Impac Mortgage Hldgs. v. Timm

Impac Mortgage Holdings, Inc. v. Curtis J. Timm, et al.

No. 18, September Term 2020

Corporations – Charter – Construction. A corporate charter is a contract between the

corporation and its shareholders. When a charter provision is ambiguous as to the rights

of shareholders of publicly-issued stock, the provision should be construed in a way in

which a reasonable person in the shoes of the shareholders would construe it. The fact that

a corporation enters into an agreement with an underwriter in connection with an initial

public offering of shares of the corporation does not make the underwriter a party to the

charter.

Contracts – Contract Interpretation – General Rules of Construction – Existence of

Ambiguity. Under the objective approach to contract interpretation, a court considers the

language of the contract alone, viewed from the perspective of a reasonable person in the

position of the parties to the contract, regardless of the subjective intent of the parties. The

determination of whether contract language is unambiguous or ambiguous is a question of

law for a court. If the contract language is unambiguous, the inquiry ends. If the contract

language is ambiguous, the court may consider extrinsic evidence that reflects the parties’

mutual understanding of the language.

Contracts – Contract Interpretation – Consideration of Extrinsic Evidence. When a

court considers extrinsic evidence to interpret ambiguous language in a contract and the

relevant admissible evidence does not generate a dispute of material fact, interpretation of

the contract remains a question of law for the court.

Contracts – Contract Interpretation – Relevant Extrinsic Evidence. A court

construing ambiguous contract language considers relevant admissible evidence of the

parties’ mutual intent. To be relevant, extrinsic evidence must show the parties’ intent at

the time of contract formation. The retrospective subjective view of a party or the party’s

counsel as to the meaning of a contract, when neither expressed to the other party at the

time of contract formation nor consistent with the other party’s understanding, does not

establish the parties’ mutual intent.

Contracts – Contract Interpretation – Canons of Construction – Construing

Language Against the Drafter. A court will apply the canon of construction under which

a court resolves an ambiguity against the drafter of the provision only when extrinsic

evidence does not resolve ambiguity in a contract provision.

Corporations – Charter – Preferred Stock – Voting Provision. A corporate charter

provision specifying a procedure for voting by holders of publicly-issued preferred stock

was ambiguous because it was susceptible of more than one meaning from the perspective

of a reasonable investor. Extrinsic evidence related to that provision demonstrated that the

requisite approval for a charter amendment affecting the rights of two series of preferred

stock by the holders of at least two-thirds of the shares had to be tallied as to each series

separately rather than as to the two series collectively.

Circuit Court for Baltimore City

Case No. 24-C-11-008391

Argument: December 4, 2020

IN THE COURT OF APPEALS

OF MARYLAND

No. 18

September Term, 2020

_____________________________________

IMPAC MORTGAGE HOLDINGS, INC.

V.

CURTIS J. TIMM, ET AL.

_____________________________________

Barbera, C.J.,

McDonald

Watts

Hotten

Getty

Booth

Biran,

JJ.

______________________________________

Opinion by McDonald, J.

______________________________________

Filed: July 15, 2021

Pursuant to Maryland Uniform Electronic Legal

Materials Act

(§§ 10-1601 et seq. of the State Government Article) this document is authentic.

2021-07-15

11:08-04:00

Suzanne C. Johnson, Clerk

As every lawyer knows, ambiguity happens. Ambiguity can happen in a contract

provision for any number of reasons – the parties did not anticipate all of the circumstances

to which the provision might apply; the parties believed that clarifying the provision would

be an obstacle to an agreement on seemingly more important terms and left any

clarification of the provision to the future in the unlikely event the provision ever had to be

applied; or the drafter of the contract simply copied a similar provision from a prior contract

that had never been tested or interpreted. This case concerns the interpretation of an

ambiguous provision in the charter of a corporation – an instrument that is regarded, under

Maryland law, as a contract between the corporation and its shareholders.

Petitioner Impac Mortgage Holdings, Inc. (“Impac”), a publicly-held Maryland

corporation, decided to raise some capital by issuing a series of preferred stock known as

Series B. A provision of Impac’s charter seemingly prohibited it from adversely changing

the special rights and preferences of Series B stock without the approval of the owners of

two-thirds of Series B shares. The meaning of that provision was rendered ambiguous

when Impac later issued a nearly identical series of preferred stock known as Series C. In

2009, after the company fell on hard times during the Great Recession, Impac sought to

buy back the shares of both series at a severe discount and to eliminate the special rights

and privileges associated with those shares. Owners of two-thirds of the shares of both

series, tallied together, approved the measure; however, owners of less than two-thirds of

Series B did so, if the votes of shareholders of the two series were tallied separately.

In Impac’s view, the approval of two-thirds of the Series B and Series C shares,

counted together, provided the requisite approval required by the charter provision relating

to Series B shares. Respondents Curtis J. Timm and Camac Fund LP (“Camac”), who own

some of the Series B shares that remain outstanding, disagree. Mr. Timm filed this action,

which Camac later joined, in the Circuit Court for Baltimore City, seeking to restore the

rights and preferences of Series B shares.

In ruling on cross-motions for summary judgment, the Circuit Court found that the

charter language was ambiguous and that the extrinsic evidence and interpretive aids

referenced by the parties did not resolve the ambiguity. The court then construed the

provision against Impac as the drafter of the provision, under a canon of construction that

courts use to construe a contract when neither the contract language nor extrinsic evidence

illuminates the parties’ intent. The court ruled that shareholders of the two series of stock

were to vote separately on Impac’s proposal to buy back the shares and eliminate their

special rights and privileges. The failure to obtain the approval of owners of two-thirds of

the Series B shares doomed that proposal as to Series B. On appeal, the Court of Special

Appeals opined that the charter language was unambiguous, but reached the same ultimate

result.

We conclude that the charter provision is ambiguous. That ambiguity is resolved

by the contemporaneous and undisputed documentation of Impac’s undertaking to the

Series B shareholders that it would not amend its charter adversely as to their shares unless

the requisite supermajority of shares of that series voted to approve the amendment.

Accordingly, without resorting to construing the charter provision against the drafter –

which, in any event, was Impac – we hold that the Circuit Court reached the correct result

2

when it granted summary judgment in favor of the shareholders on that issue, and that the

Court of Special Appeals did not err in affirming that judgment.

I

Legal Landscape

This case concerns the rights of holders of preferred stock of a corporation under

the corporation’s charter – a document that courts typically construe by reference to

principles of contract law. To set the stage for a reader who does not live in that world

every day, it is useful to describe some basic elements of corporate finance and basic

principles of contract interpretation under Maryland law.

A. Setting the Terms for the Issuance, Sale, and Buy-back of Stock of a Corporation

1. The Authorization and Issuance of Stock

A corporation may raise funds in several ways. One way is to issue and sell stock

in the company. A purchaser thereby obtains equity in the corporation. The two chief

types of stock are known as common stock and preferred stock. Holders of common stock

typically have greater voting rights in the affairs of the corporation than holders of preferred

stock, but they also incur greater risk as the company’s fortunes wax or wane. Holders of

preferred stock generally come before holders of common stock in the distribution of

dividends and, in the event of dissolution, of corporate assets.1

1

A company may also issue and sell corporate bonds, by which the purchaser lends

money to the corporation. As a general rule, bondholders have a greater claim than

stockholders to the assets of the corporation in dissolution.

3

The charter of a corporation – also referred to as its articles of incorporation – is the

foundational document of the company. Maryland Code, Corporations & Associations

Article (“CA”), §§2-102, 2-104. A corporation’s charter specifies the types and quantity

of stock the company may issue and defines the rights and priorities of the shareholders of

the various types of stock. CA §§2-104, 2-105. Specifically, if a corporation divides its

stock into classes, its charter must include “a description of each class including any

preferences, conversion and other rights, voting powers, restrictions, limitations as to

dividends, qualifications, and terms and conditions of redemption.” CA §2-104.

Thus, whenever a corporation’s governing body (typically, a board of directors)

decides that the corporation should be authorized either to issue additional stock or to

change the class or terms applicable to already-authorized stock, the charter must be

amended. CA §2-105. Under Maryland law, such amendments can be done pursuant to a

resolution of the corporation’s board of directors, without shareholder approval, when the

charter has granted that power to the board. CA §§2-105(a)(13), 2-208. 2 The instrument

that effectuates the board’s resolution is called an “articles supplementary.”3 Id. Despite

that unwieldy name, “articles supplementary” in this context are simply an amendment of

the corporate charter. It must be signed and acknowledged by a corporate officer or agent,

2

Under CA §2-607, most amendments to a corporation’s charter must be approved

by the shareholders. However, under an exception to that provision, a charter may

empower the board of directors to approve the issuance of new stock, or to classify or

reclassify already-authorized stock, without shareholder approval.

3

Under the Maryland General Corporation Law, “articles supplementary” are a part

of a corporation’s charter. CA §1-101(f)(2).

4

as witnessed or attested to by a corporate officer or agent, and filed with the State

Department of Assessments and Taxation (“SDAT”). CA §1-301.

A corporate charter is considered to be a contract between the corporation and its

shareholders. Oliveira v. Sugarman, 451 Md. 208, 235-36 (2017); see also James J. Hanks,

Jr., Maryland Corporation Law (2d ed.), §3.07. Thus, when interpreting a charter provision

that specifies the matters on which the owners of particular shares may vote, a court is

essentially construing a provision of a contract between the corporation and the

shareholders. Tackney v. U.S. Naval Academy Alumni Ass’n, 408 Md. 700, 716 (2009) (“It

is a fundamental principle that the rules used to interpret statutes, contracts, and other

written instruments are applicable when construing corporate charters and bylaws.”)

(citation and internal quotation marks omitted).

2. The Public Offering and Sale of Stock

A corporation that sells a new issue of its stock, including stock classified pursuant

to articles supplementary, may enter into an agreement with underwriters to distribute the

stock. Underwriters are typically investment banks with expertise in distributing stock in

an initial offering to members of the public interested in purchasing that stock. An

underwriter is thus an intermediary that assists a company in the sale and distribution of its

stock to the ultimate shareholders.4 See William M. Prifti, Securities: Public & Private

Offerings (2d ed. & Oct. 2020 update), §5.1.

4

See Securities Act of 1933, §2(a)(11), 15 U.S.C. §77b(a)(11) (defining

“underwriter” as one “who has purchased [stock] from an issuer with a view to, or offers

or sells for an issuer in connection with, the distribution of [that stock] . . .”).

