Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 1 of 21 PageID #:3988
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CITY OF LIVONIA EMPLOYEES’ ) No. 1:09-cv-07143 RETIREMENT SYSTEM, et al., Individually ) and on Behalf of All Others Similarly Situated, ) CLASS ACTION ) Plaintiffs, ) Judge Suzanne B. Conlon ) vs. ) ) THE BOEING COMPANY, et al., ) ) Defendants. ) )
PLAINTIFFS’ REPLY MEMORANDUM IN SUPPORT OF MOTION FOR RELIEF FROM THE MARCH 7, 2011 JUDGMENT
620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 2 of 21 PageID #:3989
TABLE OF CONTENTS
Page
I. INTRODUCTION ...... 1
II. ARGUMENT...... 1
A. The March 7 Order Erred by Rejecting the Complaint’s Factual Allegations and Resolving Contested Issues of Fact ...... 1
B. The Record Presents Evidentiary Conflict that Cannot Be Resolved on a Rule 12 Motion ...... 5
C. Neither Plaintiffs’ Counsel, Nor Their Investigators Committed Any “Fraud Upon the Court”...... 10
III. CONCLUSION...... 15
- i - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 3 of 21 PageID #:3990
I. INTRODUCTION
As plaintiffs demonstrated in their opening brief, this Court erred by improperly resolving disputed issues of facts on defendants’ motion to dismiss. Plaintiffs’ Motion and Memorandum for
Relief from the March 7, 2011 Judgment (Dkt. No. 206) (“Pl. Br.”) at 5-7. To the extent the Court examines matters “outside the pleadings” on a Rule 12 motion, “the motion must be treated as one for summary judgment.” Fed. R. Civ. P. 12(d). The Private Securities Litigation Reform Act of
1995 (“PSLRA”) provides no exception to this rule. Defendants’ opposition ignores this, and just about everything else in plaintiffs’ brief. Instead, defendants urge the Court to compound its error by citing inapplicable law, and make a string of uncorroborated factual assertions. Then, contrary to
Fed. R. Civ. P. 11 and the PSLRA, they ask the Court to impose sanctions sua sponte based on allegations that go far beyond anything supported by the record. In reality, plaintiffs pleaded a strong case of securities fraud against defendants and, as documents produced in discovery demonstrate, the SAC’s allegations are well-grounded. Plaintiffs and their counsel have acted in good faith throughout this litigation. The Court should reject defendants’ arguments, vacate its
March 7, 2011 Order, and allow this action to proceed.
II. ARGUMENT
A. The March 7 Order Erred by Rejecting the Complaint’s Factual Allegations and Resolving Contested Issues of Fact
Defendants have nothing to say about the Supreme Court’s holdings that “‘Rule 12(b)(6) does not countenance . . . dismissals based on a judge’s disbelief of a complaint’s factual allegations,” Bell Atlantic Corp. v. Twombly , 550 U.S. 544, 556 (2007) (quoting Neitzke v. Williams ,
490 U.S. 319, 327 (1989)), and that even in securities-fraud cases, a complaint’s factual allegations must be “assumed to be true” to evaluate whether investors “have adequately pleaded scienter.
Whether [they] can ultimately prove their allegations and establish scienter is an altogether different
- 1 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 4 of 21 PageID #:3991
question.” Matrixx Initiatives, Inc. v. Siracusano , __ U.S. __, 131 S. Ct. 1309, 179 L. Ed. 2d 398,
405, 416 ( 2011). If the Court on a motion under Rule 12 considers “matters outside the pleadings,” moreover, “the motion must be treated as one for summary judgment,” and “[a]ll parties must be given a reasonable opportunity to present all the material that is pertinent to the motion.” Fed. R.
