Boeing Beats the Trial Bar
A Chicago judge issues the year's biggest plaintiff smackdown.
Wall Street Journal
MARCH 19, 2011

Plaintiffs attorneys are fond of cases where the sky's the limit, but a recent misadventure against Boeing should clip their wings. Judge Suzanne Conlon of the federal district court in Chicago last week dismissed a securities class action against the company, calling the characters "worthy of a contemporary novel." And not in a good way.

We'll call it the biggest plaintiff smackdown of the year. In last week's action, Judge Conlon reversed her earlier decision to let the case go forward and said the plaintiffs' claims about a key confidential source were an effort to evade court rules. The allegations were "at best unreliable and at worst fraudulent," she wrote, "whether it is (the source) or plaintiffs' investigators who are lying."

The drama in City of Livonia v. Boeing started in 2009 when plaintiffs attorneys representing the town's employee retirement system sued Boeing for securities fraud related to the delivery schedule for its forthcoming 787 Dreamliner. According to the lawyers at Robbins Geller Rudman & Dowd, the company hoodwinked investors by withholding information about plans to delay the plane's first flight, waiting to announce until after a well-known Paris air show to prevent order cancellations.

As all trial lawyers know, the main hurdle for this kind of case is surviving the motion to dismiss. To move forward, plaintiffs must present some bare-bones evidence of fraud to the court. If their complaints can squeak by, the case moves into the discovery phase, allowing attorneys to rummage through millions of documents, imposing huge costs and inconvenience on companies that increase the incentive to settle.

In May 2010, Judge Conlon dismissed the case for lack of sufficiently specific allegations of fraud or fraudulent intent, while noting that the plaintiffs could refile with more information. Presto, they did. In their amended complaint, the plaintiffs claimed they had a confidential source, a former Boeing chief engineer, who had worked directly with the Dreamliner and had seen damning emails and files related to the flight delay.

On that basis, the judge allowed the case to go forward. Only problem, the plaintiffs had no such thing. When the motion to dismiss was denied, the plaintiffs revealed the source as Bishnujee Singh. Not only had the plaintiffs falsely identified him as a senior engineer with access to 787 records, he didn't even work for Boeing. "In reality," the judge wrote, "he was employed as a line engineer by an outside contractor doing work at Boeing three or four months after the events in issue." Deposed by the defendants, the contractor repudiated nearly every detail of the claims plaintiffs had made on his behalf, suggesting his testimony had been misrepresented. That revelation led to the spectacle of plaintiffs attorneys calling their star witness a liar.

Robbins Geller has been to this funhouse before. The firm is a spin off of what was once Lerach Coughlin Stoia & Robbins, the home of tort kingpin-turned-felon Bill Lerach, who pleaded guilty to obstruction of justice for his role in kickbacks to plaintiffs. In a 2010 case before New York federal District Judge John Sprizzo, the original counsel in the Livonia case, Coughlin Stoia Geller Rudman & Robbins similarly relied on a confidential source to support their claims, only to see the source's testimony discredited in a deposition.

The Livonia saga is astonishing for its rank deception, but it is also merely the latest example of the all too common business partnership between plaintiffs and state or local pension funds. In a relationship often brokered by politicians, the public funds lend their name for a chance at a cut of a mega-payout and the trial lawyers get their contingency bonanza. In six years, the City of Livonia has tried nine times to represent a shareholder class in securities fraud litigation, the majority with Robbins Geller or its predecessor.

While simple honesty would help, the answer to some of this is more tort reform. The 1995 Private Securities Litigation Reform Act aimed to weed out the most worthless cases by requiring some evidence before discovery. But as Livonia shows, it's a low bar to clear for plaintiffs firms, who know that often all they need is one person to make the claims seem plausible.

The point is to apply enough pressure on the companies that they cough up a settlement rather than endure a trial. In a case like the one against Boeing, it can cost a company about $100 million to make a lawsuit disappear. We hope Judge Conlon's decision works similar magic on the plaintiffs.