On Appeal from the United States District Court for the Eastern District of Pennsylvania. (D.C. Civil Action No. 90-02920)
Before: Scirica, Alito and Seitz, Circuit Judges
This case involves a challenge to the constitutionality of the Pennsylvania anti-takeover act of 1990. Plaintiffs, shareholders of Armstrong World Industries, Inc.,*fn1 brought this action seeking declaratory and injunctive relief on behalf of themselves and Armstrong against the board of directors, state officials charged with implementing the Act, and Armstrong nominally. The district court dismissed plaintiffs' complaint for lack of subject matter jurisdiction. Because we conclude that plaintiffs' claims are not ripe for judicial review, we will affirm.
On April 27, 1990, Act No. 36, 1990 Pa. Laws 129, became law. Considered one of the nation's toughest anti-takeover statutes, the Act enhances the ability of management of Pennsylvania corporations to fend off hostile takeover attempts. See Comment, Beyond the Third Generation: An Analysis of Pennsylvania's Latest Attack on Hostile Takeovers, 29 Duq. L. Rev. 579, 591 n.73 (1991). Among other things, Act 36 revises directors' fiduciary duties, restricts the voting rights of shareholders who initiate control-share acquisitions, and empowers corporations to disgorge short-swing profits realized by bidders who place corporations "in play."
The fiduciary duties provision expands directors' discretion in determining the "best interests of the corporation." Directors may now consider whether the corporation's long-term interests and plans would be "best served by the continued independence of the corporation," as well as "the resources, intent and conduct (past, stated and potential) of any person seeking to acquire control of the corporation." 15 Pa. Cons. Stat. Ann. § 1715(a)(2) & (3) (Purdon Supp. 1991-92) (originally enacted as Act of Apr. 27, 1990, No. 36, § 1721(e)(2) & (3), 1990 Pa. Laws 129).*fn2 Moreover, "in considering the . . . effects of any action," directors need not "regard any corporate interest or the interests of any particular group affected by such action as a dominant or controlling interest or factor." Id. § 1715(b) (Act 36, § 1721(e)(4)).
The fiduciary duties provision also fortifies the presumption that directors' actions are in the "best interests of the corporation." Directors are under no "greater obligation to justify" their actions "relating to an acquisition or potential or proposed acquisition of control of the corporation" than in any other circumstances. Id. § 1715(d) (Act 36, § 1721(g)). Furthermore, actions taken by disinterested directors in the change-of-control context are presumed to be in the "best interests of the corporation," except where it is proven that such actions were not taken "in good faith after reasonable investigation." Id.*fn3
The control-share acquisitions provision restricts the voting rights of any person who acquires shares in connection with a "control-share acquisition." See id. § 2564(a) (Act 36, § 2563(a)). A control-share acquisition occurs whenever a person acquires voting power for the first time over 20, 33 1/3, or 50% of the voting shares of a corporation. Id. § 2562. Persons who initiate control-share acquisitions are denied voting rights in "control shares," except where such rights are granted by a majority of disinterested shares and a majority of all voting shares. Id. § 2564(a) (Act 36, § 2563(a)). Control shares are "those shares of a corporation that, upon acquisition of voting power over such shares by an acquiring person, would result in a control-share acquisition." Id. § 2562.
The disgorgement provision enables corporations to recover short-swing profits realized by any "controlling person" from the sale of shares in connection with a control-share acquisition. Id. § 2575 (Act 36, § 2574). A controlling person is any person or group that (1) acquires, offers to acquire, or announces its intention to acquire voting power over at least 20% of the shares entitled to vote in an election of directors, or (2) announces that "it may seek to acquire control of a corporation through any means." Id. § 2573. All profits realized within eighteen months after obtaining controlling-person status from the sale of shares acquired two years prior to, or eighteen months subsequent to, attaining such status may be recovered by the corporation through an enforcement action. Id. § 2575 (Act 36, § 2574).
