Pearlstein v. Blackberry Limited

Background

This federal securities class action concerns BlackBerry Limited’s 2013 launch of its BlackBerry 10 operating system and Z10 and Q10 smartphones. The lead plaintiffs, Todd Cox and Mary Dinzik, sued on behalf of purchasers of BlackBerry common stock between March 28 and September 20, 2013. They asserted claims under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 against BlackBerry Limited, Thorsten Heins, Brian Bidulka, and Steve Zipperstein, and a control-person claim under Section 20(a) against Heins and Bidulka.

The plaintiffs alleged that the defendants made false or misleading statements about BB10’s sales, customer acceptance, returns, profitability, and financial condition. They also alleged that BlackBerry improperly used “sell-in” accounting—recognizing revenue when devices were shipped to carriers—instead of “sell-through” accounting—recognizing revenue when devices were sold to end consumers. According to the plaintiffs, the defendants’ public statements concealed weak consumer demand, high returns, and other problems with the devices. BlackBerry later switched to sell-through accounting and disclosed substantial inventory charges, losses, workforce reductions, and restructuring costs on September 20, 2013.

The court had previously denied BlackBerry’s motion to dismiss the second amended complaint and certified a plaintiff class. The defendants then moved for summary judgment on all claims and separately moved to strike the plaintiffs’ responses and objections to the defendants’ statement of undisputed facts.

Motion to Strike

The court denied the motion to strike. Local Rule 56.1 requires parties opposing summary judgment to respond to the moving party’s asserted facts and cite evidence supporting factual disputes. The court found that the plaintiffs’ responses generally identified their factual position and the evidence supporting it, even though some responses included legal argument.

The court stated that it would disregard improper legal argument rather than strike the responses. It also explained that credibility disputes and challenges to the persuasiveness of evidence are ordinarily matters for a jury, not issues to resolve through a motion to strike or summary judgment.

Summary Judgment

The court denied the defendants’ motion for summary judgment. Summary judgment is appropriate only when there is no genuine dispute about a material fact and the moving party is entitled to judgment under the law. Viewing the evidence in the plaintiffs’ favor, the court concluded that a reasonable jury could find for the plaintiffs.

The court identified the central issue as whether BlackBerry misrepresented the success and profitability of the BB10 products. It noted that a prior appellate decision held that alleged mistakes about accounting methodology, standing alone, would not support the plaintiffs’ claims. But the court found factual questions about whether BlackBerry omitted material information concerning its knowledge and investigation of the accounting statements, and whether the public statements conflicted with what a reasonable investor would understand from them.

The court also identified competing expert opinions about accounting and marketing issues. It held that the disputes concerning falsity, materiality, and scienter—whether the defendants acted with the required state of mind—could not be resolved at summary judgment. The court stated that those fact-intensive disputes were for the jury.

Statute of Repose

The court separately ruled on whether eleven of twenty-six allegedly misleading statements identified by the defendants’ expert in a 2020 report should be excluded under the Exchange Act’s five-year statute of repose. A statute of repose sets a final deadline for identifying the basis of a claim, measured here from when the allegedly fraudulent statement was made.

The court held that statements not identified as misleading in the second amended complaint before the deadline were barred by the statute of repose. It rejected the defendants’ argument as to all eleven statements, however, because four of them had in fact been pleaded in the second amended complaint before the deadline. Those four statements were not barred. The other seven statements could not be submitted to the jury. The court observed that the seven excluded statements substantially overlapped with other statements that remained in the case, so the practical effect of this ruling was limited.

Disposition

The court denied the defendants’ motion to strike and denied the defendants’ motion for summary judgment. It ruled that seven statements could not be considered because of the statute of repose and that four of the challenged statements were timely pleaded. The court stated that the case would proceed toward trial and directed the Clerk to close the motions at Docket Numbers 506 and 557.