In the latest COVID-19-related securities class action lawsuit filing, the cruise ship company Royal Caribbean Cruises has been hit with a securities suit alleging that the as the viral disease spread earlier this year the company attempted to soft-pedal its statements about the outbreak’s impact on its operations and bookings, as well as about the safety threat that the outbreak represented for ship crews. As discussed further below, the new lawsuit against Royal Caribbean reflects several of the key trends in the coronavirus-related lawsuits. A copy of the new complaint against Royal Caribbean can be found here.
Royal Caribbean is the world’s second largest cruise ship company. On October 7, 2020, the City of Rivera Beach General Employees Retirement System, a Royal Caribbean shareholder, filed a securities class action lawsuit in the Southern District of Florida against the company and certain of its officers, alleging violations of federal securities laws and seeking to recover damages on behalf of a class of investors who purchased Royal Caribbean securities between February 4, 2020 and March 17, 2020.
The complaint alleges that as COVID-19 spread during early 2020, first in Asia, and then globally, the company made a series of statements about the impact of the coronavirus outbreak on its operations, passenger bookings, and financial results. In several of these statements, particularly earlier in the class period, the company provided reassurance that while the outbreak had disrupted certain specific cruises in certain geographic locations, its operations were otherwise unaffected. The company also provided reassurances about its efforts and protocols to protect the safety of its passengers and crew.
As the spread of the disease progressed, the company cancelled an increasingly broader range of cruises and announced an increasingly significant impact from the outbreak on its future bookings. In mid- March, the company first announced a 30-day suspension of all global operations, and then a few days later “revealed” (according to the complaint) that its global operations could be suspended longer than anticipated. The complaint alleges that with each of the company’s statements about the impact of the outbreak on its operations, its share price declined.
The complaint alleges that by March 18, 2020, “the financial impact of the Company’s false and misleading statements and/or omissions was revealed as analysts downgraded Royal Caribbean’s stock and slashed their price targets.” The complaint alleges that the company’s share price declined further on this news.
The complaint alleges that during the class period the defendants made false or misleading statements and failed to disclose material adverse facts “about the Company’s decrease in bookings outside China and its inadequate policies and procedures to prevent the spread of COVID-19 on its ships.” The complaint alleges that as a result of these misrepresentations, the defendants “caused Royal Caribbean stock to trade at artificially high prices during the Class Period.” The lawsuit also alleges that as a result of the company’s allegedly inadequate safety protocols and procedures, the company was hit with lawsuits on behalf of crewmembers or their families, alleging that the company’s “inadequate execution of safety protocols” had resulted in the illness or death of crew members.
By my count, this new lawsuit is the 21st COVID-19-related securities suit to be filed in the U.S. since the disease first began to spread in the U.S. earlier this year. (Other tallies of the COVID-19-related securities suits have a lower lawsuit count than I do; my tally includes a number of suits that other counts have chosen to omit). While there have been nearly a couple of dozen of these lawsuits filed, the lawsuit against Royal Caribbean is the first COVID-19-related securities suit to be filed since late August. As I have noted in prior posts about the coronavirus-related litigation, while there have been a number of these suits filed, the litigation take collectively hardly represents a wave of litigation, especially by comparison to the huge amount of litigation that followed in the wake of the global financial crisis.
This new lawsuit against Royal Caribbean is the third coronavirus-related securities suit to be filed a cruise ship line. As I noted in blog posts at the time, lawsuits previously were filed against Norwegian Cruise Lines (discussed here) and Carnival Corporation (here). In each case, the allegation is that the companies initially sought to down-play the impact the coronavirus outbreak on their operations and also sought allegedly false reassurances about the threat the viral outbreak represented to passengers and crew.
If I were to generalize about the 21 COVID-19-related securities class action lawsuits that have been filed so far, I would say that the lawsuits generally fall in one of three categories. The first category involves lawsuits against companies that experienced coronavirus outbreaks in their facilities. The lawsuits against the cruise ship companies clearly fall in this category.
The second category involves companies that made statements touting the companies’ ability to prosper from the pandemic. The companies in this category involve vaccine development companies, testing companies, and manufacturers of personal protective equipment.
The third category involves companies that experienced disruption in their operations and a downturn in their financial results due to the pandemic and government shutdown orders. This category involves companies in the hotel and hospital businesses.
It seems likely as we go forward that, to the extent there are further coronavirus-related securities suits filed, they will more likely involve the third category, as the period of economic impact from the pandemic lengthens and as companies struggle to re-open or even just to stay in business while dealing with the disease outbreak’s impact.
I could be proven wrong, but I also think we will see relatively fewer lawsuits involving the first category of cases; however, as certain types of businesses (for example, other types of travel, hospitality, leisure, and retail businesses) could suffer disruption and adverse financial impacts if there were to be a significant impact in their facilities, which in turn could lead to further litigation.
One thing that is worth noting about this lawsuit is that here it is October but this lawsuit with a class period ending in mid-March is just being filed now. This lawsuit seems like one that under different circumstances might have been filed earlier in the year and closer in time to the end of the class period. I point this out because a number of observers (including me) noted that there was a “lull” in securities class action lawsuit filings in the year’s first half. The question about this lull was whether it was a temporary phenomenon simply reflecting the pandemic’s disruption of court operations and also of merger activity in the year’s second quarter.
This filing of this lawsuit now feels like an artifact of the lull, as if the lawsuit’s seemingly belated filing reflects something of a filing lag, suggesting that lull has ended and that filing activity is returning to its pre-pandemic levels.
By year end, the number of annual filings may not have fully recovered to the heightened levels we saw in the period 2017-2019, but my guess is that filing activity in the year’s second half will be well above the level’s in the year’s first six months and also much closer to the levels we saw in half-year segments during the 2017-2019 period.