neither by this Court’s case law nor the * Justice White's opinion has been accorded great weight bv several courts of appeals, Fleet Aerospace Corp. v. Holderman, 796 F.2d 135 (6th Cir. 1986): Securities and Exchange Commission v. Carter Hawley Hale Stores, Inc. , 760 F.2d 945 (9th Cir. 1985); Martin-Marietta Corp. v. Bendix Corp., 690 F.2d 358 (6th Cir. 1982); National City Lines, Inc. v. LLC Corp., 687 F.2d 1122 (8th Cir. 1982), but none of the statutes reviewed by those courts was anologous to Indiana’s law 10 legislative history of the Williams Act. Tacitly conceding that it had found no clear and manifest intent of Congress to preempt state laws like the one challenged here, the court of appeals nevertheless took the required “big leap,” and toppled the In- diana law. Dynamics Corp. of America v. CTS Corp. , 794 F.2d at 262. The court of appeals’ “delicate balance” analysis also casts doubt on a variety of other state statutes which amicus believes do not frustrate the full and fair disclosure purpose of the Williams Act or upset that act’s policy of neutrality. General- ly, these statutes protect interests far broader than those ad- dressed in the Williams Act. These statutes reflect a variety of approaches. Control share acquisitions statutes, like that of In- diana, allow shareholders or their duly elected directors to deter- mine voting rights for control share acquisitions. Business com- bination statutes generally require similar approval for business combinations, broadly defined to include a wide range of tran- sactions involving substantial corporate assets.‘ Fair value statutes grant non-tendering minority shareholders the right to receive a statutorily prescribed fair price to protect them from being “freezed out” by the controlling shares.* Still other statutes combine features of each of the above laws.’ The delicate balance reasoning adopted by the court of appeals implies that it would invalidate all of these statutes because they may make | acquisition of control of a corporation or access to its assets more *‘ New York, N.Y. BUS. CORP. LAW §912 (McKinney 1986), New Jersey, 1986 N.J. Sess. Law Serv. Chap. 74 (West), and Kentucky, KY. REV. STAT. §271A.397 (1984) have enacted different versions of business combination statutes. * Pennsylvania, PA. STAT. ANN. tit. 15, §1910 (Purdon Supp. 1986), has enacted a fair value statute. ’ Hybrid statutes have been enacted by Wisconsin, WIS. STAT. §§180.25/9), 180.725 (1986); Maryland, MD. CORPS. & ASS’NS CODE ANN. §§3-601 et seq. (1985); Kentucky, KY. REV. STAT. §271A.397-99 (1984); Michigan, MICH. COMP. LAWS §§450.177 et seq. (Supp. 1986); and other states. 1] difficult to accomplish.* As demonstrated earlier, the Williams Act should not be construed to have such an intrusive impact on traditional state authority. In sum, read in light of settled principies of federalism, sec- tion 28(a) of the 1934 Act, the legislative history of the Williams Act and the broad traditional role of the states in regulating corporations, no basis exists for concluding that Congress in- tended to preempt state laws pertaining to the exercise of voting rights, use of corporate assets, transfer of corporate control or treatment of minority interest shareholders. All of these tran- sactions impact on internal corporate matters and implicate in- terests beyond those sought to be protected by the Williams Act. In addition, no policy or objective of the Williams Act is frustrated by these state laws. Lower court decisions that find preemption appear to be based upon the mistaken belief that since interstate securities transactions are used to accomplish these major corporate changes, no state can enact legislation which affects these transactions. Cf. Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 127 (1978) (Court rejected the “novel suggestion that because the economic market for petroleum pro- ducts is nationwide, no state has the power to regulate the retail marketing of gas.”) But Congress has not addressed the impact of these major corporate changes, and until it does so, this Court should leave the states free to serve as laboratories for finding effective ways of regulating takeovers. Accordingly, th‘ * The business combinations regulated by Section 912, including mergers, con- solidations, dissolutions and other reallocations of substantial corporate assets, have long been regulated by New York law in some fashion. Measuring sec- tion 912 against the Williams Act reveals that it does not: interfere with the disclosure requirements of the Williams Act; purport to regulate the purchase and sale of securities; impose time limits inconsistent with the Williams Act (§912(b)); effect voting rights; restrict the acquiror’s ability to oust incum- bent management; or permit a state official to usurp shareholders’ decisions to sell their shares. The New York act only restricts the freedom of resident domestic corporations to execute a business combination that will redirect substantial corporate assets principally for the benefit of the newly -acquired controlling interest. 