The Boeing Company and its subsidiary Boeing Capital Corp. were served Wednesday afternoon with a lawsuit that alleges the aircraft manufacturing giant stole trade secrets from an insurance company that had proposed creating a private alternative to the Export-Import Bank, the U.S. government’s official credit agency.
The lawsuit was filed Tuesday in a Chicago federal court by Dallas firm Lynn Pinker Cox & Hurst on behalf of Virgina-based Xavian Insurance Company. It alleges that Xavian had worked with Boeing since 2007 to create a privately-held guarantor to underwrite aircraft sales to foreign airlines with non-investment grade debt ratings.
Instead, the suit claims, Boeing created its own credit vehicle utilizing the costly and complex actuarial support created by Xavian. The move allowed Boeing to reduce its heavy dependence on the government bank (known as “Ex-Im”) which between 2001 and 2015 provided as much as $100 billion to support Boeing’s foreign aircraft sales.
“This case involves trade secrets that truly were ahead of their time,” the 26-page lawsuit states. “Defendants Boeing and BCC waited until their need for those trade secrets became critical – and then misappropriated them.”
Xavian was created in 2007 by corporate attorney Thatcher Stone and Frank D. Kittredge, Jr., both of whom were experienced with the machinations of the Ex-Im Bank. According to the lawsuit, the idea was influenced by a decision to limit the credit terms under the international agreement known as the Aircraft Sector Understanding (ASU). Specifically, they believed many airlines with non-investment grade credit would prefer longer term loans to help lower their principal payments rather than abide by the more restrictive terms offered by credit agencies like the Ex-Im, which had begun limiting their loans to 12 years.
Xavian claims in its lawsuit that it proposed the novel underwriting to Boeing, which had agreed to support the effort in principle. The organizations stayed in close contact for several years as Xavian invested $5 million “and countless hours” developing its business plan in an effort to secure a financial commitment from the aircraft maker. During the development phase, according to the lawsuit, the parties signed a proprietary information agreement that allowed Xavian to share its trade secrets with Boeing in exchange for a legally-binding promise that Boeing would not misappropriate the confidential information.
“BCC had repeatedly promised that Boeing would support Xavian once it reached a ‘tipping point,’ ” the lawsuit says. “The situation changed dramatically in mid-2015, when Boeing and BCC realized that Ex-Im’s financial support appeared likely to disappear completely due to lack of Congressional re-authorization. This development threatened Boeing’s sales of commercial aircraft compared to rival Airbus, which still had access to an export credit program in Europe.”
One of the trade secrets that Xavian said it shared with Boeing was its “Plan B” business model, which entailed offering the insurance-based guarantee through a consortium of three or four large insurance companies, which would share “the risk directly with the deal underwritten and arranged by Xavian’s expert underwriting team,” the lawsuit said.
Xavian also disclosed to Boeing that a subsidiary of insurance giant Marsh & McLennan Companies, Guy Carpenter & Co., was its reinsurance intermediary.
When Boeing’s loss of financial support by Ex-Im occurred in June 2015, it created “a critical need for the Xavian insurance-based guarantee to be available as a complete replacement,” the lawsuit said. But instead of continuing to collaborate with Xavian, the insurance company alleges Boeing decided to take matters into its own hands.
Radio silence ensued, and then Boeing announced in June 2017 that it had partnered with Marsh to form the Aircraft Finance Insurance Consortium, which later became an award-winning – and identical, as Xavian alleges – concept. The AFIC is a group of four large insurance companies “offering the same insurance guarantee developed by Xavian,” the lawsuit says.
By January 2018, AFIC had issued insurance-based guarantees for approximately $1.5 billion in Boeing commercial aircraft sales. The lawsuit also says Boeing has projected that up to 5 percent of its commercial aircraft sales for the whole year will fall under AFIC’s model.
Boeing and Marsh named former Ex-Im employee Bob Morin (who had initially agreed to become Xavian’s senior vice president of marketing) as the “public face of AFIC,” the lawsuit states.
On Tuesday, Lynn Pinker lawyers filed a separate but similar lawsuit in New York against Marsh & McLennan and its subsidiary.
Xavian asserts that there is no question Boeing used its trade secrets as “the necessary roadmap” to create AFIC because it was “abundantly clear” during their discussions that Boeing had “never collected the necessary data to analyze the possibility of a private alternative to Ex-Im, much less done any actuarial work.”
Xavian also maintains that that it took all of the appropriate legal measures to protect its trade secrets, and that Boeing alone is responsible for the alleged misappropriation.
In its pleadings, Xavian declined to elaborate for the court the exact nature of its allegedly misappropriated trade secrets, but said it would do so “after an appropriate protective order” is entered by the court.
No outside counsel has yet been designated by Boeing to handle the litigation, but the company’s general counsel is J. Michael Luttig, a former judge on the U.S. Fourth Circuit Court of Appeals. Once a highly-touted nominee for the U.S. Supreme Court, Luttig left the Fourth Circuit in 2006 to take the Boeing post.
A spokesman for Boeing declined to comment on the lawsuit.
Lynn Pinker partner Chris Akin, who is leading the lawsuit for Xavian, told The Texas Lawbook in an email that it is too early to determine how much money could be at stake in this case, but has the potential to be a very large sum.
“Until we obtain discovery from the defendants, I cannot provide any additional information beyond what we allege in our lawsuit,” he said. “I can say that Xavian’s co-founder, Thatcher Stone, believes that the damages against both Boeing and Marsh will be extremely large numbers, which would be doubled in the event of a finding of willful an malicious misappropriation.”
Akin declined to comment on whether Xavian would name any individual defendants.
Asked whether Xavian had specific countries with ratings below the investment grade in mind that it wanted to work with when developing its business plan, Akin said it is a very “broad market” given the $100 billion Ex-Im had provided to Boeing alone.
“Xavian cannot discuss its specific business plan without disclosing its trade secrets,” he said.
Xavian is also represented by Lynn Pinker partners Kent Krabill and