The Fact Pattern Behind The Boeing Class Action Grounding

The Seventh Circuit several years ago questioned its ability to rely on confidential witness allegations in securities class actions governed by the Private Securities Litigation Reform Act. In the often cited Higginbotham v. Baxter Int'l Inc., 495 F.3d 753, 756-57 (7th Cir. 2007), the court said: "It is hard to see how information from anonymous sources could be deemed 'compelling' or how we could take account of plausible opposing inferences. Perhaps these confidential sources have axes to grind. Perhaps they are lying. Perhaps they don't even exist."

In City of Livonia Employees' Retirement Sys. v. The Boeing Company (7th Cir. Mar. 26, 2013), the Seventh Circuit affirmed the dismissal of a securities class action against Boeing in light of baseless confidential witness allegations and remanded for determination of whether plaintiffs' counsel should be sanctioned under Rule 11.