American manufacturers, especially those that still employ significant numbers of middle-class workers in the United States, face enough challenges as it is. The last thing they need are unscrupulous trial lawyers teaming up with cash-strapped politicians to file fraudulent lawsuits that only waste company time and money. But that is exactly what is happening to Boeing.
Boeing, which is locked in fierce competition with Airbus for the highly competitive global jet airliner business, performed a stress test on the wings of its new 787-8 Dreamliner aircraft in April of 2009. Despite failing that test, Boeing executives announced in May that the plane was still on track for its first flight in June. When Boeing later announced in June that the Dreamliner's first flight would be delayed, its stock dropped 10 percent.
This is the sort of scenario that every plaintiffs' law firm dreams of, and Robbins Geller Rudman & Dowd LLP quickly filed suit alleging that Boeing executives committed securities fraud in May 2009 when they said the Dreamliner would be able to fly in June. But erroneous predictions are not considered fraud under the Securities Exchange Act. And, under the 1995 Private Securities Litigation Reform Act, plaintiffs must secure confidential information strongly indicating that a defendant knowingly made false statements before they file suit.
Robbins Geller failed to do that. Worse, after a federal judge dismissed the firm's first complaint, Robbins Geller doubled down with a second complaint featuring an unnamed Boeing engineer who allegedly had seen internal emails indicating that Boeing knew in May that the June flight date would never happen.
But when deposed under oath by Boeing's lawyers, Robbins Geller's confidential source denied virtually everything the complaint alleged. The witness did not work for Boeing, did not work on the 787-8 and had never seen any internal Boeing emails. The witness even alleged that Robbins Geller had misrepresented his statements in its complaint. The firm was then forced to call its own star witness a liar.
Robbins Geller could have quit digging when the district court dismissed its suit, but the firm instead appealed to a higher court. Boeing cross-appealed, seeking sanctions against the firm for filing a frivolous claim. Last week, the Seventh Circuit U.S. Court of Appeals issued a stinging rebuke of Robbins Geller's behavior.
Not only did the appeals court find that Robbins Geller likely filed a frivolous suit, but the court also noted that the firm "was criticized for misleading allegations concerning confidential sources" in at least three other cases. Call that fair warning to Robbins Geller's client in the Boeing litigation, the City of Livonia Employees' Retirement System. In the span of just six years, Livonia has gone to court with Robbins Geller in nine class-action securities fraud lawsuits.
The appeals court has remanded the case back to the district court to assess sanctions on Robbins Geller for filing frivolous claims. If the District Court fails to issue fines big enough for both Robbins Geller and Livonia to rethink their business model, Congress should step in and increase the penalties on law firms that prey on honest, profit-making, American manufacturers by filing suits that are beyond belief.