Civ. P. 12(d). 1
Rather than deal with the controlling rules and precedents, defendants dodge them by presenting the Second Circuit’s non-precedential summary order in Campo v. Sears Holdings Corp. ,
371 Fed. Appx. 212 (2d Cir. Apr. 6, 2010), as though it were a precedent authorizing this Court to reject the SAC’s factual allegations. Campo is a summary order with no precedential effect – not
even in the Second Circuit. 2 And it is entirely off point, first noting that an objection to consideration of confidential witnesses’ deposition testimony first raised in an appellate reply brief
“is waived,” and then observing that the district court had in any event “made no credibility determinations, nor did it weigh competing testimony,” because nothing was presented to contradict confidential witnesses’ assertions that internal corporate reports did not contain the information at issue. Campo , 371 Fed. Appx. at 216 n.4.
Here, as demonstrated, Singh’s denials that he said he had access to 787 test results and that
he provided the information alleged are directly contradicted by detailed notes and sworn affidavits
of plaintiffs’ professional investigators. Pl. Br. at 4, 9. The clearly non-public information was not
known to plaintiffs’ investigator through any other source than Singh. Dkt. No. 193, Ex. 9 at 7-10.
1 Unless otherwise noted, all emphasis is added and all internal citations are omitted.
2 See Second Circuit Rule 32.1.1(a) (“Rulings by summary order do not have precedential effect.”). Although unpublished federal appellate rulings, such as Campo , may be cited ( see Fed. R. App. P. 32.1), they can carry no more weight than permitted by the issuing court’s own rules. Second Circuit rules accord Campo none. Cf. 7th Cir. Rule 32.1(b) (unpublished Seventh Circuit rulings “are not treated as precedents”).
- 2 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 5 of 21 PageID #:3992
Additional evidence indicates that Singh’s resume, his online bio, and his communications with plaintiffs’ investigators contained consistent references to this job title, and even if paid by Infotech, he in fact worked at Boeing as an engineer testing the 787. Pl. Br. at 9. Further, discovery to date corroborates Singh’s access and knowledge, as the substantive information that Singh provided has proved remarkably accurate. Id. at 9-10. The evidence also shows his motive in backing away from
what he told plaintiffs’ investigators. He had been interviewed by the FBI and was actively seeking
work at Boeing. Id . at 9-13. No such factors were present in Campo .
If the Court considers Singh’s testimony to contradict the SAC, Rule 12(d) requires it also to
consider the conflicting evidence and testimony from plaintiffs’ investigator, as well as evidence
showing that information from Singh about the 787 program’s serious problems was substantially
correct, plus the evidence showing Singh’s motive to change his story. This case presents the kind
of genuine dispute concerning witness credibility and genuine questions of material fact that preclude summary judgment ( see Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248-49 (1986)), let
alone dismissal on a Rule 12(b)(6) motion. 3 And further discovery of documents and depositions from Boeing and Infotech is likely to afford even more evidence showing Singh’s access.
Defendants present the Seventh Circuit’s opinion in Makor Issues & Rights, Ltd. v. Tellabs,
Inc ., 513 F.3d 702, 711 (7th Cir. 2008), as holding that “confidential source allegations must be
‘steeply discounted’” in a case such as this. Defendants’ Memorandum in Opposition to Plaintiffs’
Motion Under Rules 59 and 60 to Overturn the March 7, 2011 Final Judgment (Dkt. No. 213)
(“Defs.’ Opp.”) at 5 n.1. The court in fact stated merely that it had “suggest[ed] in Higginbotham v.
3 See In re Applied Micro Circuits Corp. Sec. Litig. , No. 01-CV-0649 K (AJB), 2002 U.S. Dist. LEXIS 22403, at *31 (S.D. Cal. Oct. 4, 2002) (where “Plaintiff provides a plausible explanation as to why sources are now contradicting themselves” and where, as here, “the change occurred after having been contacted by Defendants’ attorneys,” the conflict “boils down to an issue of credibility to be determined by a trier of fact”).
