# In re Eastman Kodak Company Derivative Litigation

> District Court, W.D. New York · September 25, 2023

URL: https://www.frixlaw.com/law-library/cases/10366489

## Case

- **Court:** District Court, W.D. New York
- **Decided:** September 25, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## How later opinions describe it (automated extraction)

- explaining that state substantive law applies “[b]ecause the contours of the demand requirement—when it is required, and when excused—determine who has the power to control corporate litigation”

## Opinion text

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF NEW YORK

In re EASTMAN KODAK COMPANY DECISION AND ORDER
DERIVATIVE LITIGATION
6:21-CV-6621 EAW

INTRODUCTION
This shareholder derivative action arises out of the events surrounding a Letter of
Interest (“LOI”) entered into between nominal defendant Eastman Kodak Company
(“Kodak”) and the United States International Development Finance Corporation (“DFC”)
in July of 2020, discussing a contemplated loan of $765 million from DFC to Kodak to
support the conversion of Kodak’s manufacturing facilities to produce pharmaceutical
products.1 It consists of two matters commenced by Kodak shareholders and consolidated
for all purposes into a single action denominated “In re Eastman Kodak Company
Derivative Litigation.” (Dkt. 71).
The operative pleading is the corrected verified consolidated stockholder derivative
complaint. (Dkt. 129) (the “consolidated complaint”). In the consolidated complaint,
plaintiffs Louis Peters (“Peters”) and Herbert Silverberg (“Silverberg”) (collectively
“Plaintiffs”) allege violations of the Securities Exchange Act of 1934 (the “Exchange

1 On September 27, 2022, this Court dismissed an action arising out of the same
factual background and alleging violations of federal securities laws. In re Eastman Kodak
Co. Sec. Litig., 632 F. Supp. 3d 169, 175 (W.D.N.Y. 2022), appeal withdrawn sub nom.,
Les Investissements Kiz Inc. v. Eastman Kodak Co., No. 22-2788, 2023 WL 3149527 (2d
Cir. Jan. 26, 2023).
Act”), breaches of fiduciary duties, and unjust enrichment by Kodak’s Executive Chairman
and CEO James V. Continenza (“Continenza”), CFO David Bullwinkle (“Bullwinkle”),
General Counsel Roger W. Byrd (“Byrd”), Senior Vice President Randy D. Vandagriff

(“Vandagriff”), director Philippe D. Katz (“Katz”), director Richard Todd Bradley
(“Bradley”), director Jason New (“New”), and director George Karfunkel (“Karfunkel”)
(collectively “Defendants”). (Id). Continenza, Bullwinkle, Byrd, and Vandagriff are
sometimes collectively referred to as “Option Recipients,” while Katz, Bradley, and New
are sometimes collectively referred to as the “CNG Committee.” Kodak is named as a

nominal defendant. (Id.).
Presently before the Court are: (1) a motion to dismiss for failure to state a claim,
or in the alternative, for summary judgment filed by Kodak (Dkt. 100); (2) a motion to
dismiss for failure to state a claim filed by Continenza, Bullwinkle, Byrd, Bradley, Katz,
New, and Vandagriff (Dkt. 101); (3) a motion to dismiss for failure to state a claim filed

by Continenza (Dkt. 102); and (4) a motion to dismiss for failure to state a claim filed by
Karfunkel (Dkt. 103). For the reasons that follow, the Court grants Kodak’s motion for
summary judgment and denies the remaining motions as moot.
BACKGROUND
I. Factual Background

Continenza became Kodak’s Executive Chairman on or about February 20, 2019.
(Dkt. 129 at ¶ 45). Continenza and Kodak entered into an employment agreement and an
“Award Agreement” pursuant to the Eastman Kodak Company 2013 Omnibus Incentive
Plan (the “Incentive Plan”). (Id.). These agreements provided Continenza with options to
purchase 1.75 million Kodak shares at various strike prices and were disclosed on April 1,
2019. (Id.).
At that time, Kodak’s market capitalization was approximately $100 million. (Id.

at ¶ 46). Kodak’s April 1, 2019 Form 10-K disclosed that its auditors had issued a going
concern qualification based on its liquidity, capital resources, and negative cash flow. (Id.).
Each of Kodak’s subsequent annual reports has included a similar going concern
qualification. (Id.).
On May 21, 2019, Kodak and Southeastern Asset Management (“Southeastern”)

entered into a Notes Purchase Agreement (the “Purchase Agreement”) for $100 million of
Secured Convertible Notes (the “Notes”) due in 2021. (Id.). The Notes were convertible
into Kodak stock at a price of $3.17482 per share. (Id.). Upon conversion, they would
represent 42.8% of Kodak’s outstanding shares. (Id.). At a February 2020 meeting of
Kodak’s board of directors (the “Board”), Karfunkel proposed that Continenza be given an

additional two million options to offset the potential devaluing of his options associated
with the Purchase Agreement between Kodak and Southeastern. (Id. at ¶ 47).
Following the onset of the COVID-19 pandemic in 2020 and its associated drug
shortages, Kodak recognized an opportunity to expand its pharmaceutical business,
including the manufacture of key starting materials (“KSMs”) that pharmaceutical

companies use to make Active Pharmaceutical Ingredients (“APIs”), which are in turn used
to make final drug products. (Id. at ¶¶ 48-49). Kodak began reaching out to governmental
officials and agencies, looking for an opportunity to partner with the government to
leverage its chemical manufacturing capacity and expertise. (Id. at ¶ 49). Kodak gave this
initiative the code name “Project Tiger.” (Id.).
As part of Project Tiger, Kodak’s Vice President of Public Affairs contacted the

Biomedical Advanced Research and Development Authority (“BARDA”). (Id. at ¶ 50).
BARDA was the federal agency responsible for investing in countermeasures to diagnose,
treat, and protect against COVID-19. (Id.). BARDA suggested that Kodak reach out to
Phlow Corporation (“Phlow”), a “pharmaceutical management company focused on
securing domestic drug reserves.” (Id.). Phlow was in the process of negotiating a contract

with BARDA to manufacture medications to treat COVID-19. (Id.).
In March of 2020, Phlow’s CEO Eric Edwards (“Edwards”) told Kodak that he had
been working with Congress, the White House, and other government agencies on
increasing domestic pharmaceutical manufacturing. (Id. at ¶ 51). In April of 2020, Phlow
connected Kodak with Peter Navarro (“Navarro”), the Director of the White House Office

of Trade and Manufacturing Policy, and Chris Abbott (“Abbott”), a White House senior
policy analyst. (Id. at ¶ 52). Kodak had several conversations with Navarro and Abbott in
April and May of 2020. (Id.). On May 14, 2020, then-President Trump issued an executive
order pursuant to the Defense Production Act allow DFC to issue loans to support
“domestic production of strategic resources needed to respond to the COVID-19 outbreak.”

(Id. at ¶ 53).
On April 9, 2020, Kodak issued its annual proxy statement on Schedule 14A (the
“2020 Proxy”). (Id. at ¶ 54). The 2020 Proxy solicited stockholder approval with respect
to a May 20, 2020 annual meeting of shareholders. (Id.). The fourth proposal in the 2020
Proxy (“Proposal 4”) sought to add approximately 2.2 million shares to the Incentive Plan,
and was necessary because there were not enough shares available in the Executive
Compensation Plan to satisfy the Board’s February 2020 agreement to award additional

options to Continenza. (Id. at ¶¶ 55-56). Kodak’s shareholders approved Proposal 4 on
May 20, 2020. (Id. at ¶¶ 57-58).
On May 18, 2020, BARDA awarded Phlow an $812 million contract to domestically
manufacture generic medicines and pharmaceutical ingredients to fight COVID-19. (Dkt.
¶ 59). On May 22 and 28, 2020, Kodak employees discussed Kodak’s ability to

manufacture APIs with Navarro and Abbott. (Id. at ¶ 60). During the May 22nd call, in
which Continenza participated, Kodak requested $27 million to allow it to swiftly bring
itself into regulatory compliance to manufacture APIs. (Id. at ¶ 61). Navarro told
Continenza that Kodak should “think bigger” and more “long term,” and requested a more
comprehensive proposal by May 28, 2020. (Id.).

