Case 6:21-cv-06418-EAW Document 177 Filed 04/06/22 Page 1 of 8
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`UNITED STATES DISTRICT COURT
`WESTERN DISTRICT OF NEW YORK
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`In re EASTMAN KODAK COMPANY
`SECURITIES LITIGATION
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`Honorable Elizabeth A. Wolford
`DOCKET NO.: 6:21-cv-6418-EAW
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`KING & SPALDING LLP
`Paul A. Straus, Esq.
`Eric A. Hirsch, Esq.
`Alexander Noble, Esq.
`1185 Avenue of the Americas
`New York, NY 10036
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`Attorneys for Defendants Jason New
`and William Parrett
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`LATHAM & WATKINS LLP
`Christopher J. Clark, Esq.
`Michael S. Bosworth, Esq.
`Zachary L. Rowen, Esq.
`1271 Avenue of the Americas
`New York, New York 10020
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`Attorneys for Defendant Richard
`Todd Bradley
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`CERTAIN OUTSIDE DIRECTOR DEFENDANTS’
`REPLY MEMORANDUM IN FURTHER SUPPORT OF MOTION TO DISMISS
`THE CONSOLIDATED CLASS ACTION COMPLAINT
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`BAKER & HOSTETLER LLP
`Eric R. Fish, Esq.
`45 Rockefeller Plaza
`New York, NY 10111
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`Jonathan R. Barr, Esq. (pro hac vice)
`1050 Connecticut Avenue, NW
`Suite 1100
`Washington, DC 20036
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`Attorneys for Defendant Jeffrey
`Engelberg
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`Case 6:21-cv-06418-EAW Document 177 Filed 04/06/22 Page 2 of 8
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`TABLE OF CONTENTS
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`Page
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`PRELIMINARY STATEMENT .............................................................................................. 1
`ARGUMENT .......................................................................................................................... 1
`I. PLAINTIFFS’ SCHEME LIABILITY CLAIM AGAINST THE BENP OUTSIDE
`DIRECTORS FAILS. ................................................................................................... 1
`A.
`Plaintiffs Fail to Allege Inherently Deceptive Conduct Against the BENP Outside
`Directors. ............................................................................................................... 2
`Plaintiffs Fail to Plead Scienter Against the BENP Outside Directors. ...................... 3
`B.
`CONCLUSION ....................................................................................................................... 4
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`Case 6:21-cv-06418-EAW Document 177 Filed 04/06/22 Page 3 of 8
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`TABLE OF AUTHORITIES
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`Page(s)
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`Cases
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`In re Acadia Dairies, Inc.,
`15 Del. Ch. 248 (1927)....................................................................................................... 2
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`In re Braskem S.A.,
`246 F. Supp. 3d 731 (S.D.N.Y. 2017) ................................................................................. 4
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`Buxbaum v. Deutsche Bank,
`2000 WL 33912712 (S.D.N.Y. Mar. 7, 2000) ..................................................................... 4
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`In re CRM Holdings, Ltd. Sec. Litig.,
`2012 WL 1646888 (S.D.N.Y May 10, 2012)....................................................................... 3
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`In re Forest Laboratories,
`450 F. Supp. 2d 379 (S.D.N.Y. 2006) ................................................................................. 4
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`La. Pac. Corp. v. Money Mkt. 1 Institutional Inv. Dealer,
`851 F. Supp. 2d 512 (S.D.N.Y. 2012) ................................................................................. 3
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`SEC v. China Northeast Petrol,
`27 F. Supp. 3d 379 (S.D.N.Y. 2014) ................................................................................... 2
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`SEC v. Collins & Aikman Corp.,
`524 F. Supp. 2d 477 (S.D.N.Y. 2007) ................................................................................. 3
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`Town of Davie Police Officers Ret. Sys. v. City of N. Miami Beach Police
`Officers’ & Firefighters’ Ret. Plan,
`2021 WL 5142702 (2d Cir. Nov. 5, 2021)........................................................................... 3
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`Case 6:21-cv-06418-EAW Document 177 Filed 04/06/22 Page 4 of 8
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`Defendants Bradley, Engelberg, New and Parrett (the “BENP Outside Directors”) submit
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`this reply in support of Defendants’ motion to dismiss the Class Action Complaint (“CAC”).
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`PRELIMINARY STATEMENT
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`At its core, Plaintiffs’ Opposition (“Opp.”) repeats their sweeping allegations that all
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`Defendants engaged in an unlawful “scheme,” but confirms that the BENP Outside Directors’ sole
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`alleged conduct consists of attending a July 27, 2020 board meeting, where (i) the BENP Outside
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`Directors voted to approve the LOI, and (ii) Defendants Bradley and New allegedly approved the
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`options. This cannot support liability against the BENP Outside Directors. Plaintiffs attempt to
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`salvage Counts II and III by doubling down on their improper use of group pleading, but Count II
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`fails because the CAC does not allege either individual acts of deception or scienter against the
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`BENP Outside Directors, and Count III similarly fails for lack of their alleged culpable
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`participation in, much less control over, the alleged primary violations.1
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`ARGUMENT
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`I.
