*2 BACKGROUND MESKILL, Before KEARSE and Limited, MINER, Judges. corporation a Delaware Circuit Ohio, principal place with its of business in MINER, Judge: in engaged purchase, distribution and appeal summary judg- This is an from a sale apparel. Proposing of women’s to is- convertible, entered in United States District sue subordinated debentures to for the the expansion Court Southern District of New finance of distribution facili- J.) (Haight, ties, plaintiff-appel- Registration York in favor of a it filed Statement under lee, (“Jamie”), Jamie Securities Co. on Securities Act of 1933 the Securi- (“SEC”) of the liability defendant-appellant, Exchange ties and Commission on Limited, (“The Limited”), Inc. inter- 1985. Also were the filed forms est debentures converted to common Indenture and Debenture be em- stock. Jamie that it ployed claims is entitled instruments for accrued in accordance with the After an amendment to the issue. terms of the Registration July Debenture and of the Inden- filed on Statement was ture entered into between Jamie and the the SEC declared Statement ef- holders, Trustee for the debenture because fective as amended. In accordance with the conversion approved registration, occurred between the inter- The Limited on est record date and the in July prin- 1985 issued debentures million, cipal bearing had elected to convert its Se- $125 following per curities for redemption July call est at annum due on Tk% a redemption falling fixed within Limited, same interval of time. The issuer According to the terms Securities, govern- contends that the payments to be made were semi- provision instruments make annually, days January on the first payment of interest in accrued the event of July year, each the first interest after for redemption. a call being January ment date isAs Relying gov- large, widely-distributed various common securi- erning instruments, issues, including the Inden- ties established to provision for cancellation of surren- simplify obligated duties of the Trustee dered payments. debentures event of conver- make this sion, case, declaring the Debenture specified holders cancellation of the Securities after the in- year of record December 15 each on a converted January payments, and made for accrued interest receive the Security.” 12.11 of the Indenture Section 15 would receive of record on June
holders “The laws of the of Ohio provides: State payments. govern and the Securi- shall this Indenture *3 right any at Limited reserved The ties.” redeem, specific redemption at time to 12, 1986, year than one On June less accrued to the of date prices plus Securities, The Limit- after issuance of the any part or all of the Securities redemption, redemption gave by notice mail for the ed provid- governing instruments issued. The outstanding of all debentures on June redemption of notice ed that “[o]nce redemp- provided The notice for a redemption for mailed, called be- Securities $1,075 price plus tion of accrued interest redemption payable and come due $37.29, redemption the date of for a total redemption price,” date at $1,112.29 $1,000 per principal in amount redemption 3.04, after the and and “[o]n The notice also advised de- of debentures. on interest ceases to accrue Securities date right holders of their to convert benture redemption,” called for portions or of them The their debentures into common stock of ¶ 8. Limited, through the close of on business were afforded Holders of the Securities 27, 1986, price June at a conversion converting privilege the Securities to per By share. June $20.916667 any at time to the common stock approximate- price market of the stock was or, expiration in the event of a share, ly per allowing elect- $33 those who call, any prior to the at time $1,601.59 ed to convert to receive worth of day preceding close of business $1,000 principal in stock for each amount of initial redemption date. The apparent, As is debentures. price specified in the sub- large outlays would save The Limited the ject adjustment provided in the Inden- required pro- for of cash while in of the De- ture. Included viding a substantial benefit to those elect- Conversion, benture, entitled was the fol- ing unexpectedly, take the stock. Not lowing: preferred virtually all debenture holders To determine the number of shares issua- redemption. Among those Security, upon conversion of a divide ble Jamie, company holders was then en- principal amount to be gaged arbitrage trading in securities price in the conversion effect on the con- for its own account. Between June 23 and payment conversion no version On 27, 1986, June Jamie converted to common adjustment or for interest will be made. having stock debentures value any will deliver a check for $25,715,000. [Limited] fractional share. Securities surrendered pay The refusal of Limited to period for conversion from est on the debentures converted Jamie any the close of business gives In rise to this lawsuit. its class ac- payment open- of interest to the 2, 1986, complaint, tion filed on Jamie such interest business on alleges persisted Limited “has date (except shall in the case of Securi- notwithstanding its refusal to portions ties or thereof which have been right the contractual to such interest which called for on a date which expressly provided [paragraphs] 2 and period) accompa- occurs within such be 9 of the Debenture and Section 2.11 of the