Cox v. BlackBerry Limited , 660 F. App'x 23 ( 2016 )

15-3991
Cox v. BlackBerry Limited
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY
OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated Term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York on the
24th day of August, two thousand sixteen.
Present: ROSEMARY S. POOLER,
GERARD E. LYNCH,
SUSAN L. CARNEY,
Circuit Judges.
_____________________________________________________
TODD COX, MARY DINZIK,
Plaintiffs-Appellants,
MARVIN PEARLSTEIN, individually and
on behalf of all others similarly situated,
Plaintiff,
v. 15-3991
BLACKBERRY LIMITED,
FKA RESEARCH IN MOTION LIMITED,
THORSTEN HEINS, BRIAN BIDULKA,
Defendants-Appellees.
_____________________________________________________
Appearing for Appellants: David A.P. Brower, Brower Piven, APC (Kim E. Miller, Kahn
Swick & Foti, LLC, New York, NY, on the brief), New York, NY.
Appearing for Appellees: Dan Marmalefsky, Morrison & Foerster LLP (Jordan Eth, Joel C.
Haims, James J. Besha II, on the brief), New York, NY.
Appeal from the United States District Court for the Southern District of New York
(Griesa, J.).
ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED,
AND DECREED that the judgment of said District Court be and it hereby is AFFIRMED IN
PART, VACATED IN PART, AND REMANDED.
Plaintiffs Todd Cox and Mary Dinzik appeal from the March 17, 2015 judgment of the
United States District Court for the Southern District of New York (Griesa, J.), granting
defendants’ motion to dismiss plaintiffs’ Consolidated Amended Class Action Complaint (the
“Complaint”), and the November 13, 2015 order of the same court denying reconsideration and
denying leave to amend. Plaintiffs sued defendants for violations of Section 10(b) of the
Securities Exchange Act of 1934, see 15 U.S.C. §§ 78j(b), 78t(a), and Securities and Exchange
Commission Rule 10b-5, see 17 C.F.R. § 240.10b-5, alleging that defendants made material
misstatements and omitted material information related to the release of the BlackBerry Z10
smartphone. We assume the parties’ familiarity with the underlying facts, procedural history, and
specification of issues for review.
“We review de novo the district court’s judgment granting [d]efendants’ motion to
dismiss.” Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 99-100 (2d Cir. 2015). “To survive a
motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “To state a claim under Rule 10b-5 for
misrepresentations, a plaintiff must allege that the defendant (1) made misstatements or
omissions of material fact, (2) with scienter, (3) in connection with the purchase or sale of
securities, (4) upon which the plaintiff relied, and (5) that the plaintiff’s reliance was the
proximate cause of its injury.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 105 (2d
Cir. 2007).
“Scienter” in this context means “a mental state embracing intent to deceive, manipulate
or defraud.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 319 (2007) (internal
quotation marks omitted). The Private Securities Litigation Reform Act (“PSLRA”) provides
that, to survive dismissal, the allegations in the complaint must give rise to a “strong inference of
scienter.” Id. at 323. An inference of scienter is strong “only if a reasonable person would deem
the inference of scienter cogent and at least as compelling as any opposing inference one could
draw from the facts alleged.” Id. at 324. Thus, in analyzing scienter, a court looks not just to
inferences favoring the plaintiff, but must also take into account “plausible, nonculpable
explanations for the defendant’s conduct.” Id. Although an inference of scienter may arise from
“strong circumstantial evidence of conscious misbehavior or recklessness,” ATSI Commc’ns, 493
F.3d at 99, the recklessness must represent “an extreme departure from the standards of ordinary
care to the extent that the danger was either known to the defendant or so obvious that the
defendant must have been aware of it,” Rothman v. Gregor, 220 F.3d 81, 90 (2d Cir. 2000)
(alterations and internal quotation marks omitted).
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The district court correctly held that the allegations in the Complaint, even when
considered holistically, fail to give rise to a strong inference of scienter. The fact that defendants
Heins and Bidulka occupied high-ranking positions at BlackBerry and had an incentive for the
company to succeed is insufficient to establish scienter. See S. Cherry St., LLC v. Hennessee
Grp. LLC, 573 F.3d 98, 109 (2d Cir. 2009) (“[I]t is not sufficient to allege goals that are
possessed by virtually all corporate insiders, such as the desire to . . . sustain the appearance of
corporate profitability. . . .” (internal quotation marks omitted)). And although the Complaint
alleges that Heins and Bidulka monitored the sales and returns of the BlackBerry Z10, the
Complaint fails to allege any particularized facts suggesting that defendants actually possessed
information contradicting their public statements about the release of the Z10. See Novak v.
