Silverberg v. Continenza

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF NEW YORK

LOUIS PETERS, Derivatively on Behalf of

Nominal Defendant EASTMAN KODAK DECISION AND ORDER

COMPANY,

6:21-CV-06621-EAW

Plaintiff,

v.

JAMES V. CONTINENZA, DAVID E.

BULLWINKLE, ROGER W. BYRD,

RICHARD TODD BRADLEY, GEORGE

KARFUNKEL, PHILLIPE D. KATZ,

JASON NEW, and RANDY VANDAGRIFF,

Defendants,

and

EASTMAN KODAK COMPANY,

Nominal Defendant.

HERBERT SILVERBERG, Derivatively on

Behalf of Nominal Defendant EASTMAN

KODAK COMPANY,

Plaintiff, 6:21-CV-06567-EAW

v.

JAMES V. CONTINENZA and

GEORGE KARFUNKEL,

Defendants,

and

EASTMAN KODAK COMPANY,

Nominal Defendant.

INTRODUCTION AND BACKGROUND

The above-captioned lawsuits represent two shareholder derivative actions related,

in part, to an announcement in July 2020 that Eastman Kodak Company (“Kodak”) was to

receive a $765 million federal loan from the United States International Development

Finance Corporation (“DFC”) in order to manufacture pharmaceutical products and the

allegedly contemporaneous approval of stock options to certain Kodak insiders, including

its Executive Chairman and Chief Financial Officer defendant James V. Continenza

(“Continenza”). The action commenced by plaintiff Herbert Silverberg (“Silverberg”), a

Kodak shareholder, was filed on September 2, 2021; names Continenza and Kodak Board

of Directors member George Karfunkel (“Karfunkel”) as defendants in addition to nominal

defendant Kodak; and asserts breach of fiduciary duty causes of action and a claim for

violation of section 14 of the Securities Exchange Act of 1934 (“Exchange Act”). (See

Silverberg v. Continenza et al., Case No. 6:21-cv-06567 (the “Silverberg Action”), Dkt. 1).

The action commenced by plaintiff Louis Peters (“Peters”), a Kodak shareholder, was filed

on October 4, 2021; names eight defendants in addition to nominal defendant Kodak—

Continenza, Karfunkel, Kodak’s Chief Financial Officer David E. Bullwinkle, Kodak’s

General Counsel Roger W. Byrd, Kodak Board of Directors members Richard Todd

Bradley, Phillipe D. Katz, and Jason New, and Kodak’s Senior Vice President Randy

Vandagriff; and asserts claims for breach of fiduciary duty, unjust enrichment, and

violations of section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.

(See Peters v. Continenza et al., Case No. 6:21-cv-06621 (the “Peters Action”), Dkt. 1).

Pending before the Court are competing motions to consolidate and to appoint lead

counsel. (See Peters Action, Dkt. 2 (Peters’ motion); Dkt. 3 (Silverberg’s motion);

Silverberg Action, Dkt. 17 (Peters’ motion); Dkt. 18 (Silverberg’s motion)).1 Specifically,

Peters seeks to consolidate the Peters Action and the Silverberg Action, and appoint his

counsel Kessler Topaz Meltzer & Check, LLP (“KTMC”) and Faraci Lange LLP (“Faraci

Lange”) as Lead and Liaison counsel, respectively. (Dkt. 2).2 On the other hand,

Silverberg seeks to create “a co-leadership structure based upon responsibility for different

legal claims raised” or alternatively seeks to have his counsel, Abraham, Fruchter &

Twersky, LLP (“AF&T”), serve as Lead Counsel. (Dkt. 3-10 at 7). Silverberg describes

the structure he seeks as involving co-lead counsel “centered around the different claims,

with any overlapping claims being litigated on a co-leadership basis. . . .” (Dkt. 3-10 at 8).

MOTIONS TO CONSOLIDATE

Both Peters and Silverberg (hereinafter collectively “Plaintiffs”) agree that the cases

should be consolidated. (See Dkt. 2-5 at 11 (Peters arguing that the “[i]nsignificant

1 Because the motion papers and responses filed in the Peters Action and the

Silverberg Action are identical, the Court will hereinafter reference only the docket entries

in the Peters Action, unless otherwise specified. The Court notes that, while afforded the

opportunity (see Dkt. 8), no defendant has submitted papers in connection with the pending

motions.