by payment nied ... of relief, prayer In Indenture.” equal to payable on such damages therefore claims “which shall be amount of amount of interest the dollar due Deben- being the Securities surrendered.... formerly tures held Plaintiff and each Tracking one of member, period January other class (b) graph subdivision of Section 10.02 of through including redemp- (Conversion Procedure) the Indenture together de- tion adjustment unpaid clares: “No will be terest on such amounts.” adjustment Following discovery proceedings, both vides judgment. By summary upon conversion; moved for will parties be made it certification, consent, clause, of class also includes the so-called “wash” pending res- was deferred Fed.R.Civ.P. added counsel when the final drafts of on the issue of olution of the cross-motions being pre- instruments were Opinion liability. its Memorandum pared printing house. The “wash” February granting Order dated requires that Securities surrendered Jamie, summary judgment to the District for conversion record date and that such rules of con- Court determined accompanied by date be funds *4 “plain “intent the meaning,” struction of representing payment interest due ” parties,” and were 'proferentem “contra date, except in of the case Securities called interpreting of usefulness in the limited redemption during that interval. Ac- governing instruments in this case. 682 cording Court, to the District the “wash” at 749. the F.Supp. District applicable the case at “approach[ed] problem by ana- Court the bar, negate does not Jamie’s entitlement to lyzing particular language used in interest. The Court that noted Section 10.- instruments, particular viewed in the these of the MSI served as a model for Section light ‘legislative history’ such as it of 10.02 Indenture here and a Note to appropriate The seems to consider.” Id. that, MSI section that indicates even with- “legislative history” to the court re- which clause, a out “wash” no interest need be comprised ferred is of the Notes or Com- by Security returned a holder converting Simplified mentaries the Model Inden- during the record date inter- (“MSI”), a form prepared ture of Indenture See id. val. by Corporation, Banking of the Section Rejected by the District Court was The Law of Bar Business the American Associ- Limited’s contention that the de- part relied by ation and for the most nying liability for interest the drafters of the Indenture ease at meaningless by be rendered would Jamie’s bar. id. at See 750-51. instru- District The Court first that “observ[ed] provi- ments. The Court considered those of concept ‘cancellation’ the debentures is a that in only ” sions the mathe- “mean[] ‘conversion,’ according which includes conversion, is, process matical of that divid- Indenture, 2.11 of Section and that ing amount to be converted interest must be to those who held price, effective conversion accrued in- despite debentures can- terest is to be excluded.” Id. This view cellation after that date and before the presumably bolstered fact that date, payment according paragraph 2 no-payment sentence 9 is the Debenture. Id. at 749. Court preceded immediately by the sentence: “To “[tjhese provisions, concluded that stand- determine the shares number issuable alone, appear support plain- Security, upon conversion of a divide the position, tiff’s since its debentures were converted to be (by conversion) ‘cancelled’ the vehicle ” price.... (June 15) after the record date and before 1).” payment (July Id. By order dated June the Dis- found support Court for that conclu- summary judgment Court trict certified its Security sion in Form of 3 to Note the MSI. interlocutory appeal, see 28 U.S.C. id. at 751. See 1292(b), declaring summary a Recognizing controlling decision involved heavy The Limited’s re- question of which specific provisions liance on the law as to there is a graph ground opin- the Debenture and Section substantial for difference of 10 of appeal denying payment of in- ion that immediate materi- conversion, ally terest on Court advance District un- the ultimate termination of analysis litigation. dertook detailed controlling question Deben- provision. Paragraph not only pro- following: law said to be the governing instru- think that the intent of the drafters can be under
Whether convert- gleaned an issuer of subordinated from four corners of the ments pay interest must ible debentures The intent demonstrated struments. their debentures
holders who
employed
language
is to bar the
record date and the
an interest
ment of interest on debentures converted
in re-
subsequent
after The Limited’s
call. Our
redemption call
sponse
the issuer’s
begins
pro-
examination
with the terms and
falling within that “window of time”....
appear
visions that
to bar the
appeal by
accepted
conversion,
order
regardless
This Court
interest after
entered
the time of conversion: “No
adjustment will be made for accrued inter-
DISCUSSION
Security,”
est on a converted
rule in this
is well-established
10.02(b),
and “On
“[¡Interpretation
of [Indenture
made,”
adjustment
for interest will be
matter of
contract
is a
basic
language ordinarily
Such
Corp. v.
law.” Sharon Steel
Chase Man
*5
converting
means that
debenture holders
Bank,
N.A.,
1039, 1049
(2d
hattan
691 F.2d
any money payment
“will not receive
denied,
Cir.1982),
1012,
cert.
460 U.S.
103
any
credit or
consideration other than the
1253,
(1983).
