Court Opinion

ID: 856220
Source: CourtListenerOpinion
Date Created: 2013-03-26 14:43:43.585557+00
Date Added: 2024-06-11T15:38:59.740577
License: Public Domain

In the

United States Court of Appeals
               For the Seventh Circuit

Nos. 12-1899, 12-2009

C ITY OF L IVONIA E MPLOYEES’ R ETIREMENT
    S YSTEM and L OCAL 295/L OCAL 851,
    IBT E MPLOYER G ROUP W ELFARE F UND,
    individually and on behalf
    of all others similarly situated,
                                      Plaintiffs-Appellants/
                                           Cross-Appellees,
                               v.

T HE B OEING C OMPANY,
    W. JAMES M C N ERNEY, JR., and
    S COTT E. C ARSON,
                                            Defendants-Appellees/
                                                Cross-Appellants.

            Appeals from the United States District Court
        for the Northern District of Illinois, Eastern Division.
     No. 09 C 7143—Suzanne B. Conlon, Ruben Castillo, Judges.

    A RGUED F EBRUARY 25, 2013—D ECIDED M ARCH 26, 2013
2                                      Nos. 12-1899, 12-2009

    Before B AUER, P OSNER, and SYKES, Circuit Judges.
   P OSNER, Circuit Judge. These appeals present ques-
tions—substantive, procedural, and also relating to sanc-
tions for attorney misconduct—arising from the plain-
tiffs’ claim that the Boeing Company, along with its
chief executive officer (McNerney) and the head
of its commercial aircraft division (Carson), commit-
ted securities fraud in violation of section 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and
SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. The suit, filed as a
class action, does not specify a damages figure, but at
argument the plaintiffs’ lawyer indicated that the class
was seeking hundreds of millions of dollars in damages.
The district court (Judge Conlon—who later recused
herself and was replaced by Judge Castillo, but as she
made all the rulings at issue in the appeal we’ll pretend
she was the only judge) dismissed the suit under
Rule 12(b)(6) before deciding whether to certify a class.
The plaintiffs’ appeal challenges the dismissal while
the defendants’ cross-appeal challenges the failure of
the district court to impose sanctions on the plain-
tiffs’ lawyers for violating Fed. R. Civ. P. 11.
  Section 10(b) of the Securities Exchange Act forbids
any person “to use or employ, in connection with the
purchase or sale of any security[,] . . . any manipulative
or deceptive device or contrivance in contravention of
such rules and regulations as the Commission may pre-
scribe as necessary or appropriate . . . or for the protection
of investors.” 15 U.S.C. § 78j(b). And Rule 10b-5 of the
Securities and Exchange Commission, one of the rules
Nos. 12-1899, 12-2009                                        3

authorized by the statute, forbids a person “to make any
untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements
made, in the light of the circumstances under which they
were made, not misleading.” 17 C.F.R. § 240.10b-5(b). The
Supreme Court has interpreted Rule 10b-5 to require
proof of the defendant’s “scienter,” Matrixx Initiatives,
Inc. v. Siracusano, 131 S. Ct. 1309, 1323 (2011); Ernst & Ernst
v. Hochfelder, 425 U.S. 185, 194 (1976)—that is, that he
either knew the statement was false or was reckless in
disregarding a substantial risk of its being false. See also
Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 704
(7th Cir. 2008); Higginbotham v. Baxter Int’l, Inc., 495
F.3d 753, 756 (7th Cir. 2007); Capital Management Select
Fund, Ltd. v. Bennett, 680 F.3d 214, 225 (2d Cir. 2012).
“Recklessness” in this context has been defined in a
number of cases as “an extreme departure from the
standards of ordinary care . . . to the extent that the
danger was either known to the defendant or so
obvious that the defendant must have been aware of it.”
E.g., Makor Issues & Rights, Ltd. v. Tellabs Inc., supra, 513
F.3d at 704; Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d
1033, 1045 (7th Cir. 1977); In re VeriFone Holdings, Inc.
Securities Litigation, 704 F.3d 694, 702 (9th Cir. 2012);
FindWhat Investor Group v. FindWhat.com, 658 F.3d 1282,
1299-1300 (11th Cir. 2011); In re Scholastic Corp. Securities
Litigation, 252 F.3d 63, 76 (2d Cir. 2001); cf. Ernst & Ernst
v. Hochfelder, supra, 425 U.S. at 193 n. 12.
  The Private Securities Litigation Reform Act of 1995,
Pub. L. No. 104-67, 109 Stat. 737, altered the landscape
of federal securities fraud litigation in four respects
4                                       Nos. 12-1899, 12-2009

