Each week my email inbox receives links to published opinions released by the Fourth Circuit. When I saw the link for Jane Doe v. Fairfax County School Board, No. 19-2203, I almost did not click on it. It was an order denying rehearing en banc and my first thought was, what could be enlightening about that? Luckily, I thought twice. After all, the Fourth Circuit decided to publish this order, so there must be more to it. Indeed, there was.
The first line of the order reads as one would expect: “The court denies the petition for rehearing en banc.” But what follows is an unexpected exchange between a concurring opinion and two dissenting opinions in which the concurrence writes to “confront” the dissent about a practice that is appearing with more frequency in the Fourth Circuit – dissenting from denials of rehearing en banc.Read More…
No one likes to arrive at a party just as the fun is ending and the guests are leaving. Yet, within a year of the Court of Appeals completing its two-decade journey towards formally adopting the Daubert standard for admitting expert testimony, see Rochkind v. Stevenson, 471 Md. 1 (2020), a nationwide legal movement has begun rallying behind the slogan “Don’t Say Daubert.” Has Maryland arrived at the Daubert party only to see everyone else leave?Read More…
A month ago, the Court of Appeals issued an opinion in a case where the circuit court, Court of Special Appeals, and Court of Appeals analyzed the pivotal issue in the case differently, yet each court ultimately reached the same conclusion. In May of 2020, I wrote, COVID-19 pandemic presents issues of contract interpretation—how have Maryland appellate courts recently handled those issues, and one of the cases I discussed was Impac Mtg. Holdings, Inc. v. Timm, 245 Md. App. 84 (2020). In that case, the Circuit Court for Baltimore City reviewed a contractual provision, found it ambiguous, and determined that the extrinsic evidence did not resolve the ambiguity. The circuit court then construed the language against the drafter and entered summary judgment on behalf of the plaintiffs. On appeal, the Court of Special Appeals affirmed, but for a different reason. The intermediate appellate court concluded that the language was unambiguous and meant what the plaintiffs said it meant, and thus upheld the entry of summary judgment. The Court of Appeals granted cert and also concluded that the circuit court properly entered summary judgment, but for an altogether different reason. While the Court agreed with the circuit court that the language was ambiguous, it concluded that the extrinsic evidence established that the parties intended that the language have the meaning ascribed to it by the plaintiffs. While there is much to garner from the Court’s opinion, this post will focus on the issue of ambiguity, and why the Court of Appeals disagreed with the Court of Special Appeals on that issue. That disagreement ultimately centered on whether the word “series” was precisely synonymous with the word “class.”
The litigation concerned Impac Mortgage Holding’s attempt to amend Articles Supplementary to its charter. Articles Supplementary are themselves simply amendments to the charter. The Articles here had first created “Series B” preferred stock and later created “Series C” preferred stock. The Series B Articles provided:
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 ….
The Series C Articles had a virtually identical counterpart provision.
When Impac held a vote to amend the Articles, over two-thirds of the Series B and Series C stockholders, collectively, approved the amendment. But just under two-thirds of the Class B stockholders approved. Impac thought the amendments had been approved—because it thought the two-thirds requirement applied to the sum of the Series B and Series C votes. But at least two Class B stockholders thought otherwise and filed a class action complaint, alleging that Impac breached the Series B Articles by amending them without the consent of two-thirds of Series B stockholders.
The interplay between the italicized and underlined language was at the heart of the controversy. As stated, the circuit court concluded that the language was ambiguous, but in an opinion authored by Judge Nazarian, on a panel with Judge Reed and Senior Judge Zarnoch, the Court of Special Appeals disagreed, finding the language unambiguous. The appellate court first explained that the italicized language is susceptible of only one meaning, i.e. “that Impac can’t take the actions that follow without the vote to consent, to the extent there’s a difference, of the Class B shareholders.” (emphasis added).
The court then noted that the alleged ambiguity arose “in the second clause and its interaction with the first.” The court acknowledged that the second clause “means unambiguously that the Class B shareholders vote separately as a class with all the others of preferred stock,”—and “indicates that all of the classes will vote at the same time”—yet “nothing in that language even purports to pool the Class B votes with the Class C votes, or anyone else’s, in determining whether the class has consented to the amendments.” (emphasis added). The court further explained that the reference to Class B shareholders “voting separately as a class” actually strengthened “the first clause in requiring a two-thirds vote of just the Class B shares,” and in the court’s view, “that ends the inquiry.” (emphasis added). In short, the court treated the words “Series” and “Class” as being synonymous and thus viewed the Series B stock and the Series C stock as separate classes of stock.
That is where the Court of Appeals parted company with the intermediate court. In an opinion authored by Judge McDonald, the Court first examined some basic aspects of corporate finance and the fundamental principles of contract interpretation. The Court next provided a detailed discussion of the underlying facts and procedural background.
The Court eventually addressed whether the voting provision at issue is ambiguous. The Court noted that it was clear that the provision applies if there are shares of Series B outstanding and Impac plans to change the charter in a way that “materially and adversely” affects those shares or shareholders. That then led the Court to the matter 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.” Like the Court of Special Appeals, the Court saw that the dispute grew out of “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.” While the first clause requires that the Series B shareholder must approve the amendment by a two-thirds vote, thus implying that only the votes of Series B shares count, the second clause discussed “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.”
