Horizon Lines suit dismissed
Horizon Lines Inc. said Wednesday a federal judge for a second time has granted its motion to dismiss a securities class-action lawsuit accusing the company and certain current and former senior officers of misleading investors.
Judge Harvey Bartle III on Tuesday granted 'with prejudice' the company's motion to dismiss the suit in the U.S. District Court of Delaware.
Horizon said Bartle ruled the complaint did not meet the pleading standards of the Private Securities Litigation Reform Act because it failed to plead facts showing the officers responsible for making public statements about the company's performance were aware of an alleged price-fixing conspiracy in the Puerto Rico trade.
While the case cannot be refiled in district court, Horizon said the plaintiffs have the right to file an appeal within 30 days of the May 18 ruling.
The class-action lawsuit was filed Dec. 31, 2008 by the City of Roseville Employees' Retirement System, naming as defendants the company and current and former employees, including Chuck Raymond, chairman, president and chief executive officer.
Horizon Lines filed a motion to dismiss, which was granted by the court on Nov. 13, 2009. However, the plaintiffs were granted time to file an amended complaint, which they did on Dec. 23. Then Horizon Lines on Feb. 12 filed a motion to dismiss the amended complaint.
The amended complaint, which purported to be on behalf of purchasers of Horizon Lines common stock, alleged the company made material misstatements and omissions in connection with the alleged price-fixing conspiracy in its shipping business in Puerto Rico in violation of federal antitrust laws.
On March 9 another shareholder derivative lawsuit filed in a North Carolina state court complains current and former officers named in the complaint breached their fiduciary duties and damaged the company by allegedly engaging in an antitrust conspiracy in the ocean shipping trade routes between the continental United States and Alaska, Hawaii, Guam and Puerto Rico.
The litigation grows out of an ongoing U.S. Justice Department antitrust investigation of domestic shipping trades that began in 2008. Horizon reiterated Wednesday it would continue to cooperate fully with the Justice Department.
Last year three managers from Horizon Lines and one from its competitor Sea Star Line were given prison sentences and fined for their roles in what the Justice Department said was an antitrust conspiracy involving goods moving between the U.S. mainland and Puerto Rico. Another Sea Star executive was sentenced for obstructing the investigation.
In its quarterly earnings statement filed last month with the Securities and Exchange Commission, Horizon said that through March 21 it had incurred about $23.9 million in legal and professional fees associated with the Justice Department investigation and related antitrust litigation.
It said 58 purported class action lawsuits were filed against it and other carriers by shippers, 32 relating to services between Puerto Rico and the U.S. mainland and were consolidated into a single multidistrict litigation and 25 related to its service to Hawaii and Guam were consolidated into a proceeding in the Western District of Washington. One suit remains in the District of Alaska, relating to its service to that state.
In June 11, 2009, Horizon entered into a settlement agreement with the named plaintiff class representatives in the Puerto Rico multidistrict litigation. It agreed to pay $20 million and to certain base-rate freezes to resolve claims for alleged antitrust violations in the Puerto Rico trade lane.
An additional lawsuit was filed by individuals in Puerto Rico that claim they paid inflated prices because of price fixing by shipping lines serving the commonwealth.
The suit by Hawaii and Guam shippers was dismissed in August 2009, but plaintiffs have filed a discovery motion, which is pending.
Meanwhile, on Tuesday, Moody’s Investors Service downgraded its debt ratings of Horizon’s debt. The rating agency said “the downgrades reflect Moody’s belief that Horizon’s liquidity has weakened because of continuing slack demand for its liner service across its three U.S. Jones Act trade lanes. Moody’s anticipates that demand in upcoming periods will remain constrained and lead to a level of free cash flow generation that is not sufficient to cover scheduled principal amortization of the term loan.
“Larger capital spending plans and more dry dockings in 2010 versus 2009 also pressure free cash flow generation,” it said. “The prospect of one or more significant payments to resolve the Department of Justice investigation and/or class action lawsuits further weigh on Horizon’s liquidity profile. Consequently a refinancing of the company’s capital structure will likely be necessary to meet the various cash demands.”
In a conference call with stock analysts last month, Horizon CEO Raymond said the company was seeing firming volumes and should have a second quarter that was at the level of 2009 or perhaps a bit stronger, and “full-year performance for our company that is very much in line with last year’s results.”
The Moody’s downgrades were as follows:
* Probability of Default Rating, downgraded to Caa1 from B3.
* Corporate Family Rating, to Caa1 from B3.
* Senior Secured Bank Credit Facility, to B1 from Ba3.
* Senior Unsecured Conv./Exch. Bond/Debenture, to Caa3 from Caa. ' Chris Dupin