5

In connection with a public offering of stock that will be traded on a stock exchange,

a company must make certain filings with the Securities and Exchange Commission

(“SEC”). An important component is a prospectus that discloses to potential purchasers of

that stock the material facts about the company and the stock – including the nature of the

stock and the rights of shareholders of that stock under the corporate charter. The company

and the underwriter use the prospectus essentially as a sales brochure. Prifti, supra, §7.1.

The information disclosed in a prospectus “enables investors to evaluate the securities

offered and thus make informed investment decisions.” Marc I. Steinberg, Understanding

Securities Law (7th ed. 2018) at 125. Such a document may include a summary and be

supplemented as the company issues additional stock.

Maryland common law has long set an expectation that a corporation that issues a

prospectus is to “state everything with strict and scrupulous accuracy.” Findlay v.

Baltimore Tr. & Guarantee Co., 97 Md. 716, 723 (1903) (quoting Savage v. Bartlett, 78

Md. 561, 565 (1894)). The securities laws set the same expectation; under those laws,

misleading statements of material fact in the prospectus may subject the corporation to

liability.5 For purposes of those laws, “it can be assumed” that an investor has relied on

the prospectus and the issuer’s other public statements when buying or selling stock at the

market price. Stoneridge Inv. Partners, LLC v. Sci.-Atlanta, 552 U.S. 148, 159 (2008); see

also Janus Cap. Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 144 (2011) (holding

5

E.g., CA §§11-301, 11-703(a)(1)(ii); see also Securities Exchange Act of 1934,

§10(b), 15 U.S.C. §78j(b); SEC Rule 10b-5, 17 CFR §240.10b-5.

6

that the issuer, as the entity with authority over the content of a prospectus, had made the

statements in the prospectus, whether or not the prospectus had been prepared by other

entities); Basic, Inc. v. Levinson, 485 U.S. 224, 246 n.24 (1988) (“[stock] market

professionals generally consider most publicly announced material statements about

companies, thereby affecting stock market prices”). This, of course, is a compelling reason

why shareholders reasonably rely on the prospectus – the risk of liability is an assurance

of reliability.

On occasion, a company may decide to buy back shares of its stock from the

shareholders. One such mechanism is known as an “issuer tender offer” that requires the

company to make various disclosures and follow other procedures in compliance with the

securities laws. See Prifti, supra, §9.4.

B. Construing a Contract under Maryland Law

1. The Objective Approach to Contract Interpretation

It is often said that Maryland courts take an “objective” approach to the

interpretation of contracts. Under that approach, the court’s inquiry is initially bounded by

the “four corners” of the agreement. Cochran v. Norkunas, 398 Md. 1, 17 (2007). As with

the interpretation of a statute, the court does not construe particular language in isolation,

but considers that language in relation to the entire contract. See Dumbarton Improvement

Ass’n v. Druid Ridge Cemetery Co., 434 Md. 37, 52, 58 (2013). The court is to give effect

to the plain meaning of the contract, read objectively, regardless of the parties’ subjective

intent at the time of contract formation. Myers v. Kayhoe, 391 Md. 188, 198 (2006). In

other words, when the contract language is plain and unambiguous, “the true test of what

7

is meant is not what the parties to the contract intended it to mean, but what a reasonable

person in the position of the parties would have thought it meant.” Dennis v. Fire & Police

Employees Ret. Sys., 390 Md. 639, 656-57 (2006) (citation and internal quotation marks

omitted).

Thus, the initial step in the objective approach to contract interpretation is to

determine whether the contract’s meaning is plain and unambiguous. If that is so, the

court’s task – at least as to the interpretation of the contract – is at an end.

2. Ambiguity and Resort to Extrinsic Evidence

Ambiguity arises when a term of a contract, as viewed in the context of the entire

contract and from the perspective of a reasonable person in the position of the parties, is

susceptible of more than one meaning. Ocean Petroleum, Co., Inc. v. Yanek, 416 Md. 74,

87 (2010). If a contract provision is ambiguous, “the narrow bounds of the objective

approach give way,” and the court may consider extrinsic evidence to ascertain the mutual

intent of the parties. Credible Behavioral Health, Inc. v. Johnson, 466 Md. 380, 394

(2019); see also Dumbarton Improvement Ass’n, 434 Md. at 54. In that effort, the court is

to consider admissible evidence that illuminates the intentions of the parties at the time the

contract was formed. Truck Ins. Exchange v. Marks Rentals, Inc., 288 Md. 428, 433

(1980); Sy-Lene of Washington, Inc. v. Starwood Urb. Retail II, LLC, 376 Md. 157, 167-

68 (2003). When addressing an ambiguous provision in a contract, the court “will search

to find mutuality” and not a “self-serving, unilateral construction” of the contract. Kelley

Const. Co. v. Washington Suburban Sanitary Comm’n, 247 Md. 241, 247 (1967).

8

To be admissible, extrinsic evidence of intent as to the meaning of a contract term

must demonstrate “an intent made manifest, not a secret intent” at the time of contract

formation. Gov’t Emps. Ins. Co. v. Coppage, 240 Md. 17, 25-26 (1965) (citations and

internal quotation marks omitted). The parties’ construction of the contract before the

controversy arises can be “an important aid,” as can be the usage of the term in the parties’

trade. Pac. Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 389 (1985). And,

communications between the parties about a contract subsequent to the execution of that

contract may be admissible “as evidence of an interpretation by both parties.” Hurt v.

Penn. Thresherman & Farmers’ Mut. Cas. Ins. Co., 175 Md. 403, 407 (1938). However,

retrospective, subjective, and unexpressed views about the contract are not proper extrinsic

evidence: “It is the intention of the parties as expressed in their words and the paper which

they sign, not their own interpretation as to what their statements and acts were supposed

to mean, which is determinative.” Coppage, 240 Md. at 25.

If the extrinsic evidence presents disputed factual issues bearing upon the

ambiguity, construction of the contract must await resolution of that dispute by a factfinder,

which may be a court or jury. Truck Ins. Exchange, 288 Md. at 433. If, however, the

relevant admissible evidence does not present a dispute of material fact, then the

construction of the contract is a question of law for the court. Id.

3. Construing Language Against the Drafter

Courts have developed rules of interpretation, often called canons of construction,

as aids to interpret contracts as a matter of law. See, e.g., Williston on Contracts (4th ed.

& 2021 update), Chapters 31, 32. As we shall see later in this opinion, among those rules

9

of interpretation is that ambiguous language in a contract that is not clarified by extrinsic

evidence or interpretive aids is construed against a party to the contract when that party

drafted the language in question – a canon of construction sometimes referred to by the

Latin phrase contra proferentem (“against the offeror”). Id. at §32.12; see also Black’s

Law Dictionary (9th ed. 2009) at 377.6 That canon of construction is based on elementary

notions of fairness – that the drafting party was responsible for including the particular

language in the contract and presumably had the greater opportunity to clarify the language

in its favor, if that was the parties’ intent, or at least to protect its own interests from a lack

of clarity. See Restatement (Second) of Contracts §206, Comment a. It is also meant to

discourage the drafter from including ambiguous language in order “to induce another to

contract with him on the supposition that the words mean one thing while he hopes the

court will adopt a construction by which they will mean another thing more to his

advantage.” Owens v. Gretzel, 146 Md. 361, 370-71 (1924) (citation and internal quotation

marks omitted). As is evident, that rule of contract interpretation requires a court to identify

the drafter. The identity of the drafter is not always self-evident – or even a simple question

of fact. And, as we shall see, identification of the drafter may itself require application of

other legal principles.

6

The Latin phrase is a shorthand reference to a Latin sentence that expresses the

rule of interpretation: Verba fortius accipiuntur contra proferentem. David Horton,

Flipping the Script: Contra Proferentem and Standard Form Contracts, 80 U. Colo. L.

Rev. 431, 438 (2009).

10

II

Facts and Procedural History

A. The Corporation and its Issuance of Preferred Stock

1. Impac

Impac is a publicly traded Maryland corporation headquartered in Irvine, California.

During most of the time relevant to this case – late 2003 through mid-2009 – Impac

operated as a real estate investment trust (“REIT”)7 and primarily focused on originating,

acquiring, securitizing, and investing in residential and commercial mortgages.

2. 2004 Issuance of Two Series of Preferred Stock

In 2004, Impac’s board of directors resolved to raise capital by issuing and selling

shares of preferred stock in public offerings. Under Impac’s articles of incorporation, as

described by Impac,8 the board had authority to classify and reclassify shares of unissued

stock by setting or changing certain terms and conditions applicable to those shares,

including preferences, “voting powers,” and limitations as to dividends, all as provided by

CA §2-208.

7

A REIT is an entity that invests in real estate or certain related assets for the benefit

of its shareholders. In Maryland, a REIT may take the form of either a trust or a

corporation. CA §8-101 et seq.; see generally James J. Hanks, Jr., Maryland Corporation

Law (2d ed.), §18.01 et seq. To obtain advantageous tax treatment under federal law, a

REIT must satisfy various requirements relating to its operations, composition of assets,

source of income, shareholder diversification, and distribution of income, among other

things. See 26 USC §§856, 857; 26 CFR §1.856-1.

8

The record does not contain a complete copy of Impac’s articles of incorporation.

11

Two sets of such enabling actions, and subsequent issuances of preferred stock, are

relevant here. One concerned an issue of preferred stock called 9.375% Series B

Cumulative Redeemable Preferred Stock (“Series B”); the second concerned a related issue

of preferred stock called 9.125% Series C Cumulative Redeemable Preferred Stock

(“Series C”). As preferred stock, both series ranked ahead of Impac’s common stock in

the payment of dividends and in their claims upon corporate assets in dissolution. Both

series had a liquidation preference of $25 per share. The annual dividend was to be

approximately $2.34 for each share of Series B and $2.28 for each share of Series C, paid

quarterly.9 The dividends were cumulative, and Impac could not pay dividends or make

distributions to shareholders of its common stock or repurchase stock unless it paid the

cumulative dividends owed on its preferred stock.

While the preferred stock ordinarily had no say in corporate governance and no

voting rights, its shareholders had the right to elect two members of Impac’s board of

directors if Impac failed to pay dividends on the stock for six or more quarters. In addition,

pertinent to this case, Series B and Series C shareholders had certain voting rights as to any

corporate action that affected the rights or preferences of those shares.

Impac issued 2,000,000 shares of Series B, by which it raised $50,000,000 in equity

capital, and 4,470,600 shares of Series C, by which it raised $111,765,000 in equity capital.

Series B and Series C traded on the New York Stock Exchange, under the symbols “IMH

PrB” and “IMH PrC”, respectively.

9

The annual dividend was calculated by multiplying the coupon interest rate

associated with each series times their $25 face and redemption value.

