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WAYLAND INVESTMENT FUND v. MILLENIUM SEACARRIERS

September 7, 2000

WAYLAND INVESTMENT FUND, LLC, PLAINTIFF,
V.
MILLENIUM SEACARRIERS, INC., DEFENDANT.



The opinion of the court was delivered by: Stein, District Judge.

OPINION & ORDER

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.

BACKGROUND

The following facts are as alleged in the Second Amended Complaint ("complaint"). According to the complaint, Wayland is a Delaware limited liability corporation with its place of business in Minnesota, and Millenium is a corporation organized under the laws of the Cayman Islands with its place of business there as well. See Second Am. Compl. ¶¶ 2-3. In July 1998, Millenium offered 12% First Priority Ship Mortgage Notes (the "Notes") for sale through a publicly disseminated Offering Circular. See id. ¶ 7, Ex. A. Because the Notes were unregistered, Millenium subsequently completed an exchange offer whereby the Notes were privately exchanged for Exchange Notes, and Millenium registered the Exchange Notes through a prospectus ("Prospectus") filed with the Securities and Exchange Commission ("SEC"). See id. ¶¶ 7-9, Ex. B.

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.

DISCUSSION

I. Choice of law

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 ...


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