12 Court should hold that Indiana’s control share acquisitions statute is not preempted by the Williams Act. See Hillsborough County, Florida v. Automated Medical Laboratories, Inc.; Pacific Gas & Electric Co. v. State Energy Resources Conser- vation and Development Commission. II. State Statutes, Like Indiana’s, That Adjust The Various Interests Effected By Corporate Takeovers Are Constitutional For They Are Nondiscriminatory And Have Only Incidental Effects On Interstate Commerce The Commerce Clause provides that “Congress shall have Power... to regulate Commerce... among the several States.” U.S. Const. art I, §8, cl. 3. While it is well settled that the dor- mant Commerce Clause is a limitation on the power of the states to affect interstate commerce, Cooley v. Board of Wardens, 53 U.S. (12 How.) 299 (1852), it is also clear that states are not precluded from enforcing local laws that incidentally burden interstate commerce. Lewis v. B.T. Investment Managers, Inc.., 447 U.S. 27 (1980); Minnesota v. Clover Leaf Creamery Co.., 449 U.S. 456 (1961). Direct burdens on interstate commerce are prohibited, but the Commerce Clause permits states to im- plement laws which affect interstate commerce if the state in- terest is legitimate, and the state regulation is nondiscriminatory. Brown-Forman Distillers Corp. v. New York State Liquor Authority (“NYSLA”), 106 S. Ct. 2080 (1986); Pike v. Bruce Church, Inc., 397 U.S. 137 (1970). Minimal inquiry is required to recognize the constitutional infirmity in state statutes that directly regulate or discriminate against interstate commerce. See, e.g., Brown-Forman Distillers Corp. v. NYSLA, 106 S. Ct. at 2080; City of Philadelphia v. New Jersey, 437 U.S. 617 (1978). In contrast, when a state statute has only indirect effects on interstate commerce and regulates evenhandedly, courts must examine whether the state's interest is legitimate and whether the burden on commerce is outweighed by the local benefits. Brown-Forman Distillers 13 Corp. v. NYSLA, 106 S. Ct. at 2080; Edgar v. MITE Corp.., 457 U.S. at 640; Pike v. Bruce Church, Inc., 397 U.S. at 142. Where, as here, the challenged state statute furthers weighty, legitimate state interests it does not offend the constitution. Citing Edgar v. MITE Corp., the courts below held that In- diana’s control share acquisitions statute violated the Commerce Clause. However, the majority opinion in Edgar v. MITE Corp. supports neither the holding nor reasoning of the courts below. First, the characteristics of the Indiana control share acquisi- tions statute bear no resemblance to the provisions of the II- linois Business Takeover Act which this Court invalidated. Fur- thermore, the Court acknowledged the legitimacy of Illinois’ interest in protecting local investors, but concluded that the means used unnecessarily burdened interstate commerce and did not plainly further the interests asserted by Illinois. Id. at 643-46. Ignoring the limited reach of this Court’s holding in Edgar v. MITE Corp., the courts below invalidated the Indiana law without giving proper weight to the legitimate interests of Indiana or the variety of benefits derived from its statute. In fact, the court of appeals went so far as to suggest that general- ly states have limited interests in regulating the effects of cor- porate takeovers. Of course, several weighty interests support state legislation that adjusts the variety of local interests likely to be directly effected by corporate takeovers. Note, State Regulation of Tender Offers: Legislating Within The Constitu- tional Framework, 54 Fordham L. Rev. 885, 901 (1986). Takeovers are designed to have a direct impact on the fun- damental internal affairs of target corporations, specifically cor- porate control and the allocation of assets. For example, they implicate interests of employees, minority shareholders and in- cumbent management as well as businesses located in the area where the corporation does substantial business. Thus, while takeovers may be accomplished by interstate transactions, local interests traditionally regulated by the states are frequently im- pacted directly. * The Illinois act allowed the Illinois Secretary of State to block indefinitely a nationwide tender offer. The Indiana act, on the other hand, assigns no role to the state in takeover contests, and does not regulate the transfer of stock. 