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In re OSG Secs. Litig.

United States District Court, S.D. New York

April 28, 2014

IN RE OSG SECURITIES LITIGATION

Page 623

For Lead Plaintiffs: Samuel H. Rudman, Esq., David A. Rosenfeld, Esq., Alan I. Ellman, Esq., Christopher M. Barrett, Esq., Robbins Geller Rudman & Dowd LLP, Melville, NY.

For Morten Arntzen, Defendant: Scott B. Schreiber, Esq., Craig A. Stewart, Esq., Daniel R. Bernstein, Esq., Arnold & Porter, Washington, DC.

For Myles R. Itkin, Defendant: David H. Kistenbroker, Esq., Joni S. Jacobsen, Esq., Ashley J. Burden, Esq., Dechert LLP, Chicago, IL.

OPINION

Page 624

OPINION AND ORDER

Shira A. Scheindlin, U.S.D.J.

I. INTRODUCTION

Lead Plaintiffs Stichting Pensioenfonds DSM Nederland, Indiana Treasurer of State, and Lloyd Crawford (collectively, " plaintiffs" ), bring this action on behalf of themselves and others similarly situated on the basis of a March 2010 Senior Notes

Page 625

Offering (" the Offering" ) by Overseas Shipholding Group, Inc. (" OSG" or " the Company" ). OSG filed for bankruptcy on November 14, 2012, and is not a party to this action.[1]

Plaintiffs name the following parties as defendants: Morten Arntzen[2], Myles R. Itkin[3], Alan R. Batkin, Thomas B. Coleman, Charles Fribourg, Stanley Komaroff, Solomon N. Merkin, Joel I. Picket, Ariel Recanati, Oudi Recanati, Thomas F. Robards, Jean-Paul Vettier, and Michael Zimmerman[4] (collectively, the " Individual Defendants" ); PricewaterhouseCoopers LLP (" PwC" ) and Ernst & Young (" E& Y" ) (collectively, the " Auditor Defendants" ); and Citigroup Global Markets Inc., Deutsche Bank Securities Inc., DNB Markets, Inc. (f/k/a DnB NOR Markets, Inc.), Goldman, Sachs & Co., HSBC Securities (USA) Inc., ING Financial Markets LLC, and Morgan Stanley & Co. LLC (f/k/a Morgan Stanley & Co. Incorporated) (collectively, the " Underwriter Defendants" ).[5]

In April and May of 2013, the Auditor Defendants, the Underwriter Defendants, and the Individual Defendants all moved to dismiss the Consolidated Amended Complaint (" Consolidated Complaint" ). In an opinion dated September 10, 2013 (the " September 2013 Opinion" ), I denied the Auditor Defendants' and the Underwriter Defendants' motions in full. I denied the Individual Defendants' motion in part, but granted the motion with respect to the claims under Section 10(b) and Section 20(a) of the Securities Exchange Act of 1934 (the " Exchange Act" ), with leave to amend.[6]

On October 10, 2013, plaintiffs filed the Second Consolidated Amended Complaint (" Second Consolidated Complaint" ). On November 12, 2013, Arntzen and Itkin moved to dismiss plaintiffs' claims under the Exchange Act. While the motion was pending, OSG filed a malpractice claim against its former outside counsel, Proskauer Rose LLP (" Proskauer" ), in Delaware Bankruptcy Court, which Proskauer subsequently moved to dismiss (the " Proskauer Motion" ). I granted plaintiffs permission to amend the Second Consolidated Complaint once more to add factual allegations uncovered by the Proskauer lawsuit. Both sides were permitted to submit supplemental briefing on the new allegations. For the reasons that follow, defendants' motion to dismiss is denied.

II. BACKGROUND

A. Business Operations and Tax Liability

OSG is a tanker company with a fleet of over one hundred vessels operating both domestically and internationally.[7] The international

Page 626

fleet, which constitutes about seventy-five percent of the Company's vessels, is owned and operated entirely by foreign subsidiaries of OSG International, Inc. (" OIN" ), a wholly owned subsidiary of OSG.[8]

Section 956 of Section F of the Internal Revenue Code (" Section 956" ) provides that, when a foreign subsidiary guarantees the loans of a United States parent company, the " accumulated 'earnings and profits' of that subsidiary are deemed to have been distributed to the U.S. parent company" up to the full amount of the loan obligation.[9] The parent company is therefore subject to United States federal income taxation on the amount of the deemed distribution.[10] Plaintiffs allege that OSG entered into various debt ...


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