Julia Kim v. Cedar Realty Trust, Inc.
U.S. Court of Appeals for the Fourth Circuit
Julia Kim v. Cedar Realty Trust, Inc.
Opinion
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 23-1905
JULIA KIM, DAVID SYDNEY, MARTIN NOVICK, J. RENEE BRENNAN LIVING
TRUST, SCOTT SCHROEPFER, AND KENNETH KAMHOLZ, individually and on
behalf of others similarly situated,
Plaintiffs – Appellants,
v.
CEDAR REALTY TRUST, INC., BRUCE J. SCHANZER, GREGG A. GONSALVES,
ABE EISENSTAT, STEVEN G. ROGERS, SABRINA KANNER, DARCY D. MORRIS,
RICHARD H. ROSS, SHARON STERN, CEDAR REALTY TRUST PARTNERSHIP,
L.P., AND WHEELER REAL ESTATE INVESTMENT TRUST, INC.,
Defendants – Appellees.
Appeal from the United States District Court for the District of Maryland, at Baltimore.
George L. Russell, III, Chief District Judge. (No. 22-cv-01103)
Argued: May 9, 2024 Decided: September 4, 2024
Before DIAZ, Chief Judge, and NIEMEYER and RICHARDSON, Circuit Judges.
Affirmed by published opinion. Judge Richardson wrote the opinion, in which Chief Judge
Diaz and Judge Niemeyer joined.
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ARGUED: Matthew Thomas Heffner, HEFFNER HURST, Chicago, Illinois, for
Appellants. William M. Jay, GOODWIN PROCTOR, LLP, Washington, D.C.; Jerrold A.
Thorpe, GORDON FEINBLATT LLC, Baltimore, Maryland, for Appellees. ON BRIEF:
Matthew Hurst, HEFFNER HURST, Chicago, Illinois; Joshua E. Fruchter, WOHL &
FRUCHTER LLP, Monsey, New York; Lawrence Deutsch, Andrew D. Abramowitz,
BERGER MONTAGUE PC, Philadelphia, Pennsylvania; Donald J. Enright, LEVI &
KORSINSKY, LLP, Washington, D.C., for Appellants. Benjamin Hayes, Washington,
D.C., Douglas H. Flaum, New York, New York, Jennifer Burns Luz, GOODWIN
PROCTER LLP, Boston, Massachusetts, for Director Appellees.
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RICHARDSON, Circuit Judge:
It happens to all of us—you buy something and later come to regret it. It may be a
toy you splurge on for your kids that they only play with once, a gym membership you
never use, or a wild-patterned shirt that you later realize was not just a risky fashion choice
but an unforgiveable one. For Plaintiffs here, it is their preferred stock in Cedar Realty
Trust.
This buyers’ remorse began after Cedar made a series of transactions that resulted
in another corporation, Wheeler Properties, acquiring Cedar. When it was acquired, Cedar
delisted its publicly traded common stock and paid Cedar common stockholders for their
shares. Yet Cedar’s preferred stock remained outstanding, and its holders received nothing
from the transactions. Meanwhile, the value of those preferred shares tanked.
So Plaintiffs—a putative class of preferred stockholders—sued. They allege that
Cedar and its directors breached the contractual and fiduciary duties they owe preferred
stockholders by structuring the transactions to rob them of their preferential rights. And
they claim that Wheeler tortiously interfered with their contractual rights and aided and
abetted Cedar’s breach of fiduciary duties.
Plaintiffs now appeal the district court’s dismissal of each count of their complaint.
But Plaintiffs’ complaint does not allege that Cedar or its directors breached any duty—
contractual or fiduciary—they owed Plaintiffs. In fact, the complaint does not allege they
did anything except comply with the contractual terms Plaintiffs agreed to upon purchasing
the preferred stock. Also, since the claims against Wheeler require alleging underlying
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breaches of contract and fiduciary duties, the complaint fails to state those claims, too. So
we affirm.
I. Background
A. Cedar’s Preferred Stock
Cedar Realty Trust is a real estate investment trust whose focus is “primarily . . .
ownership, operation and redevelopment of grocery-anchored shopping centers in high-
density urban markets from Washington, D.C. to Boston.” J.A. 32. 1 As of July 2021, all
classes of its stock were publicly traded on the New York Stock Exchange. These classes
included common stock and two series of preferred stock, Series B and Series C. 2
Cedar preferred stockholders’ rights are laid out in the Articles Supplementary. The
perks of the preferred stock are typical—dividend rights and a liquidation preference. As
for dividend rights, each preferred stockholder is guaranteed an annual fixed amount per
1
Upon review of an order granting or denying a motion to dismiss for failure to
state a claim, we consider the complaint’s well-pleaded allegations (which we accept as
true), Langford v. Joyner, 62 F.4th 122, 124–26 (4th Cir. 2023), as well as “documents that
are explicitly incorporated into the complaint by reference,” Goines v. Valley Cmty. Servs.
Bd., 822 F.3d 159, 166 (4th Cir. 2016). Our opinion thus relies on Plaintiffs’ complaint
and the documents it references.
2
Common stock is “[a] class of stock entitling the holder to vote on corporate
matters, to receive dividends after other claims and dividends have been paid (esp. to
preferred shareholders), and to share in assets upon liquidation,” while preferred stock is
“[a] class of stock giving its holder a preferential claim to dividends and to corporate assets
upon liquidation but that usu[ally] carries no voting rights.” Stock, Black’s Law Dictionary
(11th ed. 2019).