14 Corporations and corporate shares are creatures of state law. Cort v. Ash, 422 U.S. at 84. Despite increased trading of cor- porate shares in interstate and international commerce, shares remain items over which the states have significant authority. The initial features of corporate stock, including voting rights, were created by states, and states retain the authority to modify or amend those features. That authority includes the power to define the circumstances under which shares may be used to gain control over a corporation or to reallocate corporate assets. Thus, contrary to the court of appeals’ belief, the federal govern- ment and states share a joint interest in the “commerce of cor- porate control.” Dynamics Corp. of America v. CTS Corp., 794 F.2d at 264. Some of the specific goals states seek to achieve by enacting various forms of takeover legislation include: (1) protecting local non-tendering shareholders from the effects of two-tier “freeze- out” transactions; (2) permitting shareholders to participate in decisions regarding fundamental corporate events such as mergers, consolidations, and sales and pledges of assets; (3) en- couraging certain types of investment strategies considered good for the economy of the state; and (4) eliminating the need for incumbent management to focus upon certain defensive strategies considered unhealthy for the state’s economy. Each of these interests is important to the states and in assessing the validity of a state statute under the Commerce Clause, courts should accord these interests great weight. The court of appeals’ failure to accord proper weight to In- diana’s stated interests renders its Pike analysis defective.'° Unlike the statute considered in Edgar v. MITE Corp., Indiana has a strong interest in the corporations covered by its control share acquisitions act. The Indiana act applies only to corporations organized under the laws of Indiana with 100 or more ’ Application of the Pike balancing test is appropriate because the Indiana act does not directly regulate interstate transactions. Instead, once the stock acquisition is completed, the statute allows shareholders to determine whether voting rights will be accorded to an acquiror of a controlling interest. 15 shareholders which have their principal place of business, prin- cipal offices or substantial assets within Indiana, and more than ten percent of their shares owned by Indiana residents. Thus. the Indiana act covers corporations that were incorporated in the state and in which Indiana residents have a substantial ownership interest and which do substantial business in the state or maintain substantial assets there. These firm ties between the covered corporations and Indiana permit the state to pursue several permissible objectives: pro- tecting resident shareholders and local economies, and regulating internal corporate affairs. Sargent, Do The Second Generation State Takeover Statutes Violate The Commerce Clause?, 8 Corp. L. Rev. 3 (1985). Because the Indiana law is directed at local matters, its effect on interstate commerce is incidental and its burden on interstate commerce is modest. Additionally, the Indiana law regulates evenhandedly inasmuch as it makes no distinction between acquisitions initiated by out- of-state residents and those initiated by state residents. The Indiana law advances the legitimate state interests iden- tified. It benefits Indiana shareholders because it only applies to Indiana corporations in which Indiana residents have a substantial ownership interest. It protects shareholders by per- mitting a majority of disinterested shareholders to determine whether a material change in voting control is in their best in- terests. Because it requires express shareholder approval of a transfer of controlling voting rights in a corporation, the statute allows resident shareholders to discount the possibility of a shareholder stampede and permits them to focus on factors. including the probable local economic and social impact of a takeover, which they might not otherwise evaluate. The Indiana act also advances the state’s interest in regulating the internal affairs of corporations organized under the laws of Indiana. The statute is drawn to further this interest. It ap- plies to voting rights, manifestly an internal matter, of corpora- tions organized under the laws of Indiana. APL Limited Part- nership v. Van Dusen Air, Inc., 622 F. Supp. 1216, 1223 (D.C. 16 Minn. 1985). It does not apply to foreign corporations as did the statute examined in Edgar v. MITE Corp. We are especially troubled by the aspect of the court of ap- peals’ opinion that suggests that the Commerce Clause condemns state statutes that require shareholder or board of director ap- proval of fundamental internal corporate changes initiated through interstate stock transactions. This notion implicates statutes like the one enacted by New York even though they plainly advance legitimate state interests without excessively burdening interstate commerce. In this regard, Section 912, furthers several legitimate state interests. As a threshhold matter, the “resident domestic cor- porations” covered by section 912 are closely connected to New York so as to achieve the State’s permissible purposes.'' Secondly, Section 912 furthers several important state objectives, chief among them is promoting the long-term well-being of New York resident domestic corporations. See Governor's Program Memorandum, 1985 N.Y. Laws Chap. 915. The New York law accomplishes this goal by forbidding resident domestic corpora- tions from engaging in business combinations with an interested