Cox v. BlackBerry Limited
660 F. App'x 23
2d Cir.2016Background
- Plaintiffs Todd Cox and Mary Dinzik brought a securities-fraud class action under §10(b) and Rule 10b-5 alleging BlackBerry and two executives made materially false statements about the BlackBerry Z10’s market performance and returns around its release.
- The District Court (Griesa, J.) dismissed the Consolidated Amended Class Action Complaint for failure to plead a strong inference of scienter and denied reconsideration and leave to amend.
- Plaintiffs relied in part on a Detwiler Fenton research report claiming Z10 returns outpaced sales; BlackBerry publicly called that report “absolutely without basis.”
- After dismissal, plaintiffs discovered evidence (from a criminal complaint) suggesting a retailer executive provided confidential Z10 sales/returns data to Detwiler Fenton and sought leave to amend to allege defendants’ opinion statements lacked a reasonable basis.
- The Second Circuit reviewed de novo dismissal under Iqbal/Twombly and PSLRA/Tellabs scienter standards, affirmed dismissal for failure to plead scienter, but vacated the denial of leave to amend because the district court gave no reason and remanded for reconsideration.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Complaint pleads a strong inference of scienter for misstatements about Z10 | Plaintiffs: executives knew or recklessly disregarded poor Z10 performance (returns outpacing sales), so statements were knowingly false | Defendants: allegations are hindsight, motives and positions insufficient; no particularized contradictory facts showing defendants knew contrary information | Court: Dismissal affirmed — allegations do not raise a strong inference of scienter (fraud-by-hindsight inadequate) |
| Whether opinion statements about the Detwiler Fenton report can be actionable | Plaintiffs: after Omnicare, an opinion is misleading if omissions about inquiry/knowledge conflict with investor understanding; new evidence shows opinions lacked reasonable basis | Defendants: public statements were reasonable and plaintiffs lack particularized facts showing defendants disbelieved their opinions | Court: Not decided on merits; Omnicare may affect analysis, relevant to leave to amend determination on remand |
| Denial of leave to amend (procedural adequacy) | Plaintiffs: newly discovered evidence supports amendment and was proper to add after dismissal | Defendants: denial was within district court’s discretion (argued) | Court: Vacated denial of leave to amend and remanded because district court gave no basis for denial; district court should reconsider and explain if denying |
| Reliance on executive positions and motive to infer scienter | Plaintiffs: executives’ senior roles and motive to preserve profitability support inference | Defendants: generic motives and positions alone are insufficient | Court: Held insufficient — such allegations alone do not raise strong inference of scienter |
Key Cases Cited
- Stratte-McClure v. Morgan Stanley, 776 F.3d 94 (2d Cir. 2015) (standard of review for Rule 10b-5 dismissal and scienter pleading under PSLRA)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (PSLRA requires a "strong inference" of scienter judged holistically)
- Omnicare, Inc. v. Laborers District Council Constr. Indus. Pension Fund, 135 S. Ct. 1318 (2015) (opinion statements can be misleading if issuer omits material facts about its inquiry or knowledge)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (when alleging access to contrary facts, plaintiff must identify reports or statements containing that information)
- S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98 (2d Cir. 2009) (corporate motives common to insiders insufficient alone to plead scienter)
- ATSI Comm’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (elements of a Rule 10b-5 claim)
- Foman v. Davis, 371 U.S. 178 (1962) (factors governing leave to amend under Rule 15)