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share (“Preferred Dividend”). 3 For example, annually Series C holders receive
“cumulative preferential cash dividends at the rate of 6.50% of the liquidation preference
. . . (which is equivalent to a fixed annual amount of $1.625 per share of Series C Preferred
Stock).” J.A. 337. Preferred Dividends have priority over—that is, they must be paid
before—any dividends to common stockholders. In addition, preferred stockholders
receive priority payouts of $25 per share, plus any accrued and unpaid dividends, “upon
liquidation, dissolution or winding up” (“Liquidation Preference”). Id. Yet under the
Articles, a merger or asset sale is not a liquidation, dissolution, or winding up of the
Corporation.
Relevant here, the Articles also provide that preferred stockholders get a
“Conversion Right.” J.A. 343. This right allows preferred stockholders “to convert some
or all of” their preferred stock into common stock “[u]pon the occurrence of a Change of
Control.” Id. The Articles provide that a Change of Control happens when (1) someone
obtains more than 50% of Cedar’s voting shares and (2) “neither the Corporation nor the
acquiring or surviving entity” has publicly traded stock after that acquisition. J.A. 341.
The Articles do not give preferred stockholders other relevant rights or preferences.
For example, the Articles contain no mandatory redemption right, meaning “there is no
provision allowing Preferred Stockholders to demand their Preferred Stock at par.” J.A.
45. It’s Cedar’s choice to redeem them or not. Nor do the Articles grant preferred
3
When to declare Preferred dividends is largely at the discretion of Cedar’s Board
of Directors. But if the Board doesn’t authorize the Preferred Dividend, they “accrue and
cumulate” for later payment. J.A. 338.
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stockholders any other rights (such as voting or representation rights) relating to a Change
of Control, sale of stock or assets, or similar transaction. See J.A. 350 (“The shares of . . .
Preferred Stock shall not have any preferences, conversion or other rights . . . other than
those specifically set forth in these Articles Supplementary.”). The relevant rights of
Cedar’s preferred stockholders, in sum, boil down to (1) annual Preferred Dividends,
(2) the Liquidation Preference “upon liquidation, dissolution or winding up,” and (3) the
Conversion Right conditioned “upon a Change of Control,” as defined in the Articles.
B. The Transactions
In July 2021, Cedar’s Board of Directors began considering liquidating or selling
the Corporation. It settled on selling Cedar by “splitting up Cedar’s assets into multiple
portfolios consisting of Grocery-Anchored Properties, Mixed-Use Projects” and what
assets remained in the company (referred to as “Remainco” assets), and selling each
portfolio separately. J.A. 56-57. The portfolio sales occurred in two separate transactions
(together, “the Transactions”). First, the Board agreed to sell to a single, nonparty buyer
its Grocery-Anchored Properties for $840 million in cash and its Mixed-Use Projects for
$80.5 million in cash. Second, Cedar agreed to a merger with Wheeler Properties. It did
this through a transaction known as “reverse triangular merger.” We can break the Wheeler
transaction down into four steps.
Step one. Cedar used the profits from the sale of the Grocery-Anchored and Mixed-
Use properties to pay common stockholders a “Closing Dividend.”
Step two. Wheeler created a shell subsidiary (“Wheeler Sub”) that had one share of
common stock privately held by Wheeler.
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Step three. On August 22, 2022—the merger’s effective date—two things
happened simultaneously: (1) Wheeler Sub merged into Cedar with Cedar being the
“Surviving Entity” and (2) all of Cedar’s outstanding common stock was delisted and
became redeemable for a sum certain per share.
Step four. Wheeler obtained a $130 million loan to form a fund from which Cedar
common stockholders could redeem their cancelled stock.
In the end, Cedar emerged with a single share of common stock outstanding—the
former share of Wheeler Sub. That share remains owned by Wheeler and is not publicly
traded, though Wheeler itself has publicly traded stock. As for Cedar’s common
stockholders, they received a total of about $29 per share between the Closing Dividend
and the post-merger redemption payment. Cedar preferred stock, for its part, remained
outstanding, and “[a]s of August 2022, [its] market cap . . . had fallen from $151 million
to $52 million.” J.A. 26, 397. But before, during, and after the transactions, Preferred
Stockholders continued to receive their annual one-buck-and-change-per-share Preferred
Dividend.
C. Procedural History
In May 2022, a putative class of preferred stockholders sued Cedar and members of
its Board, 4 along with Wheeler. After the district court dismissed their motion to
4
The Cedar Defendants also include the Cedar Realty Trust Partnership, L.P. (“the
Cedar Partnership”), to which Cedar “has contributed substantially all of its assets” and
through which Cedar “conducts substantially all of its business.” J.A. 32. But the
distinction between Cedar and the Cedar Partnership is not relevant to this appeal.
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preliminarily enjoin the Transactions, the Transactions closed in August. So in September,
Plaintiffs filed an Amended Complaint (“the Complaint”). It alleges four counts.
Count One is a breach of contract claim against Cedar and the Board members
(together, “Cedar Defendants”). According to Plaintiffs, the Transactions amounted to a
“Change of Control,” but Cedar Defendants never gave them the Conversion Right they
were due. 5 J.A. 75. Plaintiffs also allege that “Cedar Defendants breached the duty of
good faith and fair dealing implied in the Articles . . . under Maryland law by exercising
their discretion in bad faith and deliberately structuring the Transactions with the intent of
injuring Preferred Stockholders and depriving them of the fruits of the Articles
Supplementary.” J.A. 75–76.
Count Two alleges that Cedar Defendants breached the fiduciary duty they owe
Plaintiffs. This duty, Plaintiffs assert, “includ[es] without limitation[] a duty to act in good
faith and to maximize value for Preferred Stockholders when selling the company.” J.A.
80. And Cedar Defendants allegedly breached that duty when they “exercis[ed] their
discretion in bad faith and deliberately structure[ed] the Transactions” to “injur[e]
Preferred Stockholders and depriv[e] them of the fruits of the Articles.” Id.