12

The creation of each series began with a resolution of the Impac board of directors

that authorized an amendment of the company charter, by means of articles supplementary,

to authorize the issuance of the shares. To offer the preferred stock for sale, Impac entered

into an underwriting agreement with a group of investment banks and issued a prospectus

supplement with respect to each series.

3. Corporate Actions Related to Issuance, Offer, and Sale of Series B

Board Resolution as to Series B

A board resolution dated April 29, 2004, “authorize[d] the creation of a new class

of capital stock classified as up to a 10% Series B Cumulative Redeemable Preferred

Stock,” with the terms and conditions as stated in an exhibit attached to the resolution.10

Under the heading for “Voting Rights,” the exhibit provided that Series B shareholders

“will generally have no voting rights.” The exhibit then specified some exceptions to that

general rule. Under the first exception, a failure by Impac to pay dividends over a certain

period would entitle the Series B shareholders, “voting as a class with the holders of any

other classes or series of our equity securities ranking on parity with the Series B Preferred

Stock which are entitled to similar voting rights,” to elect two board members. The next

exception pertained to the voting provision at issue in this case. In pertinent part, the board

resolved:

10

The April 2004 board resolution authorized the issuance of 5,000,000 shares of

Series B preferred stock. On May 19, 2004, the board amended the April resolution and

confirmed that it had authorized “the creation of a new class of capital stock” that it had

classified as Series B. The May 2004 resolution increased the number of authorized shares

to 7,500,000 and changed terms not relevant to the voting powers of Series B shareholders.

13

[T]he affirmative vote of holders of at least two-thirds of the outstanding

shares of Series B Preferred Stock will be required to . . . (ii) amend, alter or

repeal the provisions of the Amended and Restated Articles of Incorporation

of the Company, as amended and supplemented, . . . so as to materially and

adversely affect any right, preference, privilege or voting power of the Series

B Preferred Stock or the holders thereof . . . .

As is evident, that exception did not state that Series B shareholders would vote as a class

with the shareholders of other series or classes.

Articles Supplementary as to Series B

The board’s April 29, 2004 resolution also authorized Impac’s officers to take

various actions to amend the company’s charter and to issue and sell Series B stock. First,

the officers were authorized to execute, and file with SDAT, the Articles Supplementary

that made the corporate charter amendment needed to effect the creation of Series B

preferred stock. That document was executed on May 25, 2004. The Articles

Supplementary described the voting rights of Series B shareholders, with language

additional to that in the board resolution, as italicized below:

So long as any shares of Series B Preferred Stock remain outstanding,

the Corporation shall not, without the affirmative vote or consent of the

holders of at least two-thirds of the shares of the Series B Preferred Stock

outstanding at the time, given in person or by proxy, either in writing or at a

meeting (voting separately as a class with all series of Parity Preferred that

the Corporation may issue upon which like voting rights have been conferred

and are exercisable) . . . (ii) amend, alter or repeal any of the provisions of

the Charter, so as to materially and adversely affect any preferences,

conversion or other rights, voting powers, restrictions, limitations as to

dividends or other distributions, qualifications, or terms or conditions of

redemption of the Series B Preferred Stock or the holders thereof; . . . .

Section 6(d)(ii) of the Series B Articles Supplementary (emphasis added) (the “Voting

Provision”). The Articles Supplementary thus added to the board resolution the concept

14

that the requisite affirmative vote or consent of Series B shareholders was to be “given in

person or by proxy, either in writing or at a meeting (voting separately as a class with all

series of Parity Preferred that the Corporation may issue upon which like voting rights have

been conferred and are exercisable).”

Series B Prospectus Supplement

The April 29, 2004 board resolution also authorized Impac’s officers and board

members to prepare, and file with the SEC, a prospectus supplement in connection with

the sale of Series B stock. That, too, was accomplished on May 25, 2004, when Impac

issued the prospectus supplement for an initial offering of 2,000,000 shares of its Series B

preferred stock. Before going into detail about the Series B preferred stock and Impac, the

prospectus supplement advised the reader generally that “you should rely only on the

information contained in, or incorporated by reference into, this prospectus supplement and

the accompanying prospectus. We have not, and the underwriters have not, authorized any

other person to provide you with different information. If anyone provides you with

different or inconsistent information, you should not rely on it . . . .”

The prospectus supplement described Series B voting rights in several places. In its

“brief summary” of the offering, Impac described voting rights in the event Impac failed

to pay dividends with respect to the Series B shares. In addition, the prospectus summary

also described the voting rights of holders of Series B shares in the event that Impac

proposed to amend its charter to adversely affect the rights and preferences of those shares.

Consistent with the board resolution, Impac represented in the prospectus summary that:

15

In addition, the affirmative votes of holders of at least two-thirds of the

outstanding shares of Series B Preferred Stock will be required to . . . (b)

amend, alter or repeal any of the provisions of our charter so as to materially

and adversely affect the Series B Preferred Stock . . . .

The beginning of the summary advised that a “more complete description” of the terms

applicable to the stock could be found in a later section of the prospectus supplement.

That later section, labeled “Description of the Series B Preferred Stock,” was

prefaced by a disclaimer that the “following summary of the terms and provisions of the

Series B Preferred Stock does not purport to be complete and is qualified in its entirety by

reference to the pertinent sections of our charter and the articles supplementary creating

the Series B Preferred Stock . . . .” Under a heading entitled “Further Issuances,” the

prospectus supplement stated that, without the consent of the Series B shareholders, Impac

could issue additional shares of Series B stock with the same ranking “and other terms” as

the Series B preferred stock except for the issue price and date. With regard to such further

issuances, Impac stated that any additional shares of Series B preferred stock would,

“together with” the shares described in the initial offering, “constitute a single class of

preferred stock under our charter and will vote together on limited matters under the

charter,” as described in the section on voting rights. Then, in the voting rights section of

the prospectus supplement, Impac used the same phrasing that it had used in the Articles

Supplementary, with only stylistic changes.11

11

The prospectus supplement referred to Impac as “we,” instead of “the

Corporation” and changed “shall” to “will.”

16

Underwriting Agreement with Bear Stearns

To carry out the issuance and sale of the Series B preferred stock that the board had

authorized, the April 29, 2004 board resolution also authorized Impac’s officers to contract

with a group of underwriters headed by Bear Stearns & Co., Inc. (collectively, “Bear

Stearns”) to underwrite an initial public offering of those shares. That, too, was effected

on May 25, 2004, when Impac and Bear Stearns entered into an agreement by which Impac

agreed to sell, and Bear Stearns agreed to buy, a stated number of shares of Series B stock

at a price discounted from the face value at which Bear Stearns was to offer the shares to

the public.12 Bear Stearns was to conduct the initial public offering as soon as Bear Stearns

deemed advisable, at a price that Bear Stearns could set. The underwriting agreement

stated that Impac had prepared the prospectus supplement “in a form approved by” Bear

Stearns. The agreement provided that it was “the entire agreement of the parties,” and that

it “supersede[d] all prior written or oral and all contemporaneous oral agreements,

understandings, and negotiations with respect to the subject matter hereof.”

4. Corporate Actions Related to Issuance, Offer, and Sale of Series C

Reclassification of Remaining Series B Shares as Series C Shares

Impac did not issue all of the authorized shares of Series B during 2004. Instead,

the board decided later that year to “reclassify” the 5,500,000 unissued Series B shares as

12

The agreement provided that the shares would be offered to the public for $25 per

share and that the underwriters would pay $24.2125 per share.

17

a new Series C preferred stock with a lower dividend rate.13 Impac created the new Series

C in order to take advantage of a coupon rate of interest lower than what it was paying on

the Series B shares that it had previously issued.

On November 18, 2004, Impac filed with SDAT Articles Supplementary that

created Series C Cumulative Redeemable Preferred Stock. That same day, Impac

published a prospectus supplement for the initial offering of a portion of the newly-

authorized Series C stock.

Articles Supplementary as to Series C

The Articles Supplementary for Series C recited that Impac’s board of directors had,

by board resolution, “reclassified and designated” the remaining authorized but unissued

shares of Series B as shares of “9.125 Series C Cumulative Redeemable Preferred Stock.”

(emphasis added). It provided that Series C preferred stock would, “with respect to the

payment of distributions and the distribution of assets upon liquidation, dissolution, or

winding up of the Corporation, rank . . . on a parity with [Series B] stock . . . .” With

respect to voting rights in the event of Impac’s failure to pay dividends, the Articles

Supplementary specified that, upon Impac’s failure to pay dividends on any shares of the

two series for six quarters, the holders of Series C stock, “voting separately as a class with

any other classes or all other series of our preferred stock, including the 9.375% Series B .

13

Series C shares, together with Series B shares, ranked ahead of Impac’s common

stock, as well as its Series A preferred stock (which had been authorized in Impac’s charter

but which had not yet been issued), with respect to the payment of distributions and their

claim upon Impac’s assets in dissolution.

18

. . Stock” were entitled to elect two directors to the board. By contrast, the voting provision

applicable to proposed charter amendments that would adversely affect the rights and

preferences of Series C shares did not similarly specify the participation of Series B in the

vote. That provision was worded just as the Voting Provision in the Series B Articles

Supplementary had been worded but for the references to the new Series C rather than

Series B.14

Series C Prospectus Supplement

A prospectus supplement, also dated November 18, 2004, offered 4,000,000

shares15 of Series C for sale to the public. The prospectus supplement for Series C offering

was similar to that for the Series B offering. The voting rights description in the summary

was exactly the same as that in the Series B prospectus supplement summary (but for the

references to Series C):

[T]he affirmative votes of holders of at least two-thirds of the outstanding

shares of Series C Preferred Stock will be required to . . . (b) amend, alter or

repeal any of the provisions of our charter so as to materially and adversely

affect the Series C Preferred Stock . . . .

The summary also explained that “Series C Preferred Stock will rank senior to our common

stock and on parity with our Series B Preferred Stock with respect to the payment of

distributions and amounts upon liquidation, dissolution or winding up.”

14

The only difference was that the Series B Articles Supplementary referred to the

amendment, alteration, or repeal of “any provisions” of the corporate charter while the

Series C Articles Supplementary used the phrase “any of the provisions” instead.

15

Additional shares were later sold and, as indicated in Part II.A.2 of this opinion,

ultimately a total of 4,470,600 shares of Series C were sold.