- 3 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 6 of 21 PageID #:3993
Baxter International, Inc. , supra , 495 F.3d at 756-57, that such allegations must be steeply discounted.” Tellabs , 513 F.3d at 711 (quoting Higginbotham v. Baxter Int’l, Inc. , 495 F.3d 753,
756-57 (7th Cir. 2007)). It then held: “But that was a very different case from this one.” Id. For in
contrast with Higginbotham , the sources in Tellabs were “persons who from the description of their jobs were in a position to know at first hand the facts” attributed to them, and “information that the
confidential informants are reported to have obtained [was] set forth in convincing detail.” Tellabs ,
513 F.3d at 712.
“When an informer provides information which is specific and detailed, it is more probable
that the information came from a reliable source than when the information is general – or as the
Supreme Court put it . . . the type of information which may have been picked up as a rumor in a bar.” United States v. Spach , 518 F.2d 866, 870 (7th Cir. 1975) (citing Spinelli v. United States , 393
U.S. 410, 417 (1969)). Here, Singh provided very detailed, non-public information to plaintiffs’
investigators showing that he was in a position to know the critical facts. Dkt. No. 193, Ex. 9.
Whether he was a Chief Engineer, as his resume, his online bio, and his communications with
investigators all indicated, or an Infotech employee working as an engineer for Boeing and at the
direction of Boeing employees, as defendants have argued, Singh’s detailed statements about problems with the 787 have proved substantially correct, demonstrating that he was “in a position to
know” of what he spoke. Defendants do not affirmatively dispute this in their brief.
Defendants cite Higginbotham ’s concern that on a different record, confidential sources may
“‘have axes to grind. Perhaps they are lying. Perhaps they don’t even exist.’” Defs.’ Opp. at 5 n.1.
But Singh clearly does exist. Though paid by Infotech, he worked at Boeing as an engineer on the
787. And he was in a position to know about the program’s problems, for he was able to communicate them with detailed clarity, now confirmed by discovery. He was not lying to
- 4 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 7 of 21 PageID #:3994
plaintiffs’ investigators when he provided that information. The Court erred by dismissing the case based on Singh’s subsequent recantation when a question of fact exists.
B. The Record Presents Evidentiary Conflict that Cannot Be Resolved on a Rule 12 Motion
At the August 30, 2010 hearing on defendants’ motion to dismiss the SAC, the Court observed that “plaintiffs’ case might rise or fall, depending on what are in these wing stress test files
. . . and the communications. You will know right away whether the confidential source was correct or not.” Aug. 30, 2010 Hearing Transcript at 23:9, 24:23-25:6. Though discovery was cut short by the March 7 Order, the evidence produced and reviewed so far shows that what Singh told plaintiffs’ investigators was fundamentally correct:
When defendants made public statements concealing the evidence also shows
See, e.g., Smith Decl., ¶10
see also Exs.
V, X, attached hereto. Defendants do not attack the accuracy of these allegations.
Defendants say the Court nonetheless properly “ruled that Singh’s testimony that he did not
have access to the 787-8 test files was unrebutted,” and that plaintiffs “offered no evidence
suggesting that ‘Singh had access to Boeing’s internal test files or personal knowledge about
4 See, e.g., Declaration of Trig R. Smith in Support of Plaintiffs’ Motion and Memorandum for Relief from the March 7, 2011 Judgment (Dkt. No. 207) (“Smith Decl.”), ¶¶1, 2, 4-8, 10, 13-14.
5 See, e.g., Smith Decl., ¶¶3, 5, 8, 10-12, 14-15.
6 See, e.g., Smith Decl., ¶¶4, 5, 7-15.
7 SAC, ¶¶73 (May 3), 80 (May 21), 81 (May 27), 82 (May 30), 84 (June 1), 86 (June 4), 87 (June 8), 92-93 (June 15), 94-97 (June 16), 98 (June 17).
- 5 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 8 of 21 PageID #:3995
distribution of test results to defendants.’” Defs.’ Opp. at 3 (quoting March 7 Order at 7). Yet,
Singh’s own resume described him as a Boeing engineer (Pl. Br. at 9-10, , and plaintiffs’ investigators’ notes and sworn declarations show that he had said he had such access. Pl. Br. at 4;
Dkt. No. 193, Ex. 9.
Defendants say the Court properly “concluded that although the SAC alleged that the CS ‘is a former Boeing Senior Structural Analyst Engineer and Chief Engineer’ (SAC, ¶139), there is now no dispute that he never held either of those positions or, indeed, any other position with Boeing.”