On May 28, 2020, Kodak presented to Navarro and Abbott a proposal for a grant of
approximately $435-575 million, to establish a new “U.S. Advanced API Manufacturing
Center.” (Id. at ¶ 63). Navarro set a deadline of June 3, 2020, for a more detailed proposal.
(Id.).
On May 31, 2020, Abbott set up a call between Kodak and DFC for June 1, 2020.

(Id. at ¶ 64). Continenza, Bullwinkle, and Byrd, among others, participated in the June 1,
2020 call. (Id.). During the call, personnel from DFC walked Kodak through DFC’s loan
application process and explained how a non-recourse financing loan might work. (Id.).
Kodak had follow-up discussions with Abbott and DFC personnel in the first week of June
of 2020. (Id. at ¶ 65). During those discussions, Abbott directed Kodak to submit its
updated proposal to DFC, rather than to Navarro. (Id.). Kodak’s primary point of contact
at DFC was Alale Allal (“Allal”), with whom Continenza had frequent one-on-one calls to

ask or answer questions. (Id.). On June 8, 2020, Kodak and Phlow entered into a letter of
intent contemplating a long-term supply contract whereby Kodak would supply Phlow with
certain APIs and KSMs. (Id. at ¶ 66).
On June 11, 2020, Kodak’s Managing Director of Corporate Development Paula
Gutkin directed that a new project clearance list be created for Project Tiger. (Id. at ¶ 68).

Continenza and Byrd were both on the Project Tiger clearance list. (Id.). On June 12,
2020, Kodak’s Chief Technical Officer (“CTO”) Terry R. Taber (“Taber”) sent Continenza
and Bullwinkle a PowerPoint deck entitled “Project Tiger: Application for DFC-DPA Loan
Program (DCF-014)” (the “Project Tiger Deck”). (Id. at ¶ 69). The Project Tiger Deck set
the following timeline for the loan application process: (1) application to be submitted by

June 26, 2020; (2) application to be finalized by the end of June of 2020; (3) letter of
interest with the government to be signed in mid-July 2020; (4) loan to be awarded in mid-
August 2020. (Id.).
On June 15, 2020, Kodak signed another letter of intent with Phlow. (Id. at ¶ 70).
This letter of intent contemplated Phlow purchasing chemicals from Kodak and was

entered into in furtherance of Kodak’s application to DFC, to demonstrate that Kodak had
a customer for future APIs. (Id.). On June 16, 2020, Kodak filed a preliminary loan
application. (Id. at ¶ 76). Over the next few days, Kodak’s management continued to
supplement the DFC loan application with additional materials. (Id. at ¶ 79).
On June 18, 2020, all Project Tiger team members were advised that they had been
added to the clearance list for a confidential project. (Id. at ¶ 80). The email conveying
this information included a link to an internal Kodak memo (the “Project Tiger Memo”)

advising Project Tiger team members that information associated with Project Tiger could
constitute material non-public information (“MNPI”). (Id.). The Project Tiger Memo
warned against trading in Kodak stock with MNPI and instructed that team members
preclear transactions with Byrd before trading. (Id.).
On June 23, 2020, Continenza purchased 46,737 shares of Kodak stock at an

average price of $2.22 per share (the “June 2020 Trades”). (Id. at ¶ 82). June 23, 2020,
was the last day of a “Window Period” that had been open since May 15, 2020, during
which Kodak insiders were allowed to transact in Kodak stock. (Id.). Plaintiffs contend
that Continenza did not comply with Kodak’s insider trading policy in connection with the
June 2020 Trades. (Id. at ¶ 83). In particular, Plaintiffs allege that Continenza did not

comply with the requirement that he submit a request to Byrd via email at least one day in
advance of the proposed transaction and wait to receive a response before transacting in
Kodak stock. (Id.).
Also on June 23, 2020, and at Continenza’s direction, Kodak awarded Project Tiger
team members $30,000 in bonuses. (Id. at ¶ 84). On June 26, 2020, Kodak submitted its

final loan application to DFC. (Id. at ¶ 85). The final loan application contemplated a $765
million DFC loan and projected that Kodak’s pharmaceuticals business would generate
revenues of more than $200 million by 2024 and more than $300 million by 2025, with
additional increases thereafter. (Id. at ¶¶ 85-86). Internally, Kodak projected that its
pharmaceuticals project would have positive cash flow and earnings before interest, taxes,
depreciation and amortization (“EBITDA”) of more than $150 million by 2025. (Id. at
¶ 86). In 2019, Kodak’s entire net income was $116 million and its EBITDA was $95

million. (Id.).
DFC conducted due diligence on Kodak’s final loan application through early and
mid-July of 2020. (Id. at ¶ 88). On July 22, 2020, Continenza and Bullwinkle led Allal on
a tour of Kodak’s Rochester operations. (Id. at ¶ 89). Allal thereafter advised Continenza,
Bullwinkle, and other members of Kodak’s management that DFC wanted to enter into a

letter of interest with Kodak regarding the requested loan. (Id.). DFC representatives
further advised Kodak that DFC wanted to issue a press release announcing the letter of
interest and hold a public signing ceremony on July 28, 2020. (Id.). On July 23, 2020,
Kodak received the first draft of a term sheet setting forth the terms of the loan from DFC.
(Id.).

On July 27, 2020, at 11:25 a.m., a Kodak employee erroneously sent press releases
regarding the DFC LOI to several news outlets without including instructions that the
release of the included information was embargoed until the next day. (Id. at ¶ 92). Prior
to this error being corrected, the Twitter accounts for two Rochester-based news outlets
tweeted that Kodak would be making a big announcement the following day. (Id. at ¶ 93).

Kodak thereafter realized its mistake and contacted the parties to whom the press release
had been sent, and the tweets were no longer available as of 12:56 p.m. (Id. at ¶ 94). On
July 27, 2020, approximately 1.6 million shares of Kodak common stock traded, up from
74,983 shares traded during the previous trading session on July 24, 2020, and 80,840
shares traded on July 23, 2020. (Id. at ¶ 95). Kodak shares also increased in price by more
than 23%. (Id.).
On July 27, 2020, Continenza and Byrd convened Kodak’s Board and

Compensation, Nominating and Governance (“CNG”) Committee for a joint meeting. (Id.
at ¶ 91). Katz, Bradley, and New were members of the CNG Committee. (Id. at ¶¶ 37-
39). Byrd wanted the CNG Committee to grant options to members of Kodak’s senior
management, including himself, and had structured the option grants so that the lowest
exercise price was $3.03 per share. (Id. at ¶ 91). The July 27, 2020 meeting was held

telephonically, with Bullwinkle observing. (Id. at ¶ 97). The details of the DFC LOI and
Kodak’s business plan for pharmaceutical manufacturing were discussed. (Id.). Byrd then
discussed the option grants with the CNG Committee members. (Id. at ¶ 98). Following
Byrd’s presentation, the CNG authorized the issuance of 1.75 million stock options to
Continenza, with 28.75% of those options vesting immediately, and the remainder upon

the conversion of the Southeastern Notes. (Id. at ¶ 99). The CNG Committee also awarded
45,000 stock option grants to each of Bullwinkle, Byrd, and Vandagriff. (Id. at ¶ 100).2
On July 28, 2020, Kodak and DFC announced the DFC LOI and held a public
signing ceremony. (Id. at ¶ 101). That same day, The Wall Street Journal posted an article
about the DFC LOI in which Continenza was quoted as saying that he expected the loan to

2 The parties vigorously contest whether these options were “springloaded.” The
consolidated complaint describes “springloading” as deliberately granting options in
advance of publicly releasing positive news, and alleges that it is “both illegal as a matter
of corporate law, and a violation of Kodak’s compensation policies.” (Dkt. 129 at ¶ 5).
create around 300 jobs in Rochester and 30 to 50 jobs in Minnesota. (Id.). Kodak’s stock
price closed on July 28, 2020, at $7.94 per share. (Id.).
On July 29, 2020, before the market opened, Continenza appeared on CNBC’s

