United States District Court, S.D. New York
March 9, 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
This Opinion grants a motion to dismiss a claim for unjust enrichment
as barred by the Securities Litigation Uniform Standards Act of 1998,
Pub.L. No. 105-353, 112 Stat. 3227 ("SLUSA"). Kingdom 5-KR-41, Ltd.
("Kingdom"), a Cayman Islands
corporation, commenced an action on April 6, 2001, against Star
Cruises PLC, a Bermuda corporation, and its wholly owned 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 On August 16, 2001, Marketing
Systems International, BWI ("MSI"), a Cayman Islands corporation, filed
this class action complaint against Star and BNY for violations arising
from the same set of facts as those pleaded by Kingdom. Its causes of
action track those pleaded by Kingdom, and MSI's case was accepted as
related to Kingdom's.*fn3
Star now moves for a judgment on the pleadings dismissing MSI's sole
claim against it, a claim for unjust enrichment, as preempted by SLUSA.
For the reasons stated below, the motion is granted.*fn4
In its original complaint, Kingdom alleged violations of the federal
securities laws and unjust enrichment against Star, and breach of
contract against BNY. In a March 20, 2002 Opinion, Judge Schwartz
dismissed all of Kingdom's claims except for its unjust enrichment claim
against Star, and the breach of contract claim against BNY. Kingdom
5-KR-41, Ltd, v. Star Cruises PL, No. 01 Civ. 2940 (ACS), 2002 WL
432390 (S.D.N.Y. Mar. 20, 2002) (the "March Opinion"). Kingdom's
securities law claims, filed pursuant to Sections 14e and 20(a) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78n(e), 78t(a), were
dismissed based on Kingdom's (1) failure properly to plead that Star
acted with the requisite scienter in making the alleged
misrepresentations contained in Star's SEC filings in connection with its
tender offer, and (2) failure to plead that it relied on statements made
by Star after the tender offer period. Id. at *8-9.
The parties had stipulated that the March Opinion would apply with
equal force to MSI's purported class action. 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.
The facts of this case are more comprehensively described in this
Court's February 26, 2004 Opinion, which granted BNY's motion to dismiss
Kingdom's amended claims for negligence and breach of fiduciary duty.
Kingdom 5-KR-41, Ltd, v. Star Cruises PLC, No. 01 Civ. 2940
(DLC), 2004 WL 359138 (S.D.N.Y. Feb. 26,
2004). Familiarity with that Opinion is assumed. Only a brief
recitation of the facts relevant to this motion will be included here.
On July 9, 1999, NCL and BNY entered into a Deposit Agreement that
created American Depositary Shares ("ADSs") of NCL.*fn5 MSI was a holder
of NCL's ADSs. 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"). 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.*fn6 The Schedule 14D-1 stated
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. MSI declined to tender its ADSs during the tender offer
In a February 16, 2000 press release ("the Press Release"), Star
confirmed that it had successfully acquired more than 90% of NCL's shares
and intended to commence the compulsory acquisition of the remaining NCL
shares. In a June press release, however, Star claimed that it could not
commence the acquisition because 10.9% of NCL shares were still held by
its three affiliates.
On November 29, Star acquired the necessary NCL shares from its
affiliates, and commenced the compulsory acquisition on November 30. The
share price offered in the compulsory acquisition was the then-market
price of 13 NOK per share.
BNY, which was 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 approximately two months to contest the 13 NOK
compulsory offer price and
initiate a valuation proceeding under Norwegian law. On December 4,
2000, approximately four days after the compulsory offer, BNY accepted
the 13 NOK per share price on behalf of all of the ADSs in its
In its class action complaint, MSI claims that Star was unjustly
enriched by acquiring NCL securities in the compulsory acquisition for 13
NOK per share instead of the 35 NOK per share it paid in the tender
offer. MSI's complaint alleges that Star's Schedule 14D-1 "contained
material misrepresentations and omissions of material facts" regarding
the timing of Star's acquisition of its affiliates' shares and the
initiation of the compulsory acquisition that were made "with the
intention that [MSI] and the Class would rely thereon." It further
alleges that Star "had actual knowledge of the materially false and
misleading statements and material omissions" set forth in the Schedule
14D-1 and Press Release "and intended to deceive or in the alternative
acted with reckless disregard for the truth" when they made the
misrepresentations. If Star "had not been misleading," such information
would have been "material to [MSI's] decision as to whether to tender its
ADSs during the tender offers, and would have tendered its shares to Star
before the tender offers expired."
