ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY C.A. No. 80-03770
Before Adams, Garth and Sloviter, Circuit Judges.
This appeal from a denial of a motion for a preliminary injunction in a hotly contested tender offer battle presents the important question whether the New Jersey takeover law is preempted by the Williams Act, 15 U.S.C. § 78m(d)-(e), 78n(d)-(f), and SEC Rule 14d-2(b) promulgated thereunder. The issue of federal court deference to state proceedings under the doctrines of Pullman and Younger abstention is also a factor in this appeal. We hold that we are not precluded by these abstention doctrines from granting relief, and that the district court erred in evaluating the plaintiff's likelihood of success and irreparable injury. We therefore reverse the denial of preliminary injunctive relief, and remand for further proceedings.
The proceedings prefacing this appeal are manifold as well as complicated. On November 21, 1980, the Board of Directors of Kennecott Corporation voted to make a cash tender offer for up to 4,100,000 shares of the common stock of Curtiss-Wright Corporation at $40 per share. Kennecott issued a press release on the same day announcing the Board's decision, specifically disclosing the number of shares of Curtiss-Wright common stock it proposed to purchase and the price it would offer.
As a result of publicly announcing its offer, Kennecott was required under federal law to "commence" or withdraw the tender offer within five business days of the announcement no later than November 28. SEC Rule 14d-2(b), 17 C.F.R. § 240.14d-2(b). Under the New Jersey Corporation Takeover Bid Disclosure Law, N.J.Stat.Ann. §§ 49:5-1 et seq., which applies to this tender offer because the principal executive offices of Curtiss-Wright are in New Jersey, Kennecott is prohibited from commencing its offer until at least twenty days after the announcement. N.J.Stat.Ann. § 49:5-3. There may also be further delay, because appellee James Smith, the Chief of the New Jersey Bureau of Securities, has decided to hold a hearing on the proposed offer. Thus, Kennecott claims that, from the time it announced the tender offer, it was not possible to comply with the commencement provisions of both federal and state law.
The commencement of the offer is the time at which an offeror is required to disseminate to shareholders the material information regarding the offer that the federal securities laws require. An offeror must file a disclosure statement on schedule 14D-1 with the Securities and Exchange Commission ("SEC"), and must take certain additional steps to effect actual receipt by the shareholders of material information relating to the offer, the companies involved in the offer, and the terms of the offer. The federal policy underlying these requirements is to insure the prompt dissemination of all material information after the first public announcement. The information is necessary because the announcement of the offer itself will precipitate significant market activity in the securities of the target company, thus confronting public investors with an immediate need to make investment decisions. See SEC Release No. 34-16384, 44 Fed.Reg. 70326, 70329 n.15 (1979).
To protect its right to proceed under the Williams Act, which must be presumed valid,*fn1 and to prevent the application of a conflicting state law to its proposed tender offer, Kennecott filed an action in federal district court on November 21, the date of its announcement, seeking (1) a declaratory judgment that the New Jersey Takeover Law is unconstitutional as applied to Kennecott's tender offer for shares of Curtiss-Wright, because it conflicts with and is preempted by the federal law, and (2) preliminary and permanent injunctive relief restraining enforcement of the New Jersey Takeover Law against the Kennecott offer.
At the time it filed its complaint, Kennecott also obtained a temporary restraining order prohibiting the defendants from commencing other litigation bearing on the constitutional validity of the New Jersey law. Such an order was sought to avoid a multiplicity of lawsuits and to prevent delay beyond the five day requirement of Rule 14d-2(b).
On November 25, the district court denied Kennecott's motion for a preliminary injunction and vacated the existing temporary restraining order, concluding that Kennecott had failed to meet its burden of showing a probability of success on the merits or irreparable harm if the injunction were not granted. The court did not consider delay to be irreparable injury. On the merits, the court indicated that Kennecott might have been able to avoid the conflict if it had omitted from its announcement the number of shares it sought to purchase and the price it was prepared to pay for such shares. N.J.Admin.Code 13:47A-25.3(b). This omission, it is argued, would have placed Kennecott within a so-called "safe harbor." 17 C.F.R. § 240.14d-2(d). In addition, the court viewed denial of Kennecott's motion as a means of preserving the status quo until trial. The court also asserted that the denial of relief was supported by the doctrine of abstention and related equitable principles emanating from Railroad Commission v. Pullman Co., 312 U.S. 496, 61 S. Ct. 643, 85 L. Ed. 971 (1941), and Younger v. Harris, 401 U.S. 37, 91 S. Ct. 746, 27 L. Ed. 2d 669 (1971). Kennecott immediately filed a notice of appeal and a motion for a stay or injunction pending appeal.
After the district court decision, the defendants took steps to effectuate the New Jersey law. Smith, in his capacity as the Chief of the New Jersey Bureau of Securities issued a cease and desist order on November 26 that directed Kennecott not to commence the tender offer before the expiration of the twenty-day waiting period. To preserve its ability to comply with federal law and commence its offer, Kennecott also filed a notice of appeal from that order with the Appellate Division of the Superior Court of New Jersey. The effect of the appeal was to stay Smith's order, at least until further proceedings in the Appellate Division.
Thus, Kennecott was not under any restraint against commencement of the tender offer on November 28, the last date for commencing the offer authorized by federal law. Kennecott instituted the offer on that date by publishing a summary advertisement in the national financial press and by filing with the SEC a disclosure statement on Schedule 14D-1. Kennecott also took steps to comply with the dissemination requirements of federal law. Pursuant to SEC Rule 14d-5, 17 C.F.R. § 240.14d-5, it asked Curtiss-Wright either to provide a shareholder list or to agree to mail Kennecott's Offer to Purchase containing required disclosures relating to the offer to Curtiss-Wright shareholders. Curtiss-Wright elected the second option, but has not distributed copies of Kennecott's offer to purchase, because of subsequent state court developments.
On December 1, Smith applied to the Appellate Division for an order vacating the stay effected by Kennecott's appeal from his November 26 order, and enjoining Kennecott from engaging in any acts in furtherance of the tender offer. The Presiding Judge of the Appellate Division granted the motion for temporary relief. A panel of the Appellate Division held a hearing on December 9, and continued the restraints against Kennecott by enforcing the cease and desist order. The panel did not entertain Kennecott's appeal from that order on that day, and specifically declined to consider at that time whether the New Jersey Act or pertinent parts of the New Jersey Act were preempted by the federal act and regulations.
The same day that Smith applied to the Appellate Division, December 1, Curtiss-Wright commenced an action in the Superior Court of New Jersey, Chancery Division, seeking injunctive relief against the tender offer and the voting of any shares Kennecott acquires. Curtiss-Wright's complaint relies on the sections of the New Jersey Takeover Law that delay ...