570 F. App'x 32
2d Cir.2014Background
- Plaintiff Robert Shemian brought a putative securities class action against Research In Motion (RIM/BlackBerry) and three senior officers alleging violations of Sections 10(b), 20(a), and 20(b) of the Securities Exchange Act for allegedly misleading statements about product quality and release timelines.
- The Southern District of New York dismissed the consolidated complaint under Rule 12(b)(6) for failing to plead scienter and materiality and denied leave to amend.
- Shemian appealed the dismissal and the denial of leave to amend.
- The Second Circuit reviews de novo dismissals under the PSLRA and Rule 9(b) and applies Tellabs’ “strong inference” standard for scienter.
- The court examined allegations of motive (executive compensation incentives), confidential witness statements, corporate positions/knowledge, and asserted omissions under Item 303 and Rule 10b-5.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether complaint pleads scienter for §10(b) claim | Shemian: insiders had motive (incentive awards) and recklessness shown via CWs and access to core info | RIM: alleged motives are generic and CW allegations do not show knowledge or extreme recklessness | Affirmed dismissal — motive allegations were generic; circumstantial facts did not show recklessness or a strong inference of intent to deceive |
| Whether the alleged misstatements/omissions were material | Shemian: statements and omissions about product issues and trends were material to investors | RIM: statements were puffery or nonactionable; omissions not material in light of total mix of disclosures | Affirmed — statements largely puffery; omissions not material given available disclosures |
| Whether Item 303 (known trends/uncertainties) applies to a foreign private issuer and was pled adequately | Shemian: Item 303 disclosure duty covers trends RIM knew and were reasonably likely to affect results | RIM: plaintiff failed to plead a presently known trend reasonably likely to have material effects; public disclosures and facts undermined the claim | Court did not reach full Item 303 rule applicability because plaintiff failed to plead an actionable trend; dismissal affirmed |
| Whether district court abused discretion by denying leave to amend | Shemian: should be allowed to amend to cure pleading defects | RIM: plaintiff had multiple prior complaints and never identified what additional facts would cure defects | Affirmed denial — plaintiff failed to indicate how amendment would cure deficiencies |
Key Cases Cited
- S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98 (2d Cir. 2009) (PSLRA scienter pleading and motive limits)
- ECA & Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co., 553 F.3d 187 (2d Cir. 2009) (heightened PSLRA pleading and recklessness standard)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (Sup. Ct. 2007) (requirement that inference of scienter be ‘‘strong’’ and at least as compelling as nonfraudulent inference)
- Resnik v. Swartz, 303 F.3d 147 (2d Cir. 2002) (duty-to-disclose/omission actionable only when duty exists)
- Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000) (recklessness often shown by facts indicating defendants’ access to contradictory information)