Opinion ID: 1312305
Heading Depth: 2
Heading Rank: 2

Heading: The Provisions of the Maverick Indenture

Text: Within the above legal framework, we see no error in the district court's determinations that the PACC Provision of the Indenture is unambiguous, and that, although the Tenaris ordinary shares are, undisputedly, the same as common stock, Tenaris was not a Public Acquirer within the meaning of the Indenture because the Tenaris securities that are traded on the New York Stock Exchange are not the Tenaris ordinary shares. Preliminarily, we note that the Trustee's assertion that the District Court Found [] That Tenaris Has `a Class of Common Stock Traded on a United States National Securities Exchange' (Trustee's brief on appeal at 23) is squarely contradicted by the district court's opinion itself. Although the quoted language appears in passages of the court's opinion that describe the Public Acquirer definition or the Trustee's contention, the Trustee provides no citation for its assertion that the court so [f]ound. Indeed, the court's ruling stated quite plainly that  the Court finds that Tenaris does not have a class of common stock traded on a United States national securities exchange, and is thus not a Public Acquirer for purposes of the Indenture, District Court Opinion at 13 (emphasis added). Our de novo review of the record persuades us that the district court correctly determined that the phrase common stock traded on a United States national securities exchange in the Indenture's Public Acquirer definition, when read in the context of the Indenture as a whole, unambiguously does not include American Depositary Shares traded on such an exchange. The Indenture's sole definition of common stock does not mention ADSs. It states only that `Common Stock' means the common stock, par value $.01 per share, of the Company [defined as Maverick] (Indenture § 1.01, at 3). The Indenture does not provide a definition of common stock in general. The Indenture does, however, contain direct and indirect references to American Depositary Shares in other provisions. The most pertinent provisions are those dealing with Fundamental Change[s] prior to June 15, 2011, that would entitle a noteholder to require Maverick to purchase his notes for cash (see id. § 4.01). A Fundamental Change is defined to include consummation of any ... merger of the Company pursuant to which [its] Common Stock will be converted into cash, securities or other property ( id. § 1.01, at 5), but to exclude a merger in which at least 90% of the consideration ... consists of shares of Capital Stock traded on a national securities exchange ( id. at 6 (emphasis added)). The Indenture's definition of Capital Stock expressly includes ADSs, and indeed refers to ADSs and ordinary shares in the disjunctive:  Capital Stock of any Person means any and all shares (including ordinary shares or American depositary shares ), interests, participations or other equivalents however designated of corporate stock or other equity participations ... of such Person.... ( Id. at 2 (emphases added).) The parties could easily have included in the Indenture a definition of common stock in general with a parenthetical phrase expressly including ADSs, such as the parenthetical in the definition of Capital Stock; or they could have included such a parenthetical after common stock in the a class of common stock traded on a United States national securities exchange clause of the Public Acquirer definition. They did neither. Given that the parties defined more than 100 terms in the Indenture and made explicit reference to ADSs in the Capital Stock definition that informs the rights of noteholders to require Maverick to purchase their notes, the Indenture as a whole does not suggest that the undefined term common stock, in the Public Acquirer definition that informs noteholders' conversion rights, includes ADSs implicitly. The Trustee argues that the undefined and unadorned phrase common stock traded on a United States national securities exchange in the Public Acquirer definition should be deemed to include American Depositary Shares that trade on such an exchange because, as a matter of custom and usage, the trading of ADSs is a form of trading common stock. But the evidence proffered by the Trustee falls well short of showing any uniform and unvarying, general and not personal custom so well established that the parties must be presumed to have meant the term common stock in the Public Acquirer definition to include ADSs. Although the Trustee, quoting SEC, American Depositary Receipts, Securities Act Release No. 6894, Exchange Act Release No. 29226, 56 Fed.Reg. 24420 (May 30, 1991) (SEC Release)which uses the term ADR to refer to either the physical certificate or the security evidenced by such certificate, id. at 22421 n. 5states that [t]he SEC considers ADRs to be `the most common form in which foreign securities trade in the United States' (Trustee's brief on appeal at 13), the SEC Release itself does not support the proposition that a contractual reference to common stock must be presumed to encompass a reference to ADSs. The SEC Release states, inter alia, that a foreign security is owned through the ownership of an ADS, SEC Release at 24428, and that an ADS is the security that represents an ownership interest in deposited securities, id. at 24421 n. 5; but [f]or purposes of the Securities Act, ADRs and deposited securities are considered separate securities, id. at 24426, and in order for ADRs to be publicly traded, both the ADRs and the deposited securities must be registered, id. Indeed, the SEC notes that listed ADRs are not the securities of the foreign issuer but rather of the legal entity created by the depositary, id. at 24431 (emphasis added). For example, the owner of an ADS may not have the same voting rights as an owner of shares of the issuer, for, absent an agreement between the depositary and the issuer imposing a notification duty, see id. at 24422-23, [t]he depositary is not obligated to notify ADR holders about any meeting of holders of the deposited securities or to distribute to ADR holders the proxy information, annual reports or other materials it receives from the issuer of the deposited securities, id. at 24429. Similarly, [d]epositaries generally have complete discretion, when they receive non-cash distributions from the issuer, not to pass the distribution immediately to the ADS holders but instead to retain for the benefit of ADR holders the securities or property received. Id. Thus, ADSs may represent more than merely an interest in the issuer's underlying securities. Indeed, although the Trustee contends that market participants have a