Boeing Dreamliner Lawsuit Dismissal Upheld on Appeal

Boeing Co. (BA) won an appeals court ruling affirming the dismissal of an investor lawsuit accusing company officials of making misleading public statements about the readiness of its 787 “Dreamliner” aircraft.

The U.S. Court of Appeals in Chicago also asked a trial- court judge to consider punishing lawyers for the City of Livonia Public Employees’ Retirement System in Michigan for failing to adequately investigate statements allegedly made by a confidential source they relied on.

“The plaintiffs’ lawyers had made confident assurances in their complaints about a confidential source -- their only barrier to dismissal of their suit -- even though none of the lawyers had spoken to the source and their investigator had acknowledged that she couldn’t verify what (according to her) he had told her,” U.S. Circuit Judge Richard A. Posner wrote in the unanimous ruling by the three-judge appeals panel.

The confidential source later denied making the alleged prior statements when questioned under oath by Boeing lawyers, according to Posner.

Boeing’s 787 jet entered service in 2011 after three years of delays caused by supply-chain interruptions, assembly problems and a machinists strike. The U.S. Federal Aviation Administration grounded the plane in January after overheated lithium ion batteries on some planes began smoldering and emitting smoke.

Executives Sued

The Livonia pension plan class action, or group lawsuit, was filed in 2009 by San Diego-based law firm Robbins Geller Rudman & Dowd LLP. Named as defendants with Chicago-based Boeing were Chief Executive Officer W. James McNerney and Scott E. Carson, who led the company’s commercial airplane group.

After an initial complaint was dismissed, U.S. District Judge Suzanne Conlon in Chicago allowed the plaintiffs to refile and then denied a subsequent defense motion for dismissal, according to the appeals court.

Boeing renewed that request after questioning the source of the allegations, an engineer identified as Bishnujee Singh. Conlon granted the company’s request.

“Noting that none of the plaintiffs’ lawyers had met or talked to Singh until six months after they filed the second amended complaint, even though the first amended complaint had alleged reliance on internal Boeing communications, the judge thought their failure to attempt to verify the allegations in the investigator’s notes amounted to a fraud on the court,” the appeals court said today.

Darren Robbins, a partner in the firm’s San Diego office, and James Barz, a partner in its Chicago office, didn’t immediately reply to phone and e-mail messages seeking comment on the court’s decision.

Allegations ‘Baseless’

“Boeing is pleased that the Court of Appeals concluded, as did the district court, that the securities fraud allegations against Boeing were baseless and that it was the plaintiffs’ law firm that engaged in fraud -- fraud on the court,” John Dern, a company spokesman, said in an e-mailed statement.

“Boeing looks forward to the hearings in the district court in which sanctions against the plaintiffs’ law firm will be considered,” Dern said.

The case is City of Livonia Employees’ Retirement System v. Boeing Co., 12-1899 and 12-2009, U.S. Court of Appeals for the 7th Circuit (Chicago).

To contact the reporter on this story: Andrew Harris in the Chicago federal courthouse at aharris16@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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