On August 21, 2014, the Northern District of Illinois issued an order sanctioning prominent securities litigation plaintiffs’ firm Robbins Geller Rudman & Dowd, LLP for misconduct in connection with its use of a confidential witness to support the securities fraud action it brought against The Boeing Company and several of its officers.1 Judge Ruben Castillo found that Robbins Geller failed to adequately investigate and verify the allegations attributed to their confidential witness — despite several “red flag[s]” that his information was unreliable — and thus violated Federal Rule of Civil Procedure 11(b).
Robbins Geller’s complaint in the action alleged that Boeing misrepresented the results of aircraft tests. In support of those allegations, the complaint cited a confidential witness, later identified as Bishnujee Singh, who was described as a former Boeing employee with knowledge of misrepresentations made to investors by Boeing officials about tests of Boeing’s 787-8 Dreamliner aircraft. Relying on those allegations, the district court denied defendants’ motion to dismiss the second amended complaint.2
However, discovery later revealed that the investigator engaged by Robbins Geller who had interviewed Singh had reported to Robbins Geller that Singh’s information was not reliable. Additionally, Singh had informed Robbins Geller, prior to its filing of its initial complaint in the action, that he no longer wished to cooperate in the case. Despite these “red flags,” no Robbins Geller attorneys interviewed Singh or attempted to verify any of the information he provided to the investigator. Nevertheless, Robbins Geller continued to cite Singh’s purported statements in the pleadings they filed in the case and relied on those statements in their successful effort to defeat defendants’ motion to dismiss.3
Not surprisingly, given the warning signs, it turned out that the information attributed to Singh in the complaint was not accurate. Indeed, in his deposition, Singh denied “virtually everything that the investigator had reported.”4 Singh had never been a Boeing employee, but rather a temporary contractor. Singh denied having any personal knowledge of the tests, and he was neither in a position to obtain the information he was alleged to possess, nor did he put himself in such position.5
Based on Singh’s deposition testimony, defendants moved for reconsideration of the district court’s denial of their motion to dismiss. The district court granted the motion and dismissed the complaint.6 The Seventh Circuit affirmed the district court’s dismissal; and, noting that Robbins Geller was criticized for misleading confidential witness allegations in similar cases, remanded the case to the district court for consideration of sanctions.7
In his opinion granting defendants’ motion for sanctions, Judge Castillo characterized Robbins Geller’s conduct in the case as “troubling,” “reckless and unjustified.” 8
Plaintiffs’ counsel knew that the information Singh provided the investigator was unverified and potentially unreliable and that Singh refused to cooperate further, and yet repeatedly made assurances to the court as to the truth of the allegations. The information turned out to be blatantly false, and if counsel had made any attempt to verify the information, they would have easily discovered this. Instead, they blindly defended the allegations their investigator attributed to Singh and made fundamental misrepresentations to the court.9
Judge Castillo concluded that Robbins Geller’s refusal to interview Singh or verify the information he provided constituted “a failure to conduct a reasonable pre-filing investigation as required by the PSLRA,” and therefore violated Rule 11(b).10 Based on the whole of Robbins Geller’s conduct in the case, and its “history of similar misconduct,” Judge Castillo found that sanctions were appropriate.11
For a discussion on recent securities fraud cases involving false confidential witness allegations, please see “Testing and Attacking Confidential Witness Allegations at an Early Stage,” by John D. Pernick and Ryan D. Nassau, March 20, 2014 available at http://apps.americanbar.org/litigation/committees/securities/articles/winter2014-0314-testing-attacking-confidential-witness-allegations-at-an-early-stage.html
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:Burke-Timothy
1 Memorandum Opinion and Order, City of Livonia Emple. Retirement System v. The Boeing Co. et al., 1:09-cv-07143-JRC, Docket No. 279 (August 21, 2014).
2 City of Livonia Emple. Ret. Sys. v. Boeing Co., No. 09-C-7143, 2011 U.S. Dist. LEXIS 22347, at *5-7, 12-13 (N.D. Ill. Mar. 7, 2011).
3 Memorandum Opinion and Order, City of Livonia Emple. Retirement System v. The Boeing Co. et al., 1:09-cv-07143-JRC, Docket No. 279, pp. 3-5, 12 (August 21, 2014).
4 City of Livonia Emple. Ret. Sys. v. Boeing Co., 711 F.3d 754, 760 (7th Cir. 2013).
5 Id. at 760-61.
6 City of Livonia Emple. Ret. Sys. v. Boeing Co., 2011 U.S. Dist. LEXIS 22347 at *14.
7 City of Livonia Emple. Ret. Sys. v. Boeing Co., 711 F.3d at 762.
8 Memorandum Opinion and Order, City of Livonia Emple. Retirement System v. The Boeing Co. et al., 1:09-cv-07143-JRC, Docket No. 279 at p. 15 (August 21, 2014).
9 Id. at p. 15.
10 Id. at pp. 12, 15.
11 Id. at p. 17
This article was originally published by Bingham McCutchen LLP.