According to the Massachusetts Supreme Court, the answer isn’t quite so simple.
“Annual” means “annual,” right? How hard could it be. Let’s allow some ambiguous drafting, course of dealing and New York Stock Exchange regulations make it complicated.
PIMCO is a big fund company and Brigade is an investor in two of its funds, each of which is a Massachusetts business trust.
The funds sent notices to investors of their intent to hold annual meetings as usual. Brigade sent notice that it was going to nominate a trustee for election at the annual meetings. PIMCO rescheduled the meetings to the last day of its fiscal year.
The funds’ declarations of trust require annual meetings at least 15 months after the first sale of shares and thereafter as specified in the bylaws.
The funds’ bylaws provide that annual meetings shall be held, so long as common shares are listed for trading on the NYSE, on at least an annual basis.
The NYSE requires listed companies to hold an annual shareholders’ meeting during the fiscal year.
Brigade filed suit seeking an injunction requiring PIMCO to hold the annual meeting as soon as practical and a declaration that the bylaws require an annual meeting at least once within any twelve month period.
Brigade contends that the rescheduling to nineteen months after the last annual meeting does not count as “annual,” which means within twelve months of the last annual meeting. PIMCO says “annual” means “during the fiscal year.”
What the Court Says “Annual” Means
Interpretation of Governing Documents
The court noted that the reference to the NYSE clearly means that an annual meeting must be held, at the very least, once every fiscal year, even though the bylaws do not explicitly say that.
However, the court reviewed the bylaw provision for shareholder notices together with the annual meeting requirement.1 It also noted that the bylaws provided for a special meeting in lieu of annual meeting, which may take place outside of the “annual period,” a thirty day window following the anniversary of the previous year’s annual meeting, which is not an “annual meeting,” but a “special meeting.”
The court also noted that this interpretation is consistent with how PIMCO historically scheduled its meetings and the usual meaning of “on an annual basis.”
There is more going on here than contract interpretation, and you may already know this if you have ever dealt with this issue before a court.
The Real Issue
Many courts don’t come out and say it, but the Brigade court did. Where the bylaws are ambiguous, it will construe them against the drafters, in other words, the company.
The upshot is that courts do not like it when companies try to escape the wrath of a shareholder vote. As the court said,
“Moreover, where “bylaw provision are unclear, we resolve any doubt in favor of stockholders’ electoral rights.””
The court went on to quote a variety of shareholder friendly cases for the proposition that voting in corporate elections is a fundamental right of shareholders, and the court will not interpret ambiguous governing documents to allow the company to postpone an election.
1Bylaws Section 10(c):
“To be timely, the Shareholder Notice must be delivered to or mailed and received at the principal executive offices of the Trust not less than forty- five (45) nor more than sixty (60) days prior to the first anniversary date of the date on which the Trust first mailed its proxy materials for the prior year’s annual meeting; … provided, … however, if and only if the annual meeting is not scheduled to be held within a period that commences thirty (30) days before the first anniversary date of the annual meeting for the preceding year and ends thirty (30) days after such anniversary date (an annual meeting date outside such period being referred to herein as an “Other Annual Meeting Date”), such Shareholder Notice must be given in the manner provided herein by the later of the close of business on (i) the date forty-five (45) days prior to such Other Annual Meeting Date or (ii) the tenth (10th) business day following the date such Other Annual Meeting Date is first publicly announced or disclosed” (emphasis added).