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`PLAINTIFFS’ SCHEME LIABILITY CLAIM AGAINST THE BENP OUTSIDE
`DIRECTORS FAILS.
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`Plaintiffs incorrectly argue that the CAC’s numerous blanket statements accusing all
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`“Defendants” of misconduct serve merely “as a way to summarize the actions of more than one
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`Individual Defendant,” and that such individualized allegations can be found “in the surrounding
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`paragraphs of the CAC.” Opp. 55. There are no such allegations against the BENP Outside
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`Directors, however. Although Plaintiffs direct the Court to CAC paragraphs 36-42 and 139-46 for
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`the supposed “specific allegations pertaining to Individual Defendants,” (Opp. 55), those
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`paragraphs do not contain a single allegation about the BENP Outside Directors.
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`1 As argued in Point VI of the Main Reply Brief, in which the BENP Outside Directors join, the
`CAC does not allege that the BENP Outside Directors had any involvement in or control over the
`alleged misstatements and omissions that form the basis of Plaintiffs’ claims.
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`1
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`Indeed, the Opposition confirms that the BENP Outside Directors are not alleged to have
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`(i) made or approved any alleged misstatements (Opp. 55 n.35), (ii) received any options or stood
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`personally to benefit from the alleged scheme (Opp. 46, 47), or (iii) engaged in any stock trades
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`(Opp. 25). Given these concessions, Plaintiffs are forced to retreat to the position that “the only
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`factual predicate needed to establish their participation in the options granting scheme” are the
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`BENP Outside Directors’ “names” and membership on “the Kodak Board and CNG Committee.”
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`Opp. 55. Of course, as shown in the next section, that is not correct.
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`A.
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`Plaintiffs Fail to Allege Inherently Deceptive Conduct Against the BENP
`Outside Directors.
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`Confronted with the utter lack of factual allegations against the BENP Outside Directors,
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`Plaintiffs attempt to rewrite the securities laws by arguing, incorrectly, that they are not required
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`to allege that the BENP Outside Directors individually engaged in any inherently deceptive
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`conduct. Opp. 64-66. But Plaintiffs’ own authorities hold that they must plead that each individual
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`defendant “perform[ed] an inherently deceptive act that is distinct from an alleged misstatement.”
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`SEC v. China Northeast Petrol, 27 F. Supp. 3d 379, 392 (S.D.N.Y. 2014). 2
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`Plaintiffs fail to cite a single case supporting their contention that the BENP Outside
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`Directors’ approval of either the LOI or the options qualifies as an inherently deceptive act. 3 To
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`2 In each case Plaintiffs cite where scheme claims survived dismissal, the defendants were alleged
`to have engaged both in material misstatements and inherently deceptive conduct (see Main Reply
`Br. III.A), whereas the BENP Outside Directors are not alleged to have engaged in either. SEC v.
`Sason does not hold, as Plaintiffs contend, that defendants can be liable “even if ‘neither Defendant
`engaged in any deceptive or manipulative conduct’” (Opp. 66). There, the court upheld the claim
`only because it found that the complaint adequately pled that the defendants “engaged in deceptive
`conduct that contributed to the larger scheme.” 433 F. Supp. 3d 496, 509 (S.D.N.Y. 2020).
`3 Mr. Bradley left the meeting where the options were approved early and did not cast a vote in
`favor of the options. Main Reply Br. 32 n.44. It is also irrelevant that Mr. Bradley gave Mr. Katz
`a “proxy” (Opp. 72 n.46)—it is axiomatic that “directors of a corporation cannot act by proxy.”
`In re Acadia Dairies, Inc., 15 Del. Ch. 248, 250 (1927).
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`2
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`Case 6:21-cv-06418-EAW Document 177 Filed 04/06/22 Page 6 of 8
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`the extent Plaintiffs seek liablity for non-deceptive conduct that purportedly contributed to an
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`unlawful scheme, such an argument fails. It is black-letter law that “[p]articipation in a scheme
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`can … be sufficient for liability … only if that participation took the form of actions or statements
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`that were independently deceptive or fraudulent.”4
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`B.
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`Plaintiffs Fail to Plead Scienter Against the BENP Outside Directors.
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`Plaintiffs’ concession that none of the BENP Outside Directors either received any of the
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`challenged options or stood personally to benefit in any way from the alleged fraud (Opp. 46-47),
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`forecloses Plaintiffs from pleading scienter based on motive.5 And while Plaintiffs argue that they
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`need not allege motive (Opp. 47), they also fail to plead the only other possible basis for scienter
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`against the BENP Outside Directors—strong circumstantial evidence of conscious misbehavior or
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`recklessness. Plaintiffs fail to meet this “heavy burden” with respect to the BENP Outside
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`Directors,6 whose only alleged conduct is attending a meeting where they approved the LOI or, in
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`the case of CNG Committee members, allegedly approved the grant of options.
