Leeham News and Analysis
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Leeham News and Analysis
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1 of 2 trade secret lawsuits settled; plaintiff attorneys seek withdrawal in Boeing case
By Scott Hamilton
Feb. 07, 2020, © Leeham News: A trade secret theft lawsuit against the giant insurance company Xavian Holdings involving an insurance funding program for Boeing airplanes was settled last month under undisclosed terms.
Marsh and Boeing were sued in 2018 by Xavian, which claimed it created the plan and undertook all the research for a concept that it presented to Boeing under a trade secret/non-disclosure agreement.
The Boeing lawsuit is pending.
Replacing ExIm funding
The concept was intended to replace funding previously provided by the US ExIm Bank. Congress refused to renew the bank’s authority to fund deals of the size required for Boeing airplanes.
Boeing initially declined Xavian’s overtures when it looked like ExIm would be reauthorized. When Congress failed to do so, Boeing contacted Xavian to renew 
conversations, the lawsuits claimed.
Robert Morin of the US ExIm Bank, who was aware of Xavian’s efforts, later went to work for Marsh, taking with him information obtained under the Xavian plan, Xavian claimed—hence the lawsuit against Marsh.
In court documents in New York, the federal court in the Southern District ordered mediation. Documents reveal a settlement was reached, but terms were not disclosed. Court approval of the settlement is pending.
Attorneys want to withdraw
In the lawsuit against Boeing, a review of the court documents in Chicago reveal that Xavian’s attorney filed a motion to withdraw. Xavian opposes the motion. An in camera hearing was required by the attorneys.
Xavian declined comment.
There are specific reasons a law firm may cite to withdraw representation. The website lawyers.com cites the following (quoting verbatim, emphasis in the original):
An Attorney’s Mandatory Withdrawal
If the circumstances require that the attorney withdraw from representation, the withdrawal is considered mandatory. Situations that could give rise to an attorney’s mandatory withdrawal from a case include:
- the attorney is not competent to continue the representation
- the attorney becomes a crucial witness on a contested issue in the case
- the attorney discovers that the client is using his services to advance a criminal enterprise
- the client is insisting on pursuit of a frivolous position in the case
- the attorney has a conflict of interest or cannot otherwise continue representation without violating the rules of professional conduct, and
- the client terminates the attorney’s services.
An Attorney’s Voluntary Withdrawal
Where the circumstances permit, but do not require, the attorney to cease representation, the withdrawal is considered voluntary. The circumstances under which an attorney may withdraw mid-case include:
- the client is refusing to pay the attorney for his or her services in violation of their fee agreement.
- the client is refusing to follow the attorney’s advice
- the client is engaged in fraudulent conduct, and
- there has been a breakdown in the attorney-client relationship that prevents the attorney from effectively representing the client in the case.
Xavian declined comment.
Blimey, this sounds somewhat murky. Those two lists allow for all sorts of things going on behind the scenes.
No doubt all will be revealed at some proper time. In the meanwhile, given that not even Scott seems willing to speculate (probably quite wisely so), we’ll have to wait and see!
I wouldnt call Xavian a giant insurance company , more a boutique ‘export credit insurance’ outfit
“Xavian was founded by several Wall Street professionals in aircraft finance and some bankers from ExIm, led by attorney Thatcher A. Stone.”
https://leehamnews.com/2018/09/11/boeng-trade-secrets/
Apparently the actuarial models showed it was a very lucrative business
” “Financing new aircraft is very good business, even if you are financing aircraft to less than stellar credits, even if it is to what appears to be risky jurisdictions.”
Wow all types of coverage this week on topics big and small.
The absence of coverage on the Airbus bribery scandal is truly astounding given how it is roiling through the airline industry.
Was there a deliberate decision to embargo the topic on the Leeham News site?
Covering it would not be popular with the Airbus fan boys of course. Plus it might potentially create media access issues with Airbus executives.
There was plenty of coverage on Airbus elsewhere.
Dear Scott
Would it be possible for you to recommend a high quality site which covers Airbus in the detail with which you cover Boeing?
