APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA D.C. Civil No. 80-03770
Before Adams, Hunter and Weis, Circuit Judges.
This case centers on H.A.I. of Florida's offer to purchase all the real and personal property of Horizon Hospital, Inc. Appellant, E.H.I. of Florida, as present management of the hospital facility, requests a preliminary injunction to prohibit the sale. E.H.I. contends, in essence, that since the property at issue serves as collateral for long-term bonds issued by Horizon, the offer to purchase the assets is tantamount to a tender offer and subject to the regulations of the federal securities laws. The district court denied relief and we affirm. The federal securities laws are not at issue in this case; H.A.I.'s offer involves simply the acquisition of property that also acts as collateral supporting the Horizon sinking fund bonds. No security was ever tendered nor was there ever an invitation to tender any security. Such a purchase does not engage the disclosure or anti-fraud provisions of the federal securities laws. Therefore we affirm the district court's denial of the preliminary injunction.
In 1973 Horizon Hospital, Inc., a non-profit corporation, undertook to construct a psychiatric hospital in Clearwater, Florida. To help finance the cost of the facility, the corporation issued long-term sinking fund bonds which earned interest at a rate of 9% and 9 1/2 % per annum. These bonds were secured by a first mortgage lien on the real property of the hospital as well as first lien on hospital's gross revenues. In February 1976, when Horizon Hospital, Inc. failed to make a quarterly interest payment, the bonds went into default. No interest payments have been made since June 1, 1979 and, although scheduled to begin in 1976, no sinking fund payments have been paid to date.
In March of 1980, appellant, E.H.I., and the Board of Trustees of Horizon Hospital, Inc., entered into an agreement whereby E.H.I. leased the Clearwater facility and undertook to manage all the tangible and intangible assets of the hospital for ten years. E.H.I. also secured an option to purchase the assets of the hospital at any time during the lease.*fn1
On May 23, 1980, the Board of Trustees of Horizon Hospital, Inc., filed a petition for bankruptcy under Chapter VII of the Bankruptcy Code. 11 U.S.C. §§ 701-728 (Supp. III 1979). One week later the trustees for the Horizon Hospital bondholders converted this proceeding to one for reorganization under Chapter XI. 11 U.S.C. §§ 1101-1174 (Supp. III 1979).*fn2
In August of 1980, the trustees for the holders of the Horizon Hospital sinking fund bonds entered into an asset purchase agreement with H.A.I. This agreement provided for, among other things, the sale of all the real and personal property of Horizon Hospital, Inc. to H.A.I. Because this property served as part of the collateral for the bonds, the asset sale was conditioned upon the approval of the transaction by persons holding a majority, in principal amount, of Horizon Hospital sinking fund bonds. The bondholder trustees requested the provision requiring bondholder approval; neither the indenture nor the bonds themselves gave the bondholders the right to vote on the disposition of the collateral underlying their bonds.
On September 10, 1980, pursuant to the H.A.I. asset purchase agreement, the bondholder trustees sent a letter soliciting the bondholders' approval of the sale. The letter asked only for approval of the sale; the bondholders were not asked to surrender their bonds, nor did the solicitation claim that the sale would satisfy the bondholders' claims against Horizon Hospital, Inc. The bondholders approved the asset sale.
The appellant, E.H.I., had no knowledge of the asset purchase agreement until the solicitation of the bondholders commenced. Upon learning of the plan, E.H.I. filed suit in district court claiming that H.A.I.'s letter to the bondholders was false and misleading and failed to contain information required by the disclosure provisions of federal securities laws. E.H.I. requested a temporary restraining order and preliminary injunction to enjoin both the solicitation and any activities contemplated in the bondholder trustees' letter. A temporary restraining order was issued by the district court ex parte and the case held over for full hearing. After the hearing, the district court denied the request for a preliminary injunction and dissolved the temporary restraining order. E.H.I. appeals.
E.H.I. claims that the bondholder trustee's letter of September 10 violated section 14(a) of the Securities Exchange Act of 1934 and sections 14(d) and (e) of the Williams Act. 15 U.S.C. § 78n(a), (d) & (e) (1976). It seeks a preliminary injunction enjoining the bondholder trustees' solicitation or any activities contemplated by the solicitation letter of September 10.
In deciding whether to issue a preliminary injunction, a court must balance the conflicting interests of both parties, and when relevant, the public. As this court stated in Continental Group, Inc. v. Amoco ...