Unlike the fiduciary duties provision, which governs all actions taken by directors, the control-share acquisitions and disgorgement provisions only apply in the change-of-control context. Under the Act, corporations may "opt-out" of any or all of the foregoing provisions. See id. §§ 1711(b) (Act 36, § 1721(j)), 2561(b) & 2571(b). Although many corporations subject to Act 36 have elected to opt-out, Armstrong has not and remains subject to the Act's change-of-control and fiduciary duties provisions.*fn4 On the day Act 36 became law, plaintiffs brought this action in federal district court seeking declaratory and injunctive relief. In their complaint, plaintiffs allege that the Act's control-share acquisitions and disgorgement provisions violate the Supremacy Clause of the United States Constitution, by contravening and frustrating the purposes of the Williams Act;*fn5 the Commerce Clause, by discriminating against interstate commerce, namely, out-of-state shareholders; the Contracts Clause, by impairing the contractual rights acquired by plaintiffs upon their purchase of Armstrong shares; and the First Amendment, by restricting the free speech rights of plaintiffs and potential tender offerors. In addition, plaintiffs contend that the fiduciary duties provision violates the Contracts Clause, for the same reason as the Act's change-of-control provisions; and the Fifth Amendment, by diminishing the value of their property interest in Armstrong stock.*fn6
Plaintiffs maintain that they have been harmed as a direct result of the passage of the Act. First, they contend that defendant directors actively lobbied for and expended vast amounts of corporate assets in support of the passage of Act 36. Second, they claim that Armstrong was the subject of an "unsolicited tender offer" initiated by the Belzberg family of Canada in July 1989, which was withdrawn because of Act 36.*fn7 Third, plaintiffs assert that the passage of Act 36 precipitated the decline in the market value of Armstrong stock, which dropped 18% from the date the Act was introduced (October 20, 1989) to the date it became law (April 27, 1990), and 52% in the year following its enactment.*fn8 Finally, plaintiffs allege that Act 36 will deter potential tender offerors from placing Armstrong "in play," thus depriving them of their right to sell Armstrong shares to a hostile tender offeror.
Defendants filed a motion to dismiss for lack of subject matter jurisdiction. According to defendants, plaintiffs' complaint does not present a "case or controversy" within the meaning of Article III of the Constitution, because the challenged provisions of Act 36 cannot affect plaintiffs until and unless Armstrong becomes the subject of a takeover attempt triggering the Act. Therefore, defendants maintain, plaintiffs' action is not ripe for judicial review.
The district court agreed. Applying the test set forth in Step-Saver Data Systems, Inc. v. Wyse Technology, 912 F.2d 643 (3d Cir. 1990), it held that "plaintiffs' claims do not constitute a real and immediate controversy appropriate for judicial resolution," and dismissed plaintiffs' complaint for lack of subject matter jurisdiction. Armstrong World Indus., Inc. v. Adams, No. 90-2920 (E.D. Pa. May 10, 1991).*fn9 This appeal followed.
We have jurisdiction under 28 U.S.C. § 1291. At issue is the justiciability of plaintiffs' complaint, and, in particular, whether their claims are ripe for judicial review. Our review of the district court's order dismissing plaintiffs' complaint for lack of subject matter jurisdiction is plenary. Haydo v. Amerikohl Mining, Inc., 830 F.2d 494, 496 (3d Cir. 1987).*fn10
Article III, section 2 of the United States Constitution limits federal jurisdiction to actual "cases" and "controversies." U.S. Const. art. III, § 2. It was intended to ensure that federal courts decide only those disputes of "a Judiciary nature," M. Ferrand, 2 Records of the Federal Convention of 1787, at 430 (1911), and stands as a direct prohibition on the issuance of advisory opinions, Flast v. Cohen, 392 U.S. 83, 96, 20 L. Ed. 2d 947, 88 S. Ct. 1942 (1968).
To satisfy Article III's "case or controversy" requirement, an action must present "(1) a legal controversy that is real and not hypothetical, (2) a legal controversy that affects an individual in a concrete manner so as to provide the factual predicate for reasoned adjudication, and (3) a legal controversy so as to sharpen the issues for judicial resolution." International Bhd. of Boilermakers v. Kelly, 815 F.2d 912, 915 (3d Cir. 1987); see also City of Los Angeles v. Lyons, 461 U.S. 95, 101-05, 75 L. Ed. 2d 675, 103 S. Ct. 1660 (1983). The case or controversy requirement must be met regardless of the type of relief sought, including declaratory relief. Skelly Oil Co. v. Phillips Petroleum Co., 339 U.S. 667, 671, 94 L. Ed. 1194, 70 S. Ct. 876 (1950).
In Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 85 L. Ed. 826, 61 S. Ct. 510 (1941), the Supreme Court explained:
The difference between an abstract question and a "controversy" contemplated by the Declaratory Judgment Act*fn11 is necessarily one of degree, and it would be difficult, if it would be possible, to fashion a precise test for determining in every case whether there is such a controversy. Basically, the question in each case is whether the facts alleged, under all the circumstances, show that there is a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.
See Step-Saver Data Sys., Inc. v. Wyse Technology, 912 F.2d at 646-47 (discussing the applicability of the case or controversy requirement in the declaratory judgment context).
The case or controversy requirement has engendered numerous justiciability doctrines that further define the limits of federal jurisdiction. Among these is the ripeness doctrine, which determines when a proper party may bring an action.*fn12 See Thomas v. Union Carbide Agric. Prods. Co., 473 U.S. 568, 580, 87 L. Ed. 2d 409, 105 S. Ct. 3325 (1985) ("Ripeness is peculiarly a question of timing.").*fn13 "Its basic rationale is to prevent the courts, through avoidance of premature adjudication, from entangling themselves in abstract disagreements." Abbott Lab. v. Gardner, 387 U.S. 136, 148, 87 L. Ed. 2d 409, 105 S. Ct. 3325 (1967).
