Pearlstein v. Blackberry Limited

Background

This securities-fraud class action concerned allegations that BlackBerry Limited, formerly known as Research In Motion Limited, and defendants Thorsten Heins, Brian Bidulka, and Steve Zipperstein violated Sections 10(b) and 20(a) of the Securities Exchange Act. Plaintiffs alleged that defendants made materially false or misleading statements and omissions about the success of BlackBerry’s BlackBerry 10 smartphones, artificially inflating the price of BlackBerry common stock and causing losses when the alleged truth was disclosed.

The case was filed in 2013, consolidated, and led by Todd Cox and Mary Dinzik. The court initially dismissed the first amended complaint, but the Court of Appeals for the Second Circuit vacated part of that ruling and sent the case back for reconsideration of whether plaintiffs could amend. The court later allowed a second amended complaint and denied defendants’ motion to dismiss it in full.

The court certified the class in January 2021. The parties completed fact and expert discovery, litigated motions concerning expert testimony, and reached the eve of trial. The court denied defendants’ motion for summary judgment and motion to strike. After renewed mediation, the parties accepted a mediator’s proposal on April 6, 2022, the day before jury selection was scheduled to begin. Under the agreement, defendants paid $165 million into an interest-bearing escrow account for distribution under a plan of allocation.

Settlement approval

The plaintiffs moved for final approval under Rule 23(e), the federal rule governing class-action settlements. The court evaluated both the negotiation process and the settlement’s fairness under the nine factors from City of Detroit v. Grinnell, including the complexity and likely duration of continued litigation, the risks of proving liability and damages, the reaction of the class, the stage of the proceedings, and the reasonableness of the settlement compared with the possible recovery.

The court found that the case involved substantial factual and legal risks, including proving material misrepresentations, defendants’ state of mind, loss causation, the amount of artificial inflation, and damages. It also noted the risks of a lengthy trial, appeal, possible class decertification, and collection of a larger judgment. The court found that the parties had sufficient information to evaluate the case because discovery was complete and the case was ready for trial.

More than 100,000 notices were distributed, 10,912 proofs of claim were received, and there were three objections and three requests for exclusion. Two objections were resolved or withdrawn, while the remaining objection argued that the settlement amount was too low. The court rejected that objection, finding that the proposed recovery was reasonable in light of the risks and that the objector’s proposed damages theory was unrelated to plaintiffs’ liability theory. The three exclusion requests were found deficient.

The court also applied the fairness requirements in Rule 23(e)(2). It found that the class representatives and counsel adequately represented the class, that the settlement was negotiated at arm’s length with the assistance of an experienced mediator, that the relief was adequate, and that the plan treated class members equitably. The court approved the settlement.

Plan of allocation and notice

The court approved the plan of allocation because it provided a fair and rational method for distributing the net settlement fund. For each valid claim, a recognized loss would be calculated based on the difference between the estimated alleged artificial inflation when BlackBerry shares were purchased and when they were sold. Authorized claimants would receive payments on a pro rata basis according to the relative size of their recognized claims.

The court also approved the notice program. The notice described the action, the class, the settlement amount, the allocation plan, the requested fees and expenses, and the procedures for filing claims, objecting, or excluding oneself from the class. The claims administrator mailed postcard notices to 99,938 potential class members, published summary notices twice, maintained a settlement website, and operated a toll-free telephone number.

Fees, expenses, and case contribution awards

Class counsel requested $55 million in attorneys’ fees, equal to one-third of the $165 million settlement fund, plus accrued interest. The court found the request reasonable after considering counsel’s time and labor, the risks and complexity of the litigation, the size of the recovery, the quality of representation, and public-policy considerations. As a cross-check, the court considered counsel’s lodestar, meaning the hours worked multiplied by reasonable hourly rates. The requested fee represented a 2.15 multiplier based on lead counsel’s lodestar and a 1.61 multiplier when all plaintiffs’ counsel were included.

The court approved reimbursement of $4,278,824.37 in litigation expenses, consisting of $4,093,462.31 advanced by lead counsel and $185,362.06 advanced by additional class counsel. It also approved $100,000 case contribution awards to each of Cox and Dinzik. The court found that both had actively participated in the litigation and devoted substantial time to representing the class.

Disposition

Judge Colleen McMahon granted the motion for final approval of the settlement and granted the motion for attorneys’ fees, expenses, and case contribution awards. The court approved the proposed settlement, plan of allocation, and notice; awarded $55 million in attorneys’ fees; ordered reimbursement of $4,278,824.37 in expenses; approved a $100,000 payment to each of Cox and Dinzik; and directed the clerk to terminate pending motions and close the case. The opinion approved the settlement rather than deciding the underlying securities-fraud claims on their merits.