19

In a later description of the Series C stock in the prospectus supplement, Impac again

cautioned a prospective shareholder that the information in the prospectus supplement

“was qualified in its entirety by reference to the pertinent sections of our charter and the

articles supplementary creating the Series C Preferred Stock . . . .” And, as in the Series B

prospectus supplement, Impac stated that it could issue more Series C shares without the

shareholders’ consent and that “such additional shares of Series C Preferred Stock will,

together with the shares offered hereby, constitute a single class of preferred stock under

our charter and will vote together on limited matters under the charter,” as provided in the

section on voting rights. Likewise, the pertinent voting rights language was exactly the

same as that in the voting rights section of the Series B prospectus supplement, but for the

references to Series C.

B. The Great Recession and Impac’s Tender Offer for its Preferred Stock

1. Impact of the Great Recession

Four years passed, apparently without incident pertinent to the issues in this case.

Then, in 2008, during the Great Recession, Impac stopped paying dividends to the Series

B and Series C shareholders.16 At the close of the first quarter of 2009, Impac estimated

that the total stockholder equity in the company had plummeted from $1 billion to $9

million. To reduce Impac’s obligations to shareholders, Impac’s board ended the

company’s election to operate as a REIT under the tax laws; as a result, it would no longer

16

The lead underwriter of Impac’s 2004 preferred stock offerings, Bear Stearns, was

itself a casualty of the Great Recession. See Kate Kelly, et al., Fed Races to Rescue Bear

Stearns in Bid to Steady Financial System, Wall Street Journal (March 15, 2008).

20

have to distribute 90% of its profits to its shareholders.17 Further, in a form filed with the

SEC, Impac stated that it had “no present intentions” to pay dividends to the Series B and

Series C shareholders.18 Impac then sought to terminate its obligations to those

shareholders entirely, by buying their shares back and by eliminating the preferences for

those series of preferred stock.

2. Impac’s Tender Offer for its Series B and Series C Preferred Stock

On May 29, 2009, Impac offered to purchase the Series B shares for $0.29297 per

share and Series C shares for $0.28516 per share – approximately one percent of the price

at which they had been offered to the public five years earlier. 19 In a transmittal letter

accompanying the offering circular for the proposed buy-back of those shares, Impac cited

“the unprecedented turmoil in the mortgage market,” and a goal of reducing costs to “align”

them with cash flows. Impac also stated: “We believe the elimination of the Preferred

17

See 26 U.S.C. §857(a)(1)(A); see footnote 7 above.

18

In addition, the New York Stock Exchange had delisted both the Series B and the

Series C stock, an action that meant not only that the shares could not be sold on that

exchange but also that the stock did not meet the exchange’s minimum financial or other

criteria for listing. See NYSE Listed Company Manual (2021), §101.00. After they were

delisted, Series B and Series C shares continued to trade on the “pink sheets” – publications

listing over-the-counter stocks, their market makers, and prices – separately in a range from

$0.20 to $1.30 per share.

19

The tender offer stated that Impac would also pay the accumulated but unpaid

dividends on the tendered shares – $1.17 per Series B share and $1.14 per Series C share –

with the result that the payment per share would exceed the current prices at which those

shares traded. See footnote 18 above.

21

Stock and the related dividends through the Offer to Purchase and Consent Solicitation will

give us the enhanced balance sheet flexibility to operate and grow our business.”

To carry out the tender offer, Impac had to amend its charter with respect to its

preferred stock. Thus, the tender offer was linked to a consent solicitation to amend the

respective articles supplementary that had established the rights and preferences of Series

B and Series C shares in the corporation’s charter. The amendments would eliminate most

of the rights and preferences of each series of the preferred stock. Impac told the

shareholders that the completion of the offer to purchase would require “consent from at

least 66 2/3 % of the outstanding shares of the Preferred Stock, voting together as a single

class.” Shareholders who tendered their shares were deemed to consent to the amendments

to the pertinent articles supplementary that were needed to eliminate the preferences given

to their shares in the distribution of dividends and other matters. Shareholders who

declined the offer would be bound by the amendments if the amendments passed. The

offering circular advised that shareholders who did not tender their shares would be left

with an “illiquid investment indefinitely.”

Impac’s solicitation of the Series B and Series C shareholders for their consent to

the charter amendments and tender of shares expired a month later, after one brief

extension, on June 29, 2009.

3. Shareholder Response to Tender Offer

When the tender offer expired, Impac determined that the Series B and Series C

shareholders had collectively tendered – and, in its view, thereby consented to the charter

amendments as to both series – “an aggregate of approximately 67.7% . . . of the Preferred

22

Stock.” Impac made a filing with the SEC and issued a press release to that effect. It also

filed with SDAT the amendments to the articles supplementary for both series that

eliminated most of the rights and preferences of those series of preferred stock in

accordance with the terms of the tender offer. Impac repurchased the tendered shares.

Approximately 676,000 shares of Series B and 1,416,000 shares of Series C remained in

the hands of shareholders. One of those shareholders was Mr. Timm, who owned both

Series B shares and Series C shares.

Mr. Timm disagreed with Impac’s approach to counting the responses to the tender

offer – essentially the departing shareholders’ votes on the proposed charter amendments

altering the rights and preferences of the two series of preferred stock. According to Mr.

Timm, Impac had improperly counted the votes of the two series collectively in concluding

that the two-thirds threshold for the charter amendments had been satisfied. If the votes of

the Series B shares and of the Series C shares had been counted separately, the two-thirds

threshold had not been satisfied with respect to Series B. Holders of only 66.2% of the

Series B shares – just under two-thirds of those shares – had accepted Impac’s solicitation

to tender their shares and consent to the charter amendments.20 Mr. Timm also believed

that the tender offer and consent solicitation were defective in other respects.

20

In particular, Impac reported that 1,323,844 of the 2,000,000 outstanding Series

B shares – i.e., 66.2% – had been tendered, with the holders of those shares thereby

consenting to the amendment of the Series B Articles Supplementary.

23

Mr. Timm contacted Impac, expressed his concerns, and asked Impac to repurchase

his shares for the $25 per share liquidation price set forth in the original articles

supplementary for each series. Impac declined to do so. Litigation ensued.

C. Litigation Related to the Series B Vote Tabulation

During nearly a decade of litigation, this case has generated various issues arising

from claims against numerous defendants. We need not recite that history in all of its

detail. At this juncture, Impac is the only remaining defendant, and the issues before us

relate solely to the Voting Provision of the Series B Articles Supplementary that authorized

the issuance of the Series B preferred stock and specified the rights and preferences of

holders of those shares. The key question is whether the Voting Provision required Impac

to obtain the approval of holders of two-thirds of the shares of Series B, counted separately

from the approval of holders of Series C shares, in order to amend the Series B Articles

Supplementary. Accordingly, we focus on the proceedings in this case relevant to that

question.

1. Mr. Timm Files a Complaint

On December 7, 2011, Mr. Timm filed a complaint in the Circuit Court for

Baltimore City, on his own behalf and as a class action on behalf of the Series B and Series

C shareholders who had not tendered their shares. He named as defendants Impac and

various Impac officers and board members. The complaint alleged, among other things,

that Impac’s amendment of the Series B Articles Supplementary following the May 2009

tender offer was invalid because Impac had not obtained the requisite two-thirds approval

from the Series B shareholders, tallied separately from the votes of Series C shareholders.

24

The complaint included several counts alleging breach of the articles supplementary for

both series, as well as a count alleging breach of fiduciary duty and of the obligation of

good faith and fair dealing with respect to the articles supplementary.

In his complaint, Mr. Timm asked that the action be certified as a class action with

himself as class representative. His requests for relief included reinstatement of the

original articles supplementary as to both series of preferred stock, a declaration of the

rights of shareholders of both series under the respective articles supplementary, an order

enjoining the defendants from taking any action inconsistent with the rights of those

shareholders under the original articles supplementary, an order authorizing those

shareholders to set an election for two directors, compensatory damages if the requests for

declaratory and injunctive relief were not granted, and punitive damages.

2. The Circuit Court Finds the Voting Provision to be Ambiguous

Impac and the individual defendants moved to dismiss the complaint. Treating the

motion as one for summary judgment, the Circuit Court granted judgment in favor of the

individual defendants. As to Impac, the court granted the motion in part (including the

claims related to the vote of Series C shares), but denied the motion as it related to Mr.

Timm’s claim that Impac was required to obtain two-thirds approval of the Series B

shareholders in order to amend the Series B Articles Supplementary.21 Timm v. Impac

Mortgage Holdings, Inc., 2013 WL 605867 (Md. Cir. Ct. Jan. 28, 2013).

21

The surviving counts of the complaint alleged breach of contract claims against

Impac related to the amendment of the Series B Articles Supplementary effected by the

tender offer and consent solicitation, the failure of Impac to pay cumulative accrued

dividends on the preferred stock, and the requirement for an election of two directors by

25

In its memorandum opinion, the Circuit Court noted that the language of the Voting

Provision of the Series B Articles Supplementary could be interpreted in two ways as to

how Impac was to count the responses of Series B and Series C shareholders to the tender

offer and consent solicitation. On the one hand, the court noted, the Voting Provision

prohibited an amendment adverse to the rights and preferences of Series B shares “without

the affirmative vote or consent of the holders of at least two-thirds of the shares of the

Series B Preferred Stock outstanding at the time,” thereby suggesting that only Series B

shareholders could approve amendments to Series B Articles Supplementary. On the other

hand, the Voting Provision specified that Series B shareholders were to vote on

amendments “separately as a class with all series of Parity Preferred that the Corporation

may issue upon which like voting rights have been conferred and are exercisable” – thereby

suggesting instead that Impac could treat the two series as one “class” and amend the

articles supplementary of both series if two-thirds of the shareholders in that “class”

approved the amendments. Concluding that the Voting Provision in the Series B Articles

Supplementary was ambiguous and that “its meaning cannot be fixed as a matter of law

without consideration of extrinsic evidence to determine the parties’ intent,” the Circuit

the owners of the preferred shares as a result of Impac’s failure to pay dividends. A fuller

description of the Circuit Court’s rulings on the other counts, and on Mr. Timm’s and

Camac’s subsequent efforts to have the Circuit Court revisit those rulings, is set forth in

the opinion of the Court of Special Appeals in this case. 245 Md. App. 84, 94-102 (2020).

26

Court denied Impac’s motion to dismiss as it related to the Voting Provision. Id. at *6-

10.22

3. Camac Intervenes

A few months later, in June 2013, Camac, also a Series B and Series C shareholder,23

filed a motion to intervene in the action. The Circuit Court granted that motion in March

2014 and Camac filed a “Class Action Complaint in Intervention” in the existing action.

