Pearlstein v. Blackberry Limited

Background

The plaintiffs brought securities-fraud claims under Section 10(b) of the Securities Exchange Act and Rule 10b-5. Their original complaint and First Amended Complaint described an April 12, 2013 statement by Steve Zipperstein about a research report concerning returns of BlackBerry smartphones, and alleged that the statement was false and misleading. Those pleadings did not name Zipperstein as a defendant.

After the First Amended Complaint was dismissed for failing to adequately plead scienter—meaning the required knowledge or intent to deceive—the plaintiffs sought permission to amend based partly on information from a criminal case involving James Dunham, Jr. Judge Griesa allowed the plaintiffs to amend the securities-fraud claim. The proposed Second Amended Complaint named Zipperstein in its body and in the heading for the claim, although the plaintiffs did not highlight that addition in their motion papers. The plaintiffs filed the Second Amended Complaint on September 29, 2017.

Zipperstein previously raised the statute-of-limitations issue in a motion to dismiss. After that motion was not granted, he renewed the argument in a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c), before trial.

Legal Issue

The Exchange Act provides a two-year statute of limitations for the securities-fraud claim. The period begins when the plaintiff actually discovers, or a reasonably diligent plaintiff would have discovered, the facts constituting the violation. Under the rule applied by the court, discovery of scienter does not occur until the plaintiff has enough detailed information about the defendant’s knowledge or intent to plead scienter successfully.

The court first determined when Zipperstein was treated as having been sued for limitations purposes. It rejected the plaintiffs’ proposed date of April 27, 2015, when they attached a proposed amendment to a reply brief, because they had not formally moved to amend then. It also rejected Zipperstein’s proposed date of September 29, 2017, when the Second Amended Complaint was filed. The court held that the relevant date was November 17, 2016, when the plaintiffs filed their formal motion for leave to amend with the proposed pleading naming Zipperstein.

The court then determined when the limitations period began. Although the market had received a corrective disclosure on September 20, 2013, the court held that the plaintiffs did not have enough information to plead scienter until February 24, 2015, when the criminal complaint in the Dunham proceeding was filed. The court treated that date as the discovery date for purposes of the limitations period.

Ruling

Judge McMahon held that the November 17, 2016 amendment motion was filed within two years of February 24, 2015. The claim against Zipperstein was therefore timely. The court denied Defendant Zipperstein’s motion for judgment on the pleadings and directed the Clerk of Court to close the motion at Docket Number 797.