Here is where the Court found an ambiguity. “Unspecified is precisely who votes separately as a class.” (emphasis in original) (internal quotation marks omitted). Do the Series B shares constitute the “class,” or are Series C shares also part of that same class? After discussing the competing arguments advanced by the parties, the Court concluded that the provision “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.”
In reaching that conclusion, the Court of Appeals explained that while “the meaning of ‘class’ that the Court of Special Appeals ascribed to the Voting Provision was plausible”—and the Court of Appeals ultimately agreed “with the result that the intermediate appellate court reached—the provision is not unambiguous, because it is susceptible of more than one interpretation.” The Court noted that the intermediate court’s conclusion apparently rested on an assumption that the terms “series” and “class” are synonymous. Indeed, the Court of Special Appeals explained its holding by referring to the shares as “Class B” instead of “Series B.” The Court further noted that the Court of Special Appeals “did not explain why it regarded Series B as the class in this context.” The Court noted possible reasons why the Court of Special Appeals might have reached that conclusion, but also explained why those reasons would not support that conclusion. The Court acknowledged that if the terms “series” and “class” “were precisely synonymous,” it “would agree that the Voting Provision would be unambiguous.” But, as the Court explained, that is simply not the case.
The Court’s opinion shows the importance of closely examining each word in a contractual provision when ascertaining if that provision is susceptible of more than one meaning and thus ambiguous. If two words that appeared to have the same meaning were indeed precisely synonymous, the Court would have concluded that the provision was unambiguous. But because the Court could not say that the terms were precisely synonymous, the Court also could not say that the provision was unambiguous.
To fill the vacancy on the Maryland Court of Appeals, the Appellate Judicial Nominating Commission nominated these four applicants:
Honorable Sharon Veronica Burrell, Circuit Court for Montgomery County
Honorable Steven Bennett Gould, Court of Special Appeals
James Bradford McCullough, Lerch, Early & Brewer in Bethesda
Honorable Terrence Mark Ranko Zic, Court of Special Appeals
This vacancy was created by the retirement of Chief Judge Mary Ellen Barbera. Our prior post, introducing all of the applicants for this vacancy, is here.
Note: Although Brad McCullough is a member of the Maryland Appellate Blog’s editorial board, he is not participating in the Blog’s coverage of this vacancy.
In Reversing Tax Court Decision, Court of Special Appeals Demonstrates Agencies’ Power to Shape the Law
By John Grimm
Appeals of administrative agency decisions can be deceiving. While they often involve dry and highly technical matters, they also contain some of the trickiest and most interesting problems regarding courts’ powers over a coordinate branch of government’s exercise of its legal authority. The Court of Special Appeals recently proved that in the administrative law world, important concepts can arise out of seemingly minor regulatory decisions: In this case, a $2,554.37 tax assessment.
Comptroller v. Atwood, involved the proper application of Maryland Annotated Code, Tax-General § 11-208(c)(1), which makes aircraft used principally for interstate commerce exempt from a state sales and use tax. The appellee paid $34,000 for 1958 Beechcraft airplane, which he used primarily to train his son how to fly, and to travel back and forth to JFK Airport where he worked. The Comptroller assessed a $2,040.00 sales and use tax plus interest and a penalty totaling $2,554.37. The appellate disputed the tax, first before the Comptroller, and then in the Tax Court. The Comptroller affirmed the assessment, holding that the appellee’s use of the plane was not interstate commerce and did not qualify for a tax exemption.Read More…
By Michael Wein
The ancient Egyptians – the builders of the Sphinx, the Great Pyramids, and rulers of much of the “fertile crescent” for millennia — were a mystery civilization for one main reason: No one could decipher their hieroglyphic writing. That changed in the early Nineteenth Century, when Napoleon’s Army stumbled upon a marker holding Ptolemy’s Decree: the Rosetta Stone. The Rosetta Stone contained writing in three languages on the same tablet: (1) Egyptian Hieroglyphics (which no one alive for centuries understood or read), (2) Egyptian “Demotic” cursive writing, and (3) Ancient Greek, which was still used regularly by scholars. And because it was a “translation” of the same decree, it became the “key” in 1822 for understanding Hieroglyphics (mostly for working back the translation through Ancient Greek), it began a reinvigoration in interest in the Egyptian history that was once thought lost.
Legal research in our modern era, now through online databases like Westlaw and Lexis, may appear distant from the ancient Hieroglyphics (depending on the case you’re working on). But there is a lesson in the Rosetta Stone for us.Read More…
The Maryland Court of Appeals has accepted the following certified question from the U.S. District Court for the District of Maryland: “Did the Court of Appeals act within its enabling authority under, inter alia, the State Constitution and the State Declaration of Rights when its April 24, 2020 Administrative Order tolled Maryland’s statutes of limitation in response to the COVID-19 pandemic?”Read More…
On Friday, July 9, the Maryland Court of Appeals granted certiorari in three cases:
Broadway Services, Inc. v. Comptroller of Maryland – Case No. 19, September Term, 2021 (Reported COSA Opinion, by Gould, J.)
Issues – Tax-General – 1) Where tangible personal property is purchased by an intermediary contractor for the use of a non-profit charitable institution in carrying on its exempt purpose, are those purchases exempt from Maryland sales and use tax in light of John McShain, Inc. v. Comptroller, 252 Md. 68 (1953) under Md. Code § 11-204 of the Tax-General Article? 2) Were the Maryland Tax Court’s factual findings supported by substantial evidence such that the purchases in question are exempt from Maryland sales and use tax?Read More…