481 U.S. 69 (U.S. Supreme Court 1987)
CTS Corp. v.
Does Indiana's Control Share Acquisitions Act, which conditions the voting rights of shares acquired above specified control thresholds on approval by a majority of disinterested shareholders, (1) conflict with and thus is preempted by the federal Williams Act, or (2) violate the Dormant Commerce Clause?
Federal preemption: A state law is preempted where Congress expressly preempts it, where federal law occupies the field, or where the state law conflicts with federal law or stands as an obstacle to the accomplishment and execution of Congress's purposes. The Williams Act seeks to maintain neutrality between target management and tender offerors while ensuring shareholders receive adequate disclosure and time for decision-making; state laws that upset this neutral balance or frustrate the Act's objectives are preempted. Dormant Commerce Clause: A nondiscriminatory state law that regulates evenhandedly and serves legitimate local interests will be upheld unless the burden imposed on interstate commerce is clearly excessive in relation to the putative local benefits (Pike balancing). States possess a strong interest in regulating the internal affairs of corporations they charter, including shareholder voting rights, so long as the regulation does not discriminate against or unduly burden interstate commerce.
No. The Indiana Control Share Acquisitions Act is not preempted by the Williams Act and does not violate the Dormant Commerce Clause. The statute was upheld, and the lower court's injunction was reversed.
CTS confirms robust state authority over internal corporate governance, even amid federal regulation of securities markets. It reassures states that they may adopt control share and similar antitakeover statutes that channel control contests into shareholder decision-making without running afoul of the Williams Act or the Dormant Commerce Clause. For law students, the case illustrates (1) preemption analysis keyed to federal purpose and neutrality under the Williams Act; (2) Pike balancing under the Dormant Commerce Clause; (3) the internal affairs doctrine's constitutional resonance; and (4) how corporate federalism shapes M&A strategy and statutory design following Edgar v. MITE Corp.