Impac Mortgage Holdings, Inc. v. Curtis J. Timm, et al. (Court of Appeals)

Filed: July 15, 2021

Opinion by: Judge J. McDonald

Holding:  The Court of Appeals held that a publicly-held Maryland corporation’s charter contained an ambiguous provision regarding a series of preferred stock.  The ambiguity was resolved by the contemporaneous and undisputed documentation of the corporation without resorting to construing the provision against the drafter, which, in any event, was the corporation. 

Facts:  Impac Mortgage Holdings, Inc. decided to raise capital by issuing a series of preferred stock, Series B.  A provision of Impac’s charter prohibited Impac from adversely changing the special rights and preferences of Series B stock without the approval of two-third of Series B shares.  Impac later issued a nearly identical series of preferred stock, Series C.  In 2009, Impac sought to buy back shares of both Series B and Series C at a severe discount and eliminate the special rights and privileges associated with those shares.  Owners of two-thirds of Series B and Series C, tallied together, approved the measure, however owners of less than two-thirds of Series B did so.  Impac believed that approval of two-thirds of the Series B and Series C shares tallied together, provided the requisite approval to buy back shares and eliminate the special rights and privileges associated with those shares.  Owners of Series B filed an action in the Circuit Court for Baltimore City seeking to restore the rights and preferences of Series B shares.  The Circuit Court found that the charter provision was ambiguous and that the extrinsic evidence and interpretive aids referenced did not resolve the ambiguity.  The charter provision was construed against the drafter, Impac.  On appeal, the Court of Specials Appeals found that the charter provision was unambiguous, but reached the same result. 

Analysis:  The Court of Appeals construed the charter provision under the “objective” approach to contract interpretation by reviewing the language within the four corners of the contract and assessing whether the charter provision is ambiguous.  The Court of Appeals agreed with the Circuit Court that the charter provision when read as a whole, was ambiguous.  Specifically, the first charter provision specifies that Series B shareholders must approve a proposed charter amendment by a two-thirds vote and implies that only the votes of Series B shares matter.  However, the charter provision also contained a parenthetical that introduced the idea of voting separately as a class with holders of other series of preferred stock which at the time included Series B and Series C stock.  Due to the ambiguity, the Court of Appeals could consider extrinsic evidence to illuminate the mutual intent of the parties.  The Court of Appeals also emphasized that the purchasers of the stock were not a party to the drafting of the charter, and thus “the reasonable expectations of the purchaser of the securities must be given effect.” Kaiser Aluminum Corp. v. Matheson, 681 A.2d 392, 395 (Del. 1996).  The Court of Appeals considered the Series B prospectus summary and the Impac April 2004 board resolution as material extrinsic evidence.  The Series B prospectus summary contained only one interpretation, that Impac could not amend its charter in such a way as to materially and adversely affect certain Series B rights and preferences unless, Impact obtained the votes of two-thirds of the outstanding shares of Series B.  This interpretation was consistent with Impac’s board resolution which did not provide that the votes of any shareholder other than those of Series B stock could be included in the tally of votes on charter amendments affecting Series B preferences.  The Series B prospectus summary was the only material extrinsic fact that the reasonable investor would understand the charter provision to mean.  The Series B prospectus summary leads to only one interpretation of the charter provision, Impac could not amend its charter in such a way as to materially and adversely affect certain Series B rights and preferences unless Impac had obtained the votes of two-thirds of the outstanding shares of Series B.  The Court of Appeals did no resort to construing the charter provision against the drafter, Impac, as the documents resolved the ambiguity.  If the Court of Appeals were to conclude that the extrinsic evidence did not resolve the ambiguity and resorted to construing the provision against the drafter, the result would be the same.  Since fewer than two-thirds of the Series B shareholders consented to the buy back shares and eliminating the special rights and privileges associated with those shares, the amendments were not validly adopted. 

The full opinion is available in PDF.