SLUSA, enacted in 1998, was passed "in response to a demonstrably
unavailing attempt by Congress, through the Private
Securities Litigation Reform Act of 1995 (`PLSRA') Pub.L. 104-67,
109 Stat. 737 (1995) (codified in part at 15 U.S.C. § 77z-l, 78u), to
prevent strike suits, described as meritless class actions that allege
fraud in the sale of securities." Spielman v. Merrill Lynch, Pierce,
Fenner & Smith, Inc., 332 F.3d 116, 122 (2d Cir. 2003) (citation
omitted); In re WorldCom, Inc. Securities Litigation, No. 02
Civ. 3299 (DLC), 2004 WL 315143, at *3-4 (S.D.N.Y. Feb. 20, 2004)
(describing background of SLUSA). SLUSA made federal courts "the
exclusive venue for class actions alleging fraud in the sale of certain
covered securities." Spielman, 332 F.3d at 123 (citation omitted);
see 15 U.S.C. § 77p(b)-(c); 15 U.S.C. § 78bb(f)(1)(A)
and (f)(2). To effectuate Congress' purpose in enacting SLUSA, Congress
specifically directed courts to interpret SLUSA in an expansive fashion.
See In re WorldCom, 2004 WL 315143, at *4.
SLUSA provides for complete preemption of those actions covered by its
provisions. SLUSA's preemption provision provides, in pertinent part:
No covered class action based upon the statutory
or common law of any State or subdivision thereof
may be maintained in any State or Federal court by
any private party alleging . . . a
misrepresentation or omission of a material fact
in connection with the purchase or sale of a
covered security. . . .
15 U.S.C. . . . 78bb(f)(1)(A). SLUSA does not, however,
"preclude all state enforcement or private causes of action in securities
fraud cases." Spielman, 332 F.3d at 123. A claim will be barred
by SLUSA if the defendant shows that the claim is: (1) a covered
class action; (2) based on state law; (3) alleging an untrue
statement or omission of material fact; (4) in connection with the
purchase or sale of a covered security. In re WorldCom, Inc. ERISA
Litigation, 263 F. Supp.2d 745, 769 (S.D.N.Y. 2003) (DLC).
Courts in this circuit have consistently rejected plaintiffs' attempts
through artful pleading to avoid the clear precepts of SLUSA and its
preemption of state law securities claims for damages. As the Second
Circuit commanded in Spielman, the "district court must examine the
complaint to determine whether the substantive requirements [of SLUSA]
have been satisfied." Spielman, 332 F.3d at 124 (emphasis
supplied). See Dacey v. Morgan Stanley Dean Witter & Co.,
263 F. Supp.2d 706, 710 (S.D.N.Y. 2003) (breach of contract claim
preempted); Winne v. Equitable Life Assurance Society of U.S.,
No. 03 Civ. 1689 (GEL), 2003 WL 22434215, at *7-9 (S.D.N.Y. Oct. 27,
2003) (unjust enrichment claim, inter alia, preempted); In
re WorldCom, Inc. ERISA Litigation, 263 F. Supp.2d at 770
(negligence claim preempted); Araujo v. John Hancock Life Ins.
Co., 206 F. Supp.2d 377, 383 (E.D.N.Y. 2002) (breach of contract
and unjust enrichment claims preempted).
MSI does not dispute that this is a covered class action,*fn7
nor that their unjust enrichment claim is based on state law.*fn8
MSI's arguments regarding the remaining two criteria for preemption are
Untrue Statement of Material Fact
In its complaint, MSI directly links its unjust enrichment claim with
the alleged misrepresentations and omissions of material facts contained
in Star's Schedule 14D-1 and the Press Release. According to MSI, Star's
Schedule 14D-1 contained "materially misleading representations"
regarding the timing of the Star affiliates' transfer of their NCL
shares to Star, and the timing of and price to be offered at the
compulsory acquisition. MSI alleges that Star's misrepresentations were
made "with intent to deceive" the ADS holders, and that MSI and other
purported class members suffered damages as a result of Star's
MSI's complaint is premised on Star's purported misrepresentations in
connection with its tender offer for the NCL shares. Even if MSI failed
adequately to allege Star's scienter in making the misrepresentations,
that failure does not
prevent the claim from being preempted. Nothing in SLUSA's language
suggests that it bars only state law claims that plead a certain level of
scienter. In re WorldCom, Inc. ERISA Litigation, 263 F. Supp.2d
at 769; Winne, 2003 WL 22434215, at *7-8.
