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