that bear on our case. First, it requires a plaintiff who is
complaining about “forward-looking” statements—
predictions or speculations about the future—to prove
“actual knowledge” of falsity on the part of defendants,
not merely reckless indifference to the danger that a
statement is false. 15 U.S.C. § 78u-5(c)(1)(B); see Slayton
v. American Express Co., 604 F.3d 758, 773 (2d Cir. 2010);
Lormand v. US Unwired, Inc., 565 F.3d 228, 243-44 (5th
Cir. 2009); Helwig v. Vencor, Inc., 251 F.3d 540, 554-55
(6th Cir. 2001) (en banc).
  Second, the complaint must “state with particularity
facts giving rise to a strong inference that the defendant
acted with the required state of mind,” 15 U.S.C. § 78u-
4(b)(2)(A) (emphasis added), rather than a mere infer-
ence. But except with regard to “forward-looking” state-
ments, the Act does not specify “the required state
of mind,” so it remains scienter. Makor Issues & Rights, Ltd.
v. Tellabs, Inc., 437 F.3d 588, 600-01 (7th Cir. 2006), vacated
and remanded on other grounds, 551 U.S. 308 (2007); see
also Makor Issues & Rights, Ltd. v. Tellabs, Inc., supra, 513
F.3d at 705; Nathenson v. Zonagen Inc., 267 F.3d 400, 407-09
(5th Cir. 2001); Helwig v. Vencor, Inc., supra, 251 F.3d at 550-
51.
  The Supreme Court has glossed “strong inference”
to mean that “a reasonable person would deem the infer-
ence of scienter cogent and at least as compelling as any
opposing inference one could draw from the facts al-
leged.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S.
308, 324 (2007). The plaintiff therefore “must plead facts
rendering an inference of scienter at least as likely as any
Nos. 12-1899, 12-2009                                   5

plausible opposing inference.” Id. at 328 (emphasis in
original).
  Third, the heavy burden of pleading that the Act places
on plaintiffs induces their lawyers to seek out con-
fidential sources of information about the defendant
in advance of filing a complaint—a problematic endeavor,
as well illustrated by this case.
   And fourth, the Act requires the district judge, even
if neither side files a Rule 11 motion, to determine each
party’s compliance with the rule and to impose
sanctions if at the end of the case he finds that the rule
has been violated. 15 U.S.C. §§ 78u-4(c)(1), (2).
   The suit is on behalf of all persons who bought
common stock of Boeing between May 4 and June 22,
2009. The key allegations of the first amended complaint
(amended early in the pretrial proceedings) were as
follows. On April 21 of that year Boeing performed a
stress test on the wings of its new 787-8 Dreamliner, a
plane that had not yet flown. The wings failed the test;
metal strips called “stringers,” designed to shift weight
from the wings to the fuselage, failed to do so ade-
quately. Yet Boeing announced on May 3 that “all struc-
tural tests required on the static airframe prior to first
flight are complete” and that “the initial results [of the
test] are positive” (though it also said that the data ob-
tained in the test had not yet been fully analyzed). The
implication was that the plane was on track for its “First
Flight,” which had been scheduled for June 30. “First
Flight,” which denotes the first time a new model of an
airplane flies, is an important milestone in the develop-
6                                    Nos. 12-1899, 12-2009