Camac’s complaint was virtually identical to Mr. Timm’s complaint, naming the same

defendants and causes of action and asserting class representative status on behalf of Series

B and Series C shareholders who had not tendered their shares.24

4. Summary Judgment Motions and Submissions of Extrinsic Evidence

After a period of discovery, Impac moved, and Mr. Timm and Camac jointly cross-

moved, for summary judgment on the grounds that there was no genuine dispute of material

fact and that their respective interpretations of the Voting Provision entitled them to

judgment as a matter of law.

The court rejected Impac’s argument that its 2009 transmittal letter accompanying

22

the offering circular for the tender offer, which stated that the two series would vote

together, eliminated any ambiguity in the Voting Provision. The court also noted that

another section of the Series B Articles Supplementary, which pertained to the election of

two directors in the event that Impac failed to pay dividends for six or more quarters,

merely provided that Series B would vote “separately as a class with all series of Parity

Preferred,” without requiring “the affirmative vote or consent of at least two-thirds of the

[outstanding Series B] shares.” 2013 WL 605867 at *9-10.

23

Unlike Mr. Timm, Camac had not been a shareholder at the time of the tender

offer, but had later purchased some of the shares that remained outstanding.

24

Unlike Mr. Timm, Camac did not seek punitive damages.

27

In support of their respective positions, the parties submitted extrinsic evidence in

the form of documents, affidavits, and deposition testimony. Both sides also relied on

various grammatical rules, cited statements made by Impac at the time of the tender offer,

and pointed out similarities or distinctions between the Voting Provision and voting

provisions in offerings of preferred stock by other companies.

Impac’s Position

Impac’s motion (and opposition to the cross-motion) rested on the propositions that

(1) the Articles Supplementary were akin to a contract, (2) Impac, as seller of the stock,

and Bear Stearns, as the initial purchaser of the stock, were “counterparties” to that

contract, and (3) Bear Stearns – Impac’s “counterparty” – had provided the language of the

Voting Provision. Therefore, Impac argued, the Circuit Court should either construe the

Voting Provision so as to effectuate Impac’s and Bear Stearns’ mutual understanding of

the provision or, alternatively, deem Bear Stearns to be the drafter and construe the

provision against the shareholders as successors to Bear Stearns.25

To support those propositions, Impac submitted affidavits and deposition testimony

of a number of witnesses, including Impac officers, a member of its board, and attorneys

who had represented Impac and Bear Stearns in connection with the issuance and

underwriting of the Series B stock. Those attorneys testified to their understanding of the

meaning of the Voting Provision when they negotiated and drafted the terms of the offering

25

As indicated earlier, we use the phrase “Bear Stearns” to refer to members of the

group of several underwriters of the initial public offering of Series B shares. See Part

II.A.3 of this opinion.

28

and to their understanding that the Series B offering was to be modeled on offerings that

Bear Stearns had underwritten for other entities. Impac also provided a chart compiled by

one of its attorneys that categorized the Voting Provision, as well as voting provisions that

appeared in preferred stock offerings of other REITs. Another attorney, who had not been

involved in the drafting but concentrated his practice in corporate finance transactions,

opined that the voting provisions in the articles supplementary for the two series “contained

language commonly used and understood” to mean that all series of stock that ranked

equally regarding distributions and liquidation preferences would vote collectively. He

stated that, in his opinion, Series B shareholders were not entitled to vote separately on the

amendment of the Series B Articles Supplementary. Referring to the role of the

underwriters, he also opined that Bear Stearns, as underwriter, was a “counterparty” to

Impac in negotiating the terms of the Series B stock, including the Articles Supplementary.

The Plaintiffs’ Position

In support of their joint cross-motion for summary judgment and opposition to

Impac’s motion, Mr. Timm and Camac asserted that the Voting Provision unambiguously

conditioned the amendment of the Series B Articles Supplementary on the approval of

holders of two-thirds of the Series B shares, counted separately from the vote of Series C

shares, and that the shareholders were not bound by the underwriters’ interpretation of that

provision. They argued that (1) as a matter of law, the parties to the contract containing

the Voting Provision were Impac and the shareholders, not Impac and the underwriters; (2)

under Delaware precedent, the inquiry should focus on the reasonable expectations of the

shareholders; and (3) the court should follow the Delaware precedent. They also

29

introduced the deposition testimony of some of Impac’s witnesses. In particular, they

submitted the deposition testimony of Impac’s counsel, who said that she did not recall any

negotiations with Bear Stearns’ counsel about the Voting Provision when the Series B

Articles Supplementary were drafted. Mr. Timm and Camac also cited the 2004 board

resolutions and the summary in the Series B prospectus supplement as indicia of the

intended meaning of the Voting Provision.

5. The Circuit Court Rules in Favor of the Plaintiffs

In a thorough memorandum opinion dated December 29, 2017, the Circuit Court

again concluded that the Voting Provision was ambiguous as to whether the Series B

Articles Supplementary could be amended without approval of owners of two-thirds of

Series B shares counted separately from Series C shares. Timm v. Impac Mortgage

Holdings, Inc., 2017 Md. Cir. Ct. LEXIS 12 (Dec. 29, 2017). Accordingly, the court

considered the extrinsic evidence offered by the parties.

At the outset of its opinion, the Circuit Court observed that “[n]either party contends

that there is any genuine dispute about the facts that are material to the resolution of the

parties’ contentions.” Id. at *3. With respect to the affidavits and deposition testimony

provided by Impac, the court noted that, beyond “broad and conclusory pronouncements,”

those submissions provided “little or no additional information or documentation about the

source and drafting” of the Voting Provision. Id. at *23. There was “no contemporaneous

documentation concerning the drafting” of the Series B Articles Supplementary. Id. at *24.

The court accepted “at face value” the statements of the Impac personnel that they believed

that the Voting Provision did not confer separate voting rights on Series B shareholders.

30

Id. at *25. However, the court concluded that “a retrospective statement about what was

intended, unsupported by any contemporaneous evidence” had little probative value in the

interpretation of the Voting Provision because it would substitute “an unexpressed meaning

for the language itself.” Id. The court noted that the declarations of the drafters of the

Articles Supplementary appeared to express their current opinion about the operation of

the Voting Provision and did “not suggest any actual consideration of the issue at the time

the Articles were drafted.”26 Id. at *25 n.5.

The only evidence relating to the origin of the Voting Provision was that it appeared

to be based on similar language from a public offering of another company. The court

observed that, even if so, that fact did not give rise to an inference that collective voting

was intended. There was no evidence concerning the process by which the provision was

drafted for the other company – or why it was thought to provide for collective voting in

that context.27 Id. at *24-25.

26

The declarations of the attorneys for Impac and Bear Stearns also stated that the

Voting Provision was designed to comply with a provision of the New York Stock

Exchange Listed Company Manual relating to minimum voting rights for holders of

preferred stock by providing for collective voting of Series B and Series C shares. The

court noted that, while collective voting of two series of the same class of stock might have

complied with that rule, the rule imposed a “minimum requirement” and would not prohibit

separate voting by the two series. Id. at *27-29.

27

Impac had also submitted a risk disclosure provision from 2012 and 2013

offerings of companies that also had initial 2004 offerings with voting provisions similar

to those in the Series B Articles Supplementary. The 2012 and 2013 risk disclosures

indicated that the voting rights of preferred shareholders could be diluted by collective

voting with a later-issued series of preferred stock. The court observed that those risk

disclosures had not been made in the 2004 offerings of those companies and were even

more remote from the 2004 offering of Impac’s Series B preferred stock. Id. at *29-32.

31

The court considered the charts of voting language used by other issuers that had

been compiled and categorized by one of Impac’s attorneys and analyzed by the attorney

Impac had retained for the litigation as an expert on securities offerings. Id. at *32-42.

According to the attorney who had compiled them, the charts distinguished language that

provided for collective voting from language that provided for separate voting. The court

observed that no factual basis was provided for the categorizations made in the charts. The

court concluded that the charts established only that some issuers had used language that

the court found to be ambiguous, that some issuers had used different language that

unambiguously provided for separate voting, and that some issuers had used different

language that unambiguously provided for collective voting. In particular, the court found

that the contrast between the language of some of the examples in the charts that clearly

provided for collective voting and the language of the Series B Voting Provision was

“striking.” Id. at *40, 41. The court concluded that a prospective investor could reasonably

understand those examples in the charts to provide for collective voting and that “Impac

could have easily followed the examples of other Maryland REITs” to provide for

collective voting. Id. at *41. The court noted that there was no indication that any of the

provisions had been applied in the context of an actual vote. In the end, the court concluded

that the charts did not support Impac’s arguments, but rather undermined them.

The court then rejected Impac’s grammatical arguments and its assertion that the

manner in which it conducted the tender offer should be used to clarify the ambiguity of

the Voting Provision. Id. at *42-45.

32

With respect to the extrinsic evidence relied upon by the plaintiffs, the court noted

that both the April 2004 board resolution authorizing the issuance of Series B and the

prospectus summary for Series B appeared to describe separate, rather than collective,

voting by Series B shareholders.28 Id. at *45-55. However, the court found the plaintiffs’

arguments based on Impac’s press releases for the tender offer and on a rule of grammatical

construction less helpful. Id. at *55-57.

The court concluded that the extrinsic evidence did not resolve the ambiguity as to

whether the Voting Provision required collective or separate voting and that it would

therefore construe the Voting Provision against the drafter. Id. at *57-58.

The court then addressed the question of who should be considered the drafter of

the Voting Provision. Id. at *58-68. It rejected Impac’s argument that Bear Stearns should

be deemed both a party to the Series B Articles Supplementary and the drafter, that the

shareholders stood in the shoes of Bear Stearns, and that the Voting Provision should

therefore be construed against shareholders like Mr. Timm and Camac. The court noted

that the characterization of the underwriter as the counterparty to Impac with respect to the

Voting Provision “did not fit the facts,” and that the “counterparties to the contract

embodied in the Articles Supplementary were the holders of the preferred shares whose

rights were fixed by the Articles.” Id. at *62. The court then referred to Delaware

precedent to the effect that an issuer of public securities is in the best position to avoid

ambiguities and that, when a contract that confers rights on investors in public securities is

28

We shall analyze the significance of those two provisions in greater detail below.

33

ambiguous, the contract is to be interpreted to give effect to the investors’ reasonable

expectations. Finally, the court construed the Voting Provision against Impac and ruled in

favor of the plaintiffs’ interpretation. Id. at *68.

After further proceedings, on July 16, 2018, the Circuit Court issued a follow-up

memorandum opinion and a separate judgment order incorporating its various rulings.

