One of the very first coronavirus-related securities class action lawsuits to be filed at the outset of the pandemic in the U.S was the securities suit filed against Norwegian Cruise Line Holdings. The Norwegian Cruise Line lawsuit is now the latest of the coronavirus-related securities suits to be dismissed. In an April 10, 2021 opinion with a number of interesting features discussed below, Southern District of Florida Judge Robert N. Scola, Jr. granted the company’s motion to dismiss with prejudice. A copy of Judge Scola’s opinion can be found here.
Background
As discussed here, in March 2020, a plaintiff investor filed a securities class action lawsuit against Norwegian and certain of its directors and officers, alleging that in a series of statements in press releases, an analyst call, and in an SEC filing, at the outset of the coronavirus outbreak, that defendants misrepresented the impact of outbreak on company operations.
The class period begins on February 20, 2020, when the company filed an 8-K with the SEC, in which the company published its fourth quarter 2019 and year-end 2019 financial results. The company’s February 20, 2020 press release accompanied the 8-K. In the press release, the company said that “despite the current known impact” from the coronavirus outbreak, as of the week ending February 14, 2020, “the Company’s booked position remained ahead of prior year and at higher prices on a comparable basis.” The press release also stated that the company “has an exemplary track record of demonstrating its resilience in challenging environments” and that the company has “proactively implemented several preventive measures to reduce potential exposure and transmission of COVID-19.”
The complaint also quotes from company’s February 27, 2020 10-K, in which the company, among other things, noted that “we must meet the U.S. Public Health Service’s requirements,” noting that “we rate at the top of the range of CDC and FDA scores achieved by the major cruise lines.” The complaint also quotes from the company’s 10-K risk factors, in which the company noted that “The spread of the COVID-19 coronavirus, particularly in North America, could exacerbate its effect on us. Any future wide-ranging health scares would also likely adversely affect our business, financial condition and results of operations.”
The complaint alleges that these and other statements in the company’s SEC filings were false and misleading. Specifically, the complaint alleges that the defendants made false and misleading statements or failed to disclose that: “(1) the Company was employing sales tactics of providing customers with unproven and/or blatantly false statements about COVID-19 to entice customers to purchase cruises, thus endangering the lives of both their customers and crew members; and (2) as a result, Defendants’ statements regarding the Company’s business and operations were materially false and misleading and/or lacked a reasonable basis at all relevant times.”
In support of these misrepresentation allegations, the complaint quotes extensively from a March 11, 2020 Miami New Times article about the company’s sales tactics adopted in response to the coronavirus outbreak. The news article quotes from a supposed script for the company’s sales team to use to respond to concerns about cruise cancellations and also to suggest that the virus could not survive in various cruise conditions (such as, for example, warmer weather). Among other things, the article says that “managers have asked sales staff to lie to customers about COVID-19 to protect the company’s bookings.” Some of the recommended responses to customers, the article states, “are blatantly false,” such as instructions for sales reps to tell customers that coronavirus is not a concern in warm Caribbean climates and that coronavirus in humans is an “overhyped pandemic scare.”
The defendants’ moved to dismiss the plaintiff’s complaint.
The April 10, 2021 Order
In his April 10, 2021 Order, Judge Scola granted the defendants’ motion to dismiss, holding that the plaintiff had failed to plead misrepresentations or omissions; that the statements at issue were protected by the safe-harbor for forward looking statements; and that the plaintiff had failed to plead scienter with sufficient particularity.
In holding that the plaintiff had not sufficiently pled misrepresentations or omissions, Judge Scola said, as a general matter, that “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.”
In reaching this conclusion, Judge Scola broke down the statements or omissions on which plaintiff sought to rely into four groups.
The first group related to the defendants’ various statements about the company’s marketing strategy, which the plaintiff alleged were misleading because they omitted to disclose to investors that the company was employing a supposedly deceptive marketing scheme designed to downplay the impact of the coronavirus outbreak. Judge Scola found the statements the company made about its marketing scheme were “nothing more than corporate puffery.”
