Lohnes v. Level 3 Communications, Inc.
United States Court of Appeals for the First Circuit
272 F.3d 49 (2001)
- Written by Eric Miller, JD
Facts
Paul Lohnes (plaintiff) acquired a warrant that granted the option to purchase 8,541 shares of common stock in Level 3 Communications, Inc. (Level 3) (defendant). The warrant contained an antidilution provision, which provided for automatic adjustments to the number of shares to which the warrant holder would be entitled if certain events occurred. These events included capital reorganization, reclassification of the common stock, merger, consolidation, and sale of all the capital stock. The warrant made no mention of stock splits or a duty to provide notice of a stock split. Level 3 authorized a two-for-one stock split. Lohnes, who had not been provided personalized notice, exercised his option three months later in hopes of obtaining 17,082 shares of stock. Instead, Lohnes received 8,541 shares. Lohnes brought suit in federal district court for breach of the warrant, arguing that stock splits fell within the meaning of either capital reorganization or reclassification of stock. Lohnes also alleged breach of the implied covenant of good faith and fair dealing, arguing that Level 3 breached its obligation to provide Lohnes with personalized notice of the impending stock split. Level 3 moved for summary judgment, which was granted. Lohnes appealed. The United States Court of Appeals for the First Circuit granted certiorari.
Rule of Law
Issue
Holding and Reasoning (Selya, J.)
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