Opinion

Alison Frankel

Robbins Geller faces sanctions in Boeing witness controversy: Posner

By Alison Frankel
March 26, 2013

Robbins Geller Rudman & Dowd has had more than its share of problems with recanting confidential witnesses in securities class actions, but an 18-page ruling Tuesday from the 7th Circuit Court of Appeals is the worst news yet for the plaintiffs’ firm. Judge Richard Posner, writing for a panel that also included Judges William Bauer and Diane Sykes, said the firm had ignored red flag warnings that its lone informant in a securities class action against Boeing was unreliable. No lawyer from the prolific plaintiffs’ firm took the trouble of checking out the informant’s allegations, Posner said, yet the firm didn’t hesitate to repeat his claims in an amended complaint against the aerospace company. The appeals court, not surprisingly, refused to revive the class action claiming Boeing misled investors about its Dreamliner planes, but remanded the case to U.S. District Judge Ruben Castillo to determine whether Robbins Geller should be sanctioned under Rule 11, and, if so, for how much money.

“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,” Posner wrote. “Their failure to inquire further puts one in mind of ostrich tactics – of failing to inquire for fear that the inquiry might reveal stronger evidence of their scienter regarding the authenticity of the confidential source than the flimsy evidence of scienter they were able to marshal against Boeing.”

Ouch. But that wasn’t all. Posner also noted that Robbins Geller has been accused of “similar misconduct” in three other reported cases: Campo v. Sears Holdings, a 2010 ruling in which the 2nd Circuit said that deposition testimony from confidential informants didn’t match up with the plaintiffs’ complaint; Applestein v. Medivation, a 2012 ruling by U.S. District Judge Edward Chen of San Francisco, who held that Robbins Geller confidential informants were not reliable; and Belmont v. Suntrust, a 2012 decision in which U.S. District JudgeWilliam Duffey of Atlanta found the firm’s amended complaint to be “misleading or, at least, unsupported,” after confidential witnesses recanted allegations attributed to them. (Duffey denied a motion for Rule 11 sanctions against Robbins Geller, though he said it was “a close and reluctant call.”)

“Recidivism is relevant in assessing damages,” the 7th Circuit said. Nevertheless, Posner said it was “the preferable course” to leave the ultimate determination of sanctions to the trial court, which is in a better position to calculate a dollar amount.

Posner did not mention yet another controversy over Robbins Geller confidential witnesses, in a securities class action against Lockheed in federal court in Manhattan. As we’ve reported, U.S. Senior District Judge Jed Rakoff held a rare hearing last fall on defense allegations that the plaintiffs’ firm misrepresented informants’ allegations. After a seven-hour session, in which Robbins Geller used phone records to rebut claims that its investigators fabricated conversations with informants, Rakoff eventually refused to dismiss the class action, which subsequently settled for $19.5 million.

I left a phone message for Robbins Geller partner Eric Isaacson, who argued for the firm at the 7th Circuit. I also sent email requests for comment to name partners Darren Robbins and Samuel Rudman. None of them immediately responded.

For more of my posts, please go to Thomson Reuters News & Insight

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