In determining whether an action is ripe for judicial review, the Supreme Court generally looks to "the fitness of the issues for judicial decision" and "the hardship to the parties of withholding court consideration." Id. at 149. In the declaratory judgment context, we have refined this test because of the difficulty in defining ripeness in actions initiated before an "accomplished" injury is established. Step-Saver, 912 F.2d at 647. We focus instead on the "adversity of interest" between the parties, the "conclusivity" that a declaratory judgment would have on the legal relationship between the parties, and the "practical help, or utility," of a declaratory judgment. Id.
As we explained in Step-Saver, "'for there to be an actual controversy the defendant must be so situated that the parties have adverse legal interests.'" Id. at 648 (quoting 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 2757, at 582-83 (2d ed. 1983)). Where the plaintiff's action is based on a contingency, it is unlikely that the parties' interests will be sufficiently adverse to give rise to a case or controversy within the meaning of Article III. Id.
Of course, a plaintiff need not suffer a completed harm to establish adversity of interest between the parties. See Pacific Gas & Elec. Co. v. State Energy Resource Conservation & Dev. Comm'n, 461 U.S. 190, 201, 75 L. Ed. 2d 752, 103 S. Ct. 1713 (1983) ("One does not have to await the consummation of threatened injury to obtain preventative relief.") (citation omitted). In some situations, present harms will flow from the threat of future actions. See Nichols, supra, at 171. However, "to protect against a feared future event, the plaintiff must demonstrate that the probability of that future event occurring is real and substantial, 'of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.'" Salvation Army v. Department of Community Affairs, 919 F.2d 183, 192 (3d Cir. 1990) (quoting Steffel v. Thompson, 415 U.S. 452, 460, 39 L. Ed. 2d 505, 94 S. Ct. 1209 (1974)); see also Pacific Gas & Elec. Co., 461 U.S. at 201 (stating that the threatened injury must be "certainly impending").
In addition to having adversity of interests between the parties, "any contest must be based on a 'real and substantial controversy admitting of specific relief through a decree of a conclusive character, as distinguished from an opinion advising what the law would be upon a hypothetical state of facts.'" Step-Saver, 912 F.2d at 649 (quoting Aetna Life Ins. Co. v. Haworth, 300 U.S. 227, 241, 81 L. Ed. 617, 57 S. Ct. 461 (1937)) (emphasis added). A declaratory judgment granted in the absence of a concrete set of facts would itself be a "contingency," and applying it to actual controversies which subsequently arise would be an "exercise in futility." Id. at 648.
Nevertheless, the need for a concrete set of facts is greater in some instances than others. The Supreme Court has said that an "actual factual setting" is "particularly important in cases raising allegations of an unconstitutional taking of private property." Hodel v. Virginia Surface Mining & Reclamation Ass'n, 452 U.S. 264, 294-95, 69 L. Ed. 2d 1, 101 S. Ct. 2352 (1981). On the other hand, it has indicated that a factual record is not as important where the question presented is "predominantly legal," such as one of federal preemption. Pacific Gas & Elec. Co., 461 U.S. at 201. Of course, even where the need for a concrete set of facts is not as great, the case or controversy requirement must be met. Finally, because "one of the primary purposes behind the Declaratory Judgment Act was to enable plaintiffs to preserve the status quo . . ., a case should not be considered justiciable unless 'the court is convinced that [by its action] a useful purpose will be served.'" Step-Saver, 912 F.2d at 649 (quoting E. Borchard, Declaratory Judgments 29 (1941)). Therefore, even if a declaratory judgment would clarify the parties' legal rights, it should ordinarily not be granted unless "the parties' plans of actions are likely to be affected by a declaratory judgment." Id.
As the Step-Saver court recognized, the foregoing factors are not exhaustive of the principles courts have considered in evaluating ripeness challenges. See id. at 647. For instance, where the constitutionality of a state provision is at issue, the Supreme Court has taken into account the degree to which postponing federal judicial review would have "the advantage of permitting state courts further opportunity to construe [the challenged provisions], and perhaps in the process 'materially alter the question to be decided.'" Renne v. Geary, 115 L. Ed. 2d 288, U.S. , 111 S. Ct. 2331, 2339 (1991); see also Webster v. Reproductive Health Servs., 492 U.S. 490, 506, 106 L. Ed. 2d 410, 109 S. Ct. 3040 (1989) (plurality opinion) (invoking same principle to postpone review of Missouri statute governing the rights of unborn children).*fn14
In addition, courts have invoked the Ashwander principle, see Ashwander v. Tennessee Valley Auth., 297 U.S. 288, 346-47, 80 L. Ed. 688, 56 S. Ct. 466 (1936) (Brandeis, J., Concurring), which calls for the avoidance of ruling on federal constitutional matters in advance of the necessity of deciding them, to postpone judicial review where it would be premature. See, e.g., Hastings v. Judicial Conference of the United States, 248 ...