Tiandong Tang v. Eastman Kodak Co.
| Decision Date | 27 May 2021 |
| Docket Number | Civil Action No. 3:20-cv-10462-FLW-ZNQ |
| Parties | TIANDONG TANG, individually and on behalf of all others similarly situated, Plaintiff, v. EASTMAN KODAK COMPANY, JAMES V. CONTINENZA, and DAVID BULLWINKLE, Defendants. |
| Court | U.S. District Court — District of New Jersey |
*NOT FOR PUBLICATION*
Plaintiff Tiandong Tang sues Eastman Kodak Company ("Kodak"), James Continenza, and David Bullwinkle (collectively, "Defendants"), individually and on behalf of others similarly situated, for securities violations arising from a $765 million government loan to Kodak to manufacture COVID-19 drugs. Before the Court are three motions to be lead plaintiff1 and a motion to transfer this matter to a different venue. For the following reasons, I find that the Western District of New York is the most appropriate forum, and decline to decide the lead plaintiff motions.
Kodak is a software and consumables company incorporated in New Jersey and headquartered in Rochester, New York. See Compl., ¶ 1.2 On July 27, 2020, Kodak alerted media in Rochester to a "new manufacturing initiative that could change the course of history for Rochester and the American people." See id. ¶¶ 2, 27. According to Kodak, it meant to send the alert as "background only," but inadvertently omitted that caveat, so local news reported it to the public. Id. ¶ 27. A trading frenzy ensued: investors moved 1.65 million shares that day, up from 75,000 previously. Id. ¶ 28. At the very same time, and unbeknownst to the public, Kodak's Board of Directors allegedly gave CEO James Continenza and CFO David Bullwinkle together 1.8 million stock options, convertible at a price between $3 and $12. See id. ¶¶ 3, 5, 34. Kodak's shares closed at $2.62, making the options instantly profitable. Id. ¶ 3.
On July 28, 2020, before trading began, RochesterFirst.com broke news of a $765 million loan from the United States International Development Finance Corporation ("DFC"), which Kodak would use to manufacture ingredients for COVID-19 drugs, the first of its kind under the Defense Production Act ("DPA").3 See id. ¶ 4, 28. DFC signed a formal Letter of Interest ("LOI") that day, with financing subject to final due diligence, and held a press conference with Kodak officially announcing the deal. Id. ¶ 30. Continenza apparently told the Wall Street Journal that, despite never successfully manufacturing pharmaceuticals before, Kodak has "a long, long history in chemical and advanced materials—well over 100 years," and could "get up and running quickly." Id. ¶ 32.
On July 29, 2020, Continenza appeared remotely on a CNBC show called Squawk Box, broadcast from New York City, to discuss the loan. Id. ¶ 33. When asked if it was a "done deal," he purportedly responded: "We feel very comfortable that we can bank on it." Id. When asked about the high trading volume on July 27, 2020, he continued: "I mean, obviously this has been a pretty tight kept secret . . . even until the last day, basically." Id. And when the interviewer observed that the deal did not look that way, he admitted: "Well, we knew for over a week." Id. Kodak's shares closed at $33.20, up 1,000% from two days earlier.
Questions began to surface almost as quickly as the stock rose. On August 1, 2020, Reuters reported the "unusual" option grant. Quoting "a person familiar with the arrangement," the grant "occurred because of an understanding" between Continenza and the Board of Directors "that had previously neither been listed in his employment contract nor made public." See id. ¶¶ 5, 37. Kodak shares fell by $6.91 on the news. Id. ¶ 6. Then, on August 4, 2020, the website CQ Roll Call reported a letter from Senator Elizabeth Warren asking the SEC to investigate Kodak's dealings with the DFC. According to that letter, Continenza purchased 46,737 shares [at $2.22] on June 23, 2020, "while the company was involved in secret negotiations with the government over a lucrative contract," which "raises questions about whether [he] potentially made investment decisions based on material, non-public information." Id. ¶ 7. Senator Warren also questioned Kodak's allegedly inadvertent disclosure on July 27, 2020, which set off a chaotic trading day, and its decision to "ask[ ] reporters to remove the information" rather than reveal the deal to investors. Id. ¶¶ 8, 39-40.