Regards Gerrard
Oldsmokey ,LNA doesnt really do repetition of stories from other sites.
Its a modern day curse , news sites especially aviation are lifted with and without payment ( with a minor rewrite) from another site to fill their pages.
AS LNA doesnt have someone in Paris to do original reporting on Airbus bribery story Nor is France as open as US for background sources, you either get the official story or nothing.
Plus , I dont know the details, but the Boeing supplier archipelago would be a good source of subscribers for LNA and they are mostly in US. AW has a US centric view for similar reasons .
For example Scott can cover Boeings union issues directly from being in the Puget Sound area. Airbus union issues? They have sites all over the world so doesnt have the Seattle concentration, good luck with giving a good background on that.
As is Scott, you are right
What sites can you recommend that provide similar high level coverage of Airbus
I think that nearly all non cookie cutter coverage of Boeing comes from US sites, besides even this this is minimal, there is hardly any reporting in the rest of the world which is not very banal, with very little original reporting
This is part of the problem – a significant and indeed glamourous industry selling at least a glamourous product, worldwide, dominated by a duopoly, yet – with the exception of this site and and perhaps one or two others – largely unreported and unexamined
Not only regulatory capture but reporter capture : for some reason this industry is not newsworthy, how can this be?
This reminds me of airlines, hardly anything is reported about airlines which is not cheer leading or flag waving
Why is this?
Quote: “Nor is France as open as US for background sources,”
I’d say the opposite is true.
But obviously the reporter has to speak French and be in the area.
OldSmokey, you are right that the Airbus scandal deserves at least some mention here at Leeham, given the intense criticism of Boeing that has occurred here. This scandal will reverberate through the aviation markets for some time.
It’s notable that at Airbus, participation in corruption was known and accepted by some of the senior management, including the CEO. As well as arms export (ITAR) violations.
So if Scott will allow it, here is a concise excerpt from reporting by the London Financial Times, which summarizes the issue:
“Airbus for years conducted a “massive scheme to offer and pay bribes”, involving very senior executives, according to disclosures in courts in Washington DC, Paris and London, as Europe’s aerospace champion agreed to pay €3.6bn in penalties to regulators in France, the UK and the US.
Many of the bribes were paid through shell companies set up by executives working for an autonomous strategy and marketing unit once described by former chief executive Tom Enders as “bullsh** castle”, according to investigators in the three countries.
This unit, which managed a corps of middlemen in export markets, concealed the bribes by creating fraudulent contracts, accepting fake invoices for services never delivered, and creating false activity reports, Airbus admitted in the US.
French prosecutors said the company had boosted profits by €1bn as a result of violations uncovered in their investigation.
The details emerged as courts in the three countries approved the deferred prosecution settlement struck with regulators in France, the UK and US. Airbus will pay €2.1bn to France, €983m to the UK and about €530m to the US.
Airbus’s admission of a string of bribery and corruption offences stretching back to at least 2008, as well as breaches of disclosure on US arms export filings, brings to an end a nearly four-year investigation that marks a milestone for global anti-corruption co-operation.”
Well, in the US beyond not being endangered by NSA scoops up front the POTUS is the main bearer of corrupt gifts in an elegant carrot/whip mix.
Another issue imho is bargained pseudo convictions with attached fines. ( Much more of a problem in the US but it spreads. ) Investigatory processes are cut short by accepting a fine. Prolonged litigation even if the final outcome is “not guilty” are extremely damaging to the party involved.
https://www.flightglobal.com/airframers/airbus-put-potential-damage-from-bribery-conviction-at-200bn/136488.article
Note the “potential damage”
Strategic move to avoid imponderables is to accept a ( much smaller than maximum ) fine.
IMHO that kind of litigation process is broken.
Uwe, an admission of guilt is part of the settlement. Getting a conviction in court might have taken years more or maybe never. Now it is an established matter of law and record.
And the DPA (Deferred Prosecution Agreement) creates pressure within Airbus to clean up their act, as it contains a parole period where they will need to demonstrate compliance. Prosecution will resume if they don’t.