2 Peters also initially sought appointment as lead plaintiff (Dkt. 2-5 at 12), but

withdrew that request (Dkt. 49 at 7 n.1; 8-9). “In a shareholder derivative action, unlike a

private securities litigation action, the Court is not required to appoint a lead plaintiff.” In

re Frontier Commc’ns Corp. Derivative Litig., No. 3:17-CV-1792 (VAB), 2018 WL

3553332, at *4 (D. Conn. July 23, 2018). Here, the Court declines to appoint either Peters

or Silverberg as lead plaintiff—a request that is no longer being pursued in any event.

differences” between the Peters Action and Silverberg Action “‘do not defeat the value in

consolidating these actions so that one shareholder lawsuit’ may proceed”); Dkt. 3-10 at 7

(Silverberg stating: “Notwithstanding these differences in theory and emphasis, Silverberg

agrees that the two shareholder derivative actions share common questions of law and fact

and, therefore, should be consolidated pursuant to Fed. R. Civ. P. 42(a).”)). The Court

agrees.

“Consolidation is appropriate where there are actions involving ‘common

question[s] of law or fact’ pending before the Court.” In re Bank of Am. Corp. Sec.,

Derivative & ERISA Litig., 258 F.R.D. 260, 267 (S.D.N.Y. 2009) (quoting Fed. R. Civ. P.

42(a)) (alteration in original). The claims and defendants need not be identical in order for

two actions to be consolidated, so long as “the cases present sufficiently common questions

of fact and law, and the differences do not outweigh the interests of judicial economy

served by consolidation.” Id. at 268 (citation and quotation omitted). See also In re

Frontier Commc’ns Corp. Derivative Litig., 2018 WL 3553332, at *3 (“Differences in

causes of action, defendants, or the class period do not render consolidation inappropriate

if the cases present sufficiently common questions of fact and law, and the differences do

not outweigh the interests of judicial economy served by consolidation.” (citations

omitted)).

Here, while the claims and defendants are not identical, there is sufficient overlap—

most notably with respect to the underlying premise of the lawsuits based, in part, on the

allegedly contemporaneous grant of stock options to Continenza with the announcement

of the DFC loan and the Kodak Board’s rejection of Plaintiffs’ requests to litigate those

claims. See id. at *4 (“The Court finds that sufficient common questions of fact and law

exist between and among these four Complaints to consolidate the actions, most

importantly that each asserts that the Individual Defendants breached their fiduciary duties

to Frontier, and that a stockholder demand for the company to bring the asserted claims

against the Individual Defendants would be futile.”). The two actions involve common

questions of law and fact, judicial economy and convenience will be promoted by

consolidation, and it will avoid unnecessary costs to the parties. Accordingly, the Court

grants the motion to consolidate.

MOTIONS FOR APPOINTMENT OF LEAD COUNSEL

Having decided that consolidation is appropriate, the Court must now resolve the

remaining issue of whether it should appoint lead counsel, and if so, which attorney(s)

should be appointed, or alternatively whether the Court should endorse the “co-leadership”

structure advanced by Silverberg.

The Court agrees with Peters that the proposal advanced by Silverberg would

undermine the goals of consolidation, and in reality, reflects no effort to promote judicial

economy and efficiency. Given the complexity of the litigation, this Court is well within

its discretion to proactively manage the litigation and regulate the conduct of the

proceedings. See Farber v. Riker-Maxson Corp., 442 F.2d 457, 459 (2d Cir. 1971) (a

district court is not required to allow each individual plaintiff and his lawyer “to do what

he pleases in litigation as complex as this” nor should they be allowed to “behave in total

disregard of the interest of other litigants. . . .”). In that regard, the Court agrees with

Peters that appointment of lead counsel in this case will promote those goals.3

The decision concerning appointment of lead counsel is a matter within the Court’s

discretion. See In re Frontier Commc’ns Corp. Derivative Litig., 2018 WL 3553332, at *3

(“The appointment of lead plaintiff and lead counsel in a consolidated shareholder

derivative litigation is a matter of discretion.” (citations omitted)). Moreover, there is no

statutory or controlling case law setting forth the criteria that a court must apply in

appointing lead counsel in a consolidated shareholder derivative action. See In re

Comverse Tech., Inc. Derivative Litig., No. 06-CV-1849 (NGG) (RER), 2006 WL

3761986, at *2-3 & n.3 (E.D.N.Y. Sept. 22, 2006) (discussing the lack of any controlling

statute or case law but outlining the factors courts consider), objections overruled, No. 06-

CV-1849 NGG RER, 2006 WL 3511375 (E.D.N.Y. Dec. 5, 2006).

Both Peters and Silverberg cite to the alleged superiority of his respective complaint

in an effort to persuade the Court that his counsel should be appointed lead. The Court’s

best assessment at this stage of the proceedings is that Plaintiffs each may have some

3 Silverberg argues that KTMC cannot become his counsel in a consolidated action

“unless Silverberg’s choice of AF&T ‘was an unreasonable choice.’” (Dkt. 62 at 5-6).