Counts Three and Four are against Wheeler. Count Three is a claim of tortious
interference with contractual rights alleging that Wheeler knew of the contractual
5
The Complaint also alleges that Cedar breached the Articles by not honoring the
Liquidation Preference. But Plaintiffs do not challenge the district court’s dismissal of that
claim in this Court, so we do not address it. Grayson O Co. v. Agadir Int’l LLC, 856 F.3d
307, 316 (4th Cir. 2017) (“A party waives an argument by failing to present it in its opening
brief or by failing to ‘develop its argument’—even if its brief takes a passing shot at the
issue.” (cleaned up)).
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Conversion Right and the implied covenant of good faith and fair dealing yet “cooperated
with Cedar Defendants to structure the Transactions with intent of interfering with those
contractual rights.” J.A. 81. Lastly, Count Four alleges that Wheeler aided and abetted
Cedar Defendants’ breach of their fiduciary duties.
Defendants moved to dismiss the Complaint pursuant to Federal Rule of Civil
Procedure 12(b)(6). The district court granted the motions, dismissing the Complaint with
prejudice. Kim v. Cedar Realty Tr., Inc., No. GRL-22-1103, 2023 WL 4896635 (D. Md.
Aug. 1, 2023).
For the breach-of-contract claim against Cedar, 6 the district court determined that
the definition of Change of Control “clearly and unambiguously means that both Wheeler
and Cedar cannot have publicly traded stock for a change of control to occur.” Id. at *8.
Since Wheeler had publicly traded stock after the Transactions, no contractual Change of
Control occurred and no Conversion Right existed. So the court dismissed the express
contractual claim. The district court also dismissed the implied-duty-of-good-faith-and-
fair-dealing claim because “[i]t is well-settled law that Maryland does not recognize an
independent cause of action for breach of the implied duty of good faith and fair dealing.”
Id. (citing Mount Vernon Props., LLC v. Branch Banking & Tr. Co., 907 A.2d 373, 381
(Md. Ct. Spec. App. 2006)).
6
The district court dismissed the breach of contract claim against the Director
Defendants because the Articles are between Plaintiffs and Cedar—not Plaintiffs and the
Director Defendants—and “a person cannot be held liable under a contract to which he was
not a party.” Kim, 2023 WL 4896635, at *4 (quoting Residential Warranty Corp. v.
Bancroft Homes Greenspring Valley, Inc., 728 A.2d 783, 794 (Md. Ct. Spec. App. 1999)).
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As for the breach-of-fiduciary-duty claim, the district court explained that, while a
“board generally owes [preferred stockholders] fiduciary duties like those owed to common
stockholders,” id. at *5, the duties differ because “preferred stock’s preferential rights . . .
are defined by contract (in this case the Articles).” Id. (quoting Poling v. CapLease, Inc.,
No. 0700, 2016 WL 1749803, at *3 (Md. Ct. Spec. App. May 3, 2016). Claims that arise
from the duties listed in the Articles are thus treated as breach-of-contract claims. Since
Plaintiffs’ claims dealt with their rights in a merger—which the Articles cover—and the
Articles do not include any rights which Plaintiffs alleged Director Defendants violated,
the district court dismissed the claim as duplicative of the breach-of-contract claim.
Finally, the district court dismissed the claims against Wheeler. It explained that
tortious interference with contract requires alleging an underlying breach of contract, while
aiding and abetting the breach of fiduciary duty requires alleging an underlying breach of
fiduciary duty. Since the district court had determined the Complaint alleged neither, it
dismissed the two claims against Wheeler.
Plaintiffs timely appealed.
II. Discussion
In seeking our review, Plaintiffs argue that the Complaint adequately states a claim
for each of its four counts. We disagree and therefore affirm the district court’s order. 7
7
We review a district court’s Rule 12(b)(6) dismissal de novo. Philips v. Pitt Cnty.
Mem. Hosp., 572 F.3d 176, 179 (4th Cir. 2009). “To survive a Rule 12(b)(6) motion,
‘[f]actual allegations must be enough to raise a right to relief above the speculative level’
and have ‘enough facts to state a claim to relief that is plausible on its face.’” Id. at 180
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). But we “‘need not accept
(Continued)
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A. Subject Matter Jurisdiction
Like all federal courts, we have an independent obligation to ensure that we have
subject matter jurisdiction, even if no party challenges it. Jones v. U.S. Merit Sys. Prot.
Bd., 103 F.4th 984, 992 (4th Cir. 2024). In this case, the district court purported to exercise
jurisdiction pursuant to 28 U.S.C. § 1332(d). That subsection, also known as the Class
Action Fairness Act (“CAFA”), provides an exception to § 1331’s general rule of complete
diversity. Both sides in this case appear to agree that Plaintiffs satisfy this exception:
(1) the putative class contains at least one hundred class members; (2) the parties share
minimal diversity; and (3) the amount in controversy exceeds five million dollars,
exclusive of interest and costs. § 1332(d)(2)(A), (5)(B), (6).
Yet there’s one potential hangup. CAFA establishes several carveouts from its
exception to § 1331’s complete-diversity requirement. In particular, § 1332(d)(9) provides
that the exception does not apply to
any class action that solely involves a claim . . . (B) that relates to the internal
affairs or governance of a corporation or other form of business enterprise
and that arises under or by virtue of the laws of the State in which such
corporation or business enterprise is incorporated or organized; or (C) that
relates to the rights, duties (including fiduciary duties), and obligations
relating to or created by or pursuant to any security . . . .