Squawk Box to discuss the DFC LOI. (Id. at ¶ 102). Continenza stated while there was
still “some work to do,” he felt “very comfortable that we can bank on it” and “very
comfortable we’re gonna get to the end game.” (Id.). Later that morning, Continenza
appeared on Fox Business News and was interviewed by Yahoo! News regarding the DFC
LOI. (Id. at ¶¶ 105-06). That same day, Kodak employees received an email from

Continenza in which he announced the new strategic initiative and the creation of “Kodak
Pharmaceuticals.” (Id. at ¶ 107). “Kodak’s stock price closed at $33.20 per share on July
29, 2020, after reaching a high of $60 per share and trading at an average price of $38.75.”
(Id. at ¶ 108).
Also on July 29, 2020, Continenza, Bullwinkle, Byrd, and Vandagriff each filed a

Form 4 disclosing the option awards they had been granted on July 27, 2020. (Id. at ¶ 118).
A few media outlets reported on the option grants after the markets closed. (Id. at ¶ 119).
On July 30, 2020, Continenza filed a Form 4/A indicating that the options resulted from an
earlier understanding with Kodak’s Board. (Id. at ¶ 120).
Additional media scrutiny regarding the option award to Continenza caused

Kodak’s share price to drop. (Id. at ¶ 122). On July 31, 2020, Kodak’s stock price fell to
$21.85 per share. (Id. at ¶ 131). News reporting regarding the option awards continued
over the weekend, and on Monday, August 3, 2020, Kodak’s stock price closed at $14.94.
(Id. at ¶ 132).
On August 3, 2020, U.S. Senator Elizabeth Warren submitted a letter to the
Securities and Exchange Commission (“SEC”) requesting that Kodak be investigated. (Id.
at ¶ 133). On August 4, 2020, The Wall Street Journal reported that the SEC was expected

to examine the July 27, 2020 stock option grants. (Id. at ¶ 134).
Also on August 4, 2020, Karfunkel and his wife filed a Schedule 13D with the SEC
indicating that on July 29, 2020, they had donated 3 million Kodak shares to Congregation
Chemdas Yisroel Inc. (“Chemdas Yisroel”), a charitable foundation that Karfunkel
founded and controls. (Id. at ¶ 123). Plaintiffs allege that Chemdas Yisroel “appears to be

a sham.” (Id. at ¶ 125). On January 14, 2021, Karfunkel filed with the SEC a Schedule
13D stating that it was 1,937,708 shares, and not the originally reported 3 million shares,
that were donated to Chemdas Yisroel. (Id. at ¶ 127).
On August 5, 2020, “several House Congressional committees sent a joint letter to
Continenza requesting documents regarding the DFC Loan, as well as trading activity by

Company executives before the loan was announced.” (Id. at ¶ 135). These committees
also sent a letter to DFC’s CEO seeking documents. (Id.). In addition, members of
Congress sent the SEC a letter raising concerns about the July 27, 2020 stock option grants.
(Id. at ¶ 136).
After the market closed on Friday, August 7, 2020, DFC announced: “On July 28,

we signed a Letter of Interest with Eastman Kodak. Recent allegations of wrongdoing raise
serious concerns. We will not proceed any further unless these allegations are cleared.”
(Id. at ¶ 137). The following Monday, Kodak’s stock price opened at $8.90, after closing
at $14.88 per share on August 7, 2020. (Id.).
On August 6, 2020, the Board formed a special committee (the “Special
Committee”) “to investigate Continenza’s June Trades, the July 2020 option awards, and
Karfunkel’s ‘charitable donation’ of Kodak stock.” (Id. at ¶ 142). The Special Committee

was comprised of New and Kodak director William Parrett (“Parrett”). (Id.). The Special
Committee retained the law firm of Akin Gump Strauss Hauer & Feld LLP (“Akin Gump”)
to assist in the investigation. (Id. at ¶¶ 10, 142). Akin Gump drafted a report dated
September 15, 2020 (the “Special Committee Report”), which the Special Committee
adopted in total. (Id. at ¶ 143). Plaintiffs contend that the Special Committee Report failed

to disclose that Akin Gump “had acted as counsel for Continenza since at least February
2017” and “also failed to disclose whether it ever informed the members of the Special
Committee of its work for Continenza.” (Id.). The Special Committee Report found that
Continenza did not have MNPI when he bought Kodak stock on June 23, 2020, that the
July 27, 2020 option grants were proper, and that the alleged tax fraud scheme by Karfunkel

was not provable. (Id. at ¶ 144).
As part of an investigation into Continenza’s June 2020 Trades, the New York State
Attorney General (“NYAG”) served Kodak with a subpoena on November 26, 2020. (Id.
at ¶ 19). On June 1, 2021, the NYAG filed an ex parte application stating that it had
determined to file a complaint against Continenza for trading in Kodak securities based on

MNPI. (Id.); see Ex Parte Application, Letitia James v. Eastman Kodak Co., et al., Index
No. 451652/2021 (N.Y. Sup. Ct. June 1, 2021).
On September 17, 2021, Kodak’s Board appointed a second special committee (the
“Second Committee”) to perform an additional inquiry into the facts underlying this action.
(Dkt. 129 at ¶ 228). The Second Committee had three members: New, Darren Richman,
and Michael E. Sileck, Jr. (Id. at ¶ 229). The Second Committee retained the law firm
Crowell & Moring (“Crowell”), which prepared a report (the “Second Committee Report”).

(Id. at ¶ 236). The Second Committee Report found that Akin Gump was not conflicted
and otherwise reached the same conclusions as the Special Committee Report. (Id. at
¶¶ 22, 25-27, 236).
II. Procedural Background
On August 12, 2020, Peters sent Kodak a shareholder litigation demand. (Dkt. 111

at 1). Silverberg sent Kodak a shareholder litigation demand on August 24, 2020. (Id. at
1-2). On September 14, 2020, the Board unanimously voted to accept the Special
Committee Report. (Id. at 9).
On May 19, 2021, Peters filed a putative shareholder derivative complaint in New
York State Supreme Court, Monroe County (the “State Court Action”). (Id. at 12). The

State Court Action has been stayed pending resolution of the instant action. (Id. at 13).
On September 2, 2021, Silverberg filed a putative shareholder derivative action in
this Court, Silverberg v. Continenza, No. 6:21-cv-06567 (the “Silverberg Action”). On
October 4, 2021, Peters filed a putative shareholder derivative action in this Court, Peters
v. Continenza, No. 6:21-cv-06621 (the “Peters Action”). By Order dated January 18, 2022,

the Silverberg Action and the Peters Action were consolidated into the instant action. (Dkt.
71). On February 16, 2022, Plaintiffs filed a verified consolidated complaint. (Dkt. 72).
On March 4, 2022, the Court entered a Case Management Order upon consent of
the parties, whereby limited discovery was to be completed prior to the filing of certain
motions to dismiss. (Dkt. 74). The Court’s Case Management Order further set forth a
procedure whereby certain motions to dismiss would be served by April 15, 2022, but the
moving party was to file on CM/ECF only a copy of the cover letter serving the motion,

which was to be designated as a letter. (Id.). Only upon close of the limited, threshold
discovery were the motions to dismiss to be filed on CM/ECF. (Id.).
Consistent with the Court’s Case Management Order, the pending motions to
dismiss (and their supporting papers) were filed on CM/ECF on September 30, 2022. (Dkt.
100; Dkt. 101; Dkt. 102; Dkt. 103; Dkt. 104; Dkt. 105). Responding papers were filed on

November 14, 2022. (Dkt. 111; Dkt. 112; Dkt. 113). Replies were filed on December 23
and 27, 2022. (Dkt. 120; Dkt. 121; Dkt. 122; Dkt. 123).
On February 8, 2023, the Court received from Plaintiffs’ counsel a letter seeking to
“correct a mistake of fact made in their Verified Consolidated Stockholder Derivative
Complaint (ECF No. 72) . . ., and repeated in Plaintiffs’ Omnibus Opposition to

