Opinion
01 Civ. 2946 (DLC), 01 Civ. 7670 (DLC).
August 8, 2005
Dennis C. Fleischmann, Richard J. Schulman, Bryan Cave LLP, New York, New York, for third-party plaintiff The Bank of New York ("BNY").
Howard S. Zelbo, Jeffrey A. Rosenthal, Jane Kim, Cleary Gottlieb Steen Hamilton LLP, New York, New York, for third-party defendant NCL Holding ASA ("NCL").
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. Familiarity with these Opinions is assumed, and only the facts relevant to the pending motions are repeated here.
See, e.g., Kingdom 5-KR-41, Ltd. v. Star Cruises PLC, Nos. 01 Civ. 2946 (DLC), 01 Civ. 7670 (DLC), 2004 WL 1944457 (S.D.N.Y. Aug. 31, 2004) (granting summary judgment for Star on Kingdom's unjust enrichment claim); Kingdom 5-KR-41, Ltd. v. Star Cruises PLC, Nos. 01 Civ. 2946 (DLC), 01 Civ. 7670 (DLC), 2004 WL 1926090 (S.D.N.Y. Aug. 31, 2004) (granting summary judgment for BNY on Kingdom's breach of contract claim); Kingdom 5-KR-41, Ltd. v. Star Cruises PLC, Nos. 01 Civ. 2946 (DLC), 01 Civ. 7670 (DLC), 2004 WL 359138 (S.D.N.Y. Feb. 24, 2004) (dismissing Kingdom's unjust enrichment and negligence claims against BNY); Kingdom 5-KR-41, Ltd. v. Star Cruises PLC, Nos. 01 Civ. 2946 (AGS), 2002 WL 432390 (S.D.N.Y. Mar. 20, 2002) (granting in part and denying in part motions to dismiss brought by the Star defendants and NCL).
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. 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.
The Deposit Agreement is described on its first page as an agreement between NCL, BNY, "and all Owners and Beneficial Owners from time to time of American Depositary Shares issued hereunder." Section 7.04 of the Deposit Agreement provides that "[t]he Owners and Beneficial Owners of Receipts from time to time shall be parties to this Deposit Agreement and shall be bound by all of the terms and conditions hereof and of the Receipts by acceptance thereof."
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 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.
The lawsuit also named as an individual defendant Tan Sri Lim Goh Tong ("GT Lim"), who, at the time of the transaction in question and along with other members of his family, beneficially owned more than half of the outstanding shares of Star.Kingdom, 2002 WL 432390, at *1. The claims against GT Lim were dismissed for lack of personal jurisdiction.
In addition, on August 16, 2001, Marketing Systems International, BWI, Ltd. ("MSI") filed a class action complaint on behalf of all ADS holders on whose behalf BNY had accepted Star's compulsory tender offer. MSI's purported class complaint named the same defendants as did Kingdom and alleged identical causes of action. Since the parties stipulated that any decisions on claims in the Kingdom action would apply with equal force to MSI's purported class action, the facts discussed herein will relate solely to the Kingdom litigation.
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." Id.
The January 20 Order directed BNY and NCL to engage in settlement discussions under the supervision of a Magistrate Judge. Id. These discussions were not fruitful.
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 indemnitor and the indemnitee, and 2) BNY's litigation strategy unnecessarily and unreasonably prolonged this litigation.
Discussion
Summary judgment may be granted only "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Rule 56(c), Fed.R.Civ.P.; see also Sec. Ins. Co. of Hartford v. Old Dominion Freight Line, Inc., 391 F.3d 77, 82 (2d Cir. 2004). "The burden of showing that no genuine factual dispute exists rests on the party seeking summary judgment, and in assessing the record to determine whether there is a genuine issue as to a material fact, the court is required to resolve all ambiguities and draw all permissible factual inferences in favor of the party against whom summary judgment is sought." Old Dominion Freight Line, 391 F.3d at 83 (citation omitted) (emphasis supplied).
When the moving party has asserted facts showing that it is entitled to summary judgment, the opposing party must "set forth specific facts showing that there is a genuine issue for trial," and cannot rest on the "mere allegations or denials" of the movant's pleadings. Rule 56(e), Fed.R.Civ.P.; accord Burt Rigid Box, Inc. v. Travelers Prop. Cas. Corp., 302 F.3d 83, 91 (2d Cir. 2002). If there is evidence, however, "from which a reasonable inference could be drawn in favor of the opposing party, summary judgment is improper." Old Dominion Freight Line, 391 F.3d at 83 (citation omitted).
