City of Aventura Police Officers' Ret. Fund v. Arison
| Decision Date | 15 October 2020 |
| Docket Number | 656212/2019 |
| Citation | 70 Misc.3d 234,134 N.Y.S.3d 662 |
| Parties | CITY OF AVENTURA POLICE OFFICERS' RETIREMENT FUND, Plaintiff, v. Micky ARISON, Jonathon Band, Jason Cahilly, Helen Deeble, Richard Glasier, Debra Kelly-Ennis, John Parker, Stuart Subotnick, Laura Weil, Randall Weisenburger, Arnold Donald, Carnival PLC, Defendants. |
| Court | New York Supreme Court |
Counsel for Plaintiff: SAMUEL H. RUDMAN, MARY K. BLASY, ROBBINS GELLER RUDMAN & DOWD LLP, 58 South Service Road, Suite 200, Melville, NY 11747, TRAVIS E. DOWNS III, BENNY C. GOODMAN III, ERIK W. LUEDEKE, ROBBINS GELLER RUDMAN & DOWD LLP, 655 West Broadway, Suite 1900, San Diego, CA 92101, PEDRO A. HERRERA, SUGARMAN & SUSSKIND, P.A., 100 Miracle Mile, Suite 300, Coral Gables, FL 33134, BRIAN J. ROBBINS, ASHLEY R. RIFKIN, ROBBINS LLP, 5040 Shoreham Place San Diego, CA 92122
Counsel for Defendants: Audra J. Soloway, Christopher L. Filburn, PAUL, WEISS, RIFKIND, WHARTON & GARRISON LLP, 1285 Avenue of the Americas, New York, New York 10019, George Wang, SIMPSON THACHER & BARTLETT LLP, 425 Lexington Avenue, New York, New York 10017, Karen Porter, SIMPSON THACHER & BARTLETT LLP, 900 G. Street NW, Washington, DC 20001
This case presents novel questions as to whether, and under what circumstances, the shareholders of an English company may bring a derivative action in a New York court.
Plaintiff holds American Depositary Shares of Carnival plc, an English company. As an ADS holder, Plaintiff holds beneficial ownership of Carnival plc ordinary shares. Defendants are directors of both Carnival plc and Carnival Corporation (a Panamanian company), which are part of a dual-listed company called "Carnival Corporation and plc." Under the dual-listed company structure, which arose out of a transaction in 2003, the companies maintain their separate corporate existence, but they have identical boards of directors and senior executive management and share equally in the combined entity's revenues and costs.
Plaintiff alleges that Defendants' failure to properly oversee the operations of Princess Cruise Lines, Ltd. ("Princess"), a subsidiary of Carnival Corporation, led to the imposition of over $60 million of fines and penalties for environmental and maritime crimes. The financial impact of those fines and penalties was borne equally by Carnival plc and Carnival Corporation via the dual-listed company structure. Plaintiff asserts that Defendants' conduct breached their fiduciary duties to Carnival plc and its shareholders.
Defendants move to dismiss the Complaint on various grounds. First, they argue that Plaintiff lacks standing under New York law because Defendants' alleged failings occurred in their oversight of Carnival Corporation, a company in which Plaintiff is not a shareholder. Second, they argue that Plaintiff's claims are barred by English statutory and common law, which (in their view) impose conditions on shareholder standing to assert derivative claims that Plaintiff does not satisfy. Finally, they argue that the Complaint should be dismissed because Plaintiff failed to make a demand upon the Carnival plc board to bring this action and because the Complaint fails to state claims with sufficient specificity.
For the reasons described below, Defendants' motion to dismiss is granted. Plaintiff (an ADS holder) is not a registered "member" of Carnival plc, and thus under the United Kingdom Companies Act 2006 ("Companies Act") it is not permitted to bring a derivative action on Carnival plc's behalf. Because the membership requirement is a substantive limit on shareholder standing to assert a derivative claim — and not merely a procedural hurdle — the Court is obliged to apply it to this case under the "internal affairs" doctrine.1 New York's Business Corporation Law does not, as Plaintiff suggests, displace the substantive law of the state of incorporation (here, England and Wales) with respect to shareholder standing.
Defendants' remaining arguments in support of dismissal — including that Plaintiff does not satisfy New York share ownership requirements, that Plaintiff failed to obtain English court approval before filing suit, and that Plaintiff failed to make a demand upon Carnival plc's board to bring suit — are unavailing.
As noted above, Carnival plc and Carnival Corporation are part of a dual-listed company ("DLC") known as "Carnival Corporation & plc," the world's largest leisure travel company and cruise ship operator . Under the DLC, the businesses of Carnival Corporation and Carnival plc are combined through, inter alia , provisions in Carnival Corporation's Articles of Incorporation and By-Laws and Carnival plc's Articles of Association (Affidavit of Arnaldo Perez ["Perez Aff."] ¶3 [NYSCEF 18] ). The DLC structure enables Carnival Corporation and Carnival plc to operate as a single economic enterprise, with a single senior executive management team and identical boards of directors .