Defendants’ Motions to Dismiss, or in the Alternative, For Summary Judgment (ECF No.
113) . . . and Plaintiffs’ Local Rule 56(A)(2) Opposing Statement to Nominal Defendant
Eastman Kodak Company’s Statement of Undisputed Material Facts and Statement of
Facts Believed to be in Dispute . . . (ECF No. 111).” (Dkt. 126). Plaintiffs’ counsel
explained that “Plaintiffs’ Complaint ¶ 147 quotes ‘Defendants’ Answer, Affirmative

Defenses and Verified Counterclaims and Third-Party Claims’ in the White Energy matter
[Standard General Master Fund L.P., et al., v. White Energy Holdco, LLC, et al., No. 2017-
0561-JRS (Del. Ch. 2017)], which states that in that matter, ‘Akin Gump represented Mr.
Continenza.’ The Complaint refers to this filing, which is attached as Exhibit 3 to my
Declaration (ECF No. 112), as ‘verified.’ Complaint ¶ 241. In fact, while the
‘Counterclaims and Third-Party Claims’ were verified, the ‘Answer’ was not. Therefore
Plaintiffs’ references to the answer as ‘verified’ and ‘sworn’ in the Opposition, at 21-22,

23, 44, and 64, were factually incorrect.” (Id.).
Thereafter, the Court entered a Stipulation and Order allowing for the filing of a
corrected complaint. (Dkt. 128). This Stipulation and Order provides that the filing of a
corrected complaint will not impact the pending motions to dismiss. (Id. at ¶ 2). The
operative consolidated complaint (that is, the corrected complaint) was filed on March 1,

2023. (Dkt. 129).
The consolidated complaint contains the following causes of action: (1) a claim for
violation of § 10(b) of the Exchange Act and Rule 10b-5(a) and (c) promulgated thereunder
against the CNG Committee and the Option Recipients; (2) a claim for violations of § 14
of the Exchange Act and Rule 14a-3(a)(1) promulgated thereunder against Continenza;

(3) a claim for breach of fiduciary duty against Continenza; (4) a claim for breach of
fiduciary duty against Katz, Bradley, and New; (5) a claim for breach of fiduciary duty
against the Option Recipients; (6) a claim for unjust enrichment against the Option
Recipients; and (7) a claim for unjust enrichment against Karfunkel. (Id. at ¶¶ 281-315).
The Court heard oral argument on the pending motions on August 9, 2023, and

reserved decision. (Dkt. 134).
DISCUSSION
I. Kodak’s Motion to Dismiss or for Summary Judgment
A. Legal Standard

Kodak has moved for dismissal or, in the alternative, for summary judgment, in
reliance on the New Jersey Business Corporation Act (“NJBCA”), N.J.S.A. 14A:3-6.3,
14A:3-6.5. A discussion of the applicability and procedural requirements of this state
statute is necessary before the Court turns to the merits of Kodak’s motion.
A shareholder derivative action, such as this one, “permits an individual shareholder

to bring suit to enforce a corporate cause of action against officers, directors, and third
parties.” Scalisi v. Fund Asset Mgmt., L.P., 380 F.3d 133, 138 (2d Cir. 2004) (quotation
omitted). “Since claims asserted in a shareholder derivative suit belong to the corporation,
it is incumbent upon shareholder plaintiffs to make a demand upon the corporation’s board
of directors prior to commencing an action.” In re Veeco Instruments, Inc. Sec. Litig., 434

F. Supp. 2d 267, 273 (S.D.N.Y. 2006). “Pre-suit demand requirements . . . are governed
by the law of the state of incorporation[.]” Pirelli Armstrong Tire Corp. Retiree Med.
Benefits Tr. V. Lundgren, 579 F. Supp. 2d 520, 528 (S.D.N.Y. 2008) (citation omitted); see
also Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 101 (1991) (explaining that state
substantive law applies “[b]ecause the contours of the demand requirement—when it is

required, and when excused—determine who has the power to control corporate
litigation”).
Kodak is a New Jersey corporation with its principal place of business in Rochester,
New York. (Dkt. 129 at ¶ 30). Accordingly, and as the parties agree, New Jersey law
governs the pre-suit demand requirements in this action. The NJBCA “categorically
require[es] shareholders to make a pre-suit demand on a corporation prior to filing a
derivative suit,” Hirschfeld v. Beckerle, 405 F. Supp. 3d 601, 606 (D.N.J. 2019), unless the

corporation opts out of the requirement in its certificate of incorporation, which Kodak has
not. See N.J.S.A. 14A:3-6.3. Further, the NJBCA provides that a corporation’s board of
directors may determine whether maintenance of a derivative proceeding would be in the
corporation’s best interest, or may delegate that authority to a “committee consisting of
one or more independent directors appointed by majority vote of independent directors.”

N.J.S.A. 14A:3-6.5(2)(b). Where such a committee rejects a shareholder litigation
demand, a shareholder may maintain a derivative action only if his or her complaint
“allege[s] with particularity facts establishing that a majority of the board of directors, or
all members of a committee, which in either case determined the matter, did not consist of
independent directors at the time the determination was made.” Id. 14A:3-6.5(3).

If the shareholder satisfies this standard, the corporation may nevertheless seek
dismissal by making a “written filing with the court setting forth . . . facts to show: (i)
whether or not a majority of the board of directors was independent at the time of the
determination . . . ; and (ii) that the independent director or directors made the
determination [i.e., to reject the shareholder’s demand to commence litigation] in good

faith after conducting a reasonable inquiry upon which the conclusions are based.” Id.
14A:3-6.5(5)(a)(i)-(ii). The NJBCA sets forth different burdens of proof on such a motion
to dismiss, depending on whether the majority of the board of directors was independent
at the time of the challenged determination. Id. 14A:3-6.5(4). If the majority of the board
was independent (as defined by New Jersey law), then the shareholder plaintiff bears the
burden of proving that the determination to reject his or her demand was not made “in good
faith, after conducting a reasonable inquiry.” Id. 14A:3-6.5(1)(a). If the majority of the

board was not independent, the corporation bears the same burden. Id. 14A:3-6.5(4).
In Halebian v. Berv, 644 F.3d 122 (2d Cir. 2011), the Court of Appeals for the
Second Circuit had occasion to consider the interplay between the Federal Rules of Civil
Procedure and a provision of Massachusetts law, Mass. Gen. Laws ch. 156D, § 7.44, that
is largely identical to the relevant provisions of the NJBCA. The Halebian court explained

that the relevant Massachusetts statute (§ 7.44) “sets forth both substantive standards for
adjudicating the effectiveness of a board’s rejection of a demand and instructions regarding
the procedure by which that rejection must be communicated to—and its validity
established before—a court,” and “does not easily fit within the constraints of [Federal]
Rule [of Civil Procedure] 12(b)(6), even as it has been broadened by occasional judicial

glosses on its terms.” 644 F.3d at 130. “Insofar as the section 7.44 procedure encourages
or requires the parties to submit, and under which it is expected that the court will review,
evidentiary materials outside the scope of what the plaintiff has already included or
incorporated into his or her complaint, the section 7.44 procedure appears to be
incompatible with a federal court’s limited powers to grant a Rule 12(b)(6) motion to

dismiss.” Id. at 132. As such, the Second Circuit instructed the district court on remand
“to adjudicate the claim within the framework of summary judgment[.]” Id.
In its motion, Kodak—relying on an unpublished New York trial court case—
suggests that the Court could properly consider outside material on a motion to dismiss
made pursuant to the NJBCA, because its provisions are substantive. (See Dkt. 100-33 at
24-25 n.10 (citing Rotz v. Van Kampen Asset Mgmt., Index No. 651060/2010, 2014 WL
5431156, at *6 (Sup. Ct., N.Y. Cnty. Oct. 22, 2014))); see also Dkt. 123 at 6 (arguing in

reply that “Courts evaluate N.J.S.A. 14A:3-6.5(5) motions under both Rule 12(b)(6) and
Rule 56, as such motions are ‘unique,’ and it is within the court’s discretion to determine
which Rule applies.”). Plaintiffs, on the other hand, argue that “as in Halebian, this Court
should apply the requirements of Fed. R. Civ. P. 56 in assessing whether the requirements
of the [NJBCA] have, or have not, been satisfied so as to require dismissal of this case.”