Where, as here, a motion for summary judgment concerns the interpretation of a contract, "summary judgment may be granted when [the contract's] words convey a definite and precise meaning absent any ambiguity." Aetna Cas. Sur. Co. v. Aniero Concrete Co., 404 F.3d 566, 598 (2d Cir. 2005) (citation omitted). On the other hand, "[w]here the language used is susceptible to differing interpretations, each of which may be said to be as reasonable as another, and where there is relevant extrinsic evidence of the parties' actual intent, the meaning of the words become an issue of fact and summary judgment is inappropriate." Id. (citation omitted). Ambiguity in contractual language does not exist, however, merely because "the parties urge different interpretations" or where "one party's view strains the contract language beyond its reasonable and ordinary meaning." Id. (citation omitted).
I. BNY's Motion for Summary Judgment: BNY's Negligence
BNY has moved for summary judgment on its right to indemnification by NCL of its attorney's fees and costs. Through Section 5.08 of the Deposit Agreement, NCL indemnified BNY for any expense including "reasonable fees and expenses of counsel" that may arise out of "acts performed or omitted" by BNY in accordance with the provisions of the Deposit Agreement except for any expense "arising out of negligence or bad faith" by BNY. Through the February 26 Opinion, all claims brought by Kingdom (and MSI) against BNY for negligence and breach of fiduciary duty were dismissed.
The August 31 Opinion dismissed the remaining breach of contract claim against BNY.
Under the doctrine of the law of the case, "if a court decides a rule of law, that decision should continue to govern in subsequent stages of the same case." Aramony v. United Way of Am., 254 F.3d 403, 410 (2d Cir. 2001) (citation omitted). "Courts apply the law of the case doctrine when their prior decisions in an ongoing case either expressly resolved an issue or necessarily resolved it by implication." Id. Given that the February 26 Opinion established as a matter of law that the claims for negligence and breach of fiduciary duty brought against BNY had to be dismissed, it would appear from the plain language of Section 5.08 that NCL is required to indemnify BNY for its reasonable attorneys' fees and costs in this litigation.
NCL concedes that the issues of BNY's negligence toward the plaintiffs — both Kingdom and MSI — were resolved in BNY's favor, but argues that the issue of whether BNY acted negligently as to others has not yet been litigated or resolved. Specifically, it argues that there has been no decision as to whether BNY was negligent when it accepted the compulsory tender offer without first providing notice to the Owner of the ADRs or without advising Star that it could not speak on behalf of the Owner or the beneficial owners.
As noted above, the Owner was the Depository Trust Company, a clearing agency.
NCL relies on the testimony of former BNY employee Steven Kim, who confirmed that BNY understood that by accepting the offer, it would be "foreclosing the ADS holders' ability to reject that offer and seek a valuation proceeding." NCL also cites the testimony of David Stueber, who acknowledged that "at the time [BNY] accepted the compulsory acquisition price, it didn't know one way or the other whether the ADS holders wanted to accept the [compulsory tender offer] price or instead pursue a valuation proceeding."
NCL's argument is ill-conceived. Section 5.08 does not limit BNY's recovery of its attorneys' fees and costs because of any hypothetical negligence in some situation that was not pleaded and has not been litigated. Rather, Section 5.08 precludes BNY from recovery of "any liability or expense arising out of [its] negligence or bad faith." (Emphasis supplied.) None of the fees and costs BNY incurred in defending against the Kingdom and MSI claims and in prosecuting cross-claims and third-party claims arose from litigation over any negligence on the part of BNY toward any Owner, much less Star, who was a stranger to the Deposit Agreement. Conversely, to the extent that BNY incurred expenses in connection with litigating claims of negligence, those claims arose from its alleged negligence toward beneficial owners and were resolved in its favor. Therefore, NCL has failed to show that any expense incurred by BNY in this litigation arose from that negligence.