ment of a new model, though not the final mile-
stone—thousands of hours of additional flight testing
are necessary before the plane can begin commercial
operation. See, e.g., Federal Aviation Administration,
“FAA Approves Production of Boeing 787 Dreamliner,”
Aug. 26, 2011, www.faa.gov/news/press_releases/ news_
story.cfm?newsId=13064 (the websites cited in this
opinion were visited on Feb. 27, 2013).
  In mid-May, after making some changes in the design
of the stringers, Boeing conducted another test. Although
the plane failed that test too, defendant McNerney
stated publicly that he thought the plane would fly in
June. Later defendant Carson told Bloomberg that the
Dreamliner “definitely will fly” this month (June). Susanna
Ray & Rishaad Salamat, “Boeing Says Delayed 787
Is Capable of Flying Today,” Bloomberg, June 16, 2009,
www.bloomberg.com/apps/news?pid=newsarchive&sid=
a14yY7nEglDY.
  The biennial Paris Air Show began in the middle of
June. Of course the Dreamliner did not fly in the show; it
had never been expected to. But at the show Boeing
executives made presentations concerning the Dream-
liner and its development schedule. Yet on June 23,
four days after the show ended, Boeing announced
that the First Flight of the Dreamliner had been
canceled because, Carson explained, of an “anomaly”
revealed by the stringer tests. He said that Boeing
had hoped to be able to solve the problem in time for
a First Flight in June, but had been unable to do so.
In fact the First Flight did not take place until
December 2009.
Nos. 12-1899, 12-2009                                        7

  When Boeing announced the cancellation of the First
Flight, it also announced that the cancellation would
cause a delay of unspecified length in the delivery of the
Dreamliner, which many airlines had already ordered.
In the two days after these announcements, Boeing’s
stock price dropped by more than 10 percent. The
plaintiff class consists of persons who bought Boeing
stock between the tests and the announcements of the
cancellation and of the delay in delivery and who there-
fore lost money when the price dropped.
  The district judge dismissed the first amended com-
plaint, the one we’ve just summarized, for failure to
create a strong inference that the defendants had
acted with scienter. The 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 un-
founded. The complaint was not inconsistent with the
defendants’ having had a realistic hope that the defects
in the stringers revealed by the tests could be eliminated
quickly, without requiring postponement of the flight.
Time may have been needed to digest the information
produced by the tests and conclude from it that the
First Flight would have to be delayed.
  “There is no securities fraud by hindsight.” Fulton County
Employees Retirement System v. MGIC Investment Corp.,
675 F.3d 1047, 1050-51 (7th Cir. 2012); In re Ceridian
Corp. Securities Litigation, 542 F.3d 240, 248 (8th Cir. 2008);
Denny v. Barber, 576 F.2d 465, 470 (2d Cir. 1978)
(Friendly, J.). The law does not require public disclosure
8                                   Nos. 12-1899, 12-2009

of mere risks of failure. No prediction—even a prediction
that the sun will rise tomorrow—has a 100 percent proba-
bility of being correct. The future is shrouded in uncer-
tainty. If a mistaken prediction is deemed a fraud, there
will be few predictions, including ones that are well
grounded, as no one wants to be held hostage to
an unknown future.
  Any sophisticated purchaser of a product that is still
on the drawing boards knows, moreover, that its market
debut may be delayed, or indeed that the project may
be abandoned before it yields salable product. The pur-
chasers of the Dreamliner protected themselves against
the possibility of delay in delivery by reserving the
right to cancel their orders; there are no allegations re-
garding cancellation penalties, or for that matter
penalties imposed on Boeing for delivery delays. And
therefore had the defendants known before the Paris Air
Show that the First Flight would have to be postponed,
they would have had, so far as appears, little incentive
to delay the announcement of the postponement
until the show closed. True, the Paris Air Show is the
industry’s biggest trade show and attracts heavy media
coverage. But it was not the deadline for airline
companies to cancel their orders for the Dreamliner. A
delay of five weeks (from May 17, the date of the
second test, to June 23, the announcement of the
indefinite postponement of the First Flight) would not
affect cancellations. All it would do—if the defendants
knew on May 17 that the First Flight would be delayed
indefinitely (and this became known)—would undermine
Nos. 12-1899, 12-2009                                        9

