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

August 8, 2005.

KINGDOM 5-KR-41, LTD., Plaintiff,
v.
STAR CRUISES PLC, ARRASAS LTD., TAN SRI LIM GOH TONG, and THE BANK OF NEW YORK, Defendants. THE BANK OF NEW YORK, Cross-Claimant, v. STAR CRUISES PLC, et al., Cross-Defendants. THE BANK OF NEW YORK, Third Party Plaintiff, v. NCL HOLDING ASA, Third Party Defendant. MARKETING SYSTEMS INTERNATIONAL, LTD., BWI, Plaintiff, v. STAR CRUISES PLC, ARRASAS LTD., TAN SRI LIM GOH TONG, and THE BANK OF NEW YORK, Defendants.



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

OPINION & ORDER

NCL chose BNY as the depositary for its American Depositary Shares ("ADSs"). When BNY was sued by beneficial owners of the ADSs, it brought a third-party action against NCL. All of the claims against BNY having been dismissed, BNY and NCL now dispute the extent to which their Deposit Agreement requires NCL to indemnify BNY for its attorneys' fees and costs associated with this litigation. For the reasons stated below, BNY is entitled to indemnification for its attorneys' fees and costs.

  Background

  The facts relating to this litigation have been detailed in several other Opinions, which are incorporated by reference.*fn1 Familiarity with these Opinions is assumed, and only the facts relevant to the pending motions are repeated here.

  In order for a foreign corporation to trade on an American stock exchange, the foreign corporation must issue and deposit ADS with an American financial institution. The depositary institution then issues American Depositary Receipts ("ADRs") to the beneficial owners of the ADSs, who may sell the ADSs on American securities exchanges. The ADR system is the means by which American investors hold and trade equity interests in foreign companies. See Kingdom, 2004 WL 359138, at *1 n. 4. The entity in whose name an ADR is registered on the books of the ADR depositary is called the registered owner, or "Owner." The entity that has the beneficial interest in the ADSs is called the beneficial owner.

  On July 9, 1999, NCL and BNY entered into the Deposit Agreement, which established NCL's ADR program, created ADSs of NCL, and named BNY as the depositary. The Owner of the ADRs was the Depositary Trust Company, a clearing agency. The parties to the Deposit Agreement included not just NCL and BNY, but also the owner and beneficial owners.*fn2 Rights and duties of each of these participants in the ADR program were specified in the Deposit Agreement, including, for instance, the obligations of the Owner and beneficial owners to NCL as issuer and BNY as depositary.

  In the Deposit Agreement, NCL indemnified BNY for its liability and litigation expense unless the expense arose from BNY's negligence or bad faith, in which event BNY agreed to indemnify NCL. Section 5.08 of the Deposit Agreement provides:
[NCL] agrees to indemnify [BNY], its directors, employees, agents and affiliates and any Custodian against, and hold each of them harmless from, any liability or expense (including, but not limited to, the reasonable fees and expenses of counsel) which may arise out of any registration with the Commission of Receipts, American Depositary Shares or Deposited Securities or the offer or sale thereof in the United States or out of acts performed or omitted, in accordance with the provisions of this Deposit Agreement and of the receipts, as the same may be amended, modified, or supplemented from time to time, (i) by either [BNY] or a Custodian or their respective directors, employees, agents, and affiliates, except for any liability or expense arising out of the negligence or bad faith of either of them, or (ii) by [NCL] or any of its directors, employees, agents, or affiliates.
[BNY] agrees to indemnify [NCL], its directors, employees, agents and affiliates and hold them harmless from any liability or expense which may arise out of acts performed or omitted by [BNY] or its Custodian or their respective directors, employees, agents, or affiliates due to their negligence or bad faith.
(Emphasis supplied.)

  As of late 1999, Star Cruises PLC and its wholly-owned subsidiary Arrasas Ltd. (collectively "Star") and three affiliated companies owned over forty percent of NCL. In early January 2000, Star commenced a mandatory tender offer for all of the outstanding shares of NCL at a price of NOK 35 per share. In a compulsory acquisition it began on November 30, 2000, however, Star offered only NOK 13 per share.