Because NCL's argument about BNY's negligence is barred by the language of Section 5.08, it is unnecessary to address the merits of NCL's negligence theory. Suffice it to say, however, that there could be no negligence claim unless BNY owed a duty extraneous to the Deposit Agreement. See Kingdom, 2004 WL 359138, at *4. Moreover, under the Deposit Agreement, BNY had only those obligations that were set forth in the document, and those obligations did not include the duty to give notice of appraisal rights. Kingdom, 2004 WL 1926090, at *4-5. NCL has not identified any provision of the Deposit Agreement that imposed a duty on BNY to give notice to either the Owner or Star as it suggests here.
II. NCL's Partial Summary Judgment Motion: The Scope of Section 5.08
In the event BNY is entitled to summary judgment on its claim for indemnification, NCL argues that BNY cannot recover all of its expenses. NCL contends that it is entitled to partial summary judgment to restrict BNY's recovery in two ways. NCL first contends that BNY's right to recovery under Section 5.08 does not encompass fees or costs associated with BNY's own cross-claims and third-party claims. NCL also asserts that BNY may not recover expenses associated with BNY's defense against the Kingdom and MSI claims beyond those incurred at the motion to dismiss stage, because it pursued an "unreasonable" litigation strategy.
A. Expenses Arising Out of BNY's Cross-Claims Against Star and Impleader Action Against NCL
NCL first argues that it is not required to indemnify BNY for the expenses associated with the cross-claims BNY filed against Star, or the impleader action it filed against NCL. The standard for evaluating the scope of indemnification provisions under New York law is set forth in Hooper Associates v. AGS Computers, Inc., 74 N.Y.2d 487 (1989), which resolved the question of whether a contractual agreement to indemnify a plaintiff for reasonable counsel fees "is limited to attorney's fees incurred by plaintiff in actions involving third parties or also includes those incurred in prosecuting a suit against defendant for claims against the contract." Id. at 491.Hooper held that where a party has no legal duty to indemnify, an indemnification agreement "must be strictly construed to avoid reading into it a duty which the parties did not intend to be assumed." Id. More specifically, a court should not find an obligation to indemnify "unless it can be clearly implied from the language and purpose of the entire agreement and the surrounding facts and circumstances" and "unless the intention to do so is unmistakably clear from the language of the promise."Id.
Applying this standard to the indemnification clause at issue, the Hooper court construed the indemnification clause to apply "only to third-party suits," id. at 492, and held that the defendant was not contractually bound to pay attorneys' fees incurred by plaintiff in a suit against the defendant. The Court of Appeals first noted that the subjects for which the plaintiffs were indemnified were not "exclusively or unequivocally referable to claims between the parties themselves [nor did they] support an inference that defendant promised to indemnify plaintiff for counsel fees in an action on the contract." Id. It also observed that the contract at issue contained a provision requiring the plaintiff to notify the defendant of any litigation to which the indemnity provision applied and allowed the defendant to assume the defense of the action. Id. These provisions would be rendered meaningless if the indemnity provision applied to suits between the contracting parties. Id.
Distilling Hooper, the Second Circuit has held that "it is particularly important under New York law . . . that in contracts of this magnitude the language of the agreement be `unmistakably clear' regarding whether the parties to the agreement intend provisions of attorneys' fees to apply to disputes among themselves." Coastal Power Int'l v. Transcont'l Capital Corp., 182 F.3d 163, 165 (2d Cir. 1999) (citation omitted); see also Oscar Gruss Son, Inc. v. Hollander, 337 F.3d 186, 199-200 (2d Cir. 2003); Bridgestone/Firestone Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 21 (2d Cir. 1996); Pfizer, Inc. v. Stryker Corp., 384 F. Supp. 2d 131, 146 (S.D.N.Y. 2004) (finding that contract "clearly" implied recovery for costs of indemnitee's suit against indemnitor); BankBoston (Guernsey) Ltd. v. Schupak, No. 99 Civ. 0876 (BSJ), 2000 WL 423526, at *7 n. 4 (S.D.N.Y. Apr. 18, 2000); Promuto v. Waste Mgmt., Inc., 44 F. Supp. 2d 628, 652 (S.D.N.Y. 1999) (finding that contract "plainly" allowed recovery of attorney's fees by indemnitee incurred in lawsuit against indemnitor); Coastal Power, 10 F. Supp. 2d 345, 371 (S.D.N.Y. 1998), aff'd, 182 F.3d at 163;Sequa Corp. v. Gelmin, 851 F. Supp. 106, 110-11 (S.D.N.Y. 1994).