They also file consolidated financial statements, believing that "[g]iven the DLC arrangement, ... providing separate financial statements for each of Carnival Corporation and Carnival plc would not present a true and fair view of the economic realities of their operations" (Affirmation of Mary K. Blasy ["Blasy Aff."] Ex. B [SEC Form 10-K for Carnival Corporation & plc] [NYSCEF 33]; Perez Aff. ¶3).
The DLC arrangement began in 2003, when Carnival Corporation combined with P & O Princess Cruises plc, the precursor to Carnival plc (Blasy Aff. ¶¶4-5). Before the combination, the ordinary shares of P & O Princess Cruises plc were listed on the London Stock Exchange ("LSE"), with American Depositary Shares ("ADS"), each one representing four ordinary shares, trading on the New York Stock Exchange ("NYSE") (id. ; see Blasy Aff. Ex. A [Equalization Agreement] [NYSCEF 32] ). In order for shareholders of the combining companies to avoid the tax liability resulting from divestiture, and to permit U.K. investors to maintain ownership of their old Princess shares, the transaction was accomplished through a dual-listing agreement rather than a formal merger (id. ). Following the combination, the then-existing shareholders and ADS holders of both Carnival Corporation and P & O Princess Cruises plc retained those securities in what are now, respectively, Carnival Corporation and Carnival plc (id. ).
Each Carnival entity within the DLC also retains its own separate legal identity (Compl. ¶2). Carnival plc is incorporated in England and Wales; its stock continues to trade on the LSE and, as ADS, on the NYSE (id. ¶¶14, 18). Carnival Corporation, meanwhile, is incorporated in Panama and its shares are traded on the NYSE (Blasy Aff. ¶¶4, 7; see Blasy Aff. Ex. B).
This action comes in the wake of criminal proceedings brought by the U.S. government against Princess, a Carnival Corporation subsidiary, for violations of environmental and maritime laws (Compl. ¶3; see Blasy Aff. ¶11).2 In December 2016, Princess entered into a Plea Agreement in which it pled guilty to, inter alia , charges that it knowingly discharged "oily bilge water and slops from bilges" in U.S. waters, and agreed to a sentence that included $40 million in penalties "plus mandatory special assessments" (Blasy Aff. Ex. J at 2, 4 [Plea Agreement] [NYSCEF 41] ). In addition, the Plea Agreement called for Princess "and Carnival Corporation and Carnival plc" to "fully fund and implement" an Environmental Compliance Plan ("ECP") (id. at 9). The Plea Agreement was signed by authorized representatives for Princess as well as for "Carnival Corporation & plc" (see id. at 19). This followed an earlier board meeting in which "Carnival Corporation and Carnival plc (collectively, ‘Carnival’)" adopted a resolution approving entry into the Plea Agreement and authorized a senior manager of the DLC to execute the Plea Agreement (Blasy Aff. Ex. H [NYSCEF 39] ). Both the "Designation of Authority" and a "Secretary's Certificate" attesting to the veracity of the documentation was signed by Arnaldo Perez, in his dual capacities as "Secretary of Carnival Corporation" and "Company Secretary of Carnival plc" (id. ).
The United States District Court for the Southern District of Florida accepted Princess's guilty pleas in December 2016 (Blasy Aff. Ex. I [NYSCEF 40]. Then in April 2017, the court sentenced Princess to pay a $40 million criminal penalty and to serve a five-year term of probation ( see Blasy Aff. Ex. Q [NYSCEF 48] ). Additionally, "Carnival Corporation and Carnival plc ... agreed to fully fund and implement th[e] ECP" accompanying the probation, such that Carnival Corporation and Carnival plc's "compliance with the terms of th[e] ECP [was] a Special Condition of [Princess's] Probation" (Blasy Aff. Ex. L [ECP] [NYSCEF 43] ). The ECP mandated that a court-appointed monitor would serve as the court's "eyes and ears" within the Carnival entities to assess the "big picture" of the companies' compliance efforts (Blasy Aff. Ex. Q at 5 [First Annual Report of the Court Appointed Monitor (2017-2018) ] [NYSCEF 48] ).
Those efforts foundered. In 2019, the government filed a Superseding Petition in the case, asserting six probation violations . To resolve the government's new round of charges, Princess "admit[ted] that it committed the violations alleged in the Superseding Petition" and "further admit[ted] that [Princess], its corporate parent (Carnival Corporation & plc) and related subsidiaries and entities... violated terms of probation and the [ECP]" (Blasy Aff. Ex. U). The "defendant" — i.e. , Princess — "agree[d] to pay an additional financial penalty of $20 million" (id. ). The resolution was signed by defendant's counsel and by three "Member[s] of the Executive Committees of the Board of Directors" for "Carnival Corporation and...
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