Boeing’s credibility with its customers and expose the
company to a multi-hundred million dollar lawsuit for
securities fraud. The buyer of a $200 million dollar
airplane (Boeing, “Commercial Airplanes: Jet Prices: 787
Family,” 2012, www.boeing.com/commercial/prices/
index.html) will not overlook bad news about the plane
merely because the news emerged a few days after the
industry trade show rather than before or during it.
  Without a motive to commit securities fraud, business-
men are unlikely to commit it. Slayton v. American
Express Co., supra, 604 F.3d at 776-77; R2 Investments LDC
v. Phillips, 401 F.3d 638, 644-45 (5th Cir. 2005). A
more plausible inference than that of fraud is that the
defendants, unsure whether they could fix the problem
by the end of June, were reluctant to tell the world “we
have a problem and maybe it will cause us to delay
the First Flight and maybe not, but we’re working on
the problem and we hope we can fix it in time to
prevent any significant delay, but we can’t be sure, so
stay tuned.” There is a difference, famously emphasized
by Kant, between a duty of truthfulness and a duty
of candor, or between a lie and reticence. There is no
duty of total corporate transparency—no rule that every
hitch or glitch, every pratfall, in a company’s operations
must be disclosed in “real time,” forming a running
commentary, a baring of the corporate innards, day
and night.
  Of course the fact that a prediction may prove untrue
does not justify representing as true a prediction that one
knows, to a reasonable certainty, is false. See, e.g., Consoli-
10                                    Nos. 12-1899, 12-2009

dation Services, Inc. v. Keybank National Ass’n, 185 F.3d
817, 823 (7th Cir. 1999); Restatement (Second) of Torts
§ 530 (1977). But unless the complaint created a strong
inference that McNerney and Carson, who made the
allegedly false statements about the timing of the First
Flight, knew they were false, there would be no fraud
to impute either to them or to Boeing. No other
employee of Boeing is accused of having made such
statements within the scope of his employment, thereby
triggering corporate liability in accordance with the
doctrine of respondeat superior. Makor Issues & Rights,
Ltd. v. Tellabs Inc., supra, 513 F.3d at 708; Institutional
Investors Group v. Avaya, Inc., 564 F.3d 242, 251-52 (3d Cir.
2009); Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1354
(11th Cir. 2008).
  All that the first amended complaint alleged regarding
what McNerney and Carson knew about the likely post-
ponement of the First Flight was that their knowledge
was confirmed by “internal e-mails” of Boeing. The
reference to internal e-mails implied that someone
inside Boeing was aiding the plaintiffs. But as no such
person was identified, the judge could not determine
whether such emails—without which no “strong inference”
that the defendants had committed fraud was even re-
motely possible—existed.
  Allegations concerning—in the first amended com-
plaint merely implying—unnamed confidential sources
of damaging information require a heavy discount. The
sources may be ill-informed, may be acting from spite
rather than knowledge, may be misrepresented, may
Nos. 12-1899, 12-2009                                         11

even be nonexistent—a gimmick for obtaining discovery
costly to the defendants and maybe forcing settlement
or inducing more favorable settlement terms. Higgin-
botham v. Baxter Int’l, Inc., supra, 495 F.3d at 756-57; Indiana
Electrical Workers’ Pension Trust Fund IBEW v. Shaw Group,
Inc., 537 F.3d 527, 535 (5th Cir. 2008); compare Makor
Issues & Rights, Ltd. v. Tellabs Inc., supra, 513 F.3d at 711-12;
cf. Institutional Investors Group v. Avaya, Inc., supra, 564
F.3d at 261-63. The district judge therefore rightly
refused to give any weight to the “internal e-mails” to
which the complaint referred.
  The judge’s dismissal of the first amended complaint
was without prejudice, however, and so the plaintiffs
could file a second amended complaint. And they did.
This one gave particulars about the confidential source
(there was just one), 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. According to the complaint those files
included “internal, contemporaneous communications
regarding the specific results of the” tests and the engi-
neers’ 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
12                                  Nos. 12-1899, 12-2009

Dreamliner’s First Flight. On the basis of these allega-
tions, which were purportedly based on interview notes
by an investigator (Elizabeth Stewart) retained by the
plaintiffs’ lawyers, the district judge denied the defen-
dants’ Rule 12(b)(6) motion to dismiss the second
amended complaint.
  No one had bothered to show the complaint to Singh,
however, and investigation by Boeing 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 Boeing. 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.
  Deposed by defendants’ counsel, Singh denied
virtually everything that the investigator had reported.
He denied that he had been doing work for Boeing
when the tests were conducted. He denied that he had
ever worked on the Dreamliner 787-8, the model in ques-
tion; 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. The
plaintiffs argue that he lied at his deposition be-
cause he wanted to stay in Boeing’s good graces; left
unexplained is why he would not have wanted to remain
in those good graces when he was interviewed by
the investigator.
Nos. 12-1899, 12-2009                                   13