§ 1332(d)(9)(B)–(C). Pursuant to § 1332(d)(9), the Second Circuit dismissed for lack of
subject matter jurisdiction a nearly identical action that a different group of Cedar preferred
the [plaintiff’s] legal conclusions drawn from the facts,’ nor . . . ‘accept as true unwarranted
inferences, unreasonable conclusions, or arguments.’” Id. (quoting Kloth v. Microsoft
Corp., 444 F.3d 312, 319 (4th Cir. 2006) (first alteration in original)).
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stockholders brought against Defendants. Krasner v. Cedar Realty Tr., Inc., 86 F.4th 522,
529–31 (2d Cir. 2023).
In this Circuit, however, the Second Circuit’s path is foreclosed. We held in
Dominion Energy, Inc. v. City of Warren Police & Fire Retirement System that a claim for
aiding and abetting breach of fiduciary duty against a corporate outsider does not “relate[]
to” internal corporate governance or the rights and duties created by a security. 928 F.3d
325, 335–43 (4th Cir. 2019). So a class action that includes such a claim does not “solely
involve[]” the types of claims enumerated in § 1332(d)(9) and thus falls outside the
statute’s jurisdictional exceptions. Id. Because Plaintiffs’ action includes a claim for
aiding and abetting breach of fiduciary duties against Wheeler, we are bound by our prior
decision to hold that the district court had jurisdiction over Plaintiffs’ action. 8
B. Breach of Contract
Plaintiffs contend that their Complaint states a claim for breach of contract in two
ways. 9 First, they say it plausibly alleges that Cedar breached the Conversion Right
because the Transactions resulted in a Change of Control and Cedar did not allow them to
8
Notably, though Dominion Energy relied on Second Circuit case law to reach this
holding, 928 F.3d at 339–43, the Second Circuit has since rejected our reading because it
“strains credulity” to conclude that aiding and abetting breach of fiduciary duty claims “do
not ‘relate[] to the rights, duties (including fiduciary duties), and obligations relating to or
created by or pursuant to’ a security,” Krasner, 86 F.4th at 530 (quoting § 1332(d)(9)(C)).
9
In their opening brief to this Court, Plaintiffs did not raise any challenge to the
district court’s dismissal of their breach of contract claim against the Board. We thus
consider the issue waived. Grayson O, 856 F.3d at 316.
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convert their shares. Second, they say it plausibly alleges that Cedar breached the implied
duty of good faith and fair dealing under Maryland law. But the Complaint does neither.
1. The Complaint does not plausibly allege that Cedar breached the
Conversion Right provision of the Articles.
Recall that, under the Articles, preferred stockholders get a Conversion Right if a
Change of Control occurs. The Articles define “Change of Control” as:
(x) the acquisition by any person, including any syndicate or group . . . of
beneficial ownership, directly or indirectly, through a purchase, merger or
other acquisition transaction or series of purchases, mergers or other
acquisition transactions of shares of the Corporation entitling that person to
exercise more than 50% of the total voting power of all shares of the
Corporation entitled to vote generally in elections of directors . . . ; and (y)
following the closing of any transaction referred to in clause (x), neither the
Corporation nor the acquiring or surviving entity has a class of [publicly
traded] common securities . . . .
J.A. 341 (emphasis added). The parties agree that the Transactions satisfied Clause (x).
The question is whether they satisfied Clause (y): “neither the Corporation [Cedar] nor the
acquiring or surviving entity” has publicly traded common stock. Plaintiffs argue that the
clause is at least ambiguous as to whether a Change of Control occurred, because Cedar,
as the surviving entity, had no publicly traded common stock. According to Plaintiffs, the
disjunctive phrase appearing after the “nor”—“the acquiring entity or surviving entity”—
gives two alternatives, meaning that a Change of Control occurs so long as either the
acquiring entity or the surviving entity no longer has publicly traded common stock. Cedar
counters that the disjunctive phrase appearing after the “nor” unambiguously identifies a
single entity—the entity identified in Clause (x) as acquiring a beneficial interest. Thus,
Cedar explains, Clause (y) provides that a Change of Control occurs only when two
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entities—the Corporation (Cedar) and the single entity buying or merging with the
Corporation (Wheeler)—both lack publicly traded common stock.
Maryland law 10 employs “the objective theory of contract interpretation, which
provides that ‘unless a contract’s language is ambiguous, we give effect to that language
as written without concern for the subjective intent of the parties at the time of formation.’”
Plank v. Cherneski, 231 A.3d 436, 476 (Md. 2020) (quoting Ocean Petroleum, Co. v.
Yanek, 5 A.3d 683, 690 (Md. 2010)). The textual analysis “look[s] to the entire language
of the agreement” and is grounded in the “customary, ordinary, and accepted meaning” of
the text. Id. at 476-77 (citations omitted). A provision is ambiguous only if, “when viewed
from [a] reasonable person[’s] perspective, that language is susceptible to more than one
meaning.” Id. at 477 (quoting Ocean Petroleum, 5 A.3d at 690-91 (first alteration in
original)).
Applying these standards to Clause (y), we agree with Cedar that the clause
unambiguously means that a Change of Control occurs only when both the Corporation
and the single entity referred to as the “acquiring or surviving entity” lack publicly traded
common stock. 11
10
Maryland law governs our interpretation. The forum state of Maryland generally
accepts parties’ choice of what law governs a contract, Nat. Glass, Inc. v. J.C. Penney
Props., Inc., 650 A.2d 246, 248 (Md. 1994), and the Articles state that Maryland law
governs.
11
Conjunctions can create ambiguity. See Pulsifer v. United States, 144 S. Ct. 718,
737 (2024). Yet that does not mean that the provision here is ambiguous—for “the
difficulty in choosing between . . . two constructions [can] fall[] away once [one]
consider[s]” the greater text and context. Id. Here, the complete definition of “Change of
Control” washes away any ambiguity “nor” and “or” may create.
