Court Opinion

ID: 9729417
Source: CourtListenerOpinion
Date Created: 2023-08-26 14:34:25.783174+00
Date Added: 2024-06-11T18:25:57.750663
License: Public Domain

Dissenting Opinion by BELL, C.J.
The petitioner, Tomran, Inc., and Allied Irish Bank, pic (AIB), one of the respondents, entered into a Deposit Agreement, a contract pursuant to which the petitioner acquired, and deposited, pursuant to that agreement, 4800 AIB American Depositary Receipts (ADR’s), the equivalent of 9600 ordinary shares of AIB stock, with the Bank of New York. An ADR is:
“... a receipt that is issued by a depositary bank that represents a specified amount of a foreign security that has been deposited with a foreign branch or agent of the depositary, known as the custodian. The holder of an ADR is not the title owner of the underlying shares; the title owner of the underlying shares is either the depositary, the custodian, or their agent. 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 Securities Act and the Exchange Act. This makes trading an ADR *23simpler and more secure for American investors than trading in the underlying security in the foreign market.
“ADRs may be either sponsored or unsponsored. An unsponsored ADR is established with little or no involvement of the issuer of the underlying security. A sponsored ADR, in contrast, is established with the active participation of the issuer of the underlying security. An issuer who sponsors an ADR enters into an agreement with the depositary bank and the ADR owners. The agreement establishes the terms of the ADRs and the rights and obligations of the parties, such as ADR holders’ voting rights.”
Pinker v. Roche Holdings Ltd., 292 F.3d 361, 367 (3rd Cir.2002).
The ADR program was a “sponsored” one, developed with the active participation of AIB, the issuer of the underlying shares. Indeed, the Deposit Agreement was between AIB, the Bank of New York and “all Owners and holders from time to time of American Depositary Receipts issues hereunder.” As indicated, the petitioner contracted with AIB and, pursuant to that agreement, deposited its ADR’s. The deposit was with The Bank of New York, in which the legal title to the petitioner’s ADR’s was placed, as trustee, and the Bank of New York held them in that capacity. Those ADR’s, along with those of other holders of ADR’s, beneficial owners of AIB stock, similarly titled, the petitioner alleged, were offered through the Bank of New York “to obtain a listing on the New York Stock Exchange and to facilitate broad ownership of its shares by U.S. citizens such as Tomran.” The Deposit Agreement contained the parties’ understanding of their rights and obligations under it, as well as the terms of the ADR’s. One of the provisions reflects the parties’ agreement as to the law that applies in the interpretation of the agreement and the ADR’s and, as well, that governs their rights under the ADR’s and the agreement. That provision, § 7.6, a choice-of-law provision, provides:
“Governing Law. This Deposit Agreement and the Receipts shall be interpreted and all rights hereunder and thereun*24der and provisions hereof and thereof shall be governed by the laws of the state of New York.”
The majority concludes that “[t]he issue of whether Tomran has a cause of action to sue derivatively on behalf of AIB is not governed by the Deposit Agreement or the ADR Receipts and thus, the choice of law clause does not apply.” 391 Md. 1, 10, 891 A.2d 336, 342. This is, in its view, “[bjecause neither the Deposit Agreement nor the Receipts by their terms provide Tomran with the right to sue derivatively.” Id. at 17, 891 A.2d at 346. The premise for this conclusion is the majority’s perception that the petitioner’s argument is that the choice of law provision applied to “all rights,” without regard to the Deposit Agreement and ADR’s. Id. at 15, 891 A.2d at 345. Thus, focusing its interpretive efforts on “hereunder and thereunder,” it determines that the phrase “limits the scope of the choice of law provision to the rights enumerated explicitly in the Deposit Agreement and ADR Receipts and matters of contract enforceability.” Id. at 10, 891 A.2d at 341-42.1
There are two aspects of the Deposit Agreement and the ADR’s that § 7.6 addresses and governs: their interpretation and the rights, “all rights,” of the parties under those documents. The majority correctly holds that the rights to which the choice of laws provision refers and relates are those of the parties, under the Deposit Agreement and the ADR’s. The petitioner does not, as I read its brief, argue otherwise. Indeed, it argued specifically: “[ujnder that contract (the ‘Deposit Agreement’), the parties agreed to a choice-of-law provision selecting New York law to govern all possible disputes regarding Tomran’s rights both as an ADR holder and *25under the agreement! ]” and, stated differently, “New York law applies not only to interpretation of the Receipts and the Deposit Agreement, but also defines all rights that exist under and by virtue of ownership of the ADRs.”
I do not agree with the majority’s conclusion, arrived at with no apparent analysis, with respect to the scope of the rights of the parties’ addressed in the Deposit Agreement or that exist pursuant to the ADR’s. Section 7.6 is explicit, it governs “all rights” of an ADR holder or arising under the Deposit Agreement, not just some of those rights, i.e. those specifically enumerated or that relate to contract enforceability. “All rights” certainly does include such rights as are enumerated specifically and have to do with contract enforceability, but they also would include, and necessarily so, those rights that are implied or may be inferred. Because the parties agreed clearly and specifically that the interpretation of the ADR’s and the Deposit Agreement, and “all rights” under them, are to be governed by New York law, and there is no agreement, express or otherwise, alleged that varies that contract, I agree with the petitioner that disputes regarding the meaning of the ADR’s, the Deposit Agreement and the rights they accord are to be resolved by reference to, and consistent with, New York law.2
