Alliant Energy Corp v. Bie, Ave M. , 277 F.3d 916 ( 2002 )


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  • In the
    United States Court of Appeals
    For the Seventh Circuit
    No. 01-2293
    Alliant Energy Corporation and Wisconsin Power
    and Light Company,
    Plaintiffs-Appellants,
    v.
    Ave M. Bie, Joseph P. Mettner, and John H.
    Farrow, in their official capacities as
    Commissioners of the Wisconsin Public
    Service Commission,
    Defendants-Appellees.
    Appeal from the United States District Court
    for the Western District of Wisconsin.
    No. 00-C-611-S--John C. Shabaz, Judge.
    Argued November 13, 2001--Decided January 17, 2002
    Before Harlington Wood, Jr., Easterbrook,
    and Kanne, Circuit Judges.
    Easterbrook, Circuit Judge. Wisconsin
    regulates the corporate structure of
    firms that provide utility service in
    that state. Some of these regulations,
    according to our plaintiffs (an electric
    utility and its parent),
    unconstitutionally discriminate against
    interstate commerce and deprive them of
    the laws’ equal protection. Compare Edgar
    v. MITE Corp., 
    457 U.S. 624
    , 643-46
    (1982), with Amanda Acquisition Corp. v.
    Universal Foods Corp., 
    877 F.2d 496
    (7th
    Cir. 1989). Plaintiffs, who have sued
    under 42 U.S.C. sec.1983, want an
    injunction blocking these statutes’
    enforcement. But the district court did
    not adjudicate the plaintiffs’
    contentions. Instead it dismissed the
    complaint for lack of standing, ruling
    that the complaint did not spell out in
    enough factual detail the proposed
    actions that state law would block. We
    hold, to the contrary, that the complaint
    satisfies Fed. R. Civ. P. 8. Perhaps the
    plaintiffs will be unable to prove their
    allegations of injury, but they are
    entitled to try.
    Wisconsin Power & Light Co. (wpl) is the
    utility, and Alliant Energy the parent
    holding company. One of the laws in
    question requires Alliant (and any other
    corporation owning as little as 5% of a
    Wisconsin utility such as wpl, or of a
    holding company such as Alliant) to be
    incorporated in Wisconsin. Wis. Stat.
    sec.196.795(1)(h)1, (5)(l). The utility
    itself must be incorporated in Wisconsin.
    Wis. Stat. sec.196.53. A third law
    prevents any holding company in Alliant’s
    position from selling as little as 10% of
    its stock to a single person without
    prior administrative approval, Wis. Stat.
    sec.196.795(3). A fourth blocks any
    utility holding company from investing
    more than 25% of its assets outside the
    utility sector. Wis. Stat.
    sec.196.795(6m)(b). There are more, but
    because standing to sue is the only open
    question we need not mention them. The
    first amended complaint asserted in
    general terms that these statutes injure
    Alliant and wpl by preventing them from
    reincorporating outside Wisconsin,
    selling blocs of stock to non-Wisconsin
    firms in order to raise capital at lower
    rates, and diversifying their business
    outside the utility sector by more than
    the 25% cap. The district court deemed
    this inadequate because it did not allege
    that Alliant and wpl have firm commitments
    to do any of these forbidden things and
    did not spell out exactly what harm they
    suffer from not being able to do them.
    Plaintiffs then sought to file a second
    amended complaint, accompanied by
    affidavits of both managers and
    economists, stating expressly (for
    example) that Alliant would incorporate
    outside Wisconsin, if doing so were
    prudent after the district judge’s
    ruling, would sell more than 10% of its
    stock to raise investment capital, and
    would make higher profits if it could
    engage in these and other transactions
    forbidden by the challenged laws.
    Thedistrict judge refused to allow this
    amendment, ruling that it would be
    pointless because it would not solve the
    problem. Neither the second amended
    complaint nor any affidavit identifies a
    buyer (and price) for the stock that
    Alliant would like to sell, identifies a
    partner committed to a merger, or makes
    an unqualified commitment to
    reincorporate in a particular state
    outside Wisconsin. Injury thus is
    conjectural, the judge wrote.