  Karim Mustafa, the lead engineer for the team working
on the 787-9 of which Singh was a member, declared
under oath that Boeing 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. The declaration further stated that Singh would
have had to obtain Mustafa’s permission as well as that
of Boeing’s management to obtain access to internal
company files concerning engineering work on the
Dreamliner, and that he did not give Singh such permis-
sion. Indeed Mustafa himself had no access to files
relating to the 787-8, since his assignment was the 787-9.
  On the basis of these revelations concerning the so-
called confidential source, the defendants asked the judge
to reconsider her denial of their motion to dismiss the
second amended complaint. She reconsidered—and
dismissed the complaint, this time with prejudice, precipi-
tating the parties’ appeals. She did not try to determine
when Singh had been lying and when telling the truth,
or whether he had never lied but the investigator
had misunderstood or misrepresented what he had
told her. Noting that none of the plaintiffs’ lawyers had
met or talked to Singh until six months after they filed
the second amended complaint, even though the first
amended complaint had alleged reliance on internal
Boeing communications, the judge thought their failure
to attempt to verify the allegations in the investigator’s
notes amounted to a fraud on the court.
  Until Singh’s deposition the plaintiffs’ lawyers had
vouched for the accuracy of their investigator’s report.
14                                    Nos. 12-1899, 12-2009

But not afterward. At oral argument the plaintiffs’
counsel, by telling us that “he wouldn’t do much with
[Singh] at trial,” admitted that Singh, because of his
recantation, would not be a witness for the plaintiffs.
Either he had told the investigator the same thing he
said in his deposition, which would be of no help to
the plaintiffs and would expose the investigator as a liar,
or he had made opposite assertions on the two occasions,
in which event he was the liar, which wouldn’t help
the plaintiffs either. Singh is out of the case. The plain-
tiffs’ abandonment of their sole confidential source—
their only possible source of access to a Boeing database
alleged to contain emails showing that the engineers
who had conducted the wing tests had realized immedi-
ately that the test results compelled cancellation of the
First Flight and had informed McNerney and Carson
of this—was fatal.
  But the plaintiffs also have a procedural challenge
to the dismissal of the second amended complaint. Ordi-
narily when evidence is submitted in support of
a Rule 12(b)(6) motion, the motion is converted to a
motion for summary judgment, Fed. R. Civ. P. 12(d); and
Rule 56 prescribes procedures for such motions that
were not followed in this case. But the argument
founders on the plaintiffs’ abandonment of Singh, and
with him their claim of access to internal Boeing emails
that might establish fraud. The only thing that persuaded
the district judge not to dismiss the second amended
complaint, having dismissed the first one for failure
to state a claim under the rules applicable to securities
fraud litigation, was the allegation that the plaintiffs had
Nos. 12-1899, 12-2009                                    15

a confidential source who was a high-ranking Boeing
engineer with access not only to the results of the 787-8
wing-stress tests but also to internal emails between
the engineers who conducted the tests and high-
ranking officials of Boeing that would have contradicted
the officials’ public statements about the 787-8’s develop-
ment schedule.
  Without evidence from the confidential source, then,
the first dismissal stood, its validity unassailable. All
that changed was that the second dismissal was with
prejudice, since it was obvious (and not contested) that
the plaintiffs had nothing to offer by way of a third com-
plaint. They do not ask for leave to conduct further dis-
covery in hopes of rehabilitating their confidential source.
   It remains to consider the cross-appeal, in which
the defendants complain about the judge’s failure to
consider the imposition of Rule 11 sanctions on the plain-
tiffs’ lawyers. The plaintiffs argue that we have no ap-
pellate jurisdiction because while the defendants, in
moving to dismiss the second amended complaint, told
the judge they were going to ask for the imposition of
sanctions, they never filed a motion for sanctions. So
there is no order denying sanctions and therefore, the
plaintiffs argue, no order to take an appeal from. But
this argument founders on an unusual provision of the
Private Securities Litigation Reform Act: “upon final
adjudication of the action, the court shall include in the
record specific findings regarding compliance by each
party . . . with each requirement” of Rule 11, and if a
violation is found “the court shall impose sanctions” on a
16                                    Nos. 12-1899, 12-2009