Pertinent to this appeal, that order declared that the 2009 amendment to the Series B

Articles Supplementary was invalid because it lacked the requisite approval from owners

of two-thirds of the Series B shares and that the 2004 version of the Series B Articles

Supplementary remained in effect. The order included a declaration that Impac was

required, under the Series B Articles Supplementary, to pay dividends to Series B

shareholders for certain quarters. In addition, in light of the fact that there was no dispute

that Impac had not paid dividends to the Series B shareholders for more than six quarters,

and that the 2004 Series B Articles Supplementary required Impac to hold an election and

seat two directors elected by the preferred stock shareholders, the order included injunctive

relief directing Impac to comply with that provision.

Finally, in its order, the court certified these rulings as final under Maryland Rule

2-602(b), which would allow for an immediate appeal.29 In the opinion accompanying the

29

As a general rule, a party may appeal only from a “final judgment.” Maryland

Code, Courts & Judicial Proceedings Article (“CJ”), §12-301. The Legislature has left it

to this Court to define the contours of the concept of a “final judgment” by rule and case

law. Metro Maintenance Systems South, Inc. v. Milburn, 442 Md. 289, 297 (2015).

Maryland Rule 2-602(a) provides that an order or form of decision adjudicating fewer than

all of the claims, less than an entire claim, or the rights and liabilities of fewer than all the

parties in an action is not an appealable final judgment. However, under Rule 2-602(b), if

a court “expressly determines in a written order that there is no just reason for delay, it may

34

order, the court explained that its rulings had resolved all issues raised by the complaint

except whether to certify the action as a class action. The court noted that, if Impac were

to prevail on an appeal, no class proceedings would be necessary; on the other hand, if the

plaintiffs were to prevail on a cross-appeal, any class certified by the court would have to

include Series C shareholders as well as Series B shareholders.

6. The Appeal

Impac appealed.30 Mr. Timm cross-appealed concerning claims on which the

Circuit Court had entered judgment in Impac’s favor in 2013; Camac did not cross-appeal.

The Court of Special Appeals affirmed the Circuit Court’s judgment. Impac

Mortgage Holdings, Inc. v. Timm, 245 Md. App. 84, 103 (2020). However, it arrived there

by a different route than the Circuit Court.31

direct in the order the entry of final judgment . . . as to one or more but fewer than all of

the claims or parties.”

30

The Circuit Court stayed its order requiring an election of two directors by Series

B shareholders pending resolution of the appeal.

31

As a preliminary matter, the Court of Special Appeals considered sua sponte

whether there was appellate jurisdiction of the appeal. 245 Md. App. at 104-07. It

concluded that there was appellate jurisdiction under CJ §12-303(3)(i) – a statutory

exception to the final judgment rule when a trial court grants an injunction, as the Circuit

Court did here. However, the Court of Special Appeals expressed some doubt as to whether

the Circuit Court had properly certified its order as final under Rule 2-602(b) because the

only unresolved issue in the Circuit Court concerned whether to certify the action as a class

action. Id. at 107 n.17.

It was certainly appropriate for the intermediate appellate court to assess whether it

properly had jurisdiction of the appeal, and we agree that appellate jurisdiction exists

pursuant to CJ §12-303(3)(i). We merely note that a certification of a judgment on liability

under Rule 2-602(b), when all that remains in the trial court is a decision on class action

status, as the Circuit Court did here, can be an appropriate application of that rule. See Len

35

The intermediate appellate court concluded that the Voting Provision was

unambiguous and required a two-thirds vote of each series, tallied separately – which

would compel the award of summary judgment in favor of Mr. Timm and Camac on that

issue. Specifically, the Court of Special Appeals concluded that the clause providing that

“the Corporation shall not, without the affirmative vote or consent of the holders of at least

two-thirds of the shares of the Series B Preferred Stock outstanding at the time” could only

be interpreted to mean one thing: “that Impac can’t take the actions that follow without

the vote or consent, to the extent there’s a difference, of the Class [sic] B shareholders.”

245 Md. App. at 113. The Court of Special Appeals also found that the other clause at

issue, which provides that Series B is “voting separately as a class with all series of Parity

Preferred,” refers simply to the fact that both series of preferred stock are to vote physically

Stoler, Inc. v. Wisner, 223 Md. App. 218, 223-29, cert. denied, 445 Md. 8 (2015); Pichler

v. UNITE, 542 F.3d 380, 385 n.6 (3d Cir. 2008), cert. denied, 556 U.S. 1127 (2009)

(applying Federal Rule of Civil Procedure 54(b), which, according to the source note to

Rule 2-602(b), served as the model for the latter rule). Allowing for an appeal of the merits

before class certification may often align with the purpose of Rule 2-602 generally, which

is the promotion of efficiency and cost savings. Silbersack v. ACandS, Inc. 402 Md. 673,

679 (2008). As the Circuit Court observed in this case, if its ruling in favor of the plaintiffs

were reversed, there would be no need to consider class certification, while if its rulings in

favor of Impac were reversed, it might be required to consider certification of a different

plaintiff class. In either event, certifying a partial final judgment under Rule 2-602(b)

would result in substantial efficiency benefits and cost savings for the courts and parties.

Conversely, when a trial court rules on class certification without reaching the substantive

merits of any claim, its ruling is not necessarily dispositive on the question of class action

status, as the class action rule contemplates that the trial court may revisit an initial class

determination before reaching a decision on the merits. Maryland Rule 2-231(d). Thus,

for example, an immediate appeal of a denial of class action status would not necessarily

bear the same benefits or be as consistent with the purpose of Rule 2-602(b). See Snowden

v. BGE, 300 Md. 555 (1984).

36

separately but at the same time – thereby effectuating the first clause. Id. at 113-14. In

sum, the intermediate appellate court concluded that the Voting Provision unambiguously

means that “Series B and C shareholders vote, by class, at the same time, and their votes

on proposed amendments are counted separately.” Id. at 114.

Because it had concluded that the language of the Voting Provision was

unambiguous, the intermediate appellate court did not address the extrinsic evidence

submitted by the parties and analyzed by the Circuit Court. Nor did it need to evaluate

Impac’s argument that ambiguity in the language of the Voting Provision should be

construed against the plaintiffs on the theory that Bear Stearns was the drafter and that the

plaintiffs stood in the shoes of Bear Stearns.

Impac filed a petition for a writ of certiorari, which we granted.

III

Discussion

To decide this appeal, we must address the following issues:

(1) Is the Voting Provision ambiguous or unambiguous as to whether the

responses of Series B shareholders were to be counted separately or collectively with the

responses of the Series C shareholders to determine whether the two-thirds threshold was

satisfied?

(2) If the Voting Provision is ambiguous, does the extrinsic evidence submitted

by the parties resolve the ambiguity as a matter of law, or does it raise material factual

issues that must be resolved by a jury?

37

(3) If the Voting Provision is ambiguous, and the extrinsic evidence neither

resolves the ambiguity nor presents jury questions that, when answered, would resolve the

ambiguity, how should the language be construed against the drafter?

A. Standard of Review

When a circuit court grants summary judgment, it has concluded that, based on the

undisputed material facts, the prevailing party is entitled to judgment as a matter of law.

Maryland Rule 2-501. Because the circuit court’s decision turns on a question of law, not

a dispute of fact, an appellate court is to review whether the circuit court was legally correct

in awarding summary judgment without according any special deference to the circuit

court’s decision. Mathews v. Cassidy Turley Maryland, Inc., 435 Md. 584, 598 (2013).

Thus, the appellate court conducts “an independent review of the record to determine

whether a genuine dispute of material fact exists and whether the moving party is entitled

to judgment as a matter of law.” Maryland Cas. Co. v. Blackstone Int’l Ltd., 442 Md. 685,

694 (2015).

The interpretation of a contract, including the determination of whether a contract

is ambiguous, is a question of law. Spacesaver Systems, Inc. v. Adam, 440 Md. 1, 7 (2014).

If a party asserts that there are material facts in dispute that preclude an award of summary

judgment, the party must support such an assertion with an affidavit that “shall set forth

such facts as would be admissible in evidence.” Maryland Rule 2-501(c). A fact is

“material” if it “will somehow affect the outcome of the case.” Taylor v. NationsBank,

N.A., 365 Md. 166, 173 (2001). However, “wholly legal conclusions, explicit and implicit,

. . . regarding the asserted legal effect of [an] agreement are neither facts nor would they

38

be admissible in evidence . . . .” Hill v. Cross Country Settlements, LLC, 402 Md. 281,

306–07 (2007).

B. Whether the Voting Provision is Ambiguous

As outlined at the outset of this opinion, the first step in construing contract language

under the “objective” approach to contract interpretation is to review that language within

the “four corners” of the contract and assess whether a contract provision is ambiguous. 32

The Voting Provision of the Series B Articles Supplementary reads as follows:

So long as any shares of Series B Preferred Stock remain outstanding, the

Corporation shall not, without the affirmative vote or consent of the holders

of at least two-thirds of the shares of the Series B Preferred Stock outstanding

at the time, given in person or by proxy, either in writing or at a meeting

(voting separately as a class with all series of Parity Preferred that the

Corporation may issue upon which like voting rights have been conferred

and are exercisable) . . . (ii) amend, alter or repeal any provisions of the

Charter, so as to materially and adversely affect any preferences, conversion

or other rights, voting powers, restrictions, limitations as to dividends or

other distributions, qualifications, or terms or conditions of redemption of

the Series B Preferred Stock or the holders thereof; . . .

Most of this language sets the stage for when the Voting Provision comes into play

and is not in dispute in this case. In short, this provision applies if (1) there are shares of

Series B outstanding and (2) Impac plans to “amend, alter or repeal any provisions” of its

charter in a way that would “materially and adversely” affect the rights and preferences of

32

Impac argues that its extrinsic evidence is relevant to the “factual context” in

which the contract was made and, therefore, to its plain meaning. Because we strive to

read the plain language of a contract as “a reasonable person in the position of the parties

would have thought it meant,” see Dennis, 390 Md. at 656-57, information on the context

as to the type of contract or transaction can be informative. But that does not mean that

the particular subjective intent of the parties is part of that context or can be introduced at

this stage of the analysis.

39

Series B stock or its shareholders. There is also no dispute that Impac’s 2009 tender offer

and consent solicitation fit that description – there were Series B shares outstanding and

the rights and preferences of those shares would be materially and adversely affected by

the amendments to its Articles Supplementary proposed by the tender offer.

