The Kodak lawsuit is a securities class action lawsuit. There was a case in which the company was sued for securities fraud and for concealing information from investors. This suit was later overturned due to lack of personal injury (there were no monetary damages) and due to lack of standing. The case was remanded to the state courts.
There was an appeal of that decision by the United States Supreme Court, and it was this appeal that resulted in Kodak bringing the current suit against them. At first, the case was merely a securities class action lawsuit. The argument made in the original lawsuit is based on the fact that Kodak advertised their P&G tooth paste on television for $5.00 per tube. While that may seem like a good deal on paper, in actuality the tubes were not being sold at that price; they were being sold at a much lower price of around ten dollars each. The point is that while there may have been intent to deceive the public, there was no evidence of such intent present.
There is no doubt that Kodak intended to defraud the public with their pricing, but the original lawsuit is unlikely to have any merit. The original lawsuit was filed by a law firm called Brown & Wood, and the main argument is that Kodak intentionally deceived investors in order to garner more money. According to the Securities and Exchange Commission (SEC), “the complaint further alleged that Kodak failed to inform investors that the price of their products would increase above and beyond the price at which they purchased them.” The original lawsuit also pointed out that the price was only changed a couple times over the course of several months.
Stoughton & Freeland, LLP, the law firm which represents the plaintiffs in the current case, did not comment on the specific allegations in the complaint. However, they did advise, “Our client will not be commenting at this time.” It’s not entirely clear how the SEC could determine that a price change was intentional, especially considering that the definition of ‘good faith’ is very vague. In general, it is usually enough for an investor to believe that their own shares of stock are worth something, without having to actually have proof in order to convince the courts that they were properly priced. The Securities and Exchange Commission (SEC) has been unable to come up with an explanation as to how such a change would have a material effect on the market price of a security.
As previously mentioned, the original lawsuit was filed by Brown & Wood. The company that was originally sued, DAQ, is now called Qwest Communications. So far, the original shareholders of Kodak have lost their case against Qwest, and the case was ruled against. However, some investors who lost money in the original lawsuit have appealed the court’s ruling to the appeals court. If the appeals court agrees with the original shareholders, then the case can go back to the shareholders for further proceedings.
The plaintiffs in the case, led by Scott Thiel, claim that the original shareholders did not act reasonably when they sold their stock, despite the fact that they had a reasonable belief that their stock would appreciate in value. In most cases, plaintiffs must prove “a negative expectation,” which is a subjective standard, to support their suit. So far, the plaintiffs have not been able to do so. This case may thus turn out to be an important test case for the power of the shareholders to set their own price in the stock market.