While each of these cases addressed litigation between an indemnitor and an indemnitee, in Perchinsky v. State, 660 N.Y.S.2d 177 (App.Div. 1997), the court addressed an action brought by a third party against both an indemnitor and indemnitee. The Appellate Division enforced the contractual indemnification claim to allow the defendant indemnitee to recover the costs, including attorneys' fees, of defending against the plaintiff's claim and pursuing the defensive third-party claims it asserted in an impleader action. Id. at 181. The indemnitor and indemnitee agreed, however, that the indemnitee could not recover its expenses incurred in its cross-claim brought against the indemnitor to enforce its contractual right of indemnification. Id.
Perchinsky did not have occasion to address whether an indemnitee could recover expenses associated with claims brought against an indemnitor for something other than contractual indemnification.
NCL's effort to block BNY's recovery of the expenses associated with BNY's cross-claims against Star clearly fails. As inPerchinsky, these were defensive claims necessitated by the lawsuit filed by Kingdom. NCL seeks to classify Star as its "affiliate," and thereby bring it under the Hooper umbrella that ordinarily bars contractual indemnification claims for costs incurred in litigating with the indemnitor, but Star is not properly labeled an affiliate of NCL when analyzing the obligation to indemnify. Star has never made a commitment to indemnify BNY, and NCL has provided no authority for an assertion that Star assumed that obligation through its successful tender offer for NCL shares.
In connection with other arguments it makes in this motion practice, BNY also labels Star an affiliate of NCL.
In dismissing BNY's claims premised on the theory that Star was so affiliated with NCL that it should be considered the issuer of NCL shares, the Honorable Allen G. Schwartz held that Star could neither be considered a successor to NCL, Kingdom, 2002 WL 432390, at *11, nor could NCL be considered the alter ego of Star. Id. at *12.
The more serious issue is whether BNY may recover its expenses associated with its impleader action against NCL. BNY brought claims against NCL not just for contractual indemnification but also for fraudulent concealment, breach of fiduciary duty, and negligent misrepresentation, as well as common-law indemnification and contribution.
There is a serious question whether the restrictions imposed byHooper on an indemnitee's recovery of expenses incurred in litigating with its indemnitor were ever intended to apply when that litigation was ancillary to claims brought by a third party. As Hooper framed the question, it was deciding whether the duty to indemnify "is limited to attorney's fees incurred by plaintiffin actions involving third parties or also includes those incurred in prosecuting a suit against defendant for claims under the contract." Hooper, 74 N.Y.2d at 491 (emphasis supplied). In any event, even if Hooper requires that an indemnification clause be exceptionally clear in order to require indemnification for the cost of litigating claims between an indemnitor and indemnitee within a lawsuit brought by a third party, the Deposit Agreement unambiguously demands such indemnification.
To begin, the Deposit Agreement does not have any of the provisions that suggest that the indemnification commitment was not intended to cover claims asserted in litigation between BNY and NCL. Unlike the contracts at issue in many of the cases cited by NCL, see, e.g., Hollander, 337 F.3d at 200; Coastal Power, 10 F. Supp. 2d at 371; Hooper, 549 N.Y.S.2d at 367; the Deposit Agreement does not contain a requirement that BNY notify NCL of claims brought against BNY. It also does not discuss NCL's obligation or option to assume BNY's defense, see, e.g., Hollander, 337 F.3d at 200; Coastal Power, 10 F. Supp. 2d at 371; Gelmin, 851 F. Supp. at 111; or in any way limit BNY's ability to compromise or settle claims brought against it, see, e.g., Hollander, 337 F.3d at 200.
Reading the Deposit Agreement as a whole, with particular emphasis on Section 5.08, and placing it in the context of the commercial arrangement to which it was addressed, it is sufficiently clear that the indemnification commitment was intended to embrace circumstances just like those presented here. The Deposit Agreement identifies BNY's specific, limited duties and is crafted to shield BNY from liability for anything not listed. In contrast to its narrowly circumscribed duties, its indemnification is broad, embracing all litigation in which it could reasonably be expected to become embroiled. In this regard, it is important to note that the parties to the Deposit Agreement include essentially all of the parties among whom litigation could reasonably be expected to occur if there were any dispute over BNY's conduct; the parties to the Deposit Agreement include not only BNY and NCL, but also the Owner and beneficial owners of ADSs.