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Begin with “neither . . . nor.” These “correlative conjunctions . . . negate
alternatives simultaneously.” The Chicago Manual of Style ¶ 5.234 (17th ed. 2017). Said
differently, these words are used between alternatives “to indicate that they are each untrue
or each does not happen.” See Neither, Oxford Dictionaries Online,
https://premium.oxforddictionaries.com/definition/english/neither (last visited Aug. 12,
2024); see also id. (“Not either.”). Thus, (y) can be rephrased as “not the Corporation and
not the acquiring or surviving entity has” publicly traded common stock. See Antonin
Scalia & Bryan A. Garner, Reading Law: The Interpretation of Legal Texts 119 (2012)
(“Since you may not do any of the prohibited things, you necessarily must not do them
all.”). Or, putting it mathematically:
(y) = has publicly traded stock ((not the Corporation) + (not the acquiring or
surviving entity))
Cf. Pulsifer, 144 S. Ct. at 726–28.
Moving further down Clause (y), we see that “the acquiring or surviving entity”
refers to a single entity, not two entities. There are three key reasons why. First, using the
singular article “the” typically particularizes a singular object. See Corner Post, Inc. v. Bd.
of Govs. of the Fed. Reserve Sys., 144 S. Ct. 2440, 2455 (2024). Second, “the” is followed
by two adjectives and is “coupled with a singular noun”—the acquiring or surviving entity,
not entities. See Niz-Chavez v. Garland, 593 U.S. 155, 165 (2021). Third, Clause (y)’s
use of the verb “has” shows that “nor” is used to refer to two singular objects: (1) “the
Corporation” and (2) “the acquiring or surviving entity.” Bryan A. Garner, Garner’s
Modern English Usage 623 (4th ed. 2016); see also Gertrude Block, Language for
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Lawyers, 54 Fed. Law. 39 (July 2007) ( “if you use the words neither . . . nor to connect
two singular subjects, the verb you use must be singular,” and if “one of the pairs is singular
and the other is plural, . . . the rule is that the subject closer to the verb decides the number
of the verb”).
So “the acquiring or surviving entity” denotes a single entity. But that begs a
question: Do we look to the acquiring or the surviving entity here? Cf. Campos-Chaves v.
Garland, 144 S. Ct. 1637, 1648 (2024). After the Transactions, there seems to have been
an acquiring entity—as Wheeler took possession of the lone remaining share of Cedar’s
common stock. See Corporate Acquisition, Black’s Law Dictionary (12th ed. 2024). There
also seems to be a surviving entity—because, “pursuant to the merger agreement,
[Wheeler’s] Merger Sub . . . merge[d] with and into [Cedar], with Merger Sub ceasing to
exist and [Cedar] being the surviving entity.” J.A. 102 (Cedar’s Proxy Statement
describing the Transactions); J.A. 254; see also J.A. 63 (Complaint stating Cedar was the
“Surviving Company”). So which of these two entities do we consider as “the . . . entity”
that must “ha[ve]” no publicly traded common stock?
This question, however, is based on a faulty premise—that when we say “the
acquiring or surviving entity” refers to a single entity, we mean that, in a given transaction,
it refers to either the surviving entity or the acquiring entity. In fact, under the meaning of
this contract, “the acquiring or surviving entity” is always the same, singular party: the
entity referenced in Clause (x) that obtained majority voting power in Cedar.
Consider the definition of Change of Control as a whole. Clause (y) mentions two
parties: the Corporation and “the acquiring or surviving entity.” Logically, the
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Corporation—which we know is Cedar—must be different than “the acquiring or surviving
entity.” Clause (x) then gives the answer of who “the acquiring or surviving entity” is, for
it also only mentions two parties: the Corporation (i.e., Cedar) and the “person, including
any syndicate or group” that acquires the requisite shares. Because “the acquiring or
surviving entity” cannot be the Corporation, it must be the “person, including any syndicate
or group,” that acquires the majority of Cedar’s voting shares.
Once this is clear, it becomes easy to see why Clause (y) is phrased as it is. Recall
that Clause (x) provides that the acquisition of the requisite shares could occur through “a
purchase, merger or other acquisition transaction or series of purchases.” Clause (y)
therefore describes the entity identified in Clause (x) as “the acquiring or surviving entity”
in order capture the full range of possible transactions. Under corporate-law terminology,
if one entity acquires another through a tender offer, for example, it would be called the
“acquirer.” Tender Offer, Black’s Law Dictionary, supra; Franklin A. Gevurtz,
Corporation Law § 7.3 (2d ed. 2010) (defining the “acquirer” as “[t]he individual or
company seeking to acquire the target corporation’s business”). By contrast, if the entity
acquires another through a horizontal merger, it would be called the “surviving
corporation.” Corporation, Black’s Law Dictionary, supra (defining “surviving
corporation” as “[a] corporation that acquires the assets and liabilities of another
corporation by a merger or takeover”); Gevurtz, supra, § 7.2 (defining “surviving
corporation” as “the corporation [that] continues to exist after the merger”). So Clause (y)
describes the entity in Clause (x) as “the acquiring or surviving entity” in order to capture
its technical identity over a broad range of acquisition types.
17
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Of course, Clause (y)’s terminology does not perfectly align with the real world in
every kind of transaction. Technically, in a reverse triangular merger like this one, the
acquiring entity and surviving entity are two separate corporations: the former is Wheeler,
while the latter is Cedar. See Richard D. Freer, The Law of Corporations in a Nutshell
504–05 (8th ed. 2020). But under the grammatical and logical structure of this contract,
“the acquiring or surviving entity” refers to a single entity, and that single entity is the
“person” referenced in Clause (x) that acquires the requisite shares. Accordingly, a Change
of Control occurs only when neither the corporation nor the purchasing entity has publicly
traded stock. 12
In hopes of convincing us to ditch this reading of Clause (y), Plaintiffs argue that
the overall purpose of the Conversion Right “is to protect Preferred Stockholders against a
delisting, i.e., holding Preferred Stock in a privately-held entity.” Appellants’ Br. at 32.