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`Plaintiffs argue, incorrectly, that “Defendants’” mere “involvement in both the spring-
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`loaded options grants and obtaining the government loan supports that Defendants were aware of
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`the underlying falsity of their statements about the certainty of the loan.” Opp. 42. This
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`impermissible group-pleading allegation cannot suffice to plead scienter against the BENP Outside
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`Directors.7 In fact, none of the BENP Outside Directors were even “involved” in obtaining the
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`4 SEC v. Collins & Aikman Corp., 524 F. Supp. 2d 477, 486 (S.D.N.Y. 2007) (emphasis added).
`5 Town of Davie Police Officers Ret. Sys. v. City of N. Miami Beach Police Officers’ & Firefighters’
`Ret. Plan, 2021 WL 5142702, at *2 (2d Cir. Nov. 5, 2021).
`6 La. Pac. Corp. v. Money Mkt. 1 Institutional Inv. Dealer, 851 F. Supp. 2d 512, 529 (S.D.N.Y.
`2012) (“[A]bsent allegations of a motive … the strength of circumstantial allegations must be
`correspondingly greater.”).
`7 In re CRM Holdings, Ltd. Sec. Litig., 2012 WL 1646888, at *30 (S.D.N.Y May 10, 2012)
`(“Plaintiffs fail to allege facts that adequately address the scienter element with respect to each of
`the Individual Defendants—an element that cannot be satisfied through group pleading”).
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`3
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`DFC loan, or in making, reviewing, or approving any statements about the loan. Plaintiffs’ cited
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`authorities are completely inapposite. In all four cases they rely on, the courts found that the
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`defendants’ personal participation in underlying transactions gave them knowledge of information
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`contrary to alleged misstatements the defendants had made.8 By contrast, there are no allegations
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`that the BENP Outside Directors made or were involved with the alleged misstatements.
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`Moreover, the issue presented here is whether the BENP Outside Directors acted with
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`scienter for scheme liability when they voted to approve the LOI and/or options—actions that
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`Plaintiffs do not contend were illegal (Opp. 3), and were not “inherently deceptive” as shown
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`above. Plaintiffs plead no facts suggesting that the BENP Outside Directors took these actions
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`with fraudulent intent, let alone facts meeting their “heavy burden” to plead “strong evidence” of
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`conscious misbehavior or recklessness. Nor can the core operations doctrine salvage their claim,
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`as it applies only to “‘key’ or ‘top’ officers,” not “Outside Directors who are not alleged to be
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`directly involved in the day-to-day operations of the company.”9 See Main Reply Br. Point IV.C.
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`CONCLUSION
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`For the reasons set forth above and in the Main Reply Brief and Defendants’ opening briefs,
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`the CAC should be dismissed with prejudice as to the BENP Outside Directors. 10
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`8 See, e.g., Buxbaum v. Deutsche Bank, 2000 WL 33912712, at *19 (S.D.N.Y. Mar. 7, 2000)
`(defendant’s participation in hostile takeover talks showed that he “falsely and knowingly denied
`the existence of those talks”); In re Braskem S.A., 246 F. Supp. 3d 731, 764–65 (S.D.N.Y. 2017)
`(defendants “were directly involved in the bribery scheme and therefore had actual knowledge that
`… SEC filings were false”).
`9 See In re Forest Laboratories, 450 F. Supp. 2d 379, 391 (S.D.N.Y. 2006) (emphasis in original).
`10 The BENP Outside Directors also join in the Main Reply Brief submitted by all Defendants.
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`Case 6:21-cv-06418-EAW Document 177 Filed 04/06/22 Page 8 of 8
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`Dated: April 6, 2022
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`Respectfully submitted,
` /s/ Paul Straus
`KING & SPALDING LLP
`Paul A. Straus, Esq.
`Eric A. Hirsch, Esq.
`Alexander Noble, Esq.
`1185 Avenue of the Americas
`New York, NY 10036
`Tel: 212-556-2100
`Fax: 212-556-2222
`pstraus@kslaw.com
`ehirsch@kslaw.com
`anoble@kslaw.com
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`Attorneys for Defendants Jason New and
`William Parrett
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`BAKER & HOSTETLER LLP
`Eric R. Fish, Esq.
`45 Rockefeller Plaza
`New York, NY 10111
`Tel: 212-589-4200
`Fax: 212-589-4201
`efish@bakerlaw.com
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`Jonathan R. Barr, Esq. (pro hac vice)
`1050 Connecticut Avenue, NW, Suite 1100
`Washington, DC 20036
`Tel: 202-861-1500
`Fax: 202-861-1783
`jbarr@bakerlaw.com
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`Attorneys for Defendant Jeffrey Engelberg
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`LATHAM & WATKINS LLP
`Christopher J. Clark, Esq. (pro hac vice)
`Michael S. Bosworth, Esq. (pro hac vice)
`Zachary L. Rowen, Esq. (pro hac vice)
`1271 Avenue of the Americas
`New York, New York 10020
`Tel: (212) 906-1200
`Fax: (212) 751-4864
`chris.clark@lw.com
`michael.bosworth@lw.com
`zachary.rowen@lw.com
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`Attorneys for Defendant Richard Todd
`Bradley
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