Defs.’ Opp. at 3 (citing March 7 Order at 7). Yet, as plaintiffs have noted, Singh’s own writings use those very words to describe him. Pl. Br. at 8-9. And though paid by Infotech, Boeing employees submitted affidavits stating that they personally supervised Singh’s 787 work and that he reported to them, and Singh even had an email address at Boeing ([email protected]). Dkt. No.
142 at 66:22-67:2 (P.M. Session).
By the time defense counsel met with Singh in November and wrote his declaration with him, he had already been interviewed by the FBI in 2010, and defendants’ counsel asked for documents about the interview. Dkt. No. 140 at 16. Singh’s communications with Boeing employees also demonstrate his motive to change his story. He actively sought work at Boeing. Pl.
Br. at 9, 13. On the very day of his deposition, Singh wrote directly to Michael Denton, who he had identified in his meeting with the investigator as the Vice President of Engineering for the 787
Program, and Jim Albaugh, defendant Carson’s replacement at Boeing, noting that he was
“following up” with them, and stating that he deserved “[a]t least” a “THANK YOU!” for “trying my best to help in all possible ways to Boeing group in this disposition [sic] case by denying
- 6 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 9 of 21 PageID #:3996
knowledge of the facts.” Pl. Br. at 4; Dkt. No. 173, Ex. 1. Eight days later, Singh filed another
application for work at Boeing.8
Evidence produced by defendants after their December 10, 2010 motion further reinforces the SAC’s factual allegations, but defendants just ignore it. On for example,
See ¶¶87-88, 95-97, 99.
Defendants address none of this. According to defendants, the one document they do mention shows that
In reality, the document shows
8 Dkt. No. 193, Ex. 2. This was after Singh had testified at his deposition that he was not applying for work at Boeing. Dkt. No. 142 at 131:20-132:1 (P.M. Session).
- 7 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 10 of 21 PageID #:3997
Timely completion of the 787’s full three- to five-and-a-half hour First
Flight was very important to Boeing, its customers, and investors, because it signaled a timely delivery date. ¶¶42, 71, 106-107.
These and other documents show the details Singh conveyed to plaintiffs’ investigator were correct: defendants knew they had a serious problem, one likely to cause months of delay, and that presented serious risks to the Boeing 787 First Flight and delivery schedule. Even if defendants
“thought that there was a chance that the situation regarding [the 787] would right itself,” they were not entitled to “gamble” under the securities laws, and make rosy statements. Tellabs, 513 F.3d at
710. Defendants gambled. On June 16, 2009, at the Paris Air Show, Shanahan told the public: “A
flight-readiness review will be conducted on June 20, followed by a ‘final gauntlet’ trial of the power system, flight controls and avionics and a high-speed taxi test where the wheels may briefly lift off the runway. ‘Then we’ll go flying.’” ¶96. Shanahan did not mention the multiple wing test failures, the fact that he knew the most recent test had resulted in “new damage and slight growth to some previous damage locations,” or anything else that he knew about the wing problem. A week after
Shanahan’s June 16, 2009 statement, defendants admitted to the May 2009 test failure and other risks they knew, but did not disclose.
- 8 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 11 of 21 PageID #:3998
Defendants say that “[o]f the 13 million pages of documents that Boeing produced, plaintiffs refer to fewer than two dozen,” and also object that any “documents . . . produced before the Court entered final judgment on March 7 . . . do not qualify as newly discovered evidence.” Defs.’ Opp. at
8 & n.6. But discovery was not closed, and it takes time to go through many millions of pages of documents. Further, plaintiffs filed their response (Dkt. No. 193) to defendants’ motion for reconsideration on January 18, 2011, incorporating more than a dozen exhibits from previous filings.
And, the new evidence comes from the over three million pages delivered by defendants – on
January 18, February 15 (over 2.7 million pages), and March 1, 2011. Plaintiffs’ counsel had only begun their review when the Court issued its March 7 Order and previously had been instructed against the “piecemeal” filing of new evidence. See Dkt. No. 191. The current motion is based on
newly discovered evidence.