That takes us to the language where the meaning is in dispute – the part of the Voting

Provision that says what must be done to approve a material adverse action concerning the

rights and preferences of Series B shares. There must be an:

affirmative vote or consent of the holders of at least two-thirds of the shares

of the Series B Preferred Stock outstanding at the time, given in person or by

proxy, either in writing or at a meeting (voting separately as a class with all

series of Parity Preferred that the Corporation may issue upon which like

voting rights have been conferred and are exercisable)

The dispute relates to the relationship between the first half of this passage that sets forth

the requisite vote and the second half (the parenthetical) that describes the circumstances

of the voting. The first clause specifies that Series B shareholders must approve a proposed

charter amendment by a two-thirds vote and thus implies that only the votes of Series B

shares matter. However, the parenthetical clause introduces the idea of “voting separately

as a class” with holders of other series of preferred stock referred to as “Parity Preferred”

– which, as of 2009 in the case of Impac, included the later-created series of preferred stock

designated as Series C. Unspecified is precisely who votes “separately as a class.” Is the

“class” simply the Series B shares?33 Or does the “class” also encompass the other series

of preferred stock encompassed by the phrase “Parity Preferred” – in this case Series C?

Although the meaning of “class” that the Court of Special Appeals ascribed to the

33

Voting Provision was plausible – and this Court ultimately agrees with the result that the

40

In the Circuit Court, Impac initially argued that the Voting Provision clearly

required that the votes of Series B and Series C shares be tallied collectively. See 2013

WL 605687 at *5. Before us, Impac concedes that the language of the Voting Provision is

“inartful” and asserts that it is therefore ambiguous. In any event, that ambiguity is not

resolved elsewhere in the Series B Articles Supplementary. Impac argues that other

provisions in the Series B Articles Supplementary providing for a vote by Series B

shareholders on three matters appear to provide that Series B shareholders will vote

collectively with Series C shareholders – an argument with which the plaintiffs agree with

intermediate appellate court reached – the provision is not unambiguous, because it is

susceptible of more than one interpretation. It appears that the intermediate appellate

court’s conclusion on the issue of ambiguity may have turned on its assumption that

“series” is a precise synonym for “class” in this context. (In what may be a slip of the pen,

in its holding on the issue – unlike in the rest of its opinion – it refers to the shares in

question as “Class B” rather than “Series B.”). The court did not explain why it regarded

Series B as the class in this context. There may be a basis for that conclusion – the board

resolution authorizing Series B referred to it as a “new class” of Impac stock, although that

action predated the board action creating Series C from Series B.

Recent amendments of the Maryland General Corporation Law have included the

phrase “class or series” in a number of statutory contexts on the premise that the two terms

are “interchangeable” in those contexts. See Testimony of Business Law Section of

Maryland State Bar Association concerning House Bill 668/Senate Bill 469 (2020) at 5.

However, that does not mean that the two terms are exact synonyms in every context or in

a particular instrument.

If the two terms “series” and “class” were always precisely synonymous, we would

agree that the Voting Provision would be unambiguous. However, that is not always the

case and, indeed, courts on occasion must determine whether a “series” of securities is also

a “class” of securities by reference to whether the series votes separately from other series.

E.g., Morales v. Freund, 163 F.3d 763, 766 (2d Cir. 1999). An attempt to apply such a test

here would, of course, take us in a circle.

41

to some degree.34 Those other provisions are not at issue in this case, but we agree with

the bottom line of Impac’s argument on that score – that its interpretation of the Voting

Provision is a possible reading of that provision, which means that the provision does not

unambiguously provide for separate voting.

Impac also argues that, because Series B and Series C are both referred to as a

“parity preferred” stock, they must vote together to maintain “parity.” That is too much

weight for one word to bear. It is evident from the Articles Supplementary that the

provision that defines what shares are in “parity” concerns the priority of those shares as

to dividends and other distributions relative to other types of stock that the company issues;

it says nothing about voting rights or whether two series of preferred shares that are in

34

Those provisions are §6(b) and §6(d)(i) and (iii) of Article First of the Articles

Supplementary. (Similar provisions appear in the Series C Articles Supplementary).

Everyone – that is, the parties and lower courts – appears to agree, or at least no one

disagrees, that §6(b), which provides for the preferred stock to elect two members of the

board of directors under certain circumstances, provides for collective voting by Series B

and Series C shareholders. But, as the Circuit Court observed, that provision has different

and clearer language as compared to §6(d)(ii), the Voting Provision at issue in this case.

2013 WL 605867 at *8.

The two other provisions provide for a vote by Series B shareholders if Impac

proposes to establish a series or class of stock ranking ahead of Series B with respect to

distributions (§6(d)(i)) or if Impac proposes a binding share exchange or reclassification

affecting Series B rights and preferences (§6(d)(iii)). Both involve the same voting

language that is at issue in this case. Impac asserts that these two circumstances necessarily

call for collective voting by Series B and Series C shareholders. Early in the litigation, Mr.

Timm appeared to concede that point. In its 2013 opinion, the Circuit Court acknowledged

Mr. Timm’s concession, but concluded that neither provision would require collective

voting on a share exchange or merger affecting only one series. Id. Camac has never

conceded that the two provisions necessarily require collective voting. In any event, Impac

now argues only that its interpretation of the other prongs of §6(d) is a “reasonable” one,

not that it is unambiguously compelled by the language.

42

parity as to dividends and distributions vote separately or together when there is a proposal

to change the rights and preferences as to one or both series.35 Moreover, the charts of

preferred stock issued by other companies that were submitted by Impac in the Circuit

Court included examples of preferred stock that ranked “in parity” with other series of

preferred stock, but that did not vote collectively with those other series.

Nor is the ambiguity resolved by rules of grammar, because neither party’s preferred

reading of the Voting Provision gives effect to every word without rendering a portion of

the language superfluous or meaningless, contrary to a basic rule of contract interpretation.

Towson University v. Conte, 384 Md. 68, 81 (2004) (“[C]ourts do not interpret contracts in

a manner that would render provisions superfluous or as having no effect.”). If, as the

Plaintiffs contend, the provision was intended to specify separate voting by Series B

shareholders alone, the parenthetical phrase would appear to be superfluous.36 If, as Impac

contends, the provision was intended to specify collective voting by Series B and later-

35

Section 2 (“Rank”) of the First Article of the Series B Articles Supplementary

states that, “with respect to the payment of distributions and the distribution of assets upon

liquidation, dissolution or winding up” of the company, Series B shares are senior to

common stock, are “on a parity” with other series designated to be of the same rank, and

junior to any shares that Impac might issue that are explicitly specified to be senior to Series

B. (There is an identical provision in the Series C Articles Supplementary, except that it

explicitly acknowledges that Series C shares are in parity with Series B shares). In both

sets of Articles Supplementary, voting rights of the particular series of preferred stock are

described in a separate section – in the language analyzed at some length in the text of this

opinion.

36

Mr. Timm and Camac argue that the phrase describes “voting mechanics” and

means that voting of the two series is to occur simultaneously but, as the Circuit Court

noted, it is unclear why that would matter, and earlier language already specified how and

where voting is done.

43

issued Parity Preferred shares, such as Series C, the reference in the first clause to an

affirmative vote of Series B shares may be meaningless.37

Thus, we agree with the Circuit Court that the Voting Provision, when read as a

whole, is ambiguous as to whether the approval of an amendment to the Series B Articles

Supplementary is to be determined by the votes of the Series B shareholders alone or,

instead, by the votes of Series B and Series C shareholders combined.

B. Whether the Extrinsic Evidence Resolves the Ambiguity as a Matter of Law

Because the Voting Provision is ambiguous, we may consider relevant admissible

extrinsic evidence that illuminates the mutual intent of the parties. To assess the extrinsic

evidence, as well as to apply the other principles of contract construction in the context of

a corporate charter, we must first identify the parties to the contract containing the

provision in question – in this case, the charter and its amendment by the Articles

Supplementary.

1. The Significance of Bear Stearns’ Status as Underwriter

In the Circuit Court, Impac rested its motion for summary judgment on arguments

that Bear Stearns, as underwriter of the offering of Series B shares, was a “counterparty”

to Impac as to the Articles Supplementary, that Bear Stearns drafted that charter

37

At an extreme, one might imagine an example where the number of subsequently-

issued shares of Parity Preferred stock so exceeded the number of Series B shares that a

collective vote on a charter amendment adversely affecting only Series B shares could be

approved without the affirmative vote of any holder of Series B shares. Indeed, in light of

the fact that there were more than twice as many shares of Series C compared to Series B,

that theoretical result could have happened here if all Series C shares had voted in favor of

the tender offer and consent solicitation even if none of Series B shares had done so.

44

amendment, and that the facts were undisputed as to what Impac and Bear Stearns mutually

intended, leaving only questions of law as to the ramifications of those assertions of fact.

In this Court, Impac asserts that whether Bear Stearns acted as a counterparty or in some

other capacity as to the Articles Supplementary raises an issue of disputed fact that must

be decided by a jury. To address that assertion, we must identify the material facts and

determine whether they are genuinely in dispute.

Two documents in the record are material to Impac’s assertions regarding Bear

Stearns’ relationship as to Impac vis-à-vis the Articles Supplementary. The first is the

underwriting agreement between Impac and Bear Stearns; the second is the Articles

Supplementary.

The underwriting agreement is the only contract to which Bear Stearns is a named

party. As recounted in Part II.A.3 of this opinion, the underwriting agreement provided

that Bear Stearns would offer Impac’s preferred stock to the public as soon as advisable

after the stock was issued. Thus, as the Circuit Court put it, the “entire purpose of the

underwriting arrangement was for Bear Stearns to resell the stock to others who would be

the holders of the stock,” not for Bear Stearns to hold the stock on its own account, as a

shareholder.38

38

The underwriting agreement is careful to distinguish the underwriters from the

ultimate shareholders. In a clause that addresses successors and assigns, Impac and the

underwriters stated that “[n]o other person, partnership, association or corporation

(including a purchaser, as such purchaser, from any of the Underwriters) shall acquire or

have any right under or by virtue of this Agreement.” The agreement thus viewed a

shareholder as an “other person,” not a party to Impac’s contract with Bear Stearns.

45

Further, the underwriting agreement does not permit an inference that Bear Stearns

and Impac had a contractual relationship that was not expressed there but nonetheless could

be implied. The parties agreed that the underwriting agreement was their “entire

agreement,” that it “supersede[d] all prior written or oral and all contemporaneous oral

agreements, understandings, and negotiations with respect to the subject matter hereof,”

and that it could only be amended in writing “by all of the parties hereto (with Bear Stearns

acting on behalf of the underwriters).”39

The underwriting agreement is thus both material and informative on the question

of whether Bear Stearns was a “counterparty” as to the Articles Supplementary. There is

no dispute as to its terms.