Since debenture the Debenture terms holders who convert and the In- denture their are clear Securities after the record date and unambig- uous when examined as a See before the Restatement we find no 236(c) (1932) (“Where need to resort to extrinsic of Contracts evidence to aid there § our By here. is an according inconsistency general provi- words of the specific provisions, specific instruments their sions and plain, ordinary meanings, and usual we ordinarily qualify meaning provisions”); Re- amount to be converted the effective general see also (Second) 203(c) price, of Contracts statement accrued interest is to be (1981). follow, how- the reasons For 682 F.Supp. excluded.” at 751. Since ever, payments on Securities con- terest was excluded in the mathematical verted the record to, process referred both and the interval not be made a notice to need District Court concluded there was full here, given, redeem is it was compliance with the interest bar clause. record date. Apparently lending support to the fore- that, going interpretation that fact The notice of of the entire case, 1986, paragraph 9 of the issue in this on June the clause in mailed extinguish served to all record preceded by the formula for dates and interest after determining dates the number of shares issuable since “Securities called for re- (“divide upon the principal demption payable become due and amount to be redemption price,” date at the note, however, price”). We that the no-in- 3.04, only and the terest-payment able after the call is “accrued interest to appear does not in a similar context. ¶ date,” 5(a). the redemption event, provi- dowe not consider the Agent obliged The Paying ac- denying sions interest in the event of con- call, crued after the version as a caution mathe- those who surrendered their Securities for matical determination of the number of (“Securities *6 redemption redemp- called for us, shares be issued. To the words “no tion Paying must be surrendered to the payment” in both the Indenture and Deben- 3.03(b)(7), Agent,” Indenture for § clearly establish that no is to interest price ment of “the of and ac- paid be on a It converted debenture. crued all to be re- Securities significant, moreover, that the formula for deemed,” 3.05), and not specific provision includes a merely those who continued to hold the of accrued while the through called debentures formula for stock issuance on conversion record date. There was provision. includes no interest The bar to' either the Indenture or the Debenture al- on a “converted lowing Jamie to recover accrued interest security,” (emphasis 10.02 add- upon conversion after the notice to redeem ed), unambiguously Security- denies the was The obligation served. right holder the to collect interest once on the surrendered debentures been had only excep- conversion has occurred. The redemption call, eliminated and the tion, qualifying language under the re- plain language instru- above, involving ferred to is the situation specifically provided ments that no interest conversion between the record date and the paid would be conversion under those payment date without a call for re- circumstances, Tandy see v. United Corf. demption. States, (5th Cir.1980). 626 F.2d requirement that interest be There remains for discussion the “wash” record date holders of Securities surren- clause and its found at conversion, dered for cancellation on graph 9 of the Debenture. clause fastens, which simply applica- Jamie has no added at an meeting eleventh hour held at tion in face of a call for printer’s office for the finalization pre-dated, nullify, and served to offering. documents to the record date. meeting attorney rep- was attended an resenting interpret attorney rep- would have us bar The Limited and an conversion, underwriter, interest payment resenting Fréres Lazard Court, Co., words of the District & several others. The attor- “mean[] only that in the process neys mathematical decided to add the clause in conversion, is, dividing “to make certain that interest not be KEARSE, dissenting: Judge, oc- even
paid on conversion date and before a record curred after view, my respectfully I dissent. The lan- payment date.” following interest provisions, read and indenture debenture from some taken apparently was guage ambigu- are inconsistent as a attorneys, possession forms Though majority well be ous. MSI, model but not from matter of in its as a correct being used. fact, inappropriate regard I the matter as summary judgment. by a com- is drafted As with much that judgment entered I would vacate the while “clarifying the purpose mittee ' plain- district court in favor of the by the hour, the “wash” at the eleventh situation” tiff, I would remand for trial. it problems than creates more clause provides that interest due on solves. to The must be reimbursed
payment date of securities upon the surrender
Limited date-pay- during the record
for conversion it seems to con- date interval. Thus payment of provisions for
flict with the Securityholders who convert during the record non-redemption situation America, STATES of UNITED interval. The “wash” date-payment date Plaintiff-Appellant, away given appears to take what we choose to provisions, those but Beers, PIKNA, L. Ruth plain reading— Richard Louis H. with a square the matter Ahrensfeldt, Depart- New York State paid to record date the interest must be Finance, The ment of Taxation and holders, it must be returned on a but also Lamb, Fund, LeBoeuf, Security Client occurring during the interval. MacRae, Leiby and The & Commission- apparent A of that conflict is not resolution *7 York, New er of Labor of the State of purposes, necessary for our however. Defendants-Appellees. exception includes an “wash” Securityholders who convert that relieves 1267, Docket 89-6046. No. the record date Appeals, United States Court obligation to reimburse inter- val from Second Circuit. a call for est when there is fixing redemption falling within the Argued June least, same interval. That Decided with the elimination of all inter- consistent record and dates virtue of est consequent call and the ex- liability
oneration of The Limited from than accrued interest
any interest other upon redemption. In
due See Kardolrac Laboratories, Inc., Corp. Wang
dustries Ill.App.3d 90 Ill.Dec. (1985).
N.E.2d
CONCLUSION of the District Court is
reversed, and the matter is remanded for entry judgment dismissing the com-
plaint.