Impac Mortg. Holdings, Inc. v. Timm

• Decision Date: 01 April 2020
• Docket Number: No. 2119, September Term, 2018,2119, September Term, 2018
• Citation: 245 Md.App. 84,226 A.3d 323
• Parties: IMPAC MORTGAGE HOLDINGS, INC. v. Curtis J. TIMM, et al.
• Court: Court of Special Appeals of Maryland

245 Md.App. 84

226 A.3d 323

IMPAC MORTGAGE HOLDINGS, INC.

v.Curtis J. TIMM, et al.

No. 2119, September Term, 2018

Court of Special Appeals of Maryland.

April 1, 2020

Argued by: G. Stewart Webb, Jr. (Mitchell Y. Mirviss, Venable, LLP, Baltimore, MD, Pamela S. Palmer, Pepper Hamilton, LLP, Los Angeles, CA, on the brief, for Appellant.

Argued by: Curtis J. Timm, Sarasota, FL, on the brief & Daniel S. Katz, (John B. Isbister, Tydings & Rosenberg, LLP, Baltimore, MD, for Appellee.

Panel: Nazarian, Reed, Robert A. Zarnoch (Senior Judge, Specially Assigned), JJ.^*

Nazarian, J. Circuit court did not abuse its discretion in denying plaintiffs' attempt to add a new count to complaint based on absence of evidence of shareholder consents. The plaintiffs had not alleged facts to support that theory of liability initially and plaintiffs' attempt to obtain discovery on that theory was based on speculation.

Let's not be overconfident, we still have to count the votes.¹

This complex litigation turns on the meaning of one complex sentence. That sentence defines the voting rights of two classes of preferred shareholders of Impac Mortgage Holdings, Inc. ("Impac"), a publicly traded real estate investment trust incorporated under the laws of Maryland and headquartered in Irvine, California. In 2004, Impac amended its charter with Articles Supplementary (the "Articles") that created "Series B" and "Series C" classes of preferred stock. Impac sold the shares for $25 per share in two public offerings that raised $161.7 million.

In 2009, after the real estate market tanked and the company hit hard times, Impac sought to buy back the Series B shares for approximately $0.29 per share and the Series C shares at approximately $0.28 per share. As a condition of buying back the stock, Impac also asked shareholders to agree to amend the Articles to, among other things, strip them of their right to collect dividends.

The vote was held (although some dispute this) and just over two-thirds of the Series B and Series C stockholders, collectively, tendered their stock. But the two-thirds threshold wasn't met for each class on its own—just under two-thirds of the Class B shareholders tendered their shares. The question, then, is whether the amendments were approved. Impac says they were, and it filed them with the United States Securities and Exchange Commission. But about two years later, Curtis Timm, a Series B and Series C preferred shareholder, says that the thresholds weren't met because Impac needed two-thirds of the shares in each class measured separately.

Mr. Timm filed a six-count class action complaint (the "Complaint") against Impac and individual members of its board of directors in the Circuit Court for Baltimore City. Three years later, Camac Fund LP ("Camac"), also a Series B and Series C preferred shareholder, intervened as a plaintiff. Over the course of several years and numerous sets of motions, the circuit court granted partial summary judgment in Mr. Timm's and Camac's favor on certain counts and in Impac's favor on others. In the course of reaching its decisions, the circuit court found the voting rights language ambiguous and, based on the available extrinsic evidence, found that two-thirds of the shares from each separate class had to tender their shares for the buyback and amendments to be approved. In July 2018, the court declared that the 2009 amendments to the Series B Articles were not valid, and that the 2004 Series B Articles remained in full force and effect. Among other things, it ordered injunctive relief requiring Impac to hold a special election for the Series B shareholders to elect two new directors under a provision in the 2004 Articles. The court rejected Mr. Timm and Camac's challenges to the validity of the Series C Articles amendments. Finally, it issued an order stating that it certified the decisions it had made to that point for immediate appeal under Rule 2-602(b). Impac appealed, Mr. Timm cross-appealed, and all of the parties agree with the circuit court that the voting rights provision is ambiguous. We find it unambiguous, hold that the unambiguous meaning leads to the same result, and affirm the judgment in all other respects.

I. BACKGROUND

To understand the issues in this case, we must first place them in context, which in turn requires us to walk through a lengthy procedural history.