    Reading plaintiffs’ papers leaves us,
    like the district judge, wondering
    whether there is a concrete dispute. It
    would be easy enough for Alliant to say
    something like: "As soon as the law
    allows, we will reincorporate in
    Delaware." And if Alliant fears that this
    is imprudent (because Delaware might
    change its laws while this case is
    pending), Alliant could say something
    like: "The Board of Directors has passed
    a resolution committing this firm to
    reincorporate in Delaware, provided that
    the shareholders approve and provided
    further that provision X of Delaware law
    has not changed in the interim." From the
    nature of this suit, in which plaintiffs
    protest the unusually stringent anti-
    takeover rules of Wisconsin law (even the
    anti-minority-bloc rules), the
    reservation about Delaware law might read
    something like "provided further that
    Delaware law still freely allows sales of
    minority blocs and the purchase of shares
    by third parties." But Alliant has not
    said anything of the sort. The amended
    complaint and accompanying affidavits
    just say "we want to reincorporate,"
    without identifying the proposed state of
    reincorporation, the reason why that
    state’s law is preferable to Wisconsin’s,
    or any contingencies that would affect
    the choice. The maddening vagueness of
    the complaint, and the fact Alliant and
    wpl haven’t committed themselves to do
    anything, implies that maybe the state
    laws aren’t really blocking them from do
    ing what they would prefer to do.
    Both in their brief and at oral argument
    plaintiffs insisted that this standoffish
    position is compelled by the directors’
    fiduciary duties. It would be imprudent,
    counsel insist, for the directors to make
    commitments when the litigation might
    linger on the docket and business or
    legal circumstances change. "The business
    judgment rule," plaintiffs’ brief says,
    prevents the directors from making firm
    plans. This confuses a defense to
    liability with a rule of conduct. The
    business judgment rule is a defense; if
    directors act loyally and carefully, they
    are not liable even if the transaction
    goes awry. See, e.g., E. Norman Veasey,
    Seeking a Safe Harbor from Judicial
    Scrutiny of Directors’ Business
    Decisions, 37 Bus. Law. 1247 (1982). The
    rule of conduct is that directors must
    try to maximize investors’ expected
    returns. If doing this requires the
    directors and managers to make long-term
    commitments, then they are required to do
    so. Firms cannot operate only in the
    short term. wpl knows this. It may take 20
    years to design, get approval for, and
    build a new power plant. During that time
    the price of fuel, the demand for power,
    and the environmental regulations that
    affect the plant’s operation may change,
    for the better or the worse. What seemed
    profitable at the outset may turn out to
    be a losing venture. Yet directors who
    refuse to make long-term plans, because
    they fear loss, are doing the investors a
    disservice. Investors can cope with
    project-specific and firm-specific risk
    easily by holding a portfolio of stocks;
    some investments will be winners, some
    losers. Directors who refuse to make
    long-term commitments because they dread
    loss end up ensuring loss. So if
    directors believe that being rid of
    Wisconsin’s laws would improve Alliant’s
    or wpl’s profitability, and if because of
    standing rules the only way to get an
    adjudication and a crack at liberation
    from the laws is to make a long-term
    commitment, then the directors are not
    just allowed by corporate law to make
    that pledge but also required to do so if
    they believe that step a paying venture
    on balance. The plaintiffs’ excuses for
    filing mealy-mouthed documents just do
    not wash.
    All of this assumes, however, that the
    district judge was right in thinking that
    it is legally essential that such
    commitments be part of the complaint. It
    is not. A complaint need only state the
    nature of the claim; details can wait for
    later stages, such as an evidentiary
    hearing under Fed. R. Civ. P. 12(b)(1) or
    summary judgment under Rule 56.