Kasaks, 216 F.3d 300, 309 (2d Cir. 2000) (“Where plaintiffs contend defendants had access to
contrary facts, they must specifically identify reports or statements containing this
information.”). In short, plaintiffs’ theory of scienter in the Complaint is that because the release
of the Z10 ultimately turned out to be a failure, defendants must have known that it would be a
failure and lied about this fact to investors. Such “fraud by hindsight” theories are not permitted
under the PSLRA’s heightened pleading standards. Id. We therefore affirm the district court’s
dismissal of the Complaint.
Plaintiffs also argue that the district court erred in denying them leave to amend the
Complaint. A court “should freely give leave when justice so requires.” Fed. R. Civ. P. 15(a)(2).
Although leave to amend should be liberally granted, it may properly be denied for “undue
delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies
by amendments previously allowed, undue prejudice to the opposing party by virtue of
allowance of the amendment, futility of amendment, etc.” Ruotolo v. City of New York, 514 F.3d
184, 191 (2d Cir. 2008) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)). “We review a
district court’s denial of leave to amend for abuse of discretion, unless the denial was based on
an interpretation of law, such as futility, in which case we review the legal conclusion de novo.”
Panther Partners Inc. v. Ikanos Commc’ns, Inc., 681 F.3d 114, 119 (2d Cir. 2012).
Although we agree with the district court that the Complaint failed to state a plausible
claim to relief, the present record is insufficient for us to determine whether the district court
properly denied plaintiffs leave to amend. Two significant developments occurred after the
district court dismissed the Complaint. First, the Supreme Court issued its decision in Omnicare,
Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S. Ct. 1318 (2015),
which held that a statement of opinion can be misleading if the statement “omits material facts
about the issuer’s inquiry into or knowledge concerning a statement of opinion . . . and . . . those
facts conflict with what a reasonable investor would take from the statement itself.” Id. at 1329.
This holding altered the standard previously applied by this Circuit that “when a plaintiff asserts
a claim based upon a belief or opinion alleged to have been communicated by a defendant,
liability lies only to the extent the statement was both objectively false and disbelieved by the
defendant at the time it was expressed.” Tongue v. Sanofi, 816 F.3d 199, 209 (2d Cir. 2016)
(alterations omitted) (quoting Fait v. Regions Fin. Corp., 655 F.3d 105, 110 (2d Cir. 2011)).
Second, plaintiffs discovered evidence that they contend corroborated an April 2013
report by the research and investment firm Detwiler Fenton. The report stated that customer
returns of the Z10 were outpacing sales. Shortly after the report was issued, BlackBerry released
a statement that the report was “absolutely without basis,” more specifically representing that
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“the data we have collected from our retail and carrier partners demonstrates that customers are
satisfied with their devices,” and that “[r]eturn rate statistics show that we are at or below our
forecasts and right in line with the industry.” App’x at 68-69. Additionally, in the statement,
BlackBerry’s Chief Legal Officer asserted that the report was “materially false and misleading,”
and he “call[ed] upon the appropriate authorities in Canada and the United States to conduct an
immediate investigation.” App’x at 69. Plaintiffs contend that, after the district court dismissed
the Complaint, they discovered through review of the criminal complaint and accompanying
affidavit in United States v. Dunham, No. 15-7051 (D. Mass. filed Feb. 24, 2015), that a former
executive at a wireless retailer “obtained very specific, confidential financial data and
information concerning sales and returns of [the Z10] and provided it to [Detwiler Fenton].”
App’x at 577. Plaintiffs allege that this new evidence shows that the Detwiler Fenton report was
accurate and that this, in turn, shows that “[d]efendants’ opinion statements [that the Detwiler
Fenton report was false] had no reasonable basis.” App’x at 576. Plaintiffs sought leave to
amend to include these additional allegations.
The district court denied plaintiffs’ request to amend without explanation, stating only
that plaintiffs had made the request for the first time in a reply brief in support of their motion for
reconsideration and that “[h]aving considered the parties’ arguments,” the court “[d]enies the
motion for reconsideration and the request for leave to amend.” Special App’x at 29. Thus, it is
unclear from the district court’s order whether the district court denied leave to amend because it
believed that amendment was futile, or because amendment was not warranted due to plaintiffs’
undue delay, undue prejudice to defendants, or some other reason. See Ruotolo, 514 F.3d at 191.
As noted, whether the district court’s decision was based on an interpretation of law, such as
futility, or some other consideration affects whether we apply a de novo or abuse-of-discretion
standard of review. See Panther Partners, 681 F.3d at 119. Because the district court did not
explain its basis for denying leave to amend, we vacate the district court’s order and remand for
the district court to reconsider whether plaintiffs should be granted leave to amend. In
considering that question, the district court may wish to order further briefing from the parties. If
the district court determines that leave to amend should be denied, it should explain the basis for
its decision. We express no view at this time as to whether leave to amend should be granted.
For the foregoing reasons, the judgment of the district court dismissing the Complaint is
AFFIRMED. The order of the district court denying plaintiffs’ motion for reconsideration and
leave to amend is VACATED insofar as it denied leave to amend, and the case is REMANDED
for further proceedings consistent with this decision.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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