uniform understanding that ADSs are nothing more than a `form' through which a foreign issuer's shares trade on the New York Stock Exchange (Trustee's brief on appeal at 17), the SEC notes that, in light of the fact that some depositaries are established through agreement with the issuer of the deposited securities ( i.e., are sponsored) and some are established independently of the issuer ( i.e., are unsponsored), it is possible that even with respect to a particular underlying security, the ADSs themselves might not be fungible. See SEC Release at 24431 (In light of the sharp disagreement among ADR market participants, comment is requested regarding whether a sponsored facility and an unsponsored facility for the same deposited security would inherently result in non-fungible securities ....). Further the price at which an ADS is traded is not simply a function of the value of the foreign issuer's underlying security. The ADR trading price is also a function of, inter alia, foreign currency exchange rates, the risks of fluctuation in those rates, the administrative costs of establishing, maintaining, and operating the depositary, and inefficient market dissemination of news about the issuer of the deposited securities. SEC Release at 24424. Thus, an ADS may sell at a premium to the deposited security or at a discount to the deposited security. Id. In sum, the SEC's descriptions of ADSs reveal that ADSs are not merely common stock in a different form. The Trustee also cites what it refers to as the SEC's own clear recognition that `Tenaris's stock trades on the New York Stock Exchange'  (Trustee's brief on appeal at 18 (emphasis in brief)); but what is quoted is a complaint filed by the SEC in a lawsuit alleging that various individual investors engaged in insider trading. Industry custom and usage is not necessarily shown by a litigation position taken by a government agency for regulatory and law enforcement purposes in general, or by the SEC's position that ADSs are securities within the scope of statutory prohibitions against insider trading. And an allegation by a regulatory agency in a lawsuit does not establish what the parties meant by a particular term in their unrelated, previously negotiated contract. The Trustee further attempts to show that custom and usage supports its interpretation of common stock as including ADSs by stating that [i]n its SEC filings, Tenaris has repeatedly acknowledged that its ordinary shares (which, as noted above, Tenaris also admits are a class of common stock, (A-1234 at ¶ 27)) are traded on the NYSE. (A-1335 (2003 Form 20-F); A-1516 (2004 Form 20-F); A-614 (2005 Form 20-F).) Tenaris accordingly acknowledges that the NYSE quotes for its ADSs reflect quoted prices for the Company's shares.  ( Id. (emphasis added).) (Trustee's brief on appeal at 13.) We have several difficulties with the suggestion that Tenaris's filings constitute proof that references to common stock in the Indenture encompassed ADSs as a matter of custom and usage so far known to the parties, that it must be supposed that their contract was made in reference to it, Belasco Theatre Corp. v. Jelin Productions, 270 A.D. at 206, 59 N.Y.S.2d at 46 (internal quotation marks omitted). First, Tenariswhich agreed to acquire Maverick in 2006was not a party to the Indenture agreement, and any suggestion that Maverick, the Trustee, or the noteholders had Tenaris or its filings in mind when the Indenture contract was entered into in 2004 is unsupported and seems fanciful. Second, so-called admissions by a company in its SEC filings as to the trading and market prices of its own securities are hardly general and not personal, id. Such individual statements cannot be deemed to establish an industry custom that other persons must be presumed to adopt in their contracts. Further, even if an individual company's SEC filings could establish custom and usage, the sentence fragments quoted by the Trustee from the above filings of Tenaris do not establish that the Tenaris ordinary shares themselves are traded on a United States exchange or even that Tenaris so regarded them. Rather, the first page of each of the cited Tenaris reports states that [o]rdinary shares of Tenaris S.A. are not listed for trading but only in connection with the registration of American Depositary Shares which are evidenced by American Depositary Receipts. (Tenaris 2003, 2004, and 2005 SEC Form 20-F reports, first page n. (emphasis added).) Finally, although the Trustee also argues that common stock in the PACC Provision should be interpreted to include ADSs because the contrary interpretation is commercially unreasonable, as there was never any intention to exclude foreign issuers as `Public Acquirers' (Trustee's brief on appeal at 24; see also id. at 18, 35), this argument poses a false dichotomy between foreign and domestic companies. Foreign companies may trade their shares on a United States national stock exchange directly rather than through ADSs, and hundreds do. See, e.g., SEC Release at 24422 & n. 15. Indeed, the Trustee concedes that the Public Acquirer change of control provision includes those foreign issuers whose ordinary shares are directly traded on [a] United States exchange (Trustee's brief on appeal at 37). Given that concession, the Trustee urges us to conclude that the parties to the Indenture did not intend [ ] to distinguish between different categories of foreign issuers for the purposes of the Public Acquirer definition depending solely on the decision an issuer made about whether to list its common stock or to list ADSs, arguing that such a distinction would have served no possible commercial purpose (Trustee's Brief on Appeal at 38). Any suggestion that the Indenture should be read to accomplish what the Trustee views as commercial[ly] reasonable ( id. at 18) essentially asks us to rewrite the Indenture's Public Acquirer definition. Instead, we are required to give effect to the intentions expressed in the agreement's own language. Given the pains taken by the parties to have the Indenture set out detailed definitions of numerous terms and to have its definition of Capital Stock make explicit reference to ADSsa reference we are not entitled to regard as superfluouswe conclude that the district court properly declined to read ADSs into the undefined term common stock, as used in the clause common stock traded on a United States national securities exchange without elaboration. In sum, the district court did not err in dismissing the Trustee's contract claims. And as the Trustee's challenge to the dismissal of its contract claims fails, so does its challenge to the dismissal of its claim for tortious interference with contract.