  In the transaction that prompted this litigation, BNY accepted, on behalf of all of the ADSs it held, the cash redemption price offered in the compulsory acquisition. As a result, Kingdom, which was the beneficial owner of more than 1.8 million ADSs, brought suit against BNY and Star*fn3 on April 6, 2001. Kingdom's complaint alleged that BNY failed to notify Kingdom of the compulsory acquisition and its appraisal rights and that BNY accepted the cash redemption price without Kingdom's consent. Kingdom further contended that as a result of BNY's conduct, it was unable to participate in a valuation proceeding in Norway to contest the tender offer. As amended on August 5, 2003, Kingdom's claims against BNY were for breach of contract and the implied covenant of good faith and fair dealing, negligence, and breach of fiduciary duty.*fn4 BNY asserted cross-claims against Star as well as third-party claims against NCL. BNY alleged that Star had engaged in fraudulent concealment and negligent misrepresentation, for which it owed BNY damages equivalent to its liability to Kingdom. Against NCL, BNY asserted claims of fraudulent concealment, breach of fiduciary duty, negligent misrepresentation, common-law indemnification, and contribution. BNY asserted its entitlement to damages equal to the amount for which it was found liable to Kingdom. Additionally, BNY asserted that under Section 5.08 of the Deposit Agreement, it was entitled to be indemnified and held harmless "in connection with the matters raised in Kingdom's litigation, including but not limited to attorneys' fees and expenses."

  Through a February 26, 2004 Opinion and Order ("February 26 Opinion"), Kingdom's claims against BNY for negligence and breach of fiduciary duty were dismissed since Kingdom had not identified a duty owed to it by BNY that was extraneous to the Deposit Agreement, a cause of action for negligence cannot lie for legal duties that arise solely from the contract, and Kingdom had not sufficiently pleaded the existence of a fiduciary duty. See Kingdom, 2004 WL 359138, at *6, *8. Following discovery, BNY moved for summary judgment on Kingdom's remaining claim against it, a breach of contract claim, and in an August 31, 2004 Opinion and Order ("August 31 Opinion"), this motion was granted as well. See Kingdom, 2004 WL 1926090, at *6. The August 31 Opinion relied on provisions of the Deposit Agreement that limited BNY's liability to Owners and beneficial owners to negligent or bad faith performance of obligations set forth in the Deposit Agreement. Id. at *4. Since Kingdom did not point to any obligation BNY owed to it under the Deposit Agreement that BNY had performed negligently or in bad faith, the breach of contract claim was dismissed. Id. at *4-5.

  Also on August 31, 2004, an additional Opinion was issued resolving Kingdom's sole remaining claim against Star, a claim for unjust enrichment. Kingdom, 2004 WL 1944457, at *1. As a result, the remaining motions were dismissed as moot, see, e.g., Kingdom 5-KR-41 Ltd. v. Star Cruises PLC, Nos. 01 Civ. 2946 (DLC), 01 Civ. 7670 (DLC), 2004 WL 1932655, at *1 (S.D.N.Y. Aug. 31, 2004), and the Kingdom action and the MSI action were closed.

  On September 24, 2004, BNY moved to amend these judgments on the ground that this Court overlooked BNY's non-contingent claims for damages caused by Star and NCL's wrongful conduct. Pursuant to a January 20, 2005 Order, the motion for reconsideration was granted. See Kingdom 5-KR-41, Ltd. v. Star Cruises PLC, Nos. 01 Civ. 2946 (DLC), 01 Civ. 7670 (DLC), 2005 WL 110434 (S.D.N.Y. Jan. 20, 2005). While reopening litigation on BNY's non-contingent claims for damages stemming from Star and NCL's allegedly wrongful conduct, the January 20 Order observed that BNY failed to identify what damages it was seeking other than attorneys' fees and costs. Id. at *2. To the extent that BNY sought damages under the "tort of another" doctrine, the January 20 Order granted Star and NCL's motions for summary judgment and dismissed the remainder of their respective motions. Id. at *2-3. The January 20 Order denied NCL's request for additional discovery, stating that "[t]o the extent that BNY is found following this motion practice to have a right to recover attorneys' fees and costs, NCL's application for discovery as to the `reasonableness' of those fees may be renewed at that time."*fn5 Id.

  On March 4, BNY moved for summary judgment on its claim against NCL for contractual indemnification and to dismiss NCL's own claim for contractual indemnification. On April 1, NCL moved for partial summary judgment, arguing principally that BNY can recover at most those fees and costs associated with a motion to dismiss the complaints filed by Kingdom and MSI because 1) indemnification agreements do not generally apply to claims between the ...


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