So, the argument goes, we should read the definition of Change of Control to reach any
transaction that ends with Cedar not having publicly traded stock. Perhaps Plaintiffs are
right about the general purpose of conversion rights. See Poling, 2016 WL 1749803, at *3.
12
We recognize that reading “surviving or acquiring entity” to refer only to the
single entity that acquires voting control of Cedar may seem to create contractual
superfluity. But redundancy isn’t uncommon in contract drafting; a reasonable drafter
might well risk overinclusion for the sake of clarity. See Kenneth A. Adams, A Manual of
Style for Contract Drafting § 1.49 (5th ed. 2023). Given the grammatical and logical
structure of Change of Control, “surviving or acquiring entity” is best read to refer only to
the acquiring entity and is thus likely an example of drafters’ overinclusion. Not to
mention, Plaintiffs’ reading would create superfluity, too. For if “the acquiring or
surviving entity” refers to two entities, one being Cedar when it’s the surviving entity, then
the entirety of (y) is redundant because Cedar would be included twice: “neither the
Corporation nor the surviving or acquiring entity . . . .”
18
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But we see no reason to believe the Conversion Right in the Articles fully serves the
purpose Plaintiffs claim it does. Cf. Pulsifer, 144 S. Ct. at 737 (“No law pursues its
purposes at all costs.” (cleaned up)). Put simply, the Articles define Change of Control to
require more than Cedar’s stock being delisted. We cannot rely on a broad “purpose” to
change a written term of a contract before us. 13
In the end, the unambiguous meaning of the text of Clause (y), read in context, is
that a Change of Control occurs only when neither Cedar (“the Corporation”) nor the single
entity that obtains majority voting control of Cedar (“the acquiring or surviving entity”)
has publicly traded stock after the transaction at issue. Here, that single entity is Wheeler,
and Wheeler’s common stock remained publicly traded after the Transactions. So the
district court correctly determined that Plaintiffs’ Complaint fails to state a claim that Cedar
breached the Conversion Right.
2. The Complaint does not plausibly allege that Cedar breached the
implied duty of good faith and fair dealing under Maryland law.
Plaintiffs next argue that the Complaint plausibly states a breach-of-contract claim
because Cedar violated the duty of good faith and fair dealing implied under Maryland
13
We also note that the Articles contemplate occasions when Cedar’s common stock
would be delisted but a Change of Control would not occur. Indeed, Cedar warned
Plaintiffs of that possibility before they bought their Preferred shares: “If our common
stock is delisted, your ability to transfer or sell your shares of . . . Preferred Stock may be
very limited and the market value of . . . Preferred Stock will likely be materially adversely
affected.” S.A. 9 (Preferred Stock Prospectus).
19
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law. 14 According to the Complaint, this breach occurred when Cedar “exercis[ed] [its]
discretion in bad faith and deliberately structur[ed] the Transactions with the intent of
injuring Preferred Stockholders and depriving them the fruits of the Articles
Supplementary.” J.A. 75–76. To support that assertion, the Complaint alleges, inter alia,
that: (1) Cedar knew that merging with Wheeler would significantly devalue the price of
the preferred stock, given Wheeler’s poor record, and that this would reduce the cost of
acquiring the Remainco assets for Wheeler; (2) Cedar “repeatedly misrepresented the value
of the [Remainco] [p]roperties” as being worth more than they were; (3) the Board never
appointed an independent representative for the preferred stockholders in connection with
the Transactions; (4) while the Board members all owned common stock, they held, at
most, de minimis amounts of preferred stock, and thus stood to financially benefit from the
Transactions; and (5) “at some point the Cedar Board realized that they would not hit their
target payout of $29 per [common] share if they also . . . honored the Conversion Right,”
so they structured the transaction to avoid it. J.A. 75–80.
14
The district court dismissed the claim because it determined that Maryland law
does not provide a standalone cause of action for breach of the implied duty of good faith
and fair dealing. Yet the Complaint did not present this claim as a standalone cause of
action, but as “an element of . . . a breach of contract,” see Mount Vernon Props., LLC v.
Branch Banking & Trust Co., 907 A.2d 373, 381 (Md. Ct. Spec. App. 2006), which appears
permissible under Maryland law, see id.; Gurbani v. Johns Hopkins Health Sys. Corp., 185
A.3d 760, 786 n.20 (Md. Ct. Spec. App. 2018). Regardless, we affirm the district court
because the Complaint fails to allege the implied duty of good faith and fair dealing was
breached—whether as part of a broader breach of contract claim or otherwise. See United
States v. Smith, 395 F.3d 516, 519 (4th Cir. 2005) (holding that we may affirm a district
court “on any grounds apparent from the record”).
20
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Maryland law implies a duty of good faith and fair dealing into contracts without
such express provisions. Polek v. J.P. Morgan Chase Bank, N.A., 36 A.3d 399, 416 (Md.
2012). This duty “simply prohibit[s] one party to a contract from acting in such a manner
as to prevent the other party from performing his obligations under the contract.” Id.
(quoting Parker v. Columbia Bank, 604 A.2d 521, 531 (Md. Ct. Spec. App. 1992)).
“Absent special circumstances, however, no new obligations on the parties are imposed,
where the contract is silent, by the implied covenant of good faith and fair dealing.” 15 Id.;
see also E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P’ship, 213 F.3d 175, 184 (4th Cir. 2000).