    "Complaints need not be elaborate, and in
    this respect injury (and thus standing)
    is no different from any other matter
    that may be alleged generally. See Lujan
    v. Defenders of Wildlife, 
    504 U.S. 555
    ,
    561 (1992)." South Austin Coalition
    Community Council v. SBC Communications
    Inc., No. 00-3864 (7th Cir. Dec. 19,
    2001), slip op. 3; see also Alliance for
    Clean Coal v. Miller, 
    44 F.3d 591
    (7th
    Cir. 1995). The Supreme Court elaborated
    in Lujan:
    The party invoking federal
    jurisdiction bears the burden of
    establishing these elements. See
    FW/PBS, Inc. v. Dallas, 
    493 U.S. 215
    , 231 (1990); 
    Warth, supra, at 508
    . Since they are not mere
    pleading requirements but rather an
    indispensable part of the
    plaintiff’s case, each element must
    be supported in the same way as any
    other matter on which the plaintiff
    bears the burden of proof, i.e.,
    with the manner and degree of
    evidence required at the successive
    stages of the litigation. See Lujan
    v. National Wildlife Federation, 
    497 U.S. 871
    , 883-889 (1990); Gladstone,
    Realtors v. Village of Bellwood, 
    441 U.S. 91
    , 114-115, and n. 31 (1979);
    
    Simon, supra, at 45
    , n. 25; 
    Warth, supra, at 527
    , and n. 6 (Brennan,
    J., dissenting). At the pleading
    stage, general factual allegations
    of injury resulting from the
    defendant’s conduct may suffice, for
    on a motion to dismiss we "presum[e]
    that general allegations embrace
    those specific facts that are
    necessary to support the claim."
    National Wildlife 
    Federation, supra, at 889
    . In response to a summary
    judgment motion, however, the
    plaintiff can no longer rest on such
    "mere allegations," but must "set
    forth" by affidavit or other
    evidence "specific facts," Fed. Rule
    Civ. Proc. 56(e), which for purposes
    of the summary judgment motion will
    be taken to be true. And at the
    final stage, those facts (if
    controverted) must be "supported
    adequately by the evidence adduced
    at trial." 
    Gladstone, supra, at 115
    ,
    n. 
    31. 504 U.S. at 561
    . "[G]eneral factual
    allegations", which suffice at the
    pleading stage, are exactly what Alliant
    provided. It plans to reincorporate
    outside Wisconsin, wants to sell more
    stock to investors not incorporated in
    Wisconsin, and so on. Details--
    reincorporate where? when? sell to whom?-
    -can come later. The extra detail
    provided with the proposed second amended
    complaint and affidavits does not plead
    the case out of court. These documents do
    not show that the case is doomed. They
    just leave things open; too open, the
    district judge thought, but supplying
    details is not the function of a
    complaint. It is easy to imagine facts
    consistent with this complaint and
    affidavits that will show plaintiffs’
    standing, and no more is required. See,
    e.g., Hishon v. King & Spalding, 
    467 U.S. 69
    , 73 (1984); Conley v. Gibson, 
    355 U.S. 41
    , 45-46 (1957); Walker v. National
    Recovery, Inc., 
    200 F.3d 500
    (7th Cir.
    1999); Bennett v. Schmidt, 
    153 F.3d 516
    (7th Cir. 1998).
    Moreover, because investors’ loss is
    derivative from corporate loss, the fact
    that investors (and potential buyers or
    merger partners) have not sued is not
    fatal. The market price of stock reflects
    anticipated corporate profits (plus
    liquidation value). Plaintiffs say that
    their costs of raising capital will fall
    if they can avoid the challenged state
    statutes. Higher costs of capital injure
    the firm, making Alliant and wpl the right
    plaintiffs. See Frank v. Hadesman &
    Frank, Inc., 
    83 F.3d 158
    , 160 (7th Cir.
    1996); Kagan v. Edison Brothers Stores,
    Inc., 
    907 F.2d 690
    (7th Cir. 1990);
    Bagdon v. Bridgestone/Firestone, Inc.,
    
    916 F.2d 379
    (7th Cir. 1990); Twoy v.
    First National Bank of Chicago, 
    758 F.2d 1185
    , 1194 (7th Cir. 1985); Johnson v.
    Ingersoll, 
    63 F.2d 86
    (7th Cir. 1933).
    (We have not overlooked the possibility
    that Wisconsin uses an abnormal
    distinction between direct and derivative
    standing in corporate transactions, so
    that events raising corporations’ costs
    of capital would produce claims owned by
    the investors, but the parties have not
    cited any statute or case to that effect,
    and none has turned up in our search.)
    Alliant and wpl will need to prove their
    contention that these statutes raise the
    costs of hiring capital; otherwise the
    laws cannot hamper interstate commerce.
    In this respect standing merges into the
    merits. But, as we have said, at this
    stage allegations are enough. Skepticism
    about a plaintiff’s ability to prove its
    claims is not a reason to dismiss a
    pleading, however. It is at most a reason
    to hold a hearing and require the
    plaintiff to pony up the proof.
