Pearlstein v. Blackberry Limited

Background

This securities-fraud class action concerns BlackBerry’s accounting for revenue from its BB10 smartphones, particularly the Z10 and Q10, during the relevant period. The plaintiffs allege that BlackBerry Limited and individual defendants made materially false or misleading statements about the smartphones’ performance and recognized revenue when devices were shipped to carriers rather than when consumers bought them. The plaintiffs offered accounting expert Thomas Lys and marketing expert Tülin Erdem. The defendants offered accounting expert Philip Schimmel and rebuttal marketing expert Itamar Simonson.

The parties filed motions under Daubert and Federal Rule of Evidence 702, which require courts to screen expert testimony for qualifications, reliable methods, and helpfulness to the factfinder. The court emphasized that disagreements between qualified experts ordinarily concern the weight of their testimony and can be explored through cross-examination, rather than requiring exclusion.

Thomas Lys

The court held that Lys was qualified to give opinions about BlackBerry’s accounting practices and whether its use of the “Sell-In” method rather than the “Sell-Through” method complied with generally accepted accounting principles. His academic background and experience in accounting were sufficient even though he was not a certified public accountant and lacked comparable practical accounting experience.

The court nevertheless excluded several portions of Lys’s opinions. He could not testify about whether BlackBerry’s disclosures complied with Securities and Exchange Commission requirements or whether they were legally misleading or material. He also could not offer an expert opinion that BlackBerry’s accounting increased executive compensation, because that opinion was speculative and outside the basis of his qualifications. Finally, he could not characterize a statement by BlackBerry’s chief executive as “false.” He could testify about differences between public statements and internal data if those differences supported an otherwise admissible opinion, but the jury would decide whether the statement was false or misleading.

The motion concerning Lys was granted in part and denied in part.

Philip Schimmel

The court denied in full the plaintiffs’ motion to exclude Schimmel’s testimony. Schimmel’s more than four decades of auditing experience, including work involving public companies and generally accepted accounting principles, qualified him to address revenue-recognition judgments.

The court found that Schimmel used a sufficiently reliable approach, including reviewing BlackBerry’s accounting decisions, considering the practices of competitors, and responding to Lys’s opinions. His disagreements with Lys presented a permissible “battle of the experts” for cross-examination. Unlike the challenged portions of Lys’s report, Schimmel did not offer opinions on ultimate legal conclusions or on factual questions reserved for the jury. His testimony was therefore admissible in full.

Tülin Erdem

The court granted in part and denied in part the motion concerning Erdem. The court found her qualified to offer marketing opinions about the competitiveness of the BB10 devices, consumer perceptions, launch timing, application availability, and factors affecting commercial success. Those opinions were relevant because the case involved what BlackBerry knew about the products and whether its disclosures omitted material facts that conflicted with what a reasonable investor would understand.

Erdem could use contemporaneous public information and information available in BlackBerry’s own files to support her marketing analysis. She could not, however, testify about the contents of particular news stories or reviews, present argumentative summaries of the record, introduce timelines about product-launch delays, or summarize BlackBerry’s internal email traffic. She also could not testify about what BlackBerry executives subjectively understood or believed. The court treated alleged omissions or different emphasis in her analysis as matters for cross-examination unless the testimony was otherwise improper.

Itamar Simonson

The court granted in substantial part the plaintiffs’ motion to strike Simonson’s testimony. Simonson could criticize Erdem’s case-study method and could identify specific decisions in her report that he believed improperly emphasized or de-emphasized particular facts, but only when his report cited or footnoted the evidentiary basis for the disagreement.

Simonson could not testify to unsupported generalizations about the smartphone industry, market-wide changes, or what particular companies or executives believed. The court also rejected criticisms that treated Erdem as having ignored facts that her report actually discussed. Differences about the importance of evidence went to the weight of Erdem’s opinion. Based on Simonson’s submitted report, the court stated that his permitted testimony should be brief.

Disposition and classification

The court’s conclusion states that the motions to exclude the opinions and potential testimony of Lys, Schimmel, Erdem, and Simonson were granted in part and denied in part in accordance with the opinion. More specifically, the motions concerning Lys and Erdem were granted in part and denied in part; the motion concerning Schimmel was denied in full; and the motion concerning Simonson was granted in substantial part. The order addressed the admissibility and scope of expert evidence, not the ultimate merits of the securities-fraud claims.