In other words, the implied duty of good faith and fair dealing ensures that one party to a
contract does not inhibit the other from performing its obligations, but it does not guarantee
any new rights or obligations that do not already exist in the contract.
None of Plaintiffs’ allegations show that Cedar did anything “to prevent [Plaintiffs]
from performing [their] obligations under the contract.” Id. Plaintiffs’ obligation under
15
Plaintiffs assert that this is not the correct legal standard under Maryland law.
According to them, the implied duty of good faith and fair dealing mandates that a party
“refrain from doing anything that will have the effect of injuring or frustrating the right of
the other party to receive the fruits of the contract between them.” Appellants’ Br. at 38.
But the principle Plaintiffs ostensibly identify governs how a party exercises discretion
afforded to it by the express terms of the contract. See Clancy v. King, 954 A.2d 1092,
1108 (Md. 2008) (“In matters of personal discretion in contract, the party with the
discretion is limited to exercising that discretion in good faith.”); Questar Builders, Inc. v.
CB Flooring, LLC, 978 A.2d 651, 670 (Md. 2009) (“Th[e] implied obligation governs the
manner in which a party may exercise the discretion accorded to it by the terms of the
agreement.”); see also WSC/2005 LLC v. Trio Ventures Assocs., 190 A.3d 255, 267–68
(Md. 2018). Here, Plaintiffs do not allege that Cedar abused a discretionary right granted
to it by the contract (i.e., the Articles Supplementary). Rather, they allege that Cedar
abused the authority granted to it by Cedar’s organizational documents (most likely the
Articles of Incorporation) to execute the Transactions. So even under this flavor of the
implied duty, Plaintiffs have failed to state a claim.
21
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the contract was to pay for the preferred stock. They did that before the Transactions ever
occurred. When it comes down to it, Plaintiffs’ claim is not one for breach of the implied
duty of good faith and fair dealing; it seeks to impose “new obligations on [Defendants]
. . . where the contract is silent.” Polek, 36 A.3d at 416 The Articles give preferred
stockholders no rights regarding sales of the Cedar beyond the Liquidation and Conversion
Preference, neither of which was triggered. Plaintiffs cannot use the implied duty of good
faith and fair dealing to shoehorn in rights to be represented in transaction negotiations, to
be treated equally as common shareholders, to have certain financial assurances, or any
other desirable outcome. They got exactly what they agreed to receive.
We won’t belabor the point. Plaintiffs don’t allege that Cedar did anything to
impede Plaintiffs’ performance under the contract, so the Complaint does not allege that
Cedar breached the implied duty of good faith and fair dealing.
C. Breach of Fiduciary Duty
Having found the breach-of-contract claim properly dismissed, we next consider
whether the district court erred in dismissing Plaintiffs’ claim that the Board members
breached fiduciary duties owed to the preferred-shareholder Plaintiffs. 16
16
The Complaint states that this claim is against the “Cedar Defendants,” which
includes Cedar itself. But one likely cannot bring a claim for breach of fiduciary duty
against the corporation itself in Maryland, since corporations are not fiduciaries. See A.W.
Fin. Servs., S.A. v. Empire Rsrv., Inc., 981 A.2d 1114, 1127 n.36 (Del. 2009) (“Under
Delaware law, the issuing corporation does not owe fiduciary duties to its stockholders.”);
Oliveira v. Sugarman, 152 A.3d 728, 736 n. 4 (Md. 2017) (“This Court frequently looks to
Delaware courts for guidance on issues of corporate law.”). The Complaint therefore fails
to state a claim against Cedar, and we limit the remainder of our analysis to the claim
against the Director Defendants.
22
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Maryland recognizes a cause of action for breach of fiduciary duty. 17 See Md. Code,
Corps. & Ass’ns § 2-405.1. To prevail, a litigant must show: “(i) the existence of a
fiduciary relationship; (ii) breach of the duty owed by the fiduciary to the beneficiary; and
(iii) harm to the beneficiary.” Plank, 231 A.3d at 466 (quotation marks and citations
omitted). So Plaintiffs must show, among other things, that the Board members owed them
fiduciary duties with respect to the Transactions.
In general, directors owe fiduciary duties to both common and preferred
stockholders. Jedwab v. MGM Grand Hotels, Inc., 509 A.2d 584, 594 (Del. Ch. 1986); see
Leviness v. Consol. Gas, Elec. Light & Power Co. of Balt., 80 A. 304, 306–07 (Md. 1911).
Yet precisely when these duties kick in is a bit more complicated. Preferred stock is distinct
from common stock because its holders are granted rights and preferences beyond those of
common stockholders. In re Trados Inc. Shareholder Litigation, 73 A.3d 17, 38–39 (Del.
Ch. 2013). And “as a general matter, the[se] rights and preferences . . . are contractual in
nature.” Id. at 39 (quotation marks and citation omitted); Poling v. CapLease, Inc., No.
24C13006178, 2015 WL 13309114, at *6 (Md. Cir. Ct. May 13, 2015), aff’d, Poling, 2016
17
Maryland law governs this claim, because Cedar is incorporated in Maryland, and
“the law of a corporation’s place of incorporation applies to determine the existence and
extent of a director’s liability to the corporation.” Standard Rsrv. Holdings, Ltd. v.
Downey, No. 24-C-04-0661, 2004 WL 3316264, at *3 (Md. Cir. Ct. July 9, 2004)); see
also Restatement (Second) of Conflict of Laws § 309 (1971); Am. Motorists Ins. v. ARTRA
Grp., Inc., 659 A.2d 1295, 1301 (Md. 1995) (explaining that Maryland often relies on the
Restatement to resolve conflict-of-laws questions).
