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PENNWALT CORP. v. CENTAUR PTNRS.

March 10, 1989

PENNWALT CORPORATION
v.
CENTAUR PARTNERS, et al.; TRIO ACQUISITION CORPORATION, et al. v. PENNWALT CORPORATION, et al. v. TRIO ACQUISITION CORPORATION, et al.



The opinion of the court was delivered by: GAWTHROP

 At issue is the validity of a solicitation for a shareholders' meeting, drafted by Centaur Partners and Trio Acquisition Corporation (Centaur) to shareholders of Pennwalt Corporation (Pennwalt). The solicitation states, in pertinent part, that if the person executing it is deemed a member of a "Controlling group" within the meaning of Section 910 of the Pennsylvania Business Corporation Law (PCBL), Pa. Legis. Serv. 160-64 (May, 1988), "this Demand of Meeting shall be null, void, and of no effect." Pennwalt has filed the instant motions for a temporary restraining order and for a preliminary injunction to prevent Centaur from soliciting the call for a meeting, alleging that the solicitation is invalid. In response, Centaur has moved for declaratory relief, requesting that I find, that Section 910 does not to its solicitation apply. Centaur also argues that if Section 910 does affect the solicitation, the section is unconstitutional.

 Background

 On January 13, 1989, Centaur commenced a "Solicitation of Demands for a Special Meeting of Shareholders of Pennwalt Corporation." The letter accompanying the solicitation stated that its purpose was solely to seek the shareholder's consent to demand a special meeting "to Remove Certain Impediments to the Acquisition of the Company by [Centaur]." Specifically, the solicitation sought

 
(1) To consider and vote upon a proposal to remove the Board of Directors of the Company in its entirety;
 
(2) To consider and vote upon an amendment to the By-laws of the Company to reduce the number of directors of the Company from 11 to five and to eliminate the requirement that directors of the Company also be shareholders; and
 
(3) To consider and vote upon the nomination and election of new directors of the Company to fill all five vacancies created by the removal of current directors and the reduction of the number of directors, each to hold office until the next annual meeting and until a successor has been elected and qualified.

 The letter emphasized that

 
IT IS NOT THE PURPOSE OF THIS LETTER TO SOLICIT PROXIES TO VOTE ON THE ISSUE WHICH WOULD BE PRESENTED AT THE SPECIAL MEETING. IF A SPECIAL MEETING IS CALLED, CENTAUR WILL DELIVER TO SHAREHOLDERS A PROXY STATEMENT AND WILL SOLICIT PROXIES WITH RESPECT TO THE ISSUE TO BE VOTED UPON AT THE SPECIAL MEETING. SIGNING THE ENCLOSED DEMAND OF MEETING WILL NOT AFFECT YOUR ABILITY AS A SHAREHOLDER TO VOTE AGAINST ANY OF THE PROPOSALS PRESENTED AT THE SPECIAL MEETING AND DOES NOT CONFER ON CENTAUR ANY RIGHT TO VOTE ANY OF YOUR SHARES AT THE MEETING.

 (Emphasis supplied).

 On January 21, 1989, Centaur supplemented its solicitation to include the following provision:

 
The Demand of Meeting is being executed on the assumption that the person executing this Demand of Meeting would not, by such execution, become a member of a "Controlling group" including Centaur and Trio within the meaning of Section 910 of the Pennsylvania Business Corporation Law. In the event a court of competent jurisdiction finally determines that the person executing this Demand of Meeting would be deemed a member of such "controlling group" by such execution, the execution of this Demand of Meeting shall be null, void and of no effect as of the time of such execution.

 (Emphasis supplied).

 It is the final sentence (the "proviso") that gives rise to the instant dispute between the parties. Pennwalt contends that Centaur and the signing shareholders would constitute a "controlling group" for purposes of Section 910, and, that consequently, the "null, void, and of no effect" provision of the proviso is met. Centaur replies that Section 910 does not apply to the solicitation, but adds that if the section were construed to apply to its actions, the section would be unconstitutional under the Supremacy Clause.

 Discussion

 To obtain a temporary restraining order in a tender offer, the party seeking such relief must show (1) a reasonable probability of eventual success on the merits; (2) irreparable harm if the injunction does not issue; (3) the possibility of harm to other interested persons; and (4) that the granting of injunctive relief is in the public interest. See: Polaroid Corp. v. Disney, 862 F.2d 987, 991 (3d Cir. 1988).

 I. The Abstention Doctrine

 Pennwalt first contends that this court should abstain from deciding the Section 910 issue, on the basis of the abstention doctrine. "Abstention is the exception, not the rule, and is justified only in the exceptional circumstance where the order guiding the parties to the state court 'would clearly serve an important state interest.'" Izzo v. Borough of River Edge, 843 F.2d 765, 767 (3d Cir. 1988), quoting Colorado ...


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