A divided Second Circuit on Thursday upheld a ruling requiring Getty Images Holdings Inc. to pay nearly $88 million to two investment firms after finding the company breached contracts that entitled them to buy shares when Getty went public.

In a 2–1 decision, the appellate panel affirmed a 2023 judgment ordering Getty to pay hedge fund CRCM Institutional Master Fund about $50.9 million and venture capital firm Alta Partners LLC roughly $36.9 million. The court agreed that Getty improperly prevented the investors from exercising stock warrants following its $4.8 billion public listing in 2022 through a merger with a special purpose acquisition company.

The ruling leaves intact a district court finding that Getty violated agreements tied to warrants the firms purchased in Getty’s predecessor entity, CC Neuberger Principal Holdings II. Those warrants allowed the holders to buy Getty shares at $11.50 each within 30 days of the merger’s completion.

Alta and CRCM attempted to exercise the warrants in August 2022, shortly after Getty became public through the de-SPAC transaction by filing a Form S-4 registration statement. Getty blocked the transactions, telling the investors they would need to wait until a later Form S-1 registration statement became effective.

By the time the second registration statement took effect, Getty’s stock price had dropped sharply, falling from about $29 per share to $8.49, below the warrant exercise price, according to the court.

Writing for the majority, U.S. Circuit Judge Denny Chin, joined by Judge Amalya Kearse, concluded that Getty breached its contractual obligations by refusing to allow the warrants to be exercised earlier.

“While Getty asserts that the Form S-1 was the only effective registration statement for the issuance of the warrant shares, everything on the S-1 actually indicates that the underlying warrant shares had already been registered on the Form S-4,” Judge Chin wrote.

The panel also agreed with the lower court that Alta was not entitled to additional damages related to steps it took after Getty’s refusal to honor the warrant exercise.

U.S. Circuit Judge Steven Menashi dissented, arguing that the case should have been sent back to the district court because Getty raised a factual dispute over whether the prospectus was “current,” a contractual condition for exercising the warrants.

Judge Menashi pointed to Getty’s argument that the later S-1 contained new disclosures not included in the S-4, such as tax implications and changes to the company’s capital structure.

Because that information was not fully reflected in the earlier filing, the dissent concluded that a genuine issue of material fact remained.

“Because the appellees did not do so beyond any genuine dispute of material fact, I dissent,” Judge Menashi wrote.

Justin Sher of Sher Tremonte LLP, who represents Alta, said he was pleased with the ruling.

“We are very pleased the Second Circuit affirmed the district court and agreed that Alta was entitled to exercise its warrants,” Sher said, adding that the firm has not yet decided whether to pursue further action on the portion of the ruling that went against Alta.

CRCM’s counsel did not immediately respond to a request for comment.

A Getty spokesperson said the company strongly disagrees with the decision.

“We respectfully disagree and are extremely disappointed with the Second Circuit’s decision that ruled for the plaintiffs,” the spokesperson said. “We are actively reviewing the decision and evaluating next steps.”

Alta is represented by Justin Sher and Max Tanner of Sher Tremonte LLP.
CRCM is represented by William Savitt of Wachtell Lipton Rosen & Katz.
Getty is represented by Susan Saltzstein, Scott Musoff, Jeremy Patashnik, Shay Dvoretzky, Parker Rider-Longmaid and Nicole Welindt of Skadden Arps Slate Meagher & Flom LLP, along with John Neuwirth of Weil Gotshal & Manges LLP.

The case is CRCM Institutional Master Fund Ltd. v. Getty Images Holdings Inc., case number 23-7876, in the U.S. Court of Appeals for the Second Circuit.