Law Debenture Trust Co. of Ny. v. Maverick Tube Corp.

• Decision Date: 19 February 2010
• Docket Number: Docket No. 08-5668-cv.
• Citation: 595 F.3d 458
• Parties: LAW DEBENTURE TRUST CO. OF NEW YORK, Plaintiff-Appellant, v. MAVERICK TUBE CORP. and Tenaris S.A., Defendants-Appellees.
• Court: U.S. Court of Appeals — Second Circuit

595 F.3d 458

LAW DEBENTURE TRUST CO. OF NEW YORK, Plaintiff-Appellant, v. MAVERICK TUBE CORP. and Tenaris S.A., Defendants-Appellees.

Docket No. 08-5668-cv.

United States Court of Appeals, Second Circuit.

Argued: November 20, 2009.

Decided: February 19, 2010.

Philip C. Korologos, New York, N.Y. (Eric Brenner, Boies, Schiller & Flexner, New York, NY, on the brief), for Plaintiff-Appellant.

Richard J. Urowsky, New York, N.Y. (Sergio J. Galvis, Stephanie G. Wheeler, Sullivan & Cromwell, New York, NY, on the brief), for Defendants-Appellees.

Before KEARSE, KATZMANN, and LIVINGSTON, Circuit Judges.

KEARSE, Circuit Judge:

The present litigation concerns the conversion rights of certain holders of convertible notes issued by defendant Maverick Tube Corp. ("Maverick" or the "Company") pursuant to an indenture agreement. Plaintiff Law Debenture Trust Co. of New York, which succeeded original plaintiff Bank of New York as the indenture trustee (collectively the "Trustee"), appeals from a judgment of the United States District Court for the Southern District of New York, Richard J. Sullivan, Judge, dismissing its claim against Maverick for breach of contract in refusing to allow the noteholders to convert their notes to cash and stock following the acquisition of Maverick by defendant Tenaris S.A. ("Tenaris"), and dismissing its claims against Tenaris for tortious interference with contract and unjust enrichment. The district court granted summary judgment in favor of defendants on the ground that the conversion rights that would have arisen upon the acquisition of Maverick by a company whose common stock is traded on a United States national securities exchange were not triggered by Maverick's acquisition by Tenaris, which has only American Depositary Shares (or "ADSs") traded on the New York Stock Exchange (or "NYSE"). On appeal, the Trustee contends principally that the district court erred in ruling as a matter of law that the trading of Tenaris ADSs is not the trading of its common stock within the meaning of the indenture. For the reasons that follow, we affirm.

I. BACKGROUND

The facts are largely undisputed. The following description is drawn principally from the parties' statements of material facts filed pursuant to the district court's Local Rule 56.1 and from the contract documents themselves—to wit, the notes and the indenture—whose language is not in dispute.

A. The Maverick Notes and Indenture; the Tenaris Acquisition

In 2003, Maverick, a United States manufacturer of tubing used in the oil and gas industry, raised capital by issuing debt securities (the "'03 Notes"). In 2004, Maverick solicited holders of the '03 Notes to exchange them for new convertible debt securities denominated "2004 4.00% Convertible Senior Subordinated Notes due 2033" (the "New Notes" or the "'04 Convertible Notes") to be issued pursuant to an indenture agreement (the "Indenture"). The New Notes provide that, "[s]ubject to the procedures set forth in the Indenture, a Holder may convert Notes into cash and, if applicable, shares of Common Stock ... after the occurrence of a Public Acquirer Change of Control." ('04 Convertible Notes ¶ 10(g).) The terms used in this provision are defined in the Indenture.

"`Common Stock' means the common stock, par value $.01 per share, of the Company" (Indenture § 1.01, at 3), the "`Company'" being defined as "Maverick" (id.). "Public Acquirer," to the extent pertinent here,

means a Person who (i) acquires the Company or all or substantially all of the Company's assets in a consolidation, merger, share exchange, sale of all or substantially all of the Company's assets or other similar transaction and (ii) has a class of common stock traded on a United States national securities exchange ....

(Id. at 10 (emphasis added).) The term "Public Acquirer Change of Control" is defined as "any Non-Stock Change of Control involving a Public Acquirer." (Id.) "Non-Stock Change of Control" is defined to include any merger, sale, or other transfer of all or substantially all of Maverick's assets in exchange for consideration "other than" common stock traded on a United States national securities exchange. (Id. at 8.) After there has been a Public Acquirer Change of Control, any right that the noteholder had to convert his notes into cash and Common Stock of Maverick becomes a right to convert the notes into cash and the acquirer's common stock referred to in the Public Acquirer definition. (See Indenture §§ 7.06(f), 1.01, at 10.)