(Dkt. 113 at 50).
The Court is unpersuaded by Kodak’s argument, which it views as foreclosed by
the Second Circuit’s decision in Halebian. Kodak’s assertion in reply that “[c]ourts
evaluate N.J.S.A. 14A:3-6.5(5) motions under both Rule 12(b)(6) and Rule 56” is not
supported by the case law it cites. In particular, Kodak again cites the unpublished Rotz

case, which it describes as “evaluating NJBCA motion under CPLR 3211(a)(7), equivalent
to Rule 12(b)(6).” (Dkt. 123 at 6-7). In other words, Kodak has not actually cited any
cases in which a court applied Rule 12(b)(6) to a motion under the NJBCA. Moreover,
this Court is bound by the rulings of the Second Circuit with respect to the application of
the Federal Rules of Civil Procedure. Accordingly, the Court will treat Kodak’s motion as

a motion for summary judgment under Federal Rule of Civil Procedure 56.
The parties also devote portions of their briefs to arguing over the relationship
between the burden of proof specified by the NJBCA and Rule 56. Plaintiffs “acknowledge
that they have the burden pursuant to § 14A:3-6.5(4) to refute Defendants’ arguments
regarding the adequacy of both the Special Committee and the Second Committee
investigations,” but argue that the Rule 56 standard still places the burden on Kodak to
show the absence of any genuine dispute as to a material fact. (Dkt. 113 at 50). In reply,

Kodak argues that “Plaintiffs cannot evade or re-shift their burden back to Kodak simply
because Rule 56 is involved,” and that “[b]urden-shifting provisions similar to and
including those in the NJBCA are substantive, not procedural, and thus apply whether a
motion is considered under Rule 12(b)(6) or Rule 56.” (Dkt. 123 at 7-8).
Kodak is correct that “[a] burden of proof . . . ‘is a rule of substantive law.’” Howard

Univ. v. Borders, 588 F. Supp. 3d 457, 472 (S.D.N.Y. 2022) (quoting Director, Office of
Workers’ Compensation Programs v. Greenwich Collieries, 512 U.S. 267, 271 (1994)).
The Court explored this issue at oral argument, and Plaintiffs took the position that the
Court must, pursuant to the NJBCA, make its own factual findings. Plaintiffs’ position is
consistent with the language of the NJBCA, which explicitly empowers the Court to make

findings regarding the good faith of the board or special committee and the reasonableness
of the inquiry. See N.J.S.A. 14A3-6.5(1). Further, the parties agreed that the factual record
regarding the relevant issues is complete and that no further discovery on these issues can
or should be ordered. The Court accordingly concludes that while Rule 56 provides the
procedural vehicle by which this motion has come before the Court, the Court is

empowered to make findings with respect to whether the Board’s decision not to pursue
the claims set forth in this matter was made in good faith and after conducting a reasonable
inquiry.
B. Viability of Plaintiffs’ Claims under the NJBCA
Turning to the merits of Kodak’s motion, Plaintiffs identify two reasons they should
be permitted to pursue their claims: (1) “while the [Special Committee] Report may have

concluded that Plaintiffs’ claims lacked merit, neither the Special Committee nor the
independent directors of the full Board ever took the required ‘vote’ to determine that
maintaining Plaintiffs’ derivative proceeding was not in the best interests of Kodak”; and
(2) “the initial Special Committee investigation was neither done reasonably nor in good
faith: (i) the [Special Committee’s] decision to hire Continenza’s longtime counsel Akin

Gump tainted the entire investigation; and (ii) the [Special Committee] ignored key facts
regarding what MNPI Continenza knew when he made his June Trades, and misrepresented
the key fact that Continenza had not precleared his trades in accordance with company
policy.” (Dkt. 113 at 53 (internal quotation marks omitted)). The Court considers each of
these arguments below.

The Court further notes that while the consolidated complaint alleges that Parrett
and New, the two members of the Special Committee, were not independent (Dkt. 129 at
¶¶ 158-161), and Kodak argues to the contrary in its motion (see Dkt. 100-33 at 29-32),
Plaintiffs did not advance this theory in their opposition. At oral argument, Plaintiffs
confirmed their concession that Parrett and New met the requirements for independence

under the NJBCA.
1. Vote Requirement
Plaintiffs first argue that, under the NJBCA, either a special committee or the
independent directors must affirmatively vote that maintenance of a shareholder derivative
suit is not in the best interests of the corporation, and that no such vote ever took place
here. (Dkt. 113 at 53-54). Kodak argues in reply that “the Board voted to reject the
maintenance of the derivative proceeding when it voted to adopt the recommendations and

conclusions of the [Special Committee] and its 2020 Report and resolved to implement the
recommendations as promptly as practicable on September 14, 2020.” (Dkt. 123 at 21
(quotations omitted)). The Court further notes that the Second Committee Report expressly
recommends “that the Committee conclude that the complaints be dismissed in their
entirety as not in the Company’s best interests and report to and recommend to the Board

that the Company take all appropriate steps to dismiss all related derivative lawsuits.”
(Dkt. 72-6 at 77). On October 22, 2021, the Second Committee conducted a telephonic
meeting at which it unanimously voted to adopt the Second Committee Report. (Dkt. 135-
18 at 21).
The parties’ dispute in this regard is a technical one regarding the requirements of

the NJBCA. The parties have cited no case law addressing this specific issue, and the Court
has found none in its own research. Accordingly, the Court focuses on the text of the
statute itself. The NJBCA states that a shareholder derivative proceeding “shall be
dismissed by the court on motion by the corporation if the court finds” either that the board
or special committee “has determined in good faith, after conducting a reasonable inquiry

upon which its conclusions are based, that the maintenance of the derivative proceeding is
not in the best interests of the corporation” or that a defined group of shareholders has
“voted to terminate the derivative proceeding.” N.J.S.A. 14A:3-6.5(1)(a), (b). It further
provides that the determination regarding whether maintenance of the derivative
proceeding is in the best interests of the corporation shall be made by either “a majority
vote of independent directors present at a meeting of the board of directors if the
independent directors constitute a quorum” or “a majority vote of a committee consisting

of one or more independent directors appointed by majority vote of independent directors,
or one independent director if the board consists of only one independent director, present
at a meeting of the board of directors, regardless of whether those independent directors
constitute a quorum of the board.” Id. 14A:3-6.5(2)(a), (b).
The question before the Court is thus whether the Board’s September 2020 vote to

adopt and implement the recommendations and conclusions of the Special Committee and
the Special Committee Report constitutes a determination that maintenance of the instant
derivative proceeding is not in the best interests of the corporation. The Court finds that it
does. The Court’s conclusion is driven in part by the distinction between subsections (a)
and (b) of N.J.S.A. 14A:3-6.5(1). Plaintiffs argue, essentially, that the “determination”

required by subsection (a) must take the form of a vote specifically not to commence or
continue litigation, and that a vote addressed to the merits of the claims asserted in the
derivative proceeding will not suffice. The language of subsection (a) does not support
this narrow reading. Moreover, the language of subjection (b) makes clear that the drafters
of the NJBCA knew how to draft a provision strictly dictating the form a vote must take.