party or lawyer who has violated the rule. 15 U.S.C. §§ 78u-
4(c)(1), (2). There is no requirement that the defendant
have asked for the imposition of sanctions.
  The defendants made clear in moving for dismissal
of the second amended complaint their belief that the
plaintiffs’ lawyers had violated Rule 11, with which the
judge’s harsh criticism of the plaintiffs when she
dismissed the second amended complaint indicated
agreement. But in any event it would have been her
duty, “upon final adjudication of the action”—which
occurred when she dismissed the second amended com-
plaint on reconsideration and entered final judgment—
to determine whether to impose sanctions even if the
defendants had not invited her attention to the issue.
Morris v. Wachovia Securities, Inc., 448 F.3d 268, 283-84
(4th Cir. 2006); see 15 U.S.C. § 78u-4(c)(1); ATSI Com-
munications, Inc. v. Shaar Fund, Ltd., 579 F.3d 143, 152 (2d
Cir. 2009). Her failure to do so made the final judg-
ment—an appealable order, of course—vulnerable to
challenge by the defendants.
  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 in-
vestigator had acknowledged that she couldn’t verify
what (according to her) he had told her. She had
qualms: the names the source had given her of persons to
whom he reported in the Boeing chain of command were
inconsistent with what she was able to learn about the
chain. This should have been a red flag to the plaintiffs’
Nos. 12-1899, 12-2009                                     17

lawyers. 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. Representations in a filing in a
federal district court that are not grounded in an
“inquiry reasonable under the circumstances” or that
are unlikely to “have evidentiary support after a reason-
able opportunity for further investigation or discovery”
violate Rules 11(b) and 11(b)(3).
  The plaintiffs’ law firm—Robbins Geller Rudman &
Dowd LLP—was criticized for misleading allegations,
concerning confidential sources, made to stave off dis-
missal of a securities-fraud case much like this one, in
Belmont Holdings Corp. v. SunTrust Banks, Inc., No. 1:09-cv-
1185-WSD, 2012 WL 4096146 at *16-18 (N.D. Ga. Aug. 28,
2012). The firm is described in two other reported cases
as having engaged in similar misconduct: Campo v. Sears
Holdings Corp., 371 Fed. Appx. 212, 216-17 (2d Cir. 2010);
Applestein v. Medivation, Inc., 861 F. Supp. 2d 1030, 1037-39
(N.D. Cal. 2012). Recidivism is relevant in assessing
sanctions. Reed v. Great Lakes Cos., 330 F.3d 931, 936
(7th Cir. 2003).
  The only question is whether we should decide whether
to impose Rule 11 sanctions or remand to the district
court to decide. A court of appeals can take the former
course in a clear case. Citibank Global Markets, Inc. v.
Rodriguez Santana, 573 F.3d 17, 31-32 (1st Cir. 2009);
Dellastatious v. Williams, 242 F.3d 191, 197 n. 5 (4th Cir.
18                                    Nos. 12-1899, 12-2009

2001). But remand generally is the preferable course.
Thompson v. RelationServe Media, Inc., 610 F.3d 628, 637-39
and n. 16 (11th Cir. 2010); Rombach v. Chang, 355 F.3d 164,
178 (2d Cir. 2004); Gurary v. Winehouse, 190 F.3d 37, 47 (2d
Cir. 1999). The district court is in a better position than
the court of appeals to calculate the dollar amount of
the sanctions. It also may have additional insights into
the accused lawyers’ conduct, by virtue of having spent
more time on the litigation than the appellate court,
though that is unlikely to be a factor in this case given
the substitution of district judges that we noted at the
beginning of our opinion.
   The judgment dismissing the suit is affirmed insofar as
it dismisses the suit with prejudice, but is vacated and
the case remanded for consideration, pursuant to 15
U.S.C. §§ 78u-4(c)(1), (2), of whether to impose Rule 11
sanctions on the plaintiffs’ lawyers and if so in what
amount.
                     A FFIRMED IN P ART, V ACATED IN P ART,
                        AND R EMANDED WITH D IRECTIONS.

                           3-26-13