Kodak Suit Over Exec Stock Options, $ 765m loan sent to New York
Email Bill Wichert
“href =” https://www.law360.com/articles/1389090/# “> Bill Wichert
Law360 provides free access to its coronavirus coverage to ensure that all members of the legal community have accurate information in this time of uncertainty and change. Use the form below to subscribe to one of our weekly newsletters. Signing up for one of our section newsletters will allow you to participate in the weekly coronavirus briefing.
Law360 (May 28, 2021, 8:55 p.m. EDT) – A New Jersey federal judge has sent the Western District of New York a class action proposal regarding the grant of stock options by Eastman Kodak Co. to the officers before an amount of $ 765. million COVID-19 drug loan announcements, concluding that this forum is the most suitable venue even though none of the players requested it.
In approving the transfer, U.S. District Chief Justice Freda L. Wolfson pointed out Thursday that Kodak is based in Rochester, New York, and that WDNY is where the alleged misconduct occurred regarding the potential loan of the US International Development Finance Corp. and stock options to CEO James Continenza and CFO David Bullwinkle.
“In other words, the defendants hatched and supported the highly fraudulent scheme described in the WDNY complaint,” Justice Wolfson said in a written opinion.
The judge made this decision while dealing with a petition from one of the three proposed principal plaintiffs – Les Investissements Kiz. Inc. and UAT Trading Service Inc., collectively referred to as the Kiz Group – to expedite the matter to the Southern District of New York, where a similar proposed class action lawsuit is pending.
Another proposed lead plaintiff – known as the Satterwhite Group – said the case should stay in New Jersey, and the third candidate, John McMullan, has not taken a position. Kodak has said it is not opposing the Kiz Group motion.
However, by going against each other’s arguments, the Kiz group and the Satterwhite group “are arguing a lot more for a place in WDNY than in either of their favorite forums,” said the judge by weighing “the factors of private interest”.
The Kiz group, for example, “admits that” all statements made other than [the statement on CNBC’s “Squawk Box”] happened in Rochester, ”the judge said, referring to Continenza’s July 29 appearance on the CNBC show to discuss the loan.
The proposed lead claimant asserted that “the defendants made a ‘key’ misrepresentation – about how investors could ‘bet on’ the [DFC] ready – in SDNY because [the CNBC show] broadcasts from this district, ”the judge wrote.
But Judge Wolfson noted that Continenza appeared on the remote show, “from a location that neither party appears to identify, and therefore could not have made representations or withheld information from the SDNY. . “
“In addition, in Kiz Group’s own words, ‘all other material links to the alleged fraud [are] in Rochester, “which establishes the WDNY as the center of gravity of this dispute,” said the judge.
The judge also rejected the Kiz Group’s argument that “Kodak is on the New York Stock Exchange … where Continenza and Bullwinkle have improperly traded in shares of the company,” she said.
“These facts are not decisive either, otherwise every securities action would end at SDNY,” the judge added.
The trial, which was initially filed by Kodak shareholder Tiandong Tang in August against the company, Continenza and Bullwinkle, largely focuses on how the Kodak board of directors on July 27 gave 1.75 million and 45,000 options to purchase of shares from Continenza and Bullwinkle, respectively, at conversion prices between $ 3.03 and $ 12 per share.
After the announcement of the DFC loan, which Kodak was to use in part to make ingredients for COVID-19 drugs, Kodak’s stock price fell from $ 2.62 on July 27 to $ 33.20 on July 29. July, according to the complaint.
“This massive increase in stock prices allowed defendant Continenza and other Kodak insiders to dramatically enrich themselves from the compensation plan, as their stock options were now very ‘in the money’,” says the complaint. “On its own, Continenza saw the value of its options drop from zero to $ 50 million in just 48 hours.”
Following media coverage of the stock options and related issues, the DFC said on Aug. 7 that it would suspend the deal, according to the complaint.
Among other allegations, Tang alleged that “Continenza and Bullwinkle took advantage of material non-public information because the board gave them stock options (convertible up to a much higher share price) before announcing the operation, knowing almost with certainty that the value of Kodak would increase as soon as the public became aware of the loan ”, according to the judge’s opinion.
Assessing “the public interest factors,” Judge Wolfson noted Thursday that the District of New Jersey “faces the largest backlog of cases in the country.”
“As of December 31, 2020, we had the most civil cases, the second most outstanding cases and the third most outstanding cases that were at least three years old. The WDNY has a comparatively lower caseload, which favors the transfer there, “said the judge.
The WDNY also has “a strong interest in settling a local controversy involving one of its largest corporate citizens, and having virtually no relation to any other place at home,” the judge added.
Reed R. Kathrein of Hagens Berman Sobol Shapiro LLP, representing the Satterwhite Group, told Law360 on Friday that “we think this is a well-reasoned decision as to where the case should go.”
Lawyers for the Kiz Group and Kodak did not immediately respond to requests for comment on Friday.
The Kiz group is represented by Joel B. Strauss, Frederic S. Fox, Donald R. Hall, Pamela A. Mayer and William J. Pinilis of Kaplan Fox & Kilsheimer LLP and Christopher J. Keller, Eric J. Belfi, Francis P. McConville and David J. Schwartz of Labaton Sucharow LLP.
The Satterwhite Group is represented by Reed R. Kathrein, Lucas E. Gilmore, Danielle Smith and Steve W. Berman of Hagens Berman Sobol Shapiro LLP and Bruce D. Greenberg of Lite DePalma Greenberg LLC.
Kodak is represented by Stephen M. Baldini and Neal R. Marder of Akin Gump Strauss Hauer & Feld LLP.
The case is Tiandong Tang v. Eastman Kodak Co. et al., Case number 3: 20-cv-10462, in the United States District Court for the District of New Jersey.
– Edited by Andrew Cohen.
For a reprints of this article, please contact [email protected]