The opinion of the court was delivered by: Stein, District Judge.
Plaintiff Wayland Investment Fund, LLC ("Wayland") brought this
action alleging that defendant Millenium Seacarriers, Inc.
("Millenium") erroneously calculated the interest paid on
approximately $74 million in Exchange Notes issued by Millenium
and purchased by Wayland. Prior to the commencement of discovery,
Millenium has moved to dismiss the breach of contract claim in
the Second Amended Complaint pursuant to Fed.R.Civ.P. 12(b)(6) on
the grounds that interest was paid in conformity with the clear
and unambiguous terms of the Exchange Notes. For the reasons set
forth below, the motion is granted.
The Offering Circular stated, "The Issue Price to investors per
Unit will be $965.93, representing a yield to maturity on the
Notes of 12¾% (computed on a semi-annual bond equivalent basis)
calculated from July 24, 1998. The Notes will bear original issue
discount (`OID')." Offering Circular at 1, annexed to Second Am.
Compl. as Ex. A. The Offering Circular also represented that the
Exchange Notes, which were to be offered pursuant to a
prospectus, "would have terms substantially identical in all
material respects to the [original] Notes." Second Am. Compl. ¶
8. Similarly, the Prospectus stated, "The issue price of the
Units to investors was $965.93 representing a yield to maturity
on the Notes of 12¾% (computed on a semi-annual bond equivalent
basis calculated from July 24, 1998)." Prospectus at 35, annexed
to Second Am. Compl. as Ex. B. In reliance on these and other
similar terms of the Offering Circular and the Prospectus,
Wayland purchased over 25% of the Exchange Notes at a cost of
$73.9 million. See Second Am. Compl. ¶ 17.
The Exchange Notes state that Millenium "promises to pay cash
interest on the Accreted Value of this Security at the rate per
annum shown above. The Company will pay interest semiannually on
January 15 and July 15 of each year." Exchange Note at 3, annexed
to Second Am. Compl. as Ex. C. Four lines "above" that phrase,
the Exchange Note states that it is a "12% First Priority Ship
Mortgage Exchange Note Due 2005." Id. In addition, the
governing Indenture explains the calculation of accreted value.
See Indenture § 1.01, at 2, annexed to Second Am. Compl. as Ex.
D. According to the complaint, "[i]f interest is paid on the
Accreted Value of the Exchange Notes" pursuant to these terms,
"then the yield to maturity on the Exchange Notes is less than
12¾%." Second Am. Compl. ¶ 18. In other words, plaintiff alleges
that the actual yield to maturity of the Exchange Notes is less
than the 12¾% rate promised by Millenium in the Offering Circular
and the Prospectus.
On July 15, 1999, and January 15, 2000, Millenium made interest
payments that were calculated based on accreted value in
accordance with the terms of the Exchange Notes but allegedly
contrary to the terms of the Offering Circular and the Prospectus
filed with the SEC. See id. ¶¶ 20-21. On February 3, 2000,
Wayland sent Millenium a letter asserting that Millenium had
defaulted on its obligation to pay interest and invoking certain
acceleration provisions requiring immediate payment of the entire
principal of and accrued but unpaid interest on the Exchange
Notes. See id. ¶¶ 22-24, Ex. E. The acceleration clause, set
forth in the Indenture, provides:
If an Event of Default . . . occurs and is
continuing, . . . the Holders of at least 25% in
principal of amount at maturity of the Securities by
notice to the Company and the Trustee, may declare
the principal of and accrued but unpaid interest on
all the Securities to be due and payable. Upon such a
declaration, such principal and unpaid interest shall
be due and payable immediately.
Indenture § 6.02, at 50, annexed to Second Am. Compl. as Ex. D.
The Indenture further explains, "An `Event of Default' occurs if:
(1) the Company defaults in any payment of interest on any
Security when the same becomes due and payable, and such default
continues for a period of 30 days." Id. § 6.01, at 48.
The parties agree that New York law governs this action.
Accordingly, this Court need not conduct any further choice of
law analysis. See American Fuel Corp. v. Utah Energy ...