The Supreme Court of Maryland, however, has little caselaw on the fiduciary duties
owed preferred stockholders. Lacking precedent, Maryland courts look to Delaware courts
for guidance. See Poling, 2016 WL 1749803, at *3 n.8; accord Oliveira,152 A.3d at 736
.
So the district court was right to do just that, and we do the same.
23
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WL 1749803. Accordingly, preferred stockholders are owed fiduciary duties only “when
they do not invoke their special contractual rights and rely instead on a right shared equally
with the common stock.” Trados, 73 A.3d at 40; Jedwab,509 A.2d at 594
& n.6 (Del. Ch.
1986) (listing possible theories of liability). But when preferred stockholders invoke their
preferential rights, officers and directors do not owe them any fiduciary duties at all, for
“those rights are purely contractual.” MCG Cap. Corp. v. Maginn, 2010 WL 1782271, at
*15 (Del. Ch. May 5, 2010); Jedwab, 509 A.2d at 594. In other words, directors and
officers are “contractually bound to honor” preferred stockholders’ preferential rights, but
they “do not owe a separate fiduciary duty . . . related to” claims that those rights were
violated. MCG Cap., 2010 WL 1782271, at *15.
Plaintiffs allege that the Board members breached the duty of good faith by
intentionally structuring the Transactions to avoid triggering the Liquidation Preference
and Conversion Right. This undoubtedly favored the common stockholders over the
preferred stockholders, keeping millions of dollars out of the pockets of the preferred
stockholders—and in the pockets of the common stockholders. As a result, the preferred
stock price fell sharply. It’s not difficult to see why Plaintiffs would prefer the
Transactions’ structure to have been otherwise.
But as understandable as Plaintiffs’ dissatisfaction is, “a board does not owe
fiduciary duties to preferred stockholders when considering whether or not to take
corporate action that might trigger or circumvent the preferred stockholders’ contractual
rights.” Trados, 73 A.3d at 39; McRitchie v. Zuckerberg,315 A.3d 518
, 549 (Del. Ch.
2024); Jedwab, 509 A.2d at 594 & n.6. Rather, the Articles alone define “the scope of the
24
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duty” that they owed Plaintiffs in this context. Jedwab, 509 A.2d at 594; see alsoid.
at
594 n.6 (“The claim that the merger constitutes a wrongful attempt to circumvent the $20
redemption provision of the preferred stock . . . relate[s] to a negotiated preference and
must be evaluated strictly as a contract right.”); LC Cap. Master Fund, Ltd. v. James, 990
A.2d 435, 448–49 (Del. Ch. 2010). And, as we have explained, Plaintiffs do not plausibly
allege that their rights under the Articles were violated. 18 The Complaint therefore does
not allege a fiduciary duty that the Board could have breached, and the district court was
right to dismiss the claim. 19
D. Claims Against Wheeler
Our analysis makes addressing Plaintiffs’ two claims against Wheeler simple.
Tortious interference with contractual rights and aiding and abetting breach of fiduciary
duty require, respectively, an underlying breach of contract and breach of fiduciary duty.
18
Plaintiffs also allege that Board members were selfishly motivated by their
ownership of common stock when structuring the Transactions. But having directors own
stock is generally thought of as a good thing under corporate law, aligning the directors’
interests with the interests of the company. “It is useful to have directors with, as Ross
Perot was wont to say, skin in the game.” McRitchie, 315 A.3d at 553 (cleaned up); see
also In re Columbia Pipeline Grp., Merger Litig., 299 A.3d 393, 454 (Del. Ch. 2023) (“For
corporate fiduciaries, to act loyally means to promote the value of the corporation for the
benefit of its stockholders. As a practical matter, that means to promote the value of the
corporation for the benefit of the common stockholders in the aggregate.”) (cleaned up).
19
Plaintiffs note that the Mayland law “allows plaintiffs to plead fiduciary claims
arising out of the same facts as contract claims.” Appellants’ Br. at 44 (citing Plank, 231
A.3d at 466). That is generally true. But to successfully plead such claims, Plaintiffs must
allege the existence of a fiduciary duty, which they have failed to do. Cf. Jolly Roger Fund,
LP v. Prime Grp. Realty Tr., No. 24-C-06-010433, 2007 WL 3237447, at *8 & n.7 (Md.
Cir. Ct. Aug. 16, 2007) (concluding that no fiduciary duty was owed to preferred
shareholders on their preferential rights while separately discussing whether a cause of
action existed or whether a breach occurred).
25
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Fowler v. Printers II, Inc., 598 A.2d 794, 802 (Md. Ct. Spec. App. 1991) (“Tortious
interference . . . has five elements: (1) existence of a contract between plaintiff and a third
party; (2) defendant’s knowledge of that contract; (3) defendant's intentional interference
with that contract; (4) breach of that contract by the third party; and (5) resulting damages
to the plaintiff.”); Alleco Inc. v. Harry & Jeanette Weinberg Found., Inc., 665 A.2d 1038,
1049–50 (Md. 1995) (explaining that a claim for aiding and abetting breach of fiduciary
duty requires such a duty to have been breached). Since the Complaint fails to plausibly
allege a breach of contract or fiduciary duty, it necessarily fails to state either claim
Plaintiffs assert against Wheeler.
* * *
All of us have wished that we could turn back the clock and not make a purchase
we’ve come to regret. Given the depressed value of the preferred stock, it makes sense
why Plaintiffs wish that now. But courts are not time machines for disgruntled buyers. We
resolve legal claims. And Plaintiffs do not adequately allege that Defendants violated any
legal right or duty—they only allege that they regret the terms they bargained for.
Accordingly, the district court’s order dismissing the Complaint for failure to state a claim
is
AFFIRMED.
26
Reference
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