*26Although the majority goes to great pains to explain why the phrase, “hereunder and thereunder,” limits the scope of the rights to those under the agreement and the ADR’s, no such great pains are taken to explain, indeed, we are not advised as to, why the rights affected are only those “enumerated explicitly in the Deposit Agreement and ADR Receipts and [that are] matters of contract enforceability.”3 To be sure,' the respondents argued that “the Deposit Agreement, including its choice-of-law provision, [is] inapplicable to issues concerning AIB’s internal affairs, ... contending] that the Deposit Agreement only governs the mechanics of the ADR program, including, for example, the form and transferability of receipts, cancellation and destruction of surrendered receipts, and execution and delivery of receipts.” Tomran v. Passano, 159 Md.App. 706, 720-21, 862 A.2d 453, 461 (2004). That is not a sufficient basis and no other basis appears of record. This is especially telling in light of the majority’s recognition, as it must, of our adherence to the objective law of contract interpretation and construction. As it explained, under that approach:
“ ‘A court construing an agreement ... must first determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated. In addition, when the *27language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed. In these circumstances, the true test of what is meant is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant. Consequently, the clear and unambiguous language of an agreement will not give [way] to what the parties thought that the agreement meant or intended it to mean.’ ”
391 Md. at 13-14, 891 A.2d at 344, quoting General Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261, 492 A.2d 1306, 1310 (1985).
It is likely that the interpretation that the majority put on § 7.6 is the interpretation that the respondents intended, that they intended that meaning. It is not, however, the meaning that the petitioner attributed to it; it believed that its impact and effect were much broader. Thus, the petitioner submitted, citing §§ 4.1,4 *284.75 and 4.9,6 that the Deposit Agreement gave it “equal rights to dividends, proxy information and shareholder notices, *29where they may cause their shares to be voted as they direct” and alleged that, pursuant to the Deposit Agreement and ADR’s, it “in every relevant respect enjoy[s] the same rights and privileges of holders of AIB’s ordinary shares.” Consequently, the interpretation by the majority does not even capture what the parties intended, at best, deferring to the intention of only one side.
More important, an objective person in the position of the parties, who used the broadest possible language to describe the rights he or she intended to be subject to New York law, would not likely have intended that language to be restrictive, to limit the scope of the disputes that otherwise would be subject to resolution by New York law. To an objective observer, “all” means, every one of the rights under the Deposit Agreement and the ADR’s, not just the ones that the respondents intended or the ones to which a more prudent negotiator might have restricted the agreement or even to the ones that objectively make sense. Our task is not to structure the deal for the parties in the way that is most beneficial to them. “People are permitted to enter into contracts to their disadvantage.” Shallow Run Ltd. Partnership v. State Highway Admin., 113 Md.App. 156, 171-72, 686 A.2d 1113, 1121 (1996).
*30The more expansive meaning of “all rights,” in addition to being supported by common sense, finds support in Batchelder v. Kawamoto, 147 F.3d 915 (9th Cir.1998), cert. denied, 525 U.S. 982, 119 S.Ct. 446, 142 L.Ed.2d 400 (1998). In that case, American Honda and the holder of ADR’s entered into a Deposit Agreement, which, like the Deposit Agreement in this case, contained a choice-of-law provision, § 7.07. That provision provided:
“This Deposit Agreement and the [American Depository] Receipts and all rights hereunder and thereunder and provisions hereof and thereof shall be governed by and construed in accordance with the laws of the State of New York, United States of America. It is understood that notwithstanding any present or future provision of the laws of the State of New York, the rights of holders of Stock and other Deposited Securities, and the duties and obligations of the Company in respect of such holders, as such, shall be governed by the laws of Japan.”
The plaintiffs derivative action, brought pursuant to the Deposit Agreement, was dismissed, the court holding that “the .Deposit Agreement ... expressly provides that the law of Japan governs shareholder rights.” Id. at 917. It explained:
“The first sentence of § 7.07 provides that contract rights contained in the Deposit Agreement itself or in the ADR certificates, as well as the construction of the Deposit Agreement, are to be governed by the laws of New York. The second sentence of § 7.07, however, explicitly provides that Japanese law governs shareholder rights and the rights of holders of other Deposited Securities, including ADRs. Thus, if an ADR holder seeks to assert a right belonging to shareholders or a right not specifically granted to ADR holders in the Deposit Agreement, the laws of Japan apply. Section 7.07 is simply a choice-of-law clause.”
Id. at 917-18.
Like the plaintiff in Batchelder, the petitioner does not contend that the Deposit Agreement, in terms, grants it, as an ADR holder, the right to bring shareholder derivative claims; *31rather, it maintains its entitlement to bring a derivative action based on its status as an AIB ADR holder and, therefore, AIB shareholder. Unlike in Batchelder, however, there is no second sentence, the plain language of which directs the court to apply Irish law to determine the existence and scope of the petitioner’s rights. In the absence of that second sentence, effect must be given to the only provision there is. And that provision admits of no exceptions or restrictions.

