Overview
Judge Baer yesterday dismissed a proposed class action alleging that Kodak made optimistic public statements at the same time it was considering filling for bankruptcy, which it later did. He found there were insufficient allegations of intent to defraud:
Based on the alleged facts, the more compelling “plausible, nonculpable” explanation is that Defendants failed to avoid Kodak’s bankruptcy in January 2012 despite their best efforts to fund and complete a successful digital transformation throughout 2011. Tellabs, 551 U.S. at 324. This inference is consistent with Kodak’s performance in 2010, the potential, albeit unrealized, value of the company’s IP licenses and sales, as well as Kodak multiple efforts to fund itself despite the negative developments in 2011. This inference is further supported by Kodak’s numerous qualifications during the class period about its cash position and digital transformation since the beginning of the Class Period . . . . This case is therefore analogous to a host of cases in which courts have dismissed, as “fraud in hindsight,” complaints filed after a company’s bankruptcy based on the conclusory allegation that defendants had or should have been aware of the “liquidity crisis.”Judge Baer also noted that “[i]n the bankruptcy context, there are serious policy reasons why courts should carefully evaluate a plaintiff’s fraud allegations,” and quoted the following from a Michigan law professor:
“‘Fully informed securities markets aren't the only goal in this world,’ said Adam Pritchard, a University of Michigan law professor and former SEC attorney. ‘If disclosure is destroying businesses, well, how is that good for anyone?’” Mike Spector, Keeping Mum About the ‘B Word’, The Wall Street Journal, Nov. 8, 2011.
