Van Gemert v. Boeing Co.

The Boeing Company (Boeing) (defendant) issued debentures that were convertible into common stock. The indenture agreement provided that Boeing could call—i.e., redeem—the debentures after providing notice to the debenture holders, thus allowing the holders to exercise their conversion rights. Both the indenture and the debentures themselves provided for notice to be given not less than 30 but not more than 90 days before the redemption date. The indenture also provided that notice would be given in a generally circulated newspaper, but that debenture holders who registered their bonds were entitled to notice by mail—terms that were not specifically communicated to the debenture holders. On March 2, 1966, the Boeing board set April 8 as the redemption date and March 29 as the expiration date for the conversion right. Formal notice was published in the Wall Street Journal on March 8 and again on March 18. No general news release was issued with regard to the call. Notice of the call date and expiration of the conversion right was carried on the New York Stock Exchange (NYSE) ticker, NYSE bulletin, and various bond tables. By March 25, over half of the outstanding debentures remained unconverted. A republication of the earlier newspaper notice on March 28 seemed to bring wider attention to the impending call, leading to more than $9 million worth of conversions on March 28 and 29. But many of the debenture holders remained unaware of the call after their conversion privilege had expired. The redemption price was considerably less than the stock price, causing a loss of approximately $2 million for the bondholders who did not convert to stock. A class of these bondholders (the class) (plaintiffs), including William Van Gemert (plaintiff), challenged the adequacy of Boeing’s notice in federal district court. The court found in favor of Boeing, holding that the company had complied with its obligations under the indenture. The class appealed. The United States Court of Appeals for the Second Circuit granted certiorari.