Reiss v. Financial Performance Corp.

In 1993 Financial Performance Corporation (Financial) (defendant) issued stock warrants to Marvin Reiss and Rebot Corporation (plaintiffs) allowing Reiss and Rebot to purchase a specific number of shares of Financial common stock for 10 cents per share until specified dates in 1998. The warrants issued to Reiss and Rebot did not mention an adjustment to the terms of the warrants in the event of a reverse stock split. Financial had previously issued a warrant to Robert S. Trump that did require an adjustment of the warrant if a reverse stock split occurred. In 1996 Financial approved a one-for-five reverse split of its common stock, after which each shareholder held one-fifth of his original number of shares, but each share had increased five times in value. In 1998 Reiss and Rebot attempted to purchase the amount of stock allowed under the warrant at 10 cents per share without any adjustment to account for the reverse stock split. Financial rejected the request, arguing that the number of shares allowed for purchase under the warrant had to be adjusted to account for the reverse stock split. Reiss and Rebot filed a lawsuit in New York state court against Financial, seeking a declaratory judgment that they were entitled under the warrants to purchase the number of shares specified by their warrants at 10 cents per share. The New York Supreme Court dismissed the case. The Appellate Division modified the Supreme Court’s holding and ruled in favor of Financial. The Appellate Division held that the stock warrants issued to Reiss and Rebot were missing an essential term—a provision requiring an adjustment of the number of shares stated in the warrant in the event of a reverse stock split—and supplied the term. Reiss and Rebot appealed.