As far as the fines, we know these large companies can withstand very high costs, so the fines are not that damaging financially. I think the intent is to get the attention of the board and shareholders and the public, without making the non-managerial employees & retirees pay by loss of employment or income.
Dame Victoria Sharp in her statement, said that while no company is too big to prosecute, the overall public interest may not be served by prosecution. Conviction would disbar Airbus from participating in European public sector bids, with an economic loss estimated at $200 billion. That would disrupt the economy and cause significant unemployment across the world. So the DPA settlement avoids that but still allows for punishment and an admission of guilt.
Also there is the issue of the duopoly with Boeing. You cannot disrupt half of the production capacity of the world, or not have European capacity to respond to their own needs.
Also Airbus has made significant changes and cooperated fully with the investigation, so there is good reason to believe the behavior will not continue.
As Dame Sharp pointed out, in a global economy with global industries, it becomes a balancing act to address wrongdoing without inflicting more damage than the wrongdoing itself.
Lastly there may still be criminal prosecution of individuals from Airbus and elsewhere.
OK, wait.
Xavian filed lawsuits against Boeing and Marsh. (see 9/12/2018 story)
Xavian may or may not have challenged the Airbus version of AFIC. Did Boeing countersue Xavian (a third or fourth suit) and that’s the one that was just settled?
Xavian did not sue over the Airbus version of Afic. There was no Boeing countersuit.
As a European thank you Rob for posting the excerpt from the FT.We need balance.
What Airbus have been involved in ( along with the participating clients) is disgraceful in the extreme.
The idea that the ‘holy trinity’ can simply ‘retire’ (with their millions) and perhaps get away with this without going to prison is abhorrent.Since RR seems also to have been involved in a similar set of activities it makes me wonder why the previous (ex RR) CEO lasted such a short time at Airbus??
But of course to sell aircraft with bribes does mean of course you have planes to sell.Now where did the funding come from to develop these planes? Sorry forgot ,that one too has recently been answered and now the French farmers and Scottish distillers are paying the(ir) large bill.
Not Europes proudest moment imho.
Thanks Philby. Globalization has introduced a new era where people from all over the world can end up paying for the economic crimes of a few. I wrote more about this above in response to Uwe. Mechanisms like the SFO and DPA have to be developed to counter it.
I doubt Airbus is corrupt anymore than Boeing or Lock Mart etc. Corruption and similar inducements are part of doing business in the 3rd world. It’s the customers not the manufacturers that are the source. You will find a culture of taking “consideration” in those countries. You either get involved or you loose out on market share and don’t have an aircraft manufacturing business.
If this is corruption it is a mild form that has little impact comparted to of what I’ve seen in my industry and does little damage to anyone even Airbuses competition. It’s the small to mid scale corruption that wrecks. I’ve seen contracts let out in certain Caribbean country for USD$60,000 go down to $8000 when purchasing went from local control back to the corporate office (which gets rid of the kick backs from the supplier). These kind of costs (and I’ve seen them in Africa as well) do retard development completely because they make it difficult to run a business, a machine breaks down and the spare parts are missing. If there is to be punishment and fines it should be at a case by case basis rather than at a corporate level rather than damage or destruction to Airbus, Boeing or Volk’s Waggon.. Hyper-Sanctimony is killing western countries like Europe. Boeing is going to loose 20 billion in the MAX business, that’s 4 major teaching hospitals and thousands of jobs. VW probably lost more and Airbus could loose more and most of it will go to governments which will waste it in consolidate revenue.
I recall the “Bribe of the Century” in Europe. Could you imagine SR.177 instead of F.104 being the backbone fighter of Europe for 25 years?
I’m never for wrecking functioning corporation, they are too important, unless its really serious. Responsible people need to be fired and removed.
Great point on punishing individually vs the corp. If Jamie Dimon had to repay for the London Whale theft of taxpayers hard earned and insured money, there would be fewer $6billion dollar misshaps.
I am waiting for the fuel cost surge. Those frugal fuel sipping TGIs might be useful.