Law360 (March 13, 2020, 7:57 PM EDT) -- An investor's proposed class action has accused Norwegian Cruise Lines of inflating the company's stock price through allegedly false or misleading statements made by the company and its employees about the coronavirus outbreak.
Plaintiff Eric Douglas' complaint landed Thursday in the Southern District of Florida, as Norwegian — along with other cruise lines and travel-related businesses — has suffered sharp drops in its stock value as consumer interest has plummeted in the face of fears over the spread of the virus known as COVID-19 and government advisories against cruise ship travel.
The suit points to the company's recent securities filings and press releases that it says presented a misleading positive outlook as well as news reports that featured leaked internal communications and anonymously quoted Norwegian employees who said managers had pressured sales agents to mislead potential customers and provided scripted answers containing false reassurances about the growing pandemic.
"During the class period, defendants, individually and in concert, directly or indirectly, disseminated or approved the false statements specified above, which they knew or deliberately disregarded were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading," the complaint alleges.
The complaint, which also names Norwegian President and CEO Frank J. Del Rio and CFO Mark A. Kempa as individual defendants, alleges violations of federal securities laws.
It is seeking to certify a class including anyone who acquired Norwegian stock publicly traded on the New York Stock Exchange from Feb. 20 through March 12.
The complaint cites a press release that Norwegian attached to a Feb. 20 filing with the U.S. Securities and Exchange commission on its financial results for 2019 in which it presented what Douglas describes as "positive outlooks" for the company despite the coronavirus outbreak.
"Company entered year with a record booked position and at higher pricing. Despite the current known impact from the COVID-19 coronavirus outbreak, as of the week ending Feb. 14, 2020, the company's booked position remained ahead of prior year and at higher prices on a comparable basis, which excludes cruises to Cuba in the prior year and the recent redeployment of Norwegian Spirit from Asia in the current year," Norwegian stated in the release.
"While the effect of these impacts cannot be fully quantified at this time, our company has an exemplary track record of demonstrating its resilience in challenging environments and we remain confident in our ability to deliver strong financial performance over the long term," it added.
The company also said in the statement that it had proactively implemented several preventative measures to reduce the possible transmission of coronavirus to guest and crew.
Douglas also points to a Feb. 27 filing with the SEC, which was signed by Del Rio and Kempa, in which the company said: "Epidemics and viral outbreaks could have an adverse effect on our business, financial condition and results of operations."
The statement cited the "recent outbreak of COVID-19" and said it had "resulted in costs and lost revenue customer compensation, itinerary modifications, travel restrictions and advisories, the unavailability of ports and/or destinations, cancellations and redeployments and has impacted consumer sentiment regarding cruise travel."
The statement also noted that the spread of the disease, "particularly in North America, could exacerbate its effect on us."
Douglas alleges that these statements were materially false or misleading because they failed to disclose that the company was employing sales tactics that including providing customers "unproven and/or blatantly false statements about COVID-19."
In support of that claim, Douglas quotes from a pair of articles published by the Miami New Times and The Washington Post that reported accounts of Norwegian sales staff being urged to provide misleading or false statements to potential customers about the coronavirus outbreak and its impact.
The New Times reported Wednesday on what it said were leaked emails from a Norwegian employee that showed a senior sales manager had come up with scripted responses for sales agents to give to customers concerned about coronavirus to protect the company's bookings.
In one example, agents were allegedly instructed to pressure customers to book immediately to avoid potential high prices later: "'Mr Becker,' the line reads, 'due to the Coronavirus we have cancelled all of our Asia cruises on the Norwegian Spirit. This has caused a huge surge in demand for all of our other itineraries. I suggest we secure your reservation today to avoid you paying more tomorrow.'"
Douglas said that other news reports have suggested that cruise lines have actually seen a surge in cancelations, and the New Times quoted the Norwegian employee as saying, "We are hardly selling anything. Sales are at serious lows."
Other recommended responses included information the complaint said is blatantly false, including that coronavirus is not a concern in warm Caribbean climates and that health experts have confirmed the disease will end with the arrival of warmer spring weather, the complaint said.
The Washington Post's article, published on Thursday, reported on a leaked internal memorandum featuring the headline "The coronavirus will not affect you" that also stated it as fact that coronavirus is an "overhyped pandemic scare."
And email cited in the Post's article also quoted a Norwegian executive saying, "One of our own ratted," in response to the New Times article.
According to the complaint, Norwegian's stock fell $5.47, or about 26.7%, on Wednesday after the New Times article came out and another $5.38, about 35.8%, on Thursday following the Post's report, according to the complaint.
"As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the company's securities, plaintiff and other class members have suffered significant losses and damages," the complaint said.
The complaint contends that Norwegian, which is incorporated in Bermuda and has its headquarters in Miami, is liable for the acts of its executives and other employees because all of the alleged wrongful acts were carried out within the scope of their employment.
Counsel for Douglas and representatives for Norwegian did not immediately respond to requests for comment Friday.
Douglas is represented by Laurence Rosen of The Rosen Law Firm PA.
Counsel information for Norwegian was not immediately available.
The case is Douglas et al. v. Norwegian Cruise Lines et al., case number 1:20-cv-21107, in the U.S. District Court for the Southern District of Florida.
--Editing by John Campbell.
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