A. The Claims

Mr. Timm filed the initial class action Complaint on December 7, 2011. On March 5, 2014, Camac filed its own intervenor complaint. The complaints are almost identical except that Camac's omits Mr. Timm's claim for relief in the form of punitive damages (Mr. Timm's Count V).

In Count I, Mr. Timm and Camac alleged that Impac breached the Series B Articles by amending them without the consent of two-thirds of Series B shareholders. They asserted that the voting rights provision in the Articles required a two-thirds vote of each class counted separately. That voting rights provision, section 6(d) of the Series B Articles,² is the complex sentence that lies at the heart of this case:

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 ....

Impac never disputed that fewer than two-thirds of the Series B shareholders gave their consent to the amendments. It argued, however, that the voting rights provision is ambiguous and, in context, means that the Articles may be amended if two-thirds of the Series B and Series C shareholders, tallied together, tender their shares.

Count II also alleged a breach of the Articles, but a different breach. That count alleged that the Series B and Series C Articles hadn't been amended because the language and terms of the 2009 offering documents made the transaction impossible—it required Impac to purchase the shares before the shareholders' consents occurred or became effective. Count II went on to assert that because Maryland Code, § 2-509(b) of the Corporations and Associations Article prohibits corporations from voting shares of their own stock, there could have been no valid shareholder consent to the proposed amendments. This theory seems to posit that any consent by a preferred shareholder would not have been effective because it would have occurred when the shareholder no longer owned the stock, and any consent to amend by Impac would not have been valid because Impac was prohibited from voting its own shares.

Count III was titled "Breach of Fiduciary Duty/Violation of Good Faith and Fair Dealing" and contained several theories of liability, all grounded in the assertion that it was improper for Impac and the individual defendants to propose the Series B and Series C repurchase as they did—i.e. , as an offer to repurchase the stock at $0.28 and $0.29 per share, and on the condition that the shareholders agreed to amendments to the Articles that were against the shareholders' interests. The Complaint alleged at least four theories of impropriety:

• it characterized the 2009 tender offer and consent solicitation as a breach of contract for violation of the covenant of good faith and fair dealing;

• it characterized the 2009 tender offer and consent solicitation as an "illegal ‘vote buying’ scheme";

• it asserted that the individual board member defendants who were owners of Impac common stock had engaged in self-dealing; and

• it alleged that Impac and the individual defendants wrongfully coerced the shareholders into selling their stock and consenting to the amendments by "threat[ening]" them that if they did not do so, their stock would become worthless.

Count IV, Mr. Timm's Count V, and Mr. Timm's Count VI (Camac's Count V) do not allege separate causes of action, but instead seek remedies in the event the 2009 amendments to the Series B and/or Series C Articles are found invalid under any of the theories alleged in Counts I, II, or III. Count IV alleged that Impac breached section 3(d) of the Articles by purchasing Series B and Series C stock without paying the dividends owed for at least two quarters in 2009 before repurchasing it.³ Count IV seeks an order requiring Impac to pay the dividends owed.

Count V of Mr. Timm's Complaint asserted that Impac and the individual defendants acted with "malice" and seeks punitive damages.

Count VI (Count V in Camac's complaint) seeks injunctive relief enforcing Section 6(b) of the 2004 Series B and Series C Articles, which provides that if Impac fails to pay six or more quarterly dividends, a preferred shareholder may "immediately call for a special meeting to elect two directors to Impac's Board" with the consent of 20% of the Series B and Series C shareholders.⁴

B. January 2013: The Circuit Court Grants Partial Summary Judgment In Favor Of Impac And The Individual Defendants.

Impac filed a motion to dismiss Mr. Timm's Complaint on February 27, 2012. The circuit court held a hearing on June 28, 2012, and on January 29, 2013, entered a forty-page memorandum opinion and order deciding several of the claims in favor of Impac and the individual defendants. Because the parties relied on evidence outside of the Complaint, the circuit court treated the motion as a motion for summary judgment and granted judgment in favor of the individual defendants on all counts. As to Count I, the court denied Impac's motion to dismiss, and specifically held that the voting rights language in the Articles was ambiguous because it could mean either that the consent of two-thirds of Series B shareholders was required to amend the respective Articles Supplementary or that the...