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KINGDOM 5-KR-41, LTD. v. STAR CRUISES PLC.

February 26, 2004.

KINGDOM 5-KR-41, LTD., Plaintiff, -v- STAR CRUISES PLC, et al., Defendants; MARKETING SYSTEMS INTERNATIONAL, LTD., BWI, Plaintiff, -v- STAR CRUISES, et al., Defendants


The opinion of the court was delivered by: DENISE COTE, District Judge

OPINION AND ORDER

Kingdom 5-KR-41, Ltd. ("Kingdom"), a Cayman Islands corporation, commenced this action on April 6, 2001, against Star Cruises PLC, a Bermuda corporation, and its wholly owned Page 2 subsidiary, Arrasas Ltd.*fn1 (collectively with Star, "Star"), as well as the Bank of New York ("BNY"), a New York corporation, for damages arising out of Star's acquisition of all of the outstanding shares of NCL Holding ASA ("NCL"), a Norwegian corporation.*fn2 BNY now moves to dismiss two of the three remaining state court claims against it. For the following reasons, BNY's motion is granted.

 Background

  In its original Complaint, Kingdom alleged violations of the federal securities laws and unjust enrichment against Star, and breach of contract against BNY.*fn3 BNY filed cross-claims against Star, and a third-party complaint against NCL. In a March 20, 2002 Opinion, the Honorable Alien Schwartz, to whom this case was then assigned, dismissed all of Kingdom's claims Page 3 except for its unjust enrichment claim against Star, and the breach of contract claim against BNY. Kingdom 5-KR-41, Ltd. v. Star Cruises PLC, No. 01 Civ. 2940 (ACS), 2002 WL 432390 (S.D.N.Y. Mar. 2002) (the "March Opinion"). The Court retained jurisdiction over the state law claim against BNY based on the diversity of the parties, and exercised supplemental jurisdiction over the remaining state law claim against Star.

  On August 5, 2003, after the conclusion of fact discovery, Kingdom filed an Amended Complaint in which it added claims against BNY for negligence and breach of fiduciary duty, as well as a demand for punitive damages.

  The following facts are as alleged by Kingdom, and as reflected in documents integral to its Complaint. On July 9, 1999, NCL and BNY executed a Deposit Agreement that created American Depositary Shares ("ADSs") of NCL.*fn4 The agreement reflected as its purpose NCL's desire to provide for the deposit of its shares and the creation, based on that deposit, of ADSs. Each ADS would represent four ordinary shares of NCL. The Deposit Agreement described at length the rights and duties of Page 4 NCL and BNY. It also granted BNY the right to resign, and NCL the right to remove BNY as the depositary and to appoint a successor. BNY and NCL also indemnified each other from certain types of liability and expenses.

  The Deposit Agreement included provisions addressing BNY's obligations to the beneficial owners of NCL's ADSs. It also addressed the liability of BNY to beneficial owners of ADSs. Section 5.03 of the Deposit Agreement, entitled "Obligations of the Depositary, the Custodian and the Issuer" provides in part that: "The Depositary assumes no obligation nor shall it be subject to any liability under this Deposit Agreement to an Owner or Beneficial Owners, except that it agrees to perform its obligations specifically set forth in this Deposit Agreement without negligence or bad faith."

  On January 13, 2000, Star commenced a tender offer to purchase all of the outstanding shares of NCL. In connection with the tender offer, Star filed a Schedule 14D-1 with the Securities and Exchange Commission ("SEC"). In the Schedule 14D-1, Star offered to purchase all ADSs of NCL. The offer was for 35 Norwegian Kroner ("NOK") per share and expired on February 10, 2000.

  The Schedule 14D-1 stated that Star's intent was to acquire all of the outstanding shares of NCL.*fn5 The Schedule 14D-1 stated Page 5 that three Star affiliates intended to transfer their shares to Star, and, provided Star held more than 90% of the outstanding shares following the tender offer, it intended to effect a compulsory acquisition pursuant to Norwegian law "as promptly as practicable" after the tender offer period ended. The Schedule 14D-1 also indicated that Star expected to offer the remaining shareholders a price "equal to" the offer price, but cautioned in bold letters that such a price was not guaranteed. Kingdom declined to tender its ADSs during the tender offer period.

  Shortly after completion of the tender offers, Star confirmed in a February 16, 2000 press release that it had successfully acquired over 90% of NCL and intended to commence the compulsory acquisition of the remaining shares of NCL. On June 26, however, Star claimed in another press release that it could not commence the acquisition because 10.9% of NCL shares were still held by three affiliates. The press release stated that Star was planning an initial public offering of its own stock in the "later part" of 2000, after which Star intended to acquire the NCL shares of its affiliates and complete the compulsory acquisition. Page 6 Kingdom was the beneficial owner of 1,810,810 ADSs representing 7, 243, 240 ordinary shares of NCL. On October 11, 2000, Kingdom brought a valuation proceeding in Norway against Star and GT Lim. Kingdom claimed that Star and its related entities had acquired more than 90 percent of NCL's shares through the tender offer, and as a result were required to buy Kingdom's shares at 35 NOK each. On November 29, Star acquired the necessary NCL shares from its affiliates, and commenced the compulsory acquisition the following day. The share price offered in the compulsory acquisition was the then-market price of 13 NOK per share.

  BNY, as the depositary for NCL's ADSs, received notice of the compulsory acquisition and the right to contest the offer price on or about November 30. Pursuant to the terms of the compulsory acquisition offer, shareholders had until February 7, 2001 to contest the 13 NOK compulsory offer price and initiate a valuation proceeding under Norwegian law.

  In its Amended Complaint, Kingdom alleges that, under the Deposit Agreement, "BNY owed a fiduciary duty (as agent) to Kingdom, as ADS owner (as principal), to act in Kingdom's interest when it received notice of the Compulsory Acquisition offer. . . . BNY owed a fiduciary duty to Kingdom to keep Kingdom informed and to seek Kingdom's instructions on discretionary matters." According to Kingdom, the Deposit Agreement provided that BNY would "perform certain acts on behalf of ADS owners, such as Kingdom." Kingdom contends that BNY had a duty under Page 7 Sections 4.02 and 4.04 of the Deposit Agreement to distribute to ADS holders of NCL all notices regarding "distributions or the offering of any rights" with respect to their shares, including the compulsory tender offer and right to reject the offer and demand valuation of the shares by a Norwegian court. BNY did not notify the ADS holders of Star's offer, however, and, on December 4, 2000, approximately four days after the compulsory offer, accepted the 13 NOK per share price on behalf of all of the ADSs in its possession.*fn6

  Upon learning that BNY had accepted Star's 13 NOK per share price on Kingdom's behalf, Kingdom immediately instructed BNY to rescind the acceptance. BNY attempted to rescind, but Star refused to accept the rescission and asserted that Kingdom had lost its right to contest the 13 NOK acquisition price. The Norwegian court dismissed Kingdom's valuation proceeding against Star, finding that BNY's apparent authority to accept Star's offer on Kingdom's behalf terminated Kingdom's right to pursue its demand for at least 35 NOK per share in the Norwegian court. Kingdom claims it suffered damages of over $17 million.

  Kingdom asserts claims against BNY for breach of contract, negligence, and breach of fiduciary duty. BNY now moves to dismiss Kingdom's negligence and breach of fiduciary duty claims against it. New York law governs claims arising out of the Page 8 Deposit Agreement*fn7, and neither Kingdom nor BNY has ...


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