City Of Livonia Employees' Retirement System v. The Boeing Company

711 F.3d 754 (7th Cir. 2013)

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Nature of the Case

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Facts

The suit is on behalf of all persons who bought common stock of D between May 4 and June 22, 2009. On April 21 D performed a stress test on the wings of its new 787-8 Dreamliner. The wings failed the test; metal strips called 'stringers,' designed to shift weight from the wings to the fuselage failed to do so adequately. Yet D announced that 'the initial results are positive' (though it also said that the data obtained in the test had not yet been fully analyzed). The plane was on track for its 'First Flight,' which had been scheduled for June 30. After making some changes in the design of the stringers, the plane failed a second test. McNerney stated publicly that he thought the plane would fly in June. Defendant Carson told Bloomberg that the Dreamliner 'definitely will fly' this month (June). On June 23, D announced that the First Flight of the Dreamliner had been canceled because, Carson explained, of an 'anomaly' revealed by the stringer tests. The First Flight did not take place until December 2009. D also announced that the cancellation of the first flight would cause a delay of unspecified length in the delivery of the Dreamliner, which many airlines had already ordered. D's stock price dropped by more than 10 percent. Ps sued Ds. The district judge dismissed the first amended complaint, the one we've just summarized, for failure to create a strong inference that the defendants had acted with scienter. That complaint did not indicate whether McNerney, Carson, or anyone else who had made optimistic public statements about the timing of the First Flight knew that their optimism was unfounded. Ps filed a second amended complaint that gave particulars about a confidential source, an engineer later revealed to be Bishnujee Singh. The complaint described him as a 'Boeing Senior Structural Analyst Engineer and Chief Engineer' who had worked on wing-stress tests of the Dreamliner and who as part of his job had 'had direct access to, as well as first-hand knowledge of the contents of, Boeing's 787 stress test files that memorialize the results of the failed 787 wing' tests of April and May 2009. The files included 'internal, contemporaneous communications regarding the specific results of the' tests and the engineers' analysis of the results, plus 'copies of internal electronic communications to defendants McNerney and Carson . . . informing [them] that' the tests had failed and that the failure might result in a delay of the Dreamliner's First Flight. These allegations, which were based on interview notes by an investigator (Elizabeth Stewart) retained by Ps' lawyers. The district judge denied Ds' Rule 12(b)(6) motion to dismiss the second amended complaint. Singh never saw the complaint and D soon revealed that the complaint's allegations concerning him could not be substantiated. Some clearly were false: He had never been employed by the company. He had been employed by a contractor for D. And although the contractor had been involved in wing tests for the Dreamliner, Singh's role in or knowledge of those tests, or of any communications to the individual defendants, was and is unknown, but it is highly improbable that he either was involved in the tests or was privy to internal communications with top officials of the company. Singh denied virtually everything that the investigator had reported. He denied that he had been doing work for D when the tests were conducted. He denied that he had ever worked on the Dreamliner 787-8, the model in question; he had worked on the 787-9, a later model. He denied having knowledge of or access to internal Boeing communications regarding the tests on the 787-8. Karim Mustafa, the lead engineer for the team working on the 787-9 of which Sing was a member, declared under oath that D had restricted access to the Dreamliner test results to those with a job-related need for the information, which Singh did not have with respect to the 787-8 because he wasn't working on that model. Ds asked the judge to reconsider her denial of their motion to dismiss the second amended complaint. She dismissed the complaint with prejudice and denied sanctions. Both parties appealed.