    Some of the proof should be easy to come
    by--if the plaintiffs are serious about
    having business plans with which these
    statutes interfere. The board need only
    make the sort of commitment we have
    described. Proof that the rule requiring
    regulatory approval to sell a 10% bloc,
    or forbidding diversification, hampers
    plans (or raises the cost of capital, if
    it does) may be harder to come by.
    Potential investors may be unwilling to
    identify themselves; sometimes the value
    of a business transaction is enhanced by
    confidentiality while negotiations
    proceed, lest a premature announcement
    give valuable information to one’s
    rivals. See Flamm v. Eberstadt, 
    814 F.2d 1169
    (7th Cir. 1987); Alan Schwartz, The
    Fairness of Tender Offer Prices in
    Utilitarian Theory, 17 J. Legal Studies
    165 (1988). But the difficulty of
    identifying particular transactions is
    not fatal, as we held in Alliance for
    Clean 
    Coal, 44 F.3d at 594-95
    . A statute
    that deprives a firm of an opportunity to
    compete for business gives standing to
    sue, without need for proof that the firm
    would have won the competition or made a
    profit in the process. See Northeastern
    Florida Contractors v. Jacksonville, 
    508 U.S. 656
    (1993); Adarand Constructors,
    Inc. v. Pena, 
    515 U.S. 200
    , 210-12
    (1995). The 10% and 25% limits interfere
    with the competition for capital. An
    economist would say that they deprive the
    firm of an option value--that is, of the
    power to sell a 10% bloc (or diversify,
    with or without a merger) in the event
    that step should prove to be profitable.
    The principle is the same as the loss-of-
    a-chance approach to measuring damages in
    tort law. See Doll v. Brown, 
    75 F.3d 1200
    (7th Cir. 1996).
    Suppose that there is only a 10% chance
    that the firm would be able to attract an
    investor willing to buy a 10% bloc of
    stock in the next year at a price that is
    attractive to the firm, but that if such
    a buyer can be found the firm will save
    $1 million compared with the outlay in
    hiring the same capital from banks. Then
    the loss from not having the option to
    make the placement is $100,000, and this
    loss affords standing. When financial
    markets are volatile, the option to make
    a placement is worth even more. This is
    one of the principal conclusions of the
    Black-Scholes option pricing theorem,
    which today lies at the core of many
    financial markets, such as those in puts,
    calls, and other forms of options. See
    generally Hans R. Stoll & Robert E.
    Whaley, Futures and Options (1993); Frank
    J. Fabozzi & Franco Modigliani, Capital
    Markets: Institutions and Instruments
    (1992); Myron S. Scholes, Global
    Financial Markets, Derivative Securities,
    and Systemic Risks, 12 J. Risk &
    Uncertainty 271 (1996); Roberta Romano, A
    Thumbnail Sketch of Derivative Securities
    and Their Regulation, 
    55 Md. L
    . Rev. 1
    (1996). A call--that is, a right to buy
    stock in the future at a price fixed
    today--will sell for a positive price
    even if it is out of the money (for
    example, a right to buy IBM stock for
    $100 per share during the next 90 days
    may sell for $5 today, even if IBM is
    trading at $90). The more volatile the
    market, the more likely the stock is to
    rise above the option’s strike price and
    thus produce a profit. So too with
    options such as a right to sell 10% of
    one’s stock. This has a positive value
    even if no one wants to buy today. A firm
    with the ability to sell such blocs in
    the future, when conditions change, is
    worth more in the market today than a
    firm hamstrung by laws cutting off its
    opportunities. This difference in value
    supplies standing.
    As we have said, plaintiffs may fail in
    their proof; if, for example, Wisconsin
    has a system of rate regulation so
    airtight that any savings in the capital
    markets are passed through to consumers
    in lower rates, then plaintiffs would not
    suffer injury even in this option-value
    sense. But passing-on is a defense, not
    something the complaint must negate, and
    is so hard to prove that elsewhere in the
    law it is disregarded, even for regulated
    utilities. Kansas v. Utilicorp United
    Inc., 
    497 U.S. 199
    (1990). At all events,
    these and other complexities must await
    further development in the district
    court.
    Reversed and Remanded