Norwegian Cruise Line Escapes Investors' Virus Fraud Suit

By Sarah Jarvis
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Law360 (April 12, 2021, 3:37 PM EDT) -- A Florida federal judge on Monday tossed a proposed class action alleging Norwegian Cruise Lines ran a "top-down" deceptive sales campaign downplaying the pandemic to stave off revenue losses, finding that the investors who filed suit did not show the company made material misrepresentations.

U.S. District Judge Robert N. Scola Jr. said the investors, led by Employer-Teamsters Local 175 & 505 Pension Trust Fund, failed to properly back up their allegations that statements made by the Miami-based cruise line and its executives about its marketing strategies, improvement in bookings and proactive safety measures were misleading or false.

"All the challenged statements constitute corporate puffery because they are vague and so broad that no reasonable investor would have relied on them to make a decision on whether to invest or not," Judge Scola said.

The investors had alleged among other things that Norwegian President and CEO Frank Del Rio made false or misleading statements in a conference call and press release on Feb. 20, 2020, when he assured investors that despite a known impact from COVID-19, the company's booked position remained ahead of the previous year. He also said the company saw an improvement in the week-over-week booking volumes in the previous five days and a decrease in cancellations, when compared to the previous three weeks, according to the order.

The investors had argued that the statements improperly omitted material facts, including that the company was engaged in a deceptive sales campaign to induce customers to purchase stock and book trips, according to the order.

But Judge Scola said that given the company's acknowledgement of the pandemic's impact on bookings, "no reasonable investor would believe that a statement regarding a brief window of improvement in bookings during a global pandemic implied that all was well within the company and that its marketing strategies were not accounting for customer concerns regarding Covid-19."

Additionally, the investors assumed that a series of talking points and "one liners" allegedly provided to sales agents — including claims that the virus can only survive in cold temperatures and that "scientists and medical professionals have confirmed the warm weather of the spring will be the end of the coronavirus" — were false or deceptive at the time they were circulated.

"It is worth noting that at the time the alleged marketing scheme was taking place, then-President Donald Trump made similar statements regarding Covid-19 and therefore it is arguable that these statements were not even deceptive, insofar as they aligned with the pronouncements of our nation's president," Judge Scola said.

The marketing strategy in question also did not require the participation of upper management, let alone Norwegian's CEO or Chief Financial Officer, Judge Scola said. Executive Vice President and CFO Mark A. Kempa was also named in the suit.

The investors had alleged the cruise line's top executive ranks directed a "dangerously false" sales campaign, which was revealed by an "explosive" March 11, 2020, Miami New Times article detailing a whistleblower's account and leaked internal emails appearing to show a senior sales manager providing scripted responses or "one liners" that sales agents could use to discourage concerned customers from canceling their cruise bookings.

Norwegian's stock fell nearly 27% to close at $15.03 per share on the day the Miami New Times article was published. Then on March 12, 2020, Norwegian stock dropped an additional 36% to close at $9.65 per share, according to the pension fund.

That same day, Democratic U.S. Sens. Richard Blumenthal of Connecticut and Edward Markey of Massachusetts publicly condemned Norwegian in a letter to Del Rio demanding that Norwegian stop spreading false information and "suspend all operations until sufficient measures are in place to protect the health and safety of passengers and crew members."

Florida Attorney General Ashley Moody on March 23, 2020, launched an investigation into allegations of Norwegian's misleading sales pitches downplaying the severity and highly contagious nature of the coronavirus. And by May 15, 2020, Norwegian disclosed in a U.S. Securities and Exchange Commission filing that it had "received notifications from other attorneys general and governmental agencies that they are conducting similar investigations" into the company's deceptive sales practices.

The consolidated class action is the combination of an initial suit filed on March 12, 2020, by investor Eric Douglas with a second suit filed by Abraham Atachbarian on March 31, 2020, and subsequent suits from other investors, resulting in at least nine law firms vying for lead counsel status. U.S. District Judge Robert N. Scola appointed the Teamsters fund as lead plaintiff and Robbins Geller Rudman & Dowd LLP as lead class counsel in June.

In November, the cruise line urged the court to toss the suit, arguing public companies aren't required to make disparaging remarks about the performance of its employees or accuse itself of uncharged wrongdoing. And there's nothing in the pension fund's amended complaint pinpointing any specific statement made by Norwegian or its top brass that might've been materially misleading to investors, the company said.

Counsel for the parties did not immediately respond to requests for comment Monday.

The lead plaintiff is represented by Robert J. Robbins, Elizabeth A. Shonson, Maureen E. Mueller, Sabrina E. Tirabassi and Christian G. Montelione of Robbins Geller Rudman & Dowd LLP, and Michael J. Del Giudice of Ciccarello Del Giudice & LaFon.

Norwegian is represented by Tracy A. Nichols, Alex M. Gonzalez, Louise McAlpin, Allison Kernisky and Michael W. Glenn of Holland & Knight LLP.

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.

--Additional reporting by Linda Chiem, Nathan Hale, Emilie Ruscoe, Dean Seal and Carolina Bolado. Editing by Amy Rowe.

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