. It so concluding, the majority characterized the phrase as clear and unambiguous. Be that as it may, to me, the critical phrase, “all rights” is clear and unambiguous, viewed in context and given its plain meaning. It is, for the majority, at best, ambiguous. There simply is no evidence in this record that has been presented that would permit the interpretation, as meaning less than all of the rights under the agreement and the ADR's, that the majority gives it.

. In this State, we favor the enforcement of choice of law provisions in contracts. Kronovet v. Lipchin, 288 Md. 30, 43, 415 A.2d 1096, 1104 (1980) (it is “generally accepted that the parties to a contract may agree as to the law which will govern their transaction, even as to issues going to the validity of the contract.”). See. Nat’l Glass, Inc. v. J.C. Penney Props., Inc., 336 Md. 606, 610, 650 A.2d 246, 248 (1994). And, although this Court has adopted Restatement (Second) Conflict of Laws § 187(2) (1971), which recognizes exceptions to the general rule, i.e.,
“(a) the chosen state has no substantial relationship to the parties or the transaction and there is no other reasonable basis for the parties choice, or
"(b) application of the law of the chosen state would be contrary to a fundamental policy of a state which has a materially greater interest than the chosen state in the determination of the particular issue and which, under the rule of § 188, would be the state of the applicable law in the absence of an effective choice of law by the parties!,]”
neither of those exceptions apply to the case sub judice. The majority does not contend otherwise.
*26It should be noted that, under Restatement § 187(2):
"The law of the state chosen by the parties to govern their contractual rights and duties will be applied, even if the particular issue is one which the parties could not have resolved by an explicit provision in their agreement directed to that issue.”

. The Court of Special Appeals reached a similar result with respect to the applicability and scope of § 7.6 and with about as much analysis;
[W]e are not persuaded that the language " ‘all rights hereunder and thereunder and provisions hereof and thereof,' which clearly refers respectively to the 'Deposit Agreement and the Receipts,' can be read so broadly as to reflect an intention by AIB to cede to the law of New York matters concerning its internal affairs, which most certainly would include the determination of who has the right to maintain a derivative suit.”
Tomran v. Passano, 159 Md.App. 706, 721, 862 A.2d 453, 461-62 (2004).