This is an incorrect statement of the law. Silverberg cites to Cohen v. U.S. Dist. Ct. for N.

Dist. of California, 586 F.3d 703 (9th Cir. 2009), but that decision is not on point. Cohen

dealt with the appointment of lead counsel that was not the lead plaintiff’s choosing under

the Private Securities Litigation Reform Act. The Ninth Circuit remanded the case to the

district court to better explain its rationale for not selecting counsel chosen by the lead

plaintiff. Id. at 711-12. Silverberg also cites generally to MacAlister v. Guterma, 263 F.2d

65 (2d Cir. 1958), but the Second Circuit clarified in Farber, 442 F.2d at 459, that a district

court does have discretion to appoint lead counsel in a consolidated shareholder derivative

action and to regulate the conduct of non-lead counsel.

legitimate criticism of the other’s pleading. However, as noted by then-District Judge Chin

in In re Bank of Am. Corp. Sec., Derivative & ERISA Litig., 258 F.R.D. at 273: “I need not

determine which complaints are superior to the others. Many, if not all, deficiencies in the

different complaints may be cured when . . . a consolidated derivative complaint [is filed],

and differences among the complaints can also be addressed at that time.”

In assessing the more appropriate counsel to be appointed lead, the Court is partly

influenced by the pending state court litigation, already being pursued by Peters.4

Appointing the same counsel here that is already litigating the state court matter

(commenced several months before either federal court lawsuit) will promote judicial

economy, assist in coordination between the two actions, and promote the avoidance of

duplication, inefficiency, and inconsistent rulings. See, e.g., Sparano v. Lief, No.

10CV2079 BTM (BLM), 2011 WL 830109, at *2 (S.D. Cal. Mar. 3, 2011) (appointing law

firm that was already pursuing related state court derivative action for purposes of

efficiency as it would prevent needless duplication of efforts and waste of resources and

will “ensure that counsel can speak with one voice on behalf of [the Company], avoid

unseemly conflicts, and ensure consistency in the prosecution of the derivative claims

brought on the Company’s behalf.” (quotation omitted)).

Relatedly, the Court believes that the commencement of the state court litigation by

Peters reflects his diligent pursuit of the claims as opposed to Silverberg’s tactics, which

4 KTMC and Faraci Lange represent Peters in a shareholder derivative action

commenced in New York State Supreme Court, Monroe County, on May 19, 2021. (Dkt.

2-1 at ¶ 3; Dkt. 2-2 at 2-4).

involved some delay. (See Silverberg Action, Dkt. 1-5 (reflecting eight-month gap in

communication concerning status of litigation demand)). Silverberg cites to his filing of a

motion for partial summary judgment in the federal court action as evidence that he is

pursuing his claims more vigorously (Dkt. 62 at 11-12), but the Court disagrees. Taking

the atypical step of filing a pre-answer motion for summary judgment in a complex case

like this one, while outstanding motions to consolidate and appoint lead counsel are

pending, suggests to the Court that Silverberg is pursuing a course of action that may result

in inefficiencies and a waste of judicial resources.5

Moreover, while each party has launched criticisms of the other and their counsel

based on conduct in other litigation, the Court is influenced by the argument advanced by

Peters that “Silverberg has filed ten representative actions in the last two years, all with his

current counsel” and of those, six were abandoned within three months of filing. (Dkt. 2-

5 at 17). Silverberg responds by claiming that his objectives were achieved in those

lawsuits and that he is not a professional plaintiff acquiring stock simply for the sake of

commencing litigation (see Dkt. 3-5), but he does not dispute the underlying factual

premise of Peters’ argument that he and his counsel are prolific filers of lawsuits, many of

which were ultimately discontinued shortly after their commencement. Considered with

5 Through a Stipulated Order, it was agreed that the parties would meet and confer

about a schedule for responding to the complaints within 14 days of the Court issuing a

decision on the pending motions to consolidate and appoint lead counsel, with the

expectation that the defendants would have no less than 60 days to answer, move or

otherwise respond to the complaints. (Dkt. 7). Thus, no answer or dispositive motion has

been filed by the defendants in either the Peters or Silverberg Actions. Nonetheless, on

November 10, 2021, Silverberg filed a motion for partial summary judgment. (Silverberg

Action, Dkt. 39).

the unusual pre-answer motion for partial summary judgment that Silverberg filed, the

Court has concerns that appointing Silverberg’s counsel as lead will not promote the goals

of more effective case management, judicial efficiency, and reducing costs to the parties.

Finally, the Court has carefully reviewed the qualifications and background of the

competing law firms seeking appointment in this case, and concludes that Peters’ counsel

has the greater experience and background to warrant appointment as Lead and Liaison

counsel in this case.