Section 5.03 of the Deposit Agreement provides in relevant part that BNY
assumes no obligation nor shall it be subject to any liability under this Deposit Agreement to the Owner or Beneficial Owner (including, without limitation, liability with respect to the validity or worth of the Deposited Securities), except that it agrees to perform its obligations specifically set forth in this Deposit Agreement without negligence or bad faith.
BNY has pointed out, and NCL does not disagree, that every party who could reasonably be expected to litigate issues related to the Deposit Agreement was also a party to the Deposit Agreement. It should be noted, however, that under Section 5.07 of the Deposit Agreement, BNY and NCL owe one another duties relating to the fulfillment of certain obligations under the Securities Act of 1933 ("Securities Act"). Given these obligations, it is also conceivable that the SEC could bring suit. As discussed below, NCL has indemnified BNY in connection with that litigation also.
As contemplated, this litigation was indeed brought by parties to the agreement: beneficial owners Kingdom and MSI. Section 5.08 grants broad indemnification for "any" liability and expense, and explicitly encompasses acts performed (or omitted) by BNY and by NCL, creating the unmistakable commitment that BNY would be indemnified if it were embroiled in litigation addressed to not just its own conduct, but also to NCL's conduct, in connection with the duties that either of them owed under the Deposit Agreement. In this latter connection, BNY is entitled to indemnification for expenses incurred from NCL's conduct, whether NCL was negligent or not.
Section 5.08 grants indemnification for two sets of circumstances. This litigation arises in the context of the second set; the first set addresses the registration of the ADSs with the SEC and related activities. Specifically, NCL is obligated under Section 5.08 to indemnify BNY and hold it harmless where BNY incurs liabilities or expenses that "arise out of any registration with the [SEC] of Receipts, American Depositary Shares, or Deposited Securities, or the offer or sale thereof in the United States."
Given that the Deposit Agreement was a tightly crafted document that severely limited BNY's duties and at the same time conferred upon it broad indemnification for litigation that could arise from either NCL's or BNY's performance of their duties, and given that the Deposit Agreement set forth the duties among each of the parties who were likely to generate litigation, even under theHooper standard it is sufficiently clear that BNY is entitled to indemnification by NCL for expenses incurred in its third-party claims against NCL.
B. Expenses Arising Out of Affirmative Claims
NCL next argues that Section 5.08 should not be read to provide indemnification for BNY's expenses in pursuing cross-claims against Star and third-party claims against NCL because these claims were "offensive, affirmative" claims. As described above, Hooper addressed litigation filed by an indemnitor or indemnitee, distinguishing that circumstance from the response to litigation brought by third parties. To the extent NCL seeks to distinguish between offensive and defensive claims, that distinction is best captured by the two classes of litigation described in Hooper. Using that construct, BNY's claims are entirely defensive.
The cross-claims and third-party claims brought by BNY were triggered by Kingdom's (and MSI's) claims against BNY. They were intended to protect BNY fully in the event it were found liable to the plaintiffs and also to recoup the expenses associated with the litigation into which it had been thrust. Each of its claims presented a theory of recovery to make it whole; none of them sought recovery for claims unassociated with the claims pressed by the plaintiffs. The best proof of this is the fact that, with the exception of the claim for attorney's fees, all of its cross-claims and third-party claims have been rendered moot by the dismissal of the plaintiff's claims. In these circumstances, each of BNY's claims fall comfortably within its right to indemnification.
The Deposit Agreement itself acknowledged that the duty to indemnify could run to claims asserted by an indemnitee. Section 5.03 provides in relevant part:
Neither [BNY] nor [NCL] shall be under any obligation to appear in, prosecute or defend any action, suit, or other proceeding in respect of any Deposited Securities or in respect of the Receipts, which in its opinion may involve it in expense or liability, unless indemnity satisfactory to it against all expense and liability shall be furnished as often as may be required.
(Emphasis supplied.)
When interpreting a contract under New York law, a court "should arrive at a construction which will give fair meaning to all of the language employed by the parties to reach a practical interpretation of the expressions of the parties so that their reasonable expectations will be realized." T.M. Bier Assocs., Inc. v. Piraino, 790 N.Y.S.2d 884, 884-85 (App.Div., 2d Dep't 2005) (citation omitted). Given that Section 5.03 presumes that BNY and NCL may receive indemnification for their "prosecution" of suits "in respect of any Deposited Securities or in respect of the Receipts," a construction of Section 5.08 that excludes expenses associated with the pursuit of affirmative claims would not give "fair meaning to all of the language employed by the parties." Id. at 884. Instead, it would render at least part of Section 5.03 "without force and effect." Hollander, 337 F.3d at 200 (citation omitted). For this reason also, Section 5.08 applies to expenses associated with BNY's affirmative claims.