The broader phrasing of subsection (a) cuts against the conclusion that it likewise requires
a vote specifically addressed to the matter of litigation, and not a vote considering more
broadly the merits of the asserted claims. See generally Sosa v. Alvarez-Machain, 542 U.S.
692, 712 n.9 (2004) (setting forth “usual rule” that “when the legislature uses certain
language in one part of the statute and different language in another, the court assumes
different meanings were intended” (citation omitted)). In other words, the Court agrees
with Kodak that the language of the NJBCA does not “require[] that a board or committee

. . . formally convene and conduct a vote to reject by name each and every shareholder
demand, rather than [rejecting] the substance of the proffered derivative claims.” (Dkt.
123 at 22).
It is clear that the Board, by vote, rejected the substance of the claims asserted in
this action. The Special Committee was expressly directed to determine “whether any of

Kodak’s officers, directors, or senior management engaged in misconduct or illegal activity
in connection with any trading or transfers of Kodak stock, including the June Trades, the
Karfunkel charitable donation of stock, and the Marx and Southeastern activity; the July
2020 options awards; and the DFC Announcement.” (Dkt. 1-2 at 12). Kodak’s Board
thereafter, by vote, adopted the Special Committee Report’s conclusion that “Kodak, and

its officers, directors, and senior management did not violate the securities regulations or
other relevant laws, engage in a breach of fiduciary duty, or violate any of Kodak’s internal
policies and procedures.” (Id. at 8). Plaintiffs’ argument that the Court should not view
this vote as a determination that maintenance of the instant derivative action would not be
in Kodak’s best interest defies logic; it cannot possibly serve a corporation’s interest to

pursue non-meritorious claims against its own executives and board members. The Court
does not find that the NJBCA required the Board to word its determination in the highly
specific manner argued by Plaintiffs.
Moreover, the adequacy of the Board’s September 2020 vote is not dispositive of
the issue. Even if the Board’s September 2020 vote was insufficiently specific to satisfy
the requirements of the NJBCA, the Second Committee’s unanimous October 2021 vote

clearly did not lack specificity, and appears to independently satisfy the voting requirement
of N.J.S.A. 14A:3-6.5. Indeed, Plaintiffs concede that the Board delegated to the Second
Committee the decision to evaluate their demands and that the Second Committee took a
vote not to maintain the derivative litigation. (Dkt. 135-19 at 54-55). Plaintiffs make no
substantive argument as to why the Second Committee’s vote is insufficient to satisfy the

statutory requirement. The Second Committee’s October 2021 vote is an independent and
adequate basis to reject Plaintiffs’ contention that the NJBCA’s vote requirement has not
been satisfied.
2. Reasonableness and Good Faith of the Investigation
The Court next considers whether the Special Committee acted in good faith and

conducted a reasonable investigation. In performing such a review, “the court’s inquiry is
not into the substantive decision of the board, but rather is into the procedures employed
by the board in making its determination.” In re PSE & G S’holder Litig., 173 N.J. 258,
291 (2002) (quotation omitted). Further, “there is no prescribed procedure that a board
must follow.” Id. (quotation omitted). “One of a board’s prerogatives in this context is to

entrust its investigation to a law firm.” Id. at 292 (quotation and alteration omitted).
As previously noted, Plaintiffs contend that the investigation in this case was neither
reasonable nor in good faith because “(i) the [Special Committee’s] decision to hire
Continenza’s longtime counsel Akin Gump tainted the entire investigation; and (ii) the
[Special Committee] ignored key facts regarding what MNPI Continenza knew when he
made his June Trades, and misrepresented the key fact that Continenza had not precleared
his trades in accordance with company policy.” (Dkt. 113 at 53 (internal quotation marks

omitted)). The Court disagrees, for the reasons that follow.
a. Akin Gump was not Fatally Conflicted
The New Jersey Supreme Court has held that a law firm retained to investigate a
potential claim cannot have “a disabling conflict that would have tainted its investigation.”
In re PSE & G, 173 N.J. at 292. It is not necessary that the Court “condone all aspects of

the Board’s decision-making process or the role played by the . . . firm.” Id. Having briefly
served as both investigator and litigation counsel at the same time is not in and of itself a
fatal conflict. Id. at 292-93 (“Although the Kasowitz firm needlessly risked creating a
conflict by briefly assuming a dual role as the Board’s investigator and litigation counsel,
the critical question is whether defendants demonstrated bad faith or acted unreasonably in

relying on that firm’s investigation.”).
Plaintiffs argue that Akin Gump had a disabling conflict because it represented
Kodak on related matters and had previously been Continenza’s personal counsel. More
particularly, Plaintiffs contend that: on July 29, 2020, Kodak retained Akin Gump to
represent it “in the face of intense media and governmental scrutiny resulting from the

disclosure of the . . . options” granted in July 2020; Akin Gump appeared in the State Court
Action after the Second Committee had already hired counsel, seeking an extension of time
for Defendants to respond; “Continenza stated . . . that Akin Gump was his counsel in the
White Energy matter”; Akin Gump briefly represented Continenza in Tang v. Eastman
Kodak Co., No. 6:21-cv-6418 (D.N.J.) (the “Tang Matter”), a securities litigation matter
arising from the same factual nexus as the instant case3; and “Akin Gump was retained on
multiple occasions to represent companies where Continenza was either an officer or a

director—including Kodak itself.” (Dkt. 135-19 at 33-39, 57, 58). The Court has
considered these alleged conflicts both individually and collectively and concludes that
they cannot sustain Plaintiffs’ burden of showing a disabling conflict by Akin Gump.
Turning first to the matter of Akin Gump’s July 2020 representation of Kodak,
contrary to Plaintiffs’ assertion that Akin Gump was hired to “to represent the Company

and the options recipients in connection with multiple investigations by Congress and the
SEC” (Id. at 34), there is no evidence in the record before the Court that Akin Gump was
retained on behalf of the Option Recipients. Also unsupported by the evidence of record
is Plaintiffs’ assertion that Akin Gump “prepared and/or presented materials to the DFC,
ostensibly for the purposes of convincing it to give Kodak the DFC Loan.” (Id. at 35).

Further, Plaintiffs acknowledge in their papers that Akin Gump was retained because
Kodak had “received multiple requests for documents and information from regulators and
governmental entities.” (Id. at 34-35). While Plaintiffs contend elsewhere in their papers
that “Akin Gump’s job was to establish that no wrongdoing had occurred” (id. at 57), they
cite no evidence for this assertion, and there appears to be no such evidence in the record.

The Court sees no disabling conflict in Akin Gump having represented Kodak itself—and
not the Option Recipients or other individual defendants—for purposes of responding to

3 The Tang Matter was eventually transferred to this Court and consolidated into the
In re Eastman Kodak Co. Securities Litigation matter.
governmental inquiries prior to being retained by the Special Committee. See Palkon v.
Holmes, No. 2:14-CV-01234 SRC, 2014 WL 5341880, at *4 (D.N.J. Oct. 20, 2014)
(finding no disabling conflict of interest where law firm that investigated shareholder

demands had previously represented the corporation in an action brought by the Federal
Trade Commission, explaining that the law firm “did not have multiple, conflicting duties”
because “its obligations in the FTC and shareholder matters were identical: it had to act in
[the corporation’s] best interest”).
The Court next considers the argument that Akin Gump “appeared in the State

Action after the Second Committee had already hired counsel, seeking an extension of time
for Defendants to file responses.” (Dkt. 135-19 at 58 (citation omitted and emphasis
added)). The evidence of record does not support this contention. What the evidence
shows is that on September 24, 2021, Nixon Peabody LLP, “along with co-counsel Akin
Gump,” filed a request for an extension of time to respond to Peters’ amended complaint

in the State Court Action on behalf of Kodak. (Dkt. 100-10). On that same date, counsel
for the individual defendants submitted their own request seeking the same relief on behalf
of their clients. (Dkt. 100-11). At a court conference in the State Court Action on
September 28, 2021, Akin Gump appeared on behalf of Kodak; the individual defendants
were again represented by their own counsel. (Dkt. 100-12). The Court finds no conflict

where Akin Gump represented Kodak in the State Court Action after its investigation had
been completed and the Board had adopted the Special Committee Report.
Plaintiffs also assert that during the September 28, 2021 conference in the State
Court Action, “Akin Gump . . . took the opportunity . . . to prejudge the outcome of the
Second Committee’s review[.]” (Dkt. 135-19 at 58). This is a misrepresentation of the
record. The transcript of that hearing shows that the Akin Gump attorney who presented
oral argument on behalf of Kodak made clear that the extension was sought to allow the