If the Court considered Singh’s deposition and declaration, Rule 12(d) mandated that plaintiffs “be given a reasonable opportunity to present all the material that is pertinent to the motion.” Plaintiffs would be pleased to submit further evidence as it comes to light. For example,
The attached appendix contains these additional documents and others newly discovered from the recent productions
- 9 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 12 of 21 PageID #:3999
If Rule 12(d) is followed, there will be more.
C. Neither Plaintiffs’ Counsel, Nor Their Investigators Committed Any “Fraud Upon the Court”
The record establishes no bad faith or fraud by plaintiffs, their counsel, or their investigators.
The record shows that Singh described his position as a Boeing engineer in his resume, in his online bio, and in conversations with plaintiffs’ investigators. Pl. Br. at 8-9. But defendants just ignore this. No evidence shows that plaintiffs’ investigators, or plaintiffs’ counsel, misreported or altered the detailed information Singh provided, and there is no warrant at all for punishing aggrieved investors by dismissing their claims in a case of clear-cut securities fraud.10
Defendants say the case was properly dismissed “because of counsel’s misrepresentations” amounting to “‘unmitigated fraud upon the court,’” as shown by Singh’s testimony from discovery supposedly demonstrating “there is no dispute . . . that Singh was never in a position to know the key facts.” Id. at 7 (quoting Aoude v. Mobil Oil Corp., 892 F.2d 1115, 1119 (1st Cir. 1989)). As discussed above, defendants are wrong. The Court dismissed this action under Fed. R. Civ. P.
12(b)(6).
10 Defendants say dismissal is an appropriate sanction against plaintiffs’ counsel. Defs.’ Opp. at 7. Yet, the case they cite says such sanctions are only “appropriate where the offender has willfully abused the judicial process or otherwise conducted litigation in bad faith.” Salmeron v. Enter. Recovery Sys., 579 F.3d 787, 793-94 (7th Cir. 2009) (noting that attorney at issue had “admitted” that he had violated an agreement in the litigation “three times”) (emphasis in original). This Court has made no finding that plaintiffs’ counsel in this action acted in bad faith.
- 10 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 13 of 21 PageID #:4000
Indeed, Singh’s job titles and responsibilities were listed consistently among all publicly available documents about him. Pl. Br. at 4, 8-10. And the record shows that Singh worked at
Boeing as an engineer who was in a position to know the critical facts alleged. Id . at 8-9. The evidence that Singh was in “a position to know the key facts” comes from the declarations and contemporaneous notes of plaintiffs’ investigators, and the detailed, non-public facts he provided to them. Id . Plaintiffs alleged these facts and they have been corroborated by information produced by defendants. Id . at 9, 13. Defendants, again, just ignore this evidence.
Citing the PSLRA’s provision that “upon final adjudication of the action,” a “court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion,” 15 U.S.C. §78u-4(c)(1), defendants urge this Court not only to dismiss the case as a punishment for supposed “fraud upon the Court,” but also to award attorneys’ fees as a further sanction. They fail to note that the statute says the
Court may impose sanctions only “in accordance with Rule 11,” which requires that any “motion seeking sanctions must be made separately from any other motion,” while also permitting the district court sua sponte to “order an attorney, law firm, or party to show cause why conduct specifically
described in the order has not violated Rule 11(b).” Fed. R. Civ. P. 11(c)(2), 11(c)(3). “Prior to
making a finding that any party or attorney has violated Rule 11,” the PSLRA itself states, “the court
shall give such party or attorney notice and an opportunity to respond.” 15 U.S.C. §78u-4(c)(2).