With respect to the supposedly deceptive marketing scheme to try to downplay the impact of the coronavirus, Judge Scola noted that the plaintiff simply assumes “that at the time these statements were made, the statements were false.” Judge Scola observed that “it is worth noting that at the time the alleged marketing scheme was taking place, then-President 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.”
The second group of supposedly misleading statements Judge Scola considered were statements in the press release and in the analyst call that despite the impact from COVID-19, the company’s bookings remained ahead of the prior year, and that in the previous five days the company had seen an improvement in the week over week booking volume and a decrease in cancellations. The plaintiff claimed that these statements omitted a critical fact, which is that the company was engaged in a deceptive marketing campaign, and that the statements about the bookings gave rise to a duty to disclose the campaign.
Judge Scola said that “considering the Defendants’ undisputed acknowledgement of the pandemic’s impact on bookings during the conference call, press release, and Form 10-K, no reasonable investor would believe that a statement regarding a brief window of improvement in bookings during a global pandemic implied that all was will within the company and that its marketing strategies were not accounting for customer concerns regarding Covid-19.”
The third set of statements Judge Scola considered were the defendants’ statements about the proactive measures the company was taking to protect passengers and crew. He found that these statements were not misleading because the plaintiff “does not allege that the statements are false, in other words, that the Defendants did not in fact take any steps to protect guests and crew members.”
The fourth and final category of misrepresentations Judge Scola considered related to the company’s Ethics Code, which the plaintiff alleged required the company to disclose the deceptive marketing scheme. The portion of the Ethics Code on which the plaintiff sought to rely in arguing that the deceptive marketing statement should have been disclosed constitute corporate puffery and non-actionable aspirational statements, rendering them non-actionable.
Judge Scola further concluded that many of the disputed statements were protected by the safe harbor for forward looking statements, noting in particular that the statements were accompanied by extensive precautionary disclosure about the possible impact of the coronavirus on company operations and finances.
Finally Judge Scola concluded that the plaintiff had failed to plead scienter, noting that the plaintiff’s allegations were “insufficient to show that the Defendants had the requisite intent to deceive or defraud.”
Discussion
So far, there have only been a handful of dismissal motion rulings in the nearly thirty COVID-19-related securities class action lawsuits that have been filed since March 2020, but at this point, it does seem that, though the results are mixed, the plaintiffs’ complaints are not faring particularly well.
In addition to the dismissal motion grant in this case, in January 2021, the dismissal motion was granted in the coronavirus-related securities suit that had been filed against Velocity Financial (as discussed here), and in late February, the plaintiff in the coronavirus suit against Royal Caribbean Cruises voluntarily dismissed the complaint, as discussed here.
To be sure, not all of the dismissal motion rulings have been unfavorable to the plaintiffs. As discussed here, in February 2021, the defendants’ motion to dismiss the securities suit that had been filed against Inovio Pharmaceuticals was largely denied.
There are a lot of interesting aspect of Judge Scola’s ruling in the Norwegian Cruise Lines case. Perhaps the most important aspect of the ruling in terms of its potential implications for other coronavirus-related securities suits is that Judge Scola seemed comprehensively skeptical of the plaintiff’s case. Pretty clearly, he didn’t think much of any of the plaintiff’s allegations. In particular, he did not seem particularly troubled by the statements the company made to try to put the best face on an unexpected and still developing set of circumstances, especially given that the company also provided detailed precautionary disclosures about the uncertain possibilities for negative developments.
I have to say that Judge Scola’s reference in his opinion to the statements of former President Trump rank right up there as among the more unusual things I have read in a judicial opinion. From my perspective, it is not a self-evident proposition that, just because a statement is consistent with something Donald Trump said, the statement therefore is not false or misleading, even if Trump was President at the time he said it.
I confess that when I read Judge Scola’s Trump reference, I made certain assumptions about the Judge’s politics and about who had appointed him to the bench. Turns out, my assumptions were off the mark. Judge Scola was appointed by President Obama.
In any event, there is a long way to go before the story on this litigation will be told, but at this point, the interim record suggests that in the end the coronavirus related securities litigation will not have proven to be successful from a plaintiffs’ standpoint. Of course, there is still a long way to go before any pronouncements will be in order.