Court Opinion

ID: 8910255
Source: CourtListenerOpinion
Date Created: 2022-11-27 02:40:28.565048+00
Date Added: 2024-06-11T17:08:27.977556
License: Public Domain

McKAY, Circuit Judge,
dissenting:
As is typical of most contract disputes, we are called upon to apply contract language to a circumstance not contemplated by the parties. What the parties did not contemplate was that GMC would conduct a secondary registration utilizing an S-16 registration form. The question is whether plaintiffs’ contractual right to receive notice of registrations applied to the one undertaken. The majority answers this question in the negative. I would answer affirmatively.
I believe the parties’ contract clearly indicates that plaintiffs wanted an opportunity to sell their restricted shares as soon as possible. It also indicates that the defendant was willing to provide that opportunity. To facilitate this understanding, GMC was required to notify plaintiffs of any proposed registration of its common stock, when such registration would utilize SEC forms “S — 1, S-7 or any successors to such forms.” Form S-16 was unknown to the parties at the time, but it was the one ultimately employed by GMC. Although the majority concedes that it is possible to regard form S — 16 as a “successor” form “in a sense,” it discerns sufficient reason in the contract to hold clearly erroneous the trial court’s finding that it was a successor form that would trigger the contract’s notice requirement. Regardless of whether or not the clearly erroneous test properly applies to the issue on appeal, I believe the majority’s basic conclusion is unsound.
The majority makes much of the distinction between primary and secondary offerings, determining that the contract can only be read to cover primary ones. But the parties made no express distinction of this nature. In addition, the S — 1 form, specified by the parties as one that would trigger the notice requirement, is a form used for both primary and secondary offerings. The majority finds support for its primary offering emphasis in the contract language limiting tag-along rights to 50 percent of the total number of shares included in a given registration. I do not find this analysis to be *1309convincing. It is true that the limitation was designed to protect GMC in a primary offering situation, but that limitation does not negative the requirement of notice in the event a secondary offering is utilized, as was possible under form S-l. To glean from the 50 percent limitation the notion that notice of secondary offerings was not required is to discern an intent the parties did not have. It distorts the apparent purpose of their agreement.
I agree with the majority that the post-agreement conduct of GMC is of little utility in a search for intent. The majority nonetheless tries to find some comfort in that conduct. I do not believe it can. If any lesson emerges from GMC’s post-agreement conduct, it is that once GMC became aware of form S-16, it began to refer expressly to it in contracts with stockholders like the plaintiffs. Other stockholders were given demand rights and rights of participation in connection with S-16 registrations. The only real distinction that can be made between the plaintiffs and these other stockholders is that the contracts of the latter were entered into after GMC became aware of form S-16. A conclusion as reasonable as any other is that it was always intended that forms such as S-16 would trigger the notice requirement; this was simply made explicit once GMC learned of the form’s existence. As the majority acknowledges:
Had form S-16 been known and available for use by GMC stockholders at the time of the execution of the agreement, GMC might well have extended the right to use it, and to demand registration, to the Jennings.
While I do not read the parties’ agreement as sufficient to permit the plaintiffs to demand a form S-16 registration, I believe it is reasonable to read the agreement as requiring notice to be given upon utilization of form “S-l, S-7, or any successors to such forms,” including form S-16.