Second Committee “an opportunity to be able to do a thorough review . . . and make a
decision for the corporation and all the shareholders” and that the Second Committee had
“authority to do whatever it deems appropriate.” (Dkt. 100-12 at 12-13). The Akin Gump
attorney further made clear that Akin Gump was “not advising” the Second Committee and
that there was new independent counsel. (Id. at 14). While he did state that he personally

did not see “much of anything” in the new allegations included in the amended complaint
“that changes anything,” he further stated, “at this point it’s not for me to make that
decision.” (Id. at 24 (emphasis added)). He later reiterated that he was offering only his
personal opinion, stating: “I never said, Your Honor, that the company has formed a view
that the additional allegations included in the documents were not considered, doesn’t

change anything. I said from my standpoint, that’s how I see it, and I don’t know what the
company will or will not conclude through the second Special Committee.” (Id. at 31).
Plaintiffs have offered no plausible argument that a single attorney from Akin Gump
offering a personal opinion on the viability of the claims in the State Court Action well
after the Special Committee Report was finalized creates a conflict, much less a disabling

one.
The Court turns next to Akin Gump’s alleged representation of Continenza in
connection with his service as chairman of the Board of White Energy, Inc. (“White
Energy”). The basis for Plaintiffs’ assertion that this representation existed is the answer
in the White Energy matter, which states that “Akin Gump represented Mr. Continenza and
sent documents [related to Continenza’s employment agreement with White Energy] to the
Board in February 2017.” (Dkt. 100-25 at 26). As an initial matter, and as previously

explained, while Plaintiffs initially stated that the answer in the White Energy matter was
verified or sworn, they have since conceded that these statements were erroneous. (Dkt.
126). Accordingly, the Court—as it previously advised the parties—has not considered in
its analysis any references to the answer in the White Energy matter as having been verified
or sworn.

Moreover, one of the attorneys who drafted the answer in the White Energy matter
has submitted a sworn declaration indicating that the paragraph at issue “is inconsistent
with paragraphs 39 and 40 of the Answer, our subsequent interrogatory responses, and my
recollection of the facts. To the best of my knowledge, no attorney from Akin Gump
personally represented Mr. Continenza in connection with the events relevant to the White

Energy Matter or the litigation itself.” (Dkt. 100-23 at ¶ 12). Continenza has submitted a
sworn declaration confirming that he “did not retain Akin Gump to personally represent
[him] in connection with the events relevant to the White Energy Matter or the litigation
itself, and I did not compensate Akin Gump for any such representation.” (Dkt. 100-27 at
¶ 5). Under the circumstances, the Court does not find the unsworn statement in the White

Energy answer sufficient to support the conclusion that Akin Gump personally represented
Continenza, where sworn statements by those with personal knowledge demonstrate that it
was made in error.
With respect to the assertions that “Akin Gump was retained on multiple occasions
to represent companies where Continenza was either an officer or a director,” and
“Continenza also reported having a professional relationship with attorneys . . . [from] Akin

Gump arising from their representation of certain companies with which Continenza was
affiliated” (Dkt. 135-19 at 38), Plaintiffs have cited to no authority holding that this would
create a disabling conflict of interest. It is not uncommon for businesses and the individuals
associated with them to form professional relationships with lawyers and law firms, and
law firms of course have an interest in cultivating such relationships. However, the

existence of a professional relationship does not create the kind of bias that would call into
question an attorney’s ability to comply with his or her ethical obligations, or otherwise
taint the investigation, and Plaintiffs have not identified any cases holding that it does.
Plaintiffs also claim that “[t]here is no record of either the Board or the Special
Committee inquiring into Akin Gump’s prior relationships with Kodak, Continenza, or

others” and that the Special Committee made an “entirely passive decision to hire Akin
Gump[.]” (Id. at 57). Again, these arguments are not supported by citations to evidence
establishing the asserted facts. Moreover, Parrett and New have submitted sworn
declarations explaining how and why the Special Committee decided to hire Akin Gump
and affirming that the Special Committee was “made aware of Akin Gump’s prior work

and the July 29, 2020 retention” prior to Akin Gump’s retention. (Dkt. 100-14 at ¶¶ 16-
17; Dkt. 100-18 at ¶¶ 16-17). Plaintiffs have not identified any evidence controverting
these factual representations.
As to the Tang Matter, it is undisputed that Akin Gump did briefly appear on behalf
of Continenza and Bullwinkle in that action. Specifically, on September 11, 2020 (after
the Special Committee had hired Akin Gump and after Akin Gump had nearly completed

its work for the Special Committee), Akin Gump appeared on behalf of Kodak, Continenza,
and Bullwinkle “in order to execute and file a stipulation regarding the adjournment of
their responses to the complaint, and filed a notice of non-opposition to certain plaintiffs’
motion to transfer the case to the United States District Court for the Southern District of
New York.” (Dkt. 100-29 at ¶ 4). The record before the Court establishes that Akin Gump

did not perform any substantive legal work as to Continenza’s defense in connection with
the Tang Matter. The purported conflict with respect to the Tang Matter thus boils down
to Akin Gump having appeared on behalf of Continenza and Bullwinkle for administrative
purposes a few days before the Special Committee Report was completed. While the Court
does not view this as a particularly wise course of action, the New Jersey Supreme Court

held in In re PSE & G that “briefly assuming a dual role as . . . investigator and litigation
counsel” does not by itself create a disabling conflict. 173 N.J. at 292-93. The ministerial
work that Akin Gump performed for Continenza in the Tang Matter is not sufficient to
meet Plaintiffs’ burden of showing that the investigation was impermissibly tainted.
Stepak v. Addison, 20 F.3d 398 (11th Cir. 1994), does not change the Court’s

analysis. Stepak was concerned with a law firm’s prior representation of “the alleged
wrongdoers in proceedings related to the very subject matter that the law firm is now asked
to neutrally investigate[.]” Id. at 405. The Stepak court explained that “[t]here is a strong
possibility that a ‘lingering allegiance’ toward the insider defendants will color or
otherwise bias counsel’s investigation of the allegations against its former clients, as well
as any legal advice counsel provides to the corporation about the matter. This is especially
true when the prior representation was in relation to criminal proceedings.” Id. Moreover,

“a law firm that had previously defended the alleged wrongdoers would be hampered in its
investigation of the shareholder’s allegations by its continuing duty to preserve the secrets
and confidences of its former clients.” Id. at 406. These concerns are not present in this
case, where Akin Gump’s appearance on Continenza’s behalf for administrative purposes
only occurred after the Special Committee had hired Akin Gump and after Akin Gump had

performed its factual investigation and was in the process of finalizing its report.
Lewis v. Shaffer Stores Co., 218 F. Supp. 238 (S.D.N.Y. 1963), also does not compel
a different result. While the Lewis court did indicate that under the circumstances of that
specific case, “it would be wise for the corporation to retain independent counsel, who have
had no previous connection with the corporation, to advise it as to the position which it

should take in this controversy,” id. at 239, it did not hold or suggest that the kind of brief
simultaneous representation present in this case would irrevocably taint an investigation.
Again, the Court is not suggesting that it condones Akin Gump having briefly served
as both investigator and litigation counsel even in a ministerial fashion. It plainly would
have been better practice for Continenza to immediately obtain his own counsel in the Tang