Though there has never been a noticed hearing on the adequacy of counsel’s investigation,
defendants say dismissal and other sanctions are appropriate. Yet, defendants identify not a single
document or source available to counsel or their investigators at the time of filing the SAC that
contradicted any of the SAC’s allegations. Nor do they counter plaintiffs’ authorities showing that
- 11 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 14 of 21 PageID #:4001
reliance on investigators is perfectly reasonable, both in criminal cases and in civil cases. See Pl. Br.
at 10-11. Defendants have nothing but their own self-created standard for saying plaintiffs’
investigator omitted steps “typically” taken to corroborate a confidential informant. Defs.’ Opp.
at 11. Their list, which lacks citation to any authority, of supposedly “typical” steps that they would
have this Court make mandatory, imposes unwarranted burdens on plaintiffs seeking to file a civil
lawsuit. Defendants suggest plaintiffs cannot rely on their investigator and her notes if the
investigator did not also record the interview – yet prosecutors may bring criminal charges, and juries may convict beyond a reasonable doubt, based upon an unrecorded interview. 11 And the precedents show that official FBI policy is not to record interviews. 12 Defendants also seem to think reliance on an investigator is sanctionable unless a second corroborating investigator witnessed the interview. Yet the precedents hold that “a single witness can suffice to prove guilt beyond a reasonable doubt.” 13
11 United States v. Sorich , 523 F.3d 702, 717 (7th Cir. 2008) (“Sullivan argues that Hauser’s questions were fundamentally ambiguous and untrustworthy, given his reliance on his notes rather than a transcript or recording of the interview. But there is no requirement that a conversation be transcribed or recorded in order to support a conviction under §1001 [(Fraud and False Statements)].”); see also United States v. Biggs , 491 F.3d 616, 618, 621 (7th Cir. 2007) (affirming denial of motion to suppress where search was based upon tip from “an anonymous source,” and rejecting contentions that officer’s testimony should be rejected “because there were no video or audio recordings of the events . . . and because the purported drug buyers and confidential informant remained unidentified and unavailable to testify”).
12 See, e.g. , United States v. Bernal-Benitez , 594 F.3d 1303, 1314 (11th Cir. 2010) (FBI “agents, following FBI policy, did not record the statements”); United States v. Tykarsky , 446 F.3d 458, 476 n.12 (3d Cir. 2006) (“Special Agent DeFazio testified that ‘[t]he bureau policy is we do not record interviews’ and that the FBI never records interviews.”); United States v. Brown , 347 F. Supp. 2d 920, 922 (D. Or. 2004) (noting “FBI policy not to record interviews”).
13 Kines v. Godinez , 7 F.3d 674, 678 (7th Cir. 1993) (holding that testimony of 11 year old was sufficient to support murder conviction despite witness’s prior inconsistent statements because “a single witness can suffice to prove guilt beyond a reasonable doubt” and noting testimony was detailed); accord, e.g. , Hayes v. Battaglia , 403 F.3d 935, 938 (7th Cir. 2005) (“it is black letter law that testimony of a single eyewitness suffices for conviction even if 20 bishops testify that the eyewitness is a liar”); United States ex. rel. Stephenson v. Gaetz , No. 09 C 1953, 2009 U.S. Dist. LEXIS 96925, at *13-*14 (N. D. Ill. Oct. 16, 2009) (“testimony of a single eyewitness is sufficient to convict”).
- 12 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 15 of 21 PageID #:4002
Even defendants’ authorities support plaintiffs’ position. G-I Holdings, Inc. v. Baron &
Budd, No. 01 CIV. 0216 RWS, 2002 WL 1934004, at *14 (S.D.N.Y. Aug. 21, 2002), for example, held that parties could rely on a single source in filing a lawsuit, denying Rule 11 sanctions because
“the issue of whether [plaintiff] adequately investigated does not turn on whether a particular stone left unturned would have disproved their theory unless they intentionally avoided finding unfavorable information.” Here, defendants identify no unturned stones that they can contend would have disproven the SAC’s allegations, let alone any that plaintiffs intentionally avoided.
Instead, they take a single statement from the investigator’s report out of context. The investigator stated that she had “done research on the official titles” of the individuals Singh identified, but “found a dearth of information” about them. Dkt. No. 193, Ex. 9 at Ex. A. She therefore could not independently corroborate the “reporting hierarchy” Singh had provided, flagging the “reporting hierarchy” as in this sense “unreliable.” Id. She found no information contrary to what Singh told her and, indeed, found no other information conveyed in her four-page single-spaced email to be at all questionable. Id. Ultimately, Singh was correct with regard to much of this information.
