Plaintiffs brought suit under RICO for alleged fraud by Boeing and Southwest Airlines in connection with the certification and marketing of the Boeing 737 MAX 8 aircraft. The District Court dismissed some of plaintiffs’ claims for lack of standing, to the extent they alleged that “if Plaintiffs had known the MAX 8 was fatally defective, Plaintiffs would never have purchased a ticket, so Plaintiffs want their money back,” concluding that this theory sought to recover for a risk of physical injury that did not materialize, and was akin to a “no-injury products liability claim” for which the Fifth Circuit had rejected standing. However, the District Court held that plaintiffs pleaded an economic injury-in-fact sufficient to support standing by alleging that defendants’ fraudulent actions allowed Southwest and American to overcharge plaintiffs for their tickets. Absent a fraudulent scheme to conceal the MAX 8’s safety defects, demand for tickets on routes flying the MAX 8 would have decreased, along with the price of those tickets. So, the theory goes, plaintiffs paid a fraud-induced overcharge at the time they bought their tickets, and have Article III standing to recover the amount of that overcharge. The District Court went on to certify four classes covering nearly 200 million ticket purchases. On Rule 23(f) appeal, the U.S. Fifth Circuit reversed on Article III grounds:
“Plaintiffs claim that if the public had known about defendants’ fraudulent scheme, demand for tickets on routes flying the MAX 8 would have dropped, so the airlines would have been forced to lower fares and plaintiffs would have paid less for their tickets. Defendants’ fraud thus allowed them to inflate demand for tickets on MAX 8 routes and overcharge their customers. Plaintiffs have attempted to show that they suffered this sort of economic injury through the report and testimony of their principal expert, Professor Greg Allenby. Professor Allenby used conjoint analysis – a survey-based technique – to show that demand for flights on MAX 8 aircraft would have lessened if the public had known the information about the MCAS defect that was allegedly concealed by defendants’ fraud. He conducted his analysis as follows: First, he surveyed respondents about several hypothetical flight options they could choose, given variables including the number of stops, type of aircraft, and price. Second, Allenby showed respondents a short video with a message about the MAX 8’s MCAS defect. Third, Allenby again asked respondents to choose between hypothetical flight options, some of which were scheduled on MAX 8 flights, and some of which were not. Unsurprisingly, respondents showed less willingness to fly on MAX 8 flights after watching a video discussing the MCAS defect.
“Notwithstanding this conjoint study, plaintiffs’ theory of injury rests on two unsupportable inferences. First, plaintiffs assume that if there was widespread public knowledge during the class period of the MCAS defect, Southwest and American Airlines would have continued offering the same MAX 8 flights – but with a price discount to compensate for the heightened risk that passengers would die. But the facts don’t support this inference. The more plausible inference is that Southwest and American would have offered zero MAX 8 flights until the defect could be fixed. And on this latter, more obvious inference, ticket fares would have likely gone up because the airlines’ usable fleets would have been smaller in the meantime. (In other words, the airlines’ supply of seats would have gone down, demand would have stayed the same, and prices would have risen as a result.) Second, plaintiffs assume the FAA would have permitted airlines to fly the MAX 8 even with full knowledge of the MCAS defect. This inference is even more implausible than the first. That’s because in reality, after the public learned the full extent of the risk caused by the MCAS defect, regulators worldwide grounded the MAX 8. The FAA, for example, grounded the MAX 8 for 20 months. So in all likelihood, if the FAA had learned the full extent of the MCAS defect sooner – which plaintiffs contend would have happened absent defendants’ alleged fraud – then the MAX 8 would have been pulled from plaintiffs’ routes. But again, that would have caused ticket prices to go up, not down, because of the reduced aircraft supply in Southwest’s and American’s fleets.
“Plaintiffs do not contest any of this. Instead, when pressed at oral argument, plaintiffs’ counsel contended that rejecting their theory of standing would imperil all sorts of fraud litigation. That’s because it’s always the case that in a hypothetical world where the fraud didn’t happen, anyone injured by the fraud would have been better off. But that misses the point. In an ordinary fraud lawsuit – a pyramid scheme, for example – there are identifiable victims who lost money that wouldn’t have been lost in a counterfactual world without the fraudulent scheme. By contrast, the plaintiffs in this suit have not plausibly alleged that they’re any worse off financially because defendants’ fraud allowed Southwest and American Airlines to keep flying the MAX 8 during the class period. If anything, plaintiffs are likely better off financially. If the MCAS defect had been widely exposed earlier, the MAX 8 flights plaintiffs chose would have been unavailable and they’d have had to take different, more expensive (or otherwise less desirable) flights instead.”
Earl v. Boeing, No.21-40720, 2022 U.S.App.LEXIS 32299 (5th Cir. Nov. 21, 2022).