Matter, no matter how routine the work. But the Court need not “condone all aspects of
the Board’s decision-making process or the role played by” Akin Gump. In re PSE & G,
173 N.J. at 292. Instead, the relevant question is whether Akin Gump had “a disabling
conflict that would have tainted its investigation,” such that the Special Committee’s and
the Board’s reliance on Akin Gump’s investigation was unreasonable or in bad faith. Id.
at 292-93. The record before the Court in this case does not support such a conclusion.
The Court’s holding is further supported by the fact that Crowell, an independent

law firm, performed an investigation into whether Akin Gump was conflicted and
concluded that it was not. (Dkt. 72-6 at 3). Crowell specifically concluded that “Akin
Gump conducted an exhaustive and thorough investigation, and there is no evidence to
suggest that its independence was compromised.” (Id.). Crowell’s assessment is further
evidence that it was neither unreasonable nor in bad faith for the Special Committee to

entrust the investigation to Akin Gump.
b. The Special Committee’s Inquiry was Reasonable
Plaintiffs further argue that the Special Committee did not perform a reasonable,
good faith investigation, because it reached factual conclusions that Plaintiffs contend are
false, and because it did not conduct a fulsome investigation into Karfunkel’s alleged tax

fraud. (Dkt. 135-19 at 61-69). The Court is unpersuaded by these arguments.
The relevant question is whether the Special Committee’s inquiry was “so restricted
in scope, so shallow in execution, or otherwise so pro forma or half hearted as to constitute
a pretext or sham.” In re PSE & G, 173 N.J. at 292 (alteration omitted and quoting Stoner
v. Walsh, 772 F. Supp. 790, 806 (S.D.N.Y. 1991)). This standard is not even close to being

met here.
Akin Gump was tasked with performing a broad investigation into “whether any of
Kodak’s officers, directors, or senior management engaged in misconduct or illegal activity
in connection with any trading or transfers of Kodak stock, including the June Trades, the
Karfunkel charitable donation of stock, and the Marx and Southeastern activity; the July
2020 options awards; and the DFC Announcement.” (Dkt. 1-2 at 12). Akin Gump
performed a six-week investigation, during the course of which it reviewed over 60,000

documents, conducted 44 witness interviews, collected relevant information from a third-
party who was unaffiliated with Kodak, and had unfettered access to Kodak’s systems and
materials. (Id. at 8, 12-13). Akin Gump’s document collection process was robust, and
included the retention of third-party vendors to assist in the collection and review of
electronic communications. (Id. at 13-14). The witnesses interviewed included Kodak’s

“CEO, CFO, General Counsel, Vice President of Government Affairs, Chief Compliance
Officer, Controller, members of the public relations team, all members of Kodak’s
compensation committee, all Board members, and multiple other Kodak employees who
were involved in the DFC loan process and the Company’s response to the pandemic.” (Id.
at 15). Akin Gump ultimately produced an 82-page, comprehensive report, which included

forward-looking recommendations to improve Kodak’s corporate governance. “Based on
the procedures employed and the seriousness by which” Akin Gump “approached its task,”
In re PSE & G, 173 N.J. at 294, it is clear that the investigation was both reasonable and in
good faith.
Plaintiffs’ arguments to the contrary are unpersuasive. They contend that the

Special Committee “falsely concluded” that Byrd had precleared Continenza’s June Trades
in compliance with Kodak’s insider trading policies, and that this “was not a good faith,
reasonable conclusion.” (Dkt. 135-19 at 62). They further contend that the Special
Committee “ignored material facts” that cast doubt on its conclusion that the DFC loan
application process was at an uncertain stage and viewed as having a low probability of
success when Continenza made the June Trades. These arguments are an attack on the
substance of the Special Committee’s conclusions, which is not the focus of the Court’s

inquiry under the NJBCA. In re PSE & G, 173 N.J. at 291 (“Our next inquiry focuses on
whether the Board acted in good faith and with due care in investigating the merits of the
litigation. . . . [T]he court’s inquiry is not into the substantive decision of the board, but
rather is into the procedures employed by the board in making its determination.” (internal
quotation marks omitted)). The fact that the Special Committee allegedly made a factual

error in its report and weighed the evidence differently than Plaintiffs believe it should
have been weighed is not sufficient to demonstrate a lack of good faith or to call into
question the reasonableness of the investigation.
In support of their position, Plaintiffs rely heavily on London v. Tyrrell, No. CIV.A.
3321-CC, 2010 WL 877528 (Del. Ch. Mar. 11, 2010), in which the court held that “if the

[investigating committee] gets the undisputed facts wrong in its report, and then relies on
its erroneous recitation of the undisputed facts in making its dismissal recommendation,”
the basis for the committee’s recommendation is not reasonable. Id. at *17. However, and
as Kodak correctly points out, the London court was applying the test articulated in Zapata
Corporation v. Maldonado, 430 A.2d 779 (Del. 1981). The Zapata test specifically

instructs a reviewing court to inquire into the bases for the committee’s conclusions. Id. at
788-89. The Zapata test does not govern the Court’s inquiry under the NJBCA, which—
as previously noted—is concerned with process and not with the substance of the
determinations.
Unlike the court in London, which was applying the Zapata standard, the court in
Sojitz Am. Cap. Corp. v. Kaufman, 141 Conn. App. 486 (App. Ct. of Conn. 2013), was
applying a Connecticut statute that, like the relevant provisions of the NJBCA, was derived

from § 7.44 of the Model Business Corporation Act. The Sofitz court explained that under
the relevant standard, “the court may conduct a limited review into the board’s conclusions
to determine that they follow logically from the inquiry, but may not scrutinize the
reasonableness of its determination.” Id. at 509. “[T]he policy reason for this limited
review is that a corporation should be free to determine in its own business judgment

whether litigation is in its best interest, free from unnecessary interference.” Id. at 506
(citation omitted). Nothing in the record before the Court suggests that the conclusions
reached by the Special Committee were not based on the investigation or otherwise failed
to meet the relevant standard.
The Court does not suggest that pervasive, serious factual errors in a report could

not call into question the validity of the investigatory process. However, that is not what
Plaintiffs have identified here. Instead, they have identified a single factual error, and an
alleged omission of a handful of facts related to the status of the DFC loan application in
June of 2020 that Plaintiffs view as material but that the Special Committee did not. This
is insufficient to demonstrate that the investigatory process was pretextual or a sham.

Plaintiffs next contend that the Special Committee, via Akin Gump, did not
adequately investigate Karfunkel’s purported gift to Chemdas Yisroel. (Dkt. 135-19 at 65).
According to Plaintiffs, “[t]he Special Committee’s choice not to conduct a fulsome
investigation into Karfunkel’s tax fraud is evidence of its lack of a reasonable, good faith
investigation.” Id. The Court again disagrees. The Special Committee Report indicates
that Akin Gump interviewed both Karfunkel and Byrd regarding the gift, and concluded
based on those interviews that Karfunkel’s gift could not be considered insider trading.

(Dkt. 1-2 at 72-73). Akin Gump reasonably focused its investigation on whether
Karfunkel’s gift constituted insider trading, rather than the bona fides of the charity and
the gift or the potential tax implications. It is natural and reasonable for the Special
Committee and its counsel to have concerned themselves primarily with the corporate
governance implications of Karfunkel’s actions, and any potential damage to Kodak that

could flow therefrom, as opposed to potential tax malfeasance that would be the concern
of the Internal Revenue Service.
In sum, the record before the Court establishes that Kodak’s Board determined in
good faith and after a reasonable inquiry that maintenance of the claims asserted in this
action would not be in Kodak’s best interest. Dismissal of this action pursuant to the

NJBCA is accordingly mandated, and Kodak’s motion seeking the same is granted. The
remaining motions seeking dismissal of the claims on the merits are denied as moot.
CONCLUSION
For the foregoing reasons, the Court grants Kodak’s motion to dismiss or for
summary judgment (Dkt. 100) to the extent that it grants summary judgment on all of the

claims set forth herein pursuant to the NJBCA. The Court denies the other pending motions
to dismiss (Dkt. 101; Dkt. 102; Dkt. 103) as moot. The Clerk of Court is directed to enter
judgment and close the case.
SO ORDERED.

ELIZABETH A. WOLFORD
Chief Judge
United States District Court

Dated: September 25, 2023
Rochester, New York

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10366489. Public record. Not legal advice.