. Section 4.1 provides:

"Cash Distributions.

"Whenever the Depositary shall receive any cash dividend or other cash distribution by the Issuer on any Deposited Securities, the Depositary shall, subject to the provisions of Section 4.5, convert such dividend or distribution into Dollars and shall distribute the amount thus received to the Owners entitled thereto, in proportion to the number of American Depositary Shares representing such Deposited Securities held by them respectively; provided, however, that in the event that the Issuer or the Depositary shall be required to withhold and does withhold from any cash dividend or other cash distribution in respect of any Deposited Securities on an amount on account of taxes, the amount distributed to the owner for Depositary share representing such Deposited Securities shall be reduced accordingly. The Depositary shall distribute only such amount, however, as can be distributed without attributing to any Owner a fraction of one cent. Any such fractional amounts shall be rounded to the nearest whole cent and so distributed to Owners entitled thereto. The Issuer or its agent will remit to the appropriate governmental agency in Ireland all amounts withheld and owing to such agency. The Depositary will forward to the Issuer or its agent such information from its records as the Issuer may reasonably request to enable the Issuer or its agent to file necessary reports with governmental agencies, and either the Depositary or the Issuer or its agent may file any such reports necessary to obtain benefits under the applicable tax treaties for the Owners of Receipts.”

. Section 4.7 provides:

“Voting of Deposited Securities.

“Upon receipt of notice of any meeting of holders of Shares or other Deposited Securities, if requested in writing by the Issuer the Depositary shall, as soon as practicable thereafter, mail to the Owners a notice, the form of which notice shall be in the sole discretion of the Depositary, which shall contain (a) such information as is contained in such notice of meeting, and (b) a statement that the Owners as of the close of business on a specified record date will be entitled, subject to any applicable provision of irish law and the Articles of Association of the Issuer, to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the amount of Shares or other Deposited securities represented by their respective American Depositary Shares. Upon the written request of an Owner on such record date, received on or before the date established by the Depositary for such purpose, the Depositary shall endeavor in so far as practicable to vote or cause to be voted the amount of Shares or other Deposited Securities represented by such Receipt: in accordance with the instructions set forth in such request. The Depositary shall exercise the right to vote that attaches to the Shares or other Deposited Securities in accordance with such instructions provided, however, that if no such instructions are given, the Owner shall be deemed to have instructed the Depositary to vote such Shares or deposited Securities in the manner requested by the Issuer.”

. Section 4.9 provides:

“Reports.

"The Depositary shall make available for inspection by Owners at its Corporate Trust Office any reports and communications, including any proxy soliciting material, received from the Issuer which are both (a) received by the depositary as the holder of the Deposited Securities and (b) made generally available to the holders of such Deposited Securities by the Issuer. The Depositary shall also send to the Owners copies of such reports hen furnished by the Issuer pursuant to Section 5.6.
"In addition, upon notice that the Issuer has not furnished the Commission or any securities regulatory agency or stock exchange with any public reports, documents or other information as required by foreign law or otherwise by the Securities Exchange Act of 1934, the Depositary shall furnish promptly to the Commission or such regulatory agency or stock exchange copies of all annual or other periodic reports and other notices or communications which the Depositary or the Custodian, or their respective nominees, receives as a holder of the Deposited Securities from the Issuer and which are not so furnished to or filed with the Commission or such regulatory agency or exchange pursuant to any other requirement of the Commission or such regulatory agency or exchange. The Depositary shall also furnish to the Commission semi-annually, beginning on or before *29six months after the effective date of any resignation statement filed with the Commission under the Securities Act of 1933 relating to the Receipts, the following information in tabular form:
‘‘(1) The number of American Depositary Shares represented by Receipts issued during the period covered by the report;
"(2) The number of American Depositary shares represented by receipts retired during the period covered by the report;
“(3) The total amount of American Depositary Shares represented by receipts remaining outstanding at the end of the six month period; “(4) he total number of Owners at the end of the six-month period.
‘‘The Depositary shall also furnish the name of each dealer known to the Depositary depositing Shares against issuance of Receipts during the period covered by the report. The Issuer shall furnish the depositary with the names of each dealer known to the Issuer and the Depositary shall include in its report the names of such dealer or dealers which are supplied by the Issuer.”