MSI argues that its action is not preempted by SLUSA because it has not
alleged any misrepresentations by BNY. In that connection, MSI devotes a
considerable portion of its brief detailing its case against BNY, and
showing that its allegations against BNY do not satisfy the SLUSA
preemption test. Star, however, is only moving for judgment on the
pleadings with respect to MSI's claims against itself. Whether or not
MSI's claims against BNY are preempted by SLUSA is irrelevant
to Star's motion to dismiss the unjust enrichment claim against
"In Connection With" a Security
SLUSA's preemption provision applies to claims alleging a
misrepresentation "in connection with the purchase or sale of a covered
security."*fn9 15 U.S.C. § 77p(b). Although SLUSA does not define
that phrase, courts, including this Court, have looked for guidance to
the law interpreting claims brought under Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5, where parallel statutory language is
found. See, e.g., Riley v.
Merrill Lynch, Pierce, Fenner & Smith, Inc.,
292 F.3d 1334, 1342-43 (11th Cir. 2002); In re WorldCom, 263 F. Supp.2d
at 110-11; Spielman v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., No. 01 Civ. 3013 (DLC), 2001 WL 1182927, at *2 (S.D.N.Y. Oct.
9, 2001); see also Spielman, 332 F.3d at 132 (Newman, J.,
concurring) (noting slight difference in statutory requirements)
Relief under Section 10(b) is limited to purchasers and sellers of
securities. See Blue Chip Stamps v. Manor Drug Stores,
421 U.S. 723, 731-32 (1975); Lawrence v. Cohn, 325 F.3d 141, 147-48 (2d
Cir. 2003). "The terms `buy' and `purchase' each include any contract to
buy, purchase or otherwise acquire," and "[t]he terms `sale' and `sell'
each include any contract to sell or otherwise dispose of." Blue
Chip Stamps, 421 U.S. at 750 n.3 (citing statutory definitions). A
transaction will be considered sufficiently connected to the purchase or
sale of stock if a plaintiff demonstrates "an injury as a result of
deceptive practices `touching' its purchase or sale of securities."
In re Ames Dep't Stores Inc. Stock Litig., 991 F.2d 953, 964
(2d Cir. 1993).
MSI alleges that Star's unjust enrichment occurred in connection with
the purchase or sale of NCL stock. In its complaint, MSI seeks to
represent all persons "who held NCL shares and ADSs of NCL and whose
shares were acquired" in the compulsory acquisition. (Emphasis
MSI argues in opposition to this motion that its unjust
enrichment claim does not satisfy the "in connection with"
requirement because MSI "was a holder of securities . . .
and was not induced to purchase or sell securities as a result of
the conduct of Defendants." (Emphasis in original.) This argument is
unpersuasive. As alleged in its complaint, the gravamen of MSI's unjust
enrichment claim is MSI's forced sale of its NCL shares at 13 NOK rather
than 35 NOK, and Star's unjust enrichment in acquiring the stock at the
reduced rate. This claim sufficiently "touches" the purchase or sale of a
security as defined in Blue Chip Stamps to be preempted by
SLUSA. See Madison Consultants v. Fed. Pep. Insur. Corp.,
710 F.2d 57, 60-61 (2d Cir. 1983) ("forced seller" is a seller under
Rule 10-b); Vine v. Beneficial Finance Co., 374 F.2d 627, 633-35 (2d
Cir. 1967) (shareholders forced out in short-term merger are "sellers"
under Rule 10-b).
Star has shown that MSI's unjust enrichment claim against it is
preempted by SLUSA. MSI's action is a class action, asserting a state law
claim for unjust enrichment, based on statements contained in Star's
Schedule 14D-1 and the Press Release that are alleged to have
misrepresented the "timing and price" of the compulsory acquisition, and
that were made in connection with Star's acquisition of MSI's shares.
For the reasons stated above, the motion by Star Cruises PLC and
Arrasas Ltd. for judgment on the pleadings dismissing
Marketing System's International Ltd., BWI's claim for unjust
enrichment is granted.