On August 4, 2020, the Wall Street Journal revealed a nascent SEC investigation into "how Kodak controlled disclosure of the [DFC] loan." Id. ¶ 9. According to the Journal, "[t]he SEC is also expected to examine the stock options granted to executives" that same day. Id. Likewise, theJournal reported a $116.3 million gift from Kodak Board member George Karfunkel to Congregation Chemdas Yisroel, "a small space attached to a three-story apartment building" in Brooklyn, which he founded. Karfunkel made the donation on July 29, 2020, the day Kodak's share price peaked. Id. ¶ 42. It was "the single largest [gift] recorded to a religious group." Id. A subsequent article in Mother Jones found that Karfunkel likely would "pocket a deduction between $52.5 and $180 million" because of the synagogue's tax-exempt status. As a result, Kodak's shares closed at $14.40, down $29 since news of the option grant emerged three days earlier. Id. ¶ 11.
On August 5, 2020, "[s]everal Congressional committees" sent a joint letter to Continenza regarding "DFC's decision to award [the $765 million] loan to Kodak despite your company's lack of pharmaceutical experience and the windfall gained by you and other company executives." Id. ¶ 12. The letter called Continenza's option grant "concerning" because the Board made it "prior to the DPA loan becoming public information, but while Kodak was in discussions regarding the loan." Id. ¶ 45. On August 7, 2020, DFC rescinded its LOI, citing "[r]ecent allegations of wrongdoing." Id. ¶ 13. Kodak responded with a press release announcing a special committee to "oversee an internal review of recent activity by the Company . . . in connection with the . . . loan." Id. ¶ 46. Kodak's shares traded at $10.73 following these developments. Id. ¶ 14. Finally, on August 11, 2020, on a call to discuss second quarter finances, Continenza "repeatedly referred to the loan as a 'potential loan,'" in contrast to his more confident statements on Squawk Box, allegedly causing Kodak stock to fall to $9.72.
On August 13, 2020, Tang filed this putative class action on behalf of all persons who acquired Kodak common stock between July 27, 2020, and August 7, 2020, the class period. Id. ¶ 48. Tang alleges that Kodak's shares traded at artificially high prices because Defendantsmisleadingly disclosed facts about the DFC loan. Tang also alleges that Continenza and Bullwinkle profited from material nonpublic information because the Board gave them stock options (convertible up to a much higher share price) before announcing the deal, on the near-certain knowledge that Kodak's value would soar as soon as the public became aware of the loan. Id. ¶¶ 54, 66. Tang brings suit pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995 ("PSLRA"). See 15 U.S.C. §§ 78j(b), 78t(a). A substantially similar action is pending in United States District Court for the Southern District of New York. See McAdams v. Eastman Kodak Company et al., No. 20-06861.
Tang published notice of his Complaint in Globe Newswire one day after filing it. See15 U.S.C. § 78u-4(a)(3)(A)(i). Class members could move to be lead plaintiff by October 13, 2020. Twelve did so, but after most withdrew, three remain: Charles Satterwhite, Terry Butler, and Yiqi Woodling (collectively, "Satterwhite Group"); Les Investissements Kiz. Inc. and UAT Trading Service, Inc. (collectively, "Kiz Group"); and John McMullan. See ECF Nos. 18, 29, 31; supra, note 1. Kiz Group also filed a transfer motion arguing that the Southern District of New York ("SDNY") is a more convenient forum. See ECF Nos. 53, 59. Only Satterwhite Group opposes, and it seeks to keep this matter in the District of New Jersey. See ECF No. 57. McMullan has not indicated a preference. Neither has Tang, who is not a New Jersey resident although he filed here. Defendants do not appear to object to transfer. See ECF No. 54. This Opinion decides Kiz Group's transfer motion only, leaving the resolution of the lead plaintiff motions to the sound discretion of the transferee court.
Kiz Group moves to transfer because "many of the operative facts occurred [in SDNY]," in particular "numerous key statements and disclosures" relating to the option grant and DFC loan. Pl. Br. I, at 1-2.4 Kiz Group also contends that "the public interest weighs in favor of transfer given court congestion in [New Jersey]."5 Id. Satterwhite Group opposes. In their view, Kiz Group relies on "the irrelevant fact that Kodak's stock is traded on the [New York Stock Exchange]" to tie this matter to SDNY. See Pl. Br. II, at 5. Satterwhite Group also argue that Kiz Group bootstraps venue to the place where certain media outlets reported Defendants' statements and omissions, when in fact venue is most appropriate where Defendants actually made them. Id. at 6. Based on the parties'briefings, which raise the Western District of New York ("WDNY") as extensively as SDNY and New Jersey, I consider that forum as well, even though Kiz Group does not specifically request a transfer there.6
28 U.S.C. § 1404(a) permits a court to transfer a federal action from one district to another "[f]or the convenience of parties and witnesses, in the interest of justice," as long as the transferee court is one in which the action could have been brought originally. This inquiry requires an "individualized, case-by-case consideration of convenience and...
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