550 F. App'x 24
2d Cir.2013Background
- Jones sues Perez and McCorvey on behalf of Kodak securities purchasers for violations of §10(b) and Rule 10b-5 and §20(a).
- Court reviews district court dismissal of the second amended complaint for failure to state securities fraud claims under Rule 12(b)(6) and PSLRA pleading standards.
- Plaintiffs allege defendants disclosed publicly optimistic views while concealing liquidity problems and bankruptcy risk.
- Court emphasizes the PSLRA requires a cogent, compelling inference of scienter; gross optimism alone is insufficient.
- Key disputed periods include July 26, 2011 conference call, September 30, 2011 press release, and November 3, 2011 statements related to financing and bankruptcy prospects.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Jones plead strong inference of scienter? | Jones asserts defendants knew or consciously disregarded falsity. | Kodak executives reasonably relied on public information and optimistic outlooks. | No strong inference of scienter; district court affirmed. |
| Were July 26, 2011 statements actionable statements of fraud? | Defendants misled by portraying liquidity optimism despite undisclosed critical facts. | Statements were based on public information and not knowingly false. | Not enough to infer fraud; statements not scienter-supported. |
| Can September 30, 2011 press release be read as a misstatement about bankruptcy risk? | Release misled by denying bankruptcy possibilities. | Release was forward-looking and properly cautioned about results; not a denial of bankruptcy risk. | No inference of fraud; not a false or misleading denial. |
| Do November 3, 2011 statements and Lazard declarations show scienter? | Evidence shows access to contrary facts and intent to downplay liquidity. | Allegations rely on confidential witnesses and lack specific contrary-fact citations; not fraudulent. | Insufficient to establish scienter; no cogent inference of fraud. |
Key Cases Cited
- ATSI Communications, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (strong inference standard for scienter under PSLRA)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (U.S. 2007) (contextual, collective weighing of facts for scienter; cogent inference required)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (fraud claims require facts supporting inference of falsity and intent)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (fraud by hindsight and optimism insufficient for scienter)
- In re Time Warner Inc. Secs. Litig., 9 F.3d 259 (2d Cir. 1993) (forward-looking statements and need for correction standards)
- Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) (economic reality as a check on inference of fraudulent intent)
- In re IBM Corp. Secs. Litig., 163 F.3d 102 (2d Cir. 1998) (mere opinions require basis in fact for fraud claims)
- Kleinman v. Elan Corp., plc, 706 F.3d 145 (2d Cir. 2013) (question of whether allegedly optimistic statements are actionable misrepresentations)
- Stevelman v. Alias Research Inc., 174 F.3d 79 (2d Cir. 1999) (requirement that internal reports supporting contrary facts be identified)