The four-page, single-spaced email summarizes the in-person interview conducted at Singh’s home, where he provided a broad range of information to the investigator, much of which, has been confirmed by documents provided by defendants.
- 13 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 16 of 21 PageID #:4003
Defendants cite Security Farms v. Int’l Bhd. of Teamsters , 124 F.3d 999 (9th Cir. 1997),
which affirmed sanctions of $700 in costs and $4,000 in fees, rejecting a request for sanctions of
$730,000 in attorneys’ fees. Yet, the sanctioned counsel apparently employed an investigator
without looking into his background and qualifications and, though their “investigator” was not
fluently bilingual, had him purportedly “translate” and transcribe declarations of Spanish-speaking
farmworkers (three of them “imposters”), which they submitted on a summary judgment motion,
while ignoring many blatant inconsistencies between these declarations and the declarants’ prior
declarations. Id . at 1017 & nn.23-24. Even on those facts, a dissenting judge would have reversed the sanctions because a “lawyer should not have to investigate independent investigators he hires and witnesses whose plausible affidavits he files, or else be in jeopardy of Rule 11 sanctions if opposing counsel attacks them.” Id. at 1017.
Here, plaintiffs’ counsel relied on qualified professionals, with whose qualifications and
work they were intimately familiar, and in whom they were entitled to place great trust. The
information was gained through three interviews with the source, one of which was conducted at his
home, lasted more than an hour, and resulted in a four-page single-spaced report full of non-public
information. Sanctioning counsel for reliance on investigators to frame a civil complaint would be
chilling. Cooperation by former employees, who may legitimately fear adverse employment
consequences (as Singh apparently did in recanting), can easily be deterred if investigators are
required to show up with a video-recorder, multiple interviewers, perhaps including a lawyer, and
then to demand signed statements from individuals who may hope to cooperate as anonymous
whistleblowers. Courts have soundly rejected demands that such informants, who may fear
- 14 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 17 of 21 PageID #:4004
reprisals, be publicly named in complaints, or even in discovery. 14 As the Supreme Court has noted, private securities enforcement is critical to enforcement of securities laws, providing “‘a “necessary supplement to Commission action.”’” 15 This Court explicitly stated that it dismissed this action pursuant to Fed. R. Civ. P. 12(b)(6), and although invited to by defendants, did not dismiss it as a sanction, or make findings consistent with such a dismissal. Such a dismissal is not appropriate now. Nor are any other sanctions.
III. CONCLUSION
The March 7 Order should be vacated, and the case should proceed.
DATED: April 28, 2011 Respectfully submitted,
PLAINTIFF
By: s/ MICHAEL J. DOWD MICHAEL J. DOWD
14 See, e.g. , In re Cabletron Sys. , 311 F.3d 11, 30 (1st Cir. 2002) (“A blanket ban on unnamed sources presents obvious policy problems. Employees or others in possession of important information about corporate malfeasance may be discouraged from stepping forward if they must be identified at the earliest stage of a lawsuit.”); Novak v. Kasaks , 216 F.3d 300, 314 (2d Cir. 2000) (holding complaint need not name confidential sources in complaint as it “could deter informants from providing critical information to investigators in meritorious cases or invite retaliation against them”); Mgmt. Info. Techs. v. Alyeska Pipeline Serv. Co. , 151 F.R.D. 478, 481 (D.D.C. 1993) (protecting from discovery the identities of confidential witnesses and citing a six-year “study of sixty-four whistleblowers show[ing that a] significant percentage ‘remain out of work or underemployed, bitter about their punishment, and uncertain of ever being able to restore their lives fully’”).
15 Randall v. Loftsgaarden , 478 U.S. 647, 664 (1986) (quoting Bateman Eichler, Hill Richards, Inc. v. Berner , 472 U.S. 299, 310 (1985) (quoting J.I. Case v. Borak , 377 U.S. 426, 432 (1964))).