The Series B Articles Supplementary are also material to Impac’s assertion that the

underwriters were parties to the amendment of Impac’s charter, and there is no dispute as

to the language of that document, either. In executing the Articles Supplementary for filing

with SDAT, Impac’s president “acknowledge[d]” it “to be the corporate act of the

Corporation,” not of any other entity, and the Articles Supplementary do not mention Bear

Stearns or any other entity as a party to that document. The fact that the underwriting

39

The Circuit Court thus correctly concluded that it is “entirely artificial to portray

Bear Stearns as a party to the [Articles Supplementary].” The underwriting agreement also

does not support Impac’s assertion that Bear Stearns could be viewed as the drafter of the

Voting Provision. The underwriting agreement assigned Bear Stearns no role in that

regard. In the underwriting agreement, Impac represented that Impac had prepared the

prospectus supplement, that the prospectus conformed to Impac’s charter, and that Impac

had filed the necessary charter documents, including the Articles Supplementary, with

SDAT.

46

agreement referred to the Articles Supplementary might make the charter amendment part

of the underwriting contract, but it does not make the underwriting agreement part of

Impac’s charter.40

Neither document contains any ambiguity on the underwriters’ role that would make

material (or even admissible) the testimony of Impac’s and Bear Stearns’ attorneys who

stated that they participated, and worked together, in negotiating or drafting the documents

related to the Series B offering; to the contrary, the merger clause in the underwriting

agreement expressly makes such negotiations irrelevant.

As indicated above, a corporation’s charter is, in essence, a contract between that

corporation and its shareholders. Here, the Circuit Court correctly held as a matter of law

that Bear Stearns, while an “advisor” to Impac in the formulation of the offering

documents, was not a party to the Series B Articles Supplementary and that the

shareholders to whom those Articles granted voting rights were Impac’s “counterparties”

as to that provision.

2. The Extrinsic Evidence Material to How a Person in the Shoes of an Impac

Shareholder Would Understand the Voting Rights Provision

The summary judgment record before the Circuit Court did not contain much

evidence that illuminates the parties’ intentions at the time of the contract. Indeed, that

approach is made somewhat artificial by the fact that the Series B shares were not sold

40

To the same effect, neither the prospectus supplement as to Series B nor the April

and May 2004 board resolutions makes Bear Stearns a party to the Series B Articles

Supplementary.

47

under any contract that the shareholders had negotiated with Impac – the issuer – at the

time of the public offering. In such securities cases, the Delaware Supreme Court has

explained,41 “an inquiry into what the parties intended would serve no useful purpose,

because it would yield information about the views and positions of only one side of the

dispute,” and so “a different interpretive approach is needed – one that will take into

account the public securityholders’ legitimate contractual interests.” Bank of N. Y. Mellon

v. Commerzbank Capital Funding Trust JI, 65 A.3d 539, 551 (Del. 2013).42 When “the

ultimate purchaser of the securities is not a party to the drafting of the instrument which

determines her rights, 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).

Some courts have diverged slightly from the approach taken in Delaware and would

accord more weight to the unexpressed views of the drafters of an instrument like the Series

B Articles Supplementary.43 That approach, however, risks turning contract language in

41

In the absence of Maryland precedent on a corporate law question, this Court has

turned to the decisions of the Delaware courts, which are known “for their expertise in

matters of corporate law.” Kramer v. Liberty Property Trust, 408 Md. 1, 24 (2009)

(characterizing Delaware law as “highly persuasive” due in part to the expertise of

Delaware courts on corporation law).

42

In any event, no witness offered by Impac recalled any negotiations about the

Voting Provision. And, as the Circuit Court correctly concluded, neither the opinions

formed by Impac’s witnesses about how they now view the shareholders’ voting rights nor

the charts showing the voting rights granted by other issuers of preferred stock were

probative of the parties’ intentions at the time of the issuance of this stock.

43

E.g., Chesapeake Energy Corp. v. Bank of New York Mellon Trust Co., 957

F.Supp.2d 316 (S.D.N.Y. 2013), rev’d on other grounds, 773 F.3d 110 (2d Cir. 2014). See

also Joshua M. Glasser, New York and Delaware’s Surprising Doctrinal Dissonance

48

this context into a magical incantation whose significance is opaque to all but the initiated.

And, in the case at hand, it would contradict the warning in the Series B prospectus

supplement that an investor “should rely only on the information contained in” the

prospectus and prospectus supplement. See Part II.A.3 of this opinion. That language tells

a hypothetical investor, who happens to run into the drafting attorneys on the street and

happens to learn their otherwise unexpressed views on the meaning of corporate charter

language, to disregard what they say and to rely only on the prospectus itself.

Here, too, an inquiry into the parties’ mutual intent would serve no purpose; Series

B shareholders had no part in the adoption of the charter amendment by which Impac

authorized the issuance of their stock. We will apply the Matheson approach which, under

these circumstances, both approximates Maryland’s objective approach to interpreting a

contract and comports with the general principle, both under the securities laws and

Maryland’s common law, that an investor may reasonably rely on the issuer’s prospectus

and other publicly-disseminated materials about the offering. As the Delaware Supreme

Court has pointed out, it is, in some sense, a “specialized application” of the rule of contract

interpretation that, in the face of unresolvable ambiguity, construes the contract against the

drafter. Commerzbank Capital Funding, 65 A.3d at 552.

The inquiry then becomes (1) what evidence is material to the reasonable

expectations of a purchaser of these publicly-issued securities, and (2) is there such

Concerning the Admissibility of Uncommunicated Contractual Intent, 41 Del.J.Corp.L.

859 (2017).

49

evidence in this record that both is undisputed and entitles Mr. Timm and Camac to

judgment as a matter of law? As for materiality, Delaware cases again provide useful

guidance on what evidence bears on an investor’s reasonable understanding of a charter

provision concerning the investor’s rights. As pointed out in Shiftan v. Morgan Joseph

Holdings, Inc., 57 A.3d 928, 935 (Del. Ch. 2012), the types of extrinsic evidence available

to aid in the interpretation of “warmly negotiated bilateral agreements,” such as the drafting

history, are seldom available to investors who, when purchasing the stock, “must rely on

what is publicly available to them to understand their rights as investors.” For that reason,

the Shiftan court stated, “the subjective, unexpressed views of entity managers and the

drafters who work for them about what a certificate means has traditionally been of no

legal consequence” and is “not proper parol evidence.” Id. Stated more broadly, such

views, when not expressed or otherwise known to the other party to the contract at the time

of the contract, do not illuminate the parties’ mutual intentions. See Truck Ins. Exchange,

288 Md. at 433.

The record in this appeal contains only one document – the Series B prospectus

supplement – that addresses the meaning of the Voting Provision and that was publicly

available to investors at the time of the Series B public offering of stock. There, under the

caption “Prospectus Summary,” Impac described the voting rights of the Series B

shareholders without any reference to the votes of the shareholders of any other series:

[T]he affirmative vote of holders of at least two-thirds of the

outstanding shares of Series B Preferred Stock will be required to . . . (b)

amend, alter or repeal any of the provisions of our charter so as to materially

and adversely affect the Series B Preferred Stock . . . .

50

Although the prospectus summary also refers potential purchasers to a later section of the

document for a “more complete description” of shareholders’ voting rights, that later

description differed only slightly from the Voting Provision and contained the same

ambiguity as the Articles Supplementary. The prospectus summary quoted above is thus

the only material extrinsic fact that bears on what a reasonable investor would understand

the Voting Provision to mean.

The prospectus summary leads to only one interpretation of the Voting 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. That meaning is also confirmed by the April 2004

board resolution which, as the Circuit Court noted, was the board’s contemporaneous

expression as to its intent as to the voting rights of purchasers of the soon-to-be-offered

Series B stock. That resolution did not provide that the votes of any shareholders other

than those of Series B stock could be included in the tally of votes on charter amendments

affecting Series B preferences. Instead, it provided:

[T]he affirmative vote of holders of at least two-thirds of the outstanding

shares of Series B Preferred Stock will be required to . . . (ii) amend, alter or

repeal any of the provisions of the Amended and Restated Articles of

Incorporation of the Company, as amended and supplemented . . . so as to

materially and adversely affect any right, privilege or voting power of the

Series B Preferred Stock or the holders thereof . . . .

These two documents establish that the Impac board’s expressed understanding of

the Voting Provision at the time the company issued the Series B shares converged with

the understanding that a reasonable investor would have gleaned from the prospectus

51

summary at that same time. Because these documents resolve the ambiguity in the Voting

Provision, we need not resort to the canon of interpretation that permits a court to construe

a contract against its drafter when extrinsic evidence fails to illuminate the parties’ intent

at the time of the execution of the contract. Matter of Collins, 468 Md. 672, 692 (2020).

We also agree with the Circuit Court that the extrinsic evidence that it discounted –

the opinion of a securities attorney on the meaning of the Voting Provision, the

recollections of the Impac and Bear Stearns attorneys about their subjective, unexpressed

intentions when they were working on the public offering, the charts prepared for this

litigation that compare the Voting Provision to voting provisions applicable to shareholders

of preferred stock of other entities, Impac’s conduct of the election in 2009 as indicative of

its interpretation – was not material to determining the reasonable expectations of a

purchaser of the Series B shares.

Finally, even if we were to conclude that the relevant admissible extrinsic evidence

did not resolve the ambiguity in the Voting Provision and resorted to construing the

provision against the drafter, we would reach the same result. For the reasons explained

earlier, Impac – not the shareholders – would be considered to be the author of the Voting

Provision and, so, were we to apply that rule of interpretation, we would construe the

provision against Impac.

IV

Conclusion

For the reasons set forth above, we hold that:

52

(1) The Voting Provision in the original Series B Articles Supplementary is

ambiguous.

(2) The extrinsic evidence relating to the Voting Provision that is relevant and

admissible as to the understanding of that language by a reasonable shareholder resolves

that ambiguity as a matter of law in favor of separate voting by Series B shareholders in

the 2009 tender offer and consent solicitation.

(3) Even if one were to conclude that the Voting Provision remained ambiguous

after consideration of extrinsic evidence, the relevant language would be construed against

the drafter – i.e., Impac – with the same ultimate result.

Accordingly, given that fewer than two-thirds of the Series B shareholders

consented to the proposed 2009 amendments to the Series B Articles Supplementary, those

amendments were not validly adopted. The Circuit Court’s awards of declaratory and

injunctive relief were appropriate.

JUDGMENT OF THE COURT OF SPECIAL APPEALS

AFFIRMED. COSTS TO BE PAID BY THE PETITIONER.

53