CTS Corp. v. Dynamics Corp. of America
481 U.S. 69 (1987)
Indiana passed the Indiana
Control Share Acquisitions Law (ICSA) in order to stop hostile takeovers of Indiana
This law had provisions that
went over and above those in Federal law (the Williams Act).
Dynamics was involved in a
hostile takeover of CTS. They sued to enjoin enforcement of the ICSA, claiming it was preempted by the Williams
Act, and that it violated the Commerce
The Appellate Court found the ICSA to be unconstitutional. CTS appealed.
The Appellate Court found
that the ICSA would discourage
corporations from making hostile takeovers of Indiana companies, and that
would improperly impact interstate commerce.
The US Supreme Court reversed.
The US Supreme Court noted
that the Dormant Commerce Clause
merely says that States can't discriminate against interstate commerce by
treating in State and out of State people (or corporations) differently.
The Court found that the ICSA does not differentiate between in state and
out of state corporations and so it is not a violation of the Dormant
Dynamics argued that most
hostile takeovers will be originated by corporations outside of Indiana,
so that would impact them more than Indiana corporations. However the
Court didn't find that argument persuasive.
The Court recognized that
the ICSA might result in fewer
people making bids to take over Indiana corporations. However, the Court
noted that corporations are a creation of State law, and that the ICSA didn't stop anyone from making a takeover
bid, it just provided regulatory procedures designed for the better
protection of the corporation's shareholders. Therefore it isn't a
violation of the Commerce Clause.