Law360 (November 25, 2020, 7:08 PM EST) -- Norwegian Cruise Line slammed investors' claims that it ran a "top-down" deceptive sales campaign downplaying the COVID-19 pandemic to prospective customers in order to stave off revenue losses, maintaining that it doesn't have to disclose allegedly aggressive sales practices.
The Miami-based cruise line on Wednesday urged a Florida federal judge to dismiss a consolidated securities fraud class action from lead plaintiff Employer-Teamsters Local 175 & 505 Pension Trust Fund claiming investors were left holding the bag when Norwegian's deceptive sales campaign made headlines in March and triggered multiple government investigations.
The proposed class of investors is seeking damages for the more than 50% hit the company's stock took when a Miami newspaper reported on leaked internal memos instructing Norwegian sales staff to lie to prospective customers about the impact of the novel coronavirus outbreak.
Norwegian argued in a court filing Wednesday that 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.
"Under federal securities law, disclosure is required 'only when necessary to make statements made, in the light of the circumstances under which they were made, not misleading.' Nor do federal securities laws create an affirmative duty for a company to accuse itself of uncharged wrongdoing or to disclose allegedly aggressive or inappropriate sales practices," Norwegian said in its response brief.
"Thus, there was no independent duty, as plaintiff claims, requiring disclosure of the alleged misleading sales campaign," Norwegian continued. "Moreover, simply by revealing a fact about its operations, a duty did not arise for Norwegian to disclose everything investors might find interesting."
The pension fund in October staunchly defended its allegations that the cruise line's top executive ranks directed a "dangerously false" sales campaign, which was revealed by an "explosive" March 11 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.
Those scripts included false and unproven statements, the pension fund alleged. For example, Norwegian sales staff would say, "the coronavirus can only survive in cold temperatures" and "scientists and medical professionals have confirmed the warm weather of the spring will be the end of the coronavirus," among other things. The pension fund also alleged Norwegian sales managers told their staff to "be aggressive" and "hook in customers" by creating a false sense of increased demand for Norwegian's cruises.
The next day, two additional articles published by The Washington Post and the Miami Herald revealed further details about Norwegian's misinformation campaign, quoting additional internal company emails that called the coronavirus "overhyped," the pension fund alleged.
The cruise line argued that the pension fund has no concrete facts backing up its far-fetched theory of an alleged "'top down' misleading sales campaign supposedly carried out by a sales manager with the purported acquiescence of non-party 'high level management.'" Norwegian Cruise Line Holdings Ltd. President and CEO Frank Del Rio and Executive Vice President and Chief Financial Officer Mark A. Kempa are also named as defendants in the suit.
"Not only are these individual defendants not mentioned in the news articles, but Mr. Kempa is not addressed at all in the opposition and the only reference to Mr. Del Rio is that NCL's president Mr. [Harry] Sommer reports to him," Norwegian argued. "Such bare-bones pleading based on a confidential witness who says nothing about either individual defendant and fails to identify a single report, meeting or conversation in which the individual defendants learned of the alleged misleading sales campaign is insufficient to show a cogent and compelling inference of scienter."
The Norwegian defendants first moved to dismiss the consolidated class action in September, arguing that the anonymous employee who purportedly blew the whistle had admitted that the series of talking points and "one liners" that were given to sales staff weren't mandatory.
They insisted that they're also protected under the Private Securities Litigation Reform Act's safe harbor because the company made forward-looking statements of predictions, projections or plans, accompanied by meaningful cautionary language. Those statements referenced the "strength and resilience" of Norwegian's business model, that the company "aim[ed] to be as transparent as possible," that it was "working tirelessly to do what is right" while "protecting the equity of our brands," and that "we're good marketers" who "know how to market our product," according to the response brief.
Overall, Norwegian maintains it sufficiently warned investors about the business risks associated with COVID-19 and cannot be faulted for its puffery or corporate optimism.
According to the pension fund, Norwegian cannot escape liability for the "swift and severe" market reaction that followed news of the disinformation campaign. Norwegian's stock fell nearly 27% to close at $15.03 per share on March 11, the day the Miami New Times article was published. Then on March 12, Norwegian stock dropped an additional 36% to close at $9.65 per share. 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."
Norwegian on March 13 suspended its cruises after the Cruise Lines International Association announced a voluntary suspension of all U.S. cruise ship operations. Those suspensions have been extended several times since.
But Norwegian's troubles continued as Florida Attorney General Ashley Moody on March 23 launched an investigation into allegations of Norwegian's misleading sales pitches downplaying the severity and highly contagious nature of the novel coronavirus.
By May 15, 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 by investor Eric Douglas with a second suit filed by Abraham Atachbarian on March 31 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.
Representatives for Norwegian and attorneys for the pension fund were not immediately available for comment Wednesday.
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 Carolina Bolado and Rachel O'Brien. Editing by Haylee Pearl.
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