C. Reasonableness of BNY's Expenses
Finally, NCL asserts that BNY's recovery under Section 5.08 of the Deposit Agreement must be limited because the provision allows BNY to recover only the "reasonable" fees and expenses of counsel." First, NCL contends that BNY's claims were "duplicative" of its contractual indemnification claim. The claims asserted in addition for the claim for contractual indemnification were asserted to protect BNY in the event that Kingdom prevailed and NCL were able to deny indemnification on the ground that BNY had been found to be negligent. Bringing the cross-claims and third-party claims was neither duplicative nor unreasonable in these circumstances. As BNY points out, it was prudent to file such claims and consistent with the goal of avoiding piecemeal litigation.
Second, NCL contends that BNY should have moved to dismiss each of Kingdom's claims at the outset of the action since it was entitled to judgment based on the clear and unambiguous language of the Deposit Agreement. While a choice of litigation strategy may in some instances be unreasonable, NCL has not shown that BNY's decision to wait to challenge the breach of contract claim was unreasonable. Although well aware that BNY's third-party action against it would disappear as moot (except for the contractual indemnification claim) should BNY succeed in dismissing Kingdom's claims, NCL never suggested to BNY's counsel that it bring a motion to dismiss the breach of contract claim instead of waiting until the close of fact discovery to bring its summary judgment motion. Indeed, NCL's counsel followed a similar strategy. NCL and Star were both represented by the same law firm, which waited until summary judgment practice to move to dismiss Kingdom's claim against Star on the ground that Norwegian law did not recognize an unjust enrichment claim. NCL's assertion that BNY is not entitled to its expenses incurred in the period following the time for the filing of an initial motion to dismiss is rejected.
III. BNY's Motion for Summary Judgment: NCL's Right to Contractual Indemnification
BNY also moves for summary judgment to dismiss NCL's contractual indemnification claim. Section 5.08 entitles NCL to recover "any liability or expense which may arise out of acts performed or omitted by [BNY]" due to its "negligence or bad faith." (Emphasis supplied.) BNY is entitled to summary judgment.
First, NCL's claim for indemnification was pleaded in response to BNY's third-party claims against NCL. Those third-party claimsarose out of NCL's own allegedly tortious conduct, and not out of any alleged negligence or bad faith on BNY's part. Second, to the extent it is appropriate to consider all of the other claims in the lawsuit, the only negligence claims asserted against BNY were dismissed by the February 26 Opinion. That Opinion largely rested on the grounds that a negligence claim cannot be sustained without demonstrating the existence of a duty extraneous to a contractual agreement and that Kingdom had failed to identify any such duty. See Kingdom, 2004 WL 359138, at *6. Moreover, Kingdom was not able to prevail on any breach of contract claim against BNY premised on BNY's failure to perform a duty set out in the Deposit Agreement. Therefore, accepting that BNY would not have pursued claims against NCL were it not for Kingdom and MSI's claims against it, NCL's costs in defending against BNY's third-party claims cannot be said to arise out of BNY's negligence toward any beneficial owner.
Finally, just as it argues with respect to BNY's own contractual indemnification claim, NCL contends that summary judgment is inappropriate as BNY may have been negligent in "accepting the compulsory acquisition for all remaining ADSs." This argument is no more availing with respect to NCL's indemnification rights. Again, NCL does not point to any provision in the Deposit Agreement obligating BNY to ascertain "whether any owner or beneficial owner wished to object" before BNY accepted the offer. Consequently, NCL's expenses in defending against BNY's third-party claims cannot be understood as "arising out of" any negligence on BNY's part, and NCL's contractual indemnification claim is dismissed.
Conclusion
For the reasons stated above, BNY's motions for summary judgment to obtain indemnification and to dismiss NCL's contractual indemnification claim are granted; it is entitled to recover all of its attorneys' fees and costs associated with this litigation. NCL's cross-motion is denied.
SO ORDERED.