- 15 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 18 of 21 PageID #:4005
MICHAEL J. DOWD THOMAS E. EGLER JOHN J. RICE TRIG R. SMITH JAMES E. BARZ SHANNON M. MATERA MAUREEN E. MUELLER ROBBINS GELLER RUDMAN & DOWD LLP 655 West Broadway, Suite 1900 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax)
RANDI D. BANDMAN ROBBINS GELLER RUDMAN & DOWD LLP 52 Duane Street, 7th Floor New York, NY 10007 Telephone: 212/693-1058 212/693-7423 (fax)
Lead Counsel for Plaintiffs
MARVIN A. MILLER MILLER LAW LLC 115 S. LaSalle Street, Suite 2910 Chicago, IL 60603 Telephone: 312/332-3400 312/676-2676 (fax)
Liaison Counsel
DEBORAH R. GROSS ROBERT P. FRUTKIN LAW OFFICES OF BERNARD M. GROSS, P.C. Wanamaker Bldg., Suite 450 100 Penn Square East Philadelphia, PA 19107 Telephone: 215/561-3600 215/561-3000 (fax)
- 16 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 19 of 21 PageID #:4006
MICHAEL J. VANOVERBEKE THOMAS C. MICHAUD VANOVERBEKE MICHAUD & TIMMONY, P.C. 79 Alfred Street Detroit, MI 48201 Telephone: 313/578-1200 313/578-1201 (fax)
Additional Counsel for Plaintiff
- 17 - 620906_2 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 20 of 21 PageID #:4007
CERTIFICATE OF SERVICE
I hereby certify that on April 28, 2011, I authorized the electronic filing of the foregoing with
the Clerk of the Court using the CM/ECF system which will send notification of such filing to the
e-mail addresses denoted on the attached Electronic Mail Notice List, and I hereby certify that I
caused to be mailed the foregoing document or paper via the United States Postal Service to the non-
CM/ECF participants indicated on the attached Manual Notice List.
I certify under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct. Executed on April 28, 2011.
s/ MICHAEL J. DOWD MICHAEL J. DOWD
ROBBINS GELLER RUDMAN & DOWD LLP 655 West Broadway, Suite 1900 San Diego, CA 92101-3301 Telephone: 619/231-1058 619/231-7423 (fax)
E-mail: [email protected]
620906_2 CM/ECF LIVE, Ver 4.2 - U.S. District Court, Northern Illinois - Page 1 of 1 Case: 1:09-cv-07143 Document #: 220 Filed: 04/28/11 Page 21 of 21 PageID #:4008
Mailing Information for a Case 1:09 -cv -07143
Electronic Mail Notice List
The following are those who are currently on the list to receive e-mail notices for this case.
Randi D Bandman [email protected]
James E Barz [email protected]
Eric D. Brandfonbrener [email protected],[email protected],[email protected],[email protected]
H. Rodgin Cohen [email protected]
Patrick M. Collins [email protected],[email protected],[email protected]
Michael J. Dowd [email protected],[email protected],[email protected]
Thomas E Egler [email protected],[email protected],[email protected]
Lori Ann Fanning [email protected],[email protected],[email protected]
Deborah R. Gross [email protected]
Shannon Mckenna Matera [email protected],[email protected]
Marvin Alan Miller [email protected],[email protected],[email protected],[email protected]
Maureen E. Mueller [email protected],[email protected]
Pravin B. Rao [email protected],[email protected],[email protected],[email protected],[email protected],[email protected]
John J. Rice [email protected],[email protected]
Trig Randall Smith [email protected]
Benjamin R. Walker [email protected],[email protected],[email protected],[email protected]
Stephanie G. Wheeler [email protected],[email protected]
Alexander J. Willscher [email protected],[email protected]
Manual Notice List
The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You may wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these recipients.
Steve Y. Koh Perkins Coie, LLP 1201 Third Avenue #4800 Seatte, WA 98101
David B Tulchin Sullivan and Cromwell 125 Broad Street New York, NY 10004
https://ecf.ilnd.uscourts.gov/cgi -bin/MailList.pl?265351469774589 -L_555_0 -1 4/27/2011