All that being said, both parties appear to misapprehend the impact of consolidation.

Consolidation pursuant to Federal Rule of Civil Procedure 42(a) “means the joining

together—but not the complete merger—of constituent cases.” Hall v. Hall, ___ U.S. ___,

138 S. Ct. 1118, 1125 (2018). In other words, the Silverberg and Peters Actions will not

be completely merged into one, but instead they will be consolidated to enable “more

efficient case management while preserving the distinct identities of the cases and the rights

of the separate parties in them.” Id. No question, this Court “enjoy[s] substantial discretion

in deciding whether and to what extent to consolidate cases,” id. at 1131, but it does not

view that discretion as permitting consolidation to result in the foreclosure of meritorious

claims that one party may seek to pursue, see Schnall v. Proshares Tr., No. 09 CIV. 6935

(JGK), 2010 WL 1962940, at *2 (S.D.N.Y. May 17, 2010) (“Consolidation means that the

litigation will be consolidated, not that [a plaintiff] . . . will lose their individual claims. . .

. [T]he Court will have to adopt flexible procedures to deal with any individual claims.”).

Therefore, consistent with the directions set forth below, the Court is requiring the filing

of a consolidated complaint, and KTMC and Faraci Lange shall consult with counsel for

Silverberg in drafting that consolidated complaint, but in the event that certain claims are

not pursued in that consolidated complaint that Silverberg believes should be pursued, he

may apply to the Court for leave to independently continue to pursue those claims as part

of the consolidated action.

CONCLUSION AND ORDER

For the foregoing reasons, the motion by Peters for consolidation and appointment

as lead counsel (Peters Action, Dkt. 2; Silverberg Action, Dkt. 17) is granted and the motion

by Silverberg for consolidation is granted but the motion is otherwise denied (Peters

Action, Dkt. 3; Silverberg Action, Dkt. 18). The Court hereby orders as follows:

1. Pursuant to Federal Rule of Civil Procedure 42(a), the Peters Action and the

Silverberg Action are hereby consolidated and shall hereinafter be referred to as

“In re Eastman Kodak Company Derivative Litigation” and assigned the case

number of the Peters Action (case no. 6:21-cv-06621) (hereinafter “the

Consolidated Action”). All filings need only be made in the Consolidated

Action. After consolidation, and for purposes of judicial efficiency, the Clerk

of Court is directed to administratively terminate the Silverberg Action (case no.

6:21-cv-06567)6;

6 As a result, the Court directs the Clerk of Court to also terminate the pending motion

for partial summary judgment filed in the Silverberg Action (Silverberg Action, Dkt. 39),

meaning that it is terminated without prejudice subject to renewal consistent with the terms

of this Decision and Order (i.e., Lead Counsel may elect to renew the motion, or

alternatively if any request to renew is rejected by Lead Counsel, Silverberg may seek leave

of Court to ultimately pursue it and/or any additional claims that are not included in a

consolidated complaint).

2. Kessler Topaz Meltzer & Check, LLP is hereby appointed as Lead Counsel and

Faraci Lange LLP is hereby appointed as Liaison Counsel to act on behalf of all

plaintiffs in the Consolidated Action.  Lead Counsel with Liaison Counsel shall

assume and exercise the full authority to litigate this action on behalf of all

plaintiffs, and no pleadings or other papers shall be filed, or discovery conducted

by any plaintiff except as directed or undertaken by Lead Counsel and Liaison

Counsel, without leave of Court. In the event leave of Court is sought in this

regard, the party seeking such relief must file a motion that sets forth in detail

the good faith efforts to have Lead Counsel and Liaison Counsel pursue certain

actions and the results of those efforts.

3. Each newly filed or transferred shareholder derivative action that arises out of

the subject matter of the Consolidated Action shall be consolidated with the

Consolidated Action, and this Decision and Order shall apply to each such newly

filed or transferred case. Upon such filing or transfer of a related case, the Clerk

of Court shall: (a) file a copy of this Decision and Order on the docket in the

newly filed or transferred action; (b) mail a copy of this Decision and Order to

the attorneys for the plaintiff(s) in the newly filed or transferred case and to any

new defendant(s) in the newly filed or transferred case; and (c) make the

appropriate entry in the docket for this Consolidated Action. A new party to any

related case filed in the future may object to said consolidation by filing a motion

for relief from the Court’s Decision and Order within twenty (20) days after the

date of receipt of the Court’s Decision and Order.

4. The parties shall meet and confer within 20 days hereof to agree upon an initial

case management order for submission to the Court for its approval, including a

deadline for the filing of a consolidated complaint.

SO ORDERED.

ELIZABETH A. WOLFORD

Chief Judge

United States District Court

Dated: January 18, 2022

Rochester, New York