shareholder for five years unless the business combination or controlling share acquisition was approved by the board of direc- tors prior to the interested shareholder’s stock acquisition date. Section §912(b). Five or more years after the interested shareholder’s stock acquisition date, the resident domestic cor- poration may engage in a business combination with the in- terested shareholder if it obtains the affirmative vote of the holders of a majority of ie outstanding stock not beneficially owned by such interested shareholder or pays the shareholders, other than the interested shareholder, a statutorily prescribed formula price designed to ensure that all holders of shares of " The jurisdictional predicate required to trigger Section 912 is more strict than under Indiana law. Section 912 only covers corporations organized under the laws of New York and which have (1) their principal offices and (2) signifi- cant business operations and (3) at least 10 percent of the ownership of its voting stock located in New York. NYBCL §912(a)(13 17 voting stock will receive at least the highest price per share paid by the interested shareholder, determined as of the date such business combination was first proposed in its final, definitive form. NYBCL §912(c).” Thus, section 912 has the following effects: (1) it encourages takeovers that the acquiror and target management agree are in the best interests of New York corporations, their employees and shareholders; (2) it discourages unilateral takeovers which depend on immediate access to significant assets of the corpora- tion; (3) it encourages long-term investment commitment by interested shareholders who acquired their controlling interest without the approval of the board of directors; and (4) it pro- tects resident non-tendering shareholders from “freeze-out” tran- sactions. '* Achieving each of these benefits is important to the economic and social well-being of New York. On the other side of the scale, section 912 does not excessive- ly burden interstate commerce. It has a limited impact on the interstate commerce of corporate stock and control. In contrast to the statutes struck down in Edgar v. MITE Corp., and by various other federal courts, section 912 does not: (1) regulate the sale of shares; (2) protect incumbent management from replacement by an interested shareholder; (3) limit the voting rights of newly-acquired shares; (4) require approval of the ac- quisition of controlling interests; (5) prohibit a change of the corporation’s line of business; (6) grant the State a role in deter- mining whether an interstate acquisition will proceed; or (7) deprive shareholders of the right to sell their shares at a premium. * A related provision of New York law, NYBCL §513, restricts the use of “greenmail” by resident domestic corporations by requiring board of direc- tor and shareholder approval of such purchase or agreement to purchase ' Two corollary benefits are discouraging excessive corporate debt and en- couraging long-term interests, especially research and development and business diversification. 18 The court of appeals’ opinion nonetheless calls statutes like Section 912 into question apparently on the ground that the Commerce Clause bars states from sanctioning any activity that slows “the important commerce in corporate control.” Dynamics Corp. of America v. CTS Corp., 794 F.2d at 264. Implicit in the court’s opinion is its belief that tender offers benefit shareholders and, therefore, the Commerce Clause should pro- tect tender offers. In other words, under the guise of a Com- merce Clause analysis, the court of appeals imposed its economic judgment regarding the value of tender offers. Such economic policy judgments, however, are reserved for the Congress or state legislatures. In the absence of a national policy regarding corporate takeovers, it is not appropriate for federal courts to attempt to fill the void by judicial interpretations of the Com- merce Clause. This is especially so in light of Congress’ disinclination, to date, to formulate an approach to the issue and the disputed economic data regarding the value of takeovers, particularly highly-leveraged hostile ones. Coffee, Regulating the Market for Corporate Control: A C ritical Assess- ment of the Tender Offer’s Role In Corporate Governance, 84 Col. L. Rev. 1145 (1984), see Tushnet, Rethinking the Dormant Commerce Clause, 1979 Wisc. L. Rev. 125, 156; Lipton, Takeover Bids in the Target's Board Room, 35 Bus. Law. 101 (1979). 19 CONCLUSION For all the foregoing reasons, the decision below should be reversed. Dated: New York, New York December 4, 1986 O. PETER SHERWOOD ROBERT ABRAMS Solicitor General of the Attorney General of the State of New York State of New York 120 Broadway Counsel of Recora New York, New York 10271 Tel. No. (212) 341-2020 MARY ELLEN BURNS Deputy Chief Assistant Attorney General COLVIN W. GRANNUM Assistant Attorney General --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385012_0294%3A11. Public record. Not legal advice.