Tenaris is a joint stock corporation organized under the laws of Luxembourg. It issues "ordinary shares," which are common stock. In 2002, Tenaris entered into an agreement with a United States bank ("Bank" or "Depositary Bank") pursuant to which Tenaris deposited a number of its ordinary shares with the Bank, and the Bank issued American Depositary Receipts ("ADRs"), with each ADR evidencing an American Depositary Share. That agreement provided that each ADS represented the right to receive a specified number of ordinary Tenaris shares and a pro rata share of any other property or securities deposited with the Bank. Tenaris ADSs are traded on the New York Stock Exchange.

In June 2006, Maverick and Tenaris announced that they had entered into a merger agreement pursuant to which Tenaris would acquire all of Maverick's common stock for $65 per share in cash. With respect to whether the anticipated merger would trigger the conversion rights of holders of the '04 Convertible Notes under the Indenture's Public Acquirer Change of Control provision ("PACC Provision"), Maverick filed a report with the Securities and Exchange Commission ("SEC") stating that Maverick did "not believe that Tenaris qualifie[d] as a Public Acquirer for such purposes because Tenaris common stock is not traded on a United States national securities exchange." Following the October 2006 consummation of the merger, some holders of the '04 Convertible Notes nonetheless tendered their notes for conversion pursuant to the PACC Provision. Although Maverick notified noteholders that they were entitled, until the close of business on December 14, 2006, to convert their notes into cash at the rate of $2,226.79 per $1,000 principal amount pursuant to a different provision, it refused to convert notes under the PACC Provision.

B. The Present Action

In December 2006, the Trustee commenced the present action on behalf of holders of the '04 Convertible Notes against Maverick and Tenaris, seeking a declaratory judgment that the acquisition constituted a Public Acquirer Change of Control, damages from Maverick for breach of the Indenture, and damages from Tenaris for tortious interference with contract and unjust enrichment. The Trustee moved for partial summary judgment with respect to its request for a declaratory judgment on its breach-of-contract claim; Maverick and Tenaris moved for, inter alia, summary judgment dismissing all of the Trustee's claims.

In a Memorandum and Order dated October 15, 2008 ("District Court Opinion"), the district court denied the Trustee's motion for partial summary judgment and granted the motion of Maverick and Tenaris for summary judgment dismissing the complaint in its entirety. With respect to the contract claim, the court noted that "[t]he parties have each moved for summary judgment on the declaratory judgment and breach of contract claims, and each contends that there are no material issues of fact. The Court agrees that there are no material disputed issues of fact...." District Court Opinion at 11.

As to the merits of the contract claim, the court found the relevant terms of the Indenture to be unambiguous and hence appropriate for interpretation as a matter of law, stating as follows:

The question before the Court is whether Tenaris is a "Public Acquirer" for purposes of the PACC Provision in the Indenture. In turn, the question of whether Tenaris is a "Public Acquirer" turns on whether Tenaris "has a class of common stock traded on a United States national securities exchange...." (Defs.' 56.1 ¶ 11.) Only if Tenaris is deemed to be a Public Acquirer is the PACC Provision triggered and the holders of the Notes entitled to the benefits of that provision. Plaintiffs argue that because Tenaris trades its stock in the form of ADSs on the NYSE, Tenaris has a class of common stock listed on a United States stock exchange and is thus a Public Acquirer. Defendants assert that Tenaris is not a Public Acquirer precisely because it is not listed on the NYSE but instead trades in the form of ADSs.

For purposes of background, the Court notes that in order for a foreign corporation to trade on the American stock exchange without listing its ordinary shares on the exchange, the foreign corporation must issue and deposit American Depositary Shares or ADSs with an American financial institution. See Kingdom 5-KR-41, Ltd. v. Star Cruises PLC, Nos. 01 Civ. 2946(DLC) et al., 2004 WL 1944457, at *1 n. 1 (S.D.N.Y. Aug. 31, 2004). The depositary institution then issues American Depositary Receipts or ADRs to the beneficial owners of the ADSs, who are then free to sell the ADSs on American securities exchanges. Id. The listing of ADSs on an American exchange "makes trading an ADR simpler and more secure for American investors than trading in the underlying security in the foreign market." In re Nat'l Australia Bank Sec. Litig., No. 03 Civ. 6537(BSJ), 2006 WL 3844465, at *1 n. 3 (S.D.N.Y. Oct. 25, 2006) (quoting Pinker v. Roche Holdings Ltd., 292 F.3d 361, 367 (3d Cir.2002)).

ADSs share several of the same characteristics as ordinary shares. For example, "ADRs are tradeable in the same manner as any other registered American security, may be listed on any of the major exchanges in the United States or traded over the counter, and are subject to the [federal securities laws.]" Id., at *1 n. 3. However, there are important differences between ADSs and ordinary shares. A holder of an ADS "is not...