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Kodak Suit Over Exec Stock Options, $ 765 million loan sent to New York

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Law360 (May 28, 2021, 8:55 p.m. EDT) – A federal judge in New Jersey has sent the Western District of New York a class action proposal regarding the grant of stock options by Eastman Kodak Co. to executives at $ 765 million COVID-19 drug loan announcements, concluding that this forum is the most suitable venue even though none of the players have 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 case to the Southern District of New York, where a similar class action lawsuit is pending.

Another proposed lead plaintiff – known as the Satterwhite Group – said the case should stay in New Jersey, and 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 assessing “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 – to SDNY because [the CNBC show] emissions from this district, ”wrote the judge.

But Judge Wolfson noted that Continenza appeared on the show remotely, “from a location that neither party can seem to identify, and therefore could not have made any representations or withheld information in SDNY. “.

“In addition, in Kiz Group’s own words, ‘all other material links to the alleged fraud [are] in Rochester, “which makes WDNY the center of gravity in this litigation,” the judge said.

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 shares of the company,” she said.

“These facts are not decisive either, otherwise every securities action would end in the 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 call options of shares to Continenza and Bullwinkle, respectively, at conversion prices between $ 3.03 and $ 12 per share.

Following 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 the price of the shares allowed defendant Continenza and other Kodak insiders to enrich themselves dramatically 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 delay the deal, according to the complaint.

Among other assertions, Tang alleged that “Continenza and Bullwinkle took advantage of material non-public information because the board of directors granted them stock options (convertible up to a much stock price. higher) before announcing the deal, knowing with almost certainty that Kodak’s value would skyrocket as soon as the public became aware of the loan, ”the judge said.

Weighing the “public interest factors”, Judge Wolfson noted Thursday that the New Jersey district “faces the largest backlog of cases in the country.”

“As of December 31, 2020, we had the highest number of civil cases, the second most outstanding cases and the third most outstanding cases in at least three years. 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 believe 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.

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