CTS Corp. v. Dynamics Corp. of America
481 U.S. 69.

PROCEDURAL POSTURE: Appellant, an Indiana corporation, challenged a decision of the United States Court of Appeals for the Seventh Circuit that affirmed a decision in favor of appellee national corporation finding that the Williams Act, 15 U.S.C.S. §§ 78M(d)-(e), 78n(d)-(f), pre-empted the Control Share Acquisitions Chapter of the Indiana Business Corporation Law, Ind. Code Ann. § 23-1-42-1 et seq.

FACTS: The revised Indiana Business Corporation Law included a chapter on Control Share Acquisitions that applied to any issuing public Indiana domestic corporations, including existing corporations, unless the corporation's board specifically amends its articles or bylaws to opt out of the provision. Under the act, an "issuing public corporation" is a corporation with 100 or more shareholders that has "its principal place of business, its principal office, or substantial assets" located in Indiana and that has either (a) more than ten percent of its shareholders residing in Indiana; fb) more than ten percent of its shares owned by Indiana residents; or (c) 10,000 shareholders residing Indiana. The act focuses on "control shares," which are shares acquired when the holder has control of 20 percent, 33 1/3 percent, or 50 percent of the shares. The control shares' holder is not necessarily allowed to obtain the corresponding percentage of votes; he or she will be limited to as much voting power as the other shareholders allow. The statute's effect is to subject control of the corporation to the disinterested shareholders' approval. If the shareholders withhold majority rights, the shareholder that acquired the shares can ask the corporation to redeem its shares. Dynamics (P) owned 9.6 percent of the common stock of CTS (D), an Indiana corporation. Dynamics (P) announced a tender offer for one million CTS (D) shares, bringing Dynamics' (P) ownership of CTS (D) to 27.5 percent. The CTS (D) board determined that CTS (P) would comply with the act's provisions, and Dynamics (P) sought a legal determination that the Act was preempted by the William Act and constituted a violation of the Commerce Clause. The District Court held that the Williams Act pre-empted the Indiana Act and granted Dynamics' (P) motion for declaratory relief. A week later, the court issued an opinion agreeing that the act violated the Commerce Clause by posing a substantial interference with interstate commerce. The court of appeals agreed with the trial court's decision.

ISSUE: May state law impose restrictions affecting a company's aftyity to acquire control of another without running afoul of federal law or the Commerce Clause?

RULE: State law may impose restrictions affecting a company's ability to acquire control of another without running afoul of federal law or the Commerce Clause.

HOLDING & ANALYSIS: Appellee announced that it would purchase one million shares of common stock, which would increase its ownership in appellant. Appellant's board of directors elected to be governed by the Control Share Acquisitions Chapter of the Indiana Business Corporation Law (Act), Ind. Code Ann. § 23-1-42-1 et seq. (Supp. 1986). Appellee filed an action against appellant, alleging that the Act was pre-empted by the Williams Act, 15 U.S.C.S. §§ 78m(d)-(e), 78n(d)-(f) (1982 ed. and Supp. III). The trial court found in favor of appellee and the appellate court affirmed. The Supreme Court found probable jurisdiction and reversed the appellate court's decision. The Court found that the Act evenhandedly determined the voting rights of shares of corporations and that the Act did not conflict with the provisions or purposes of the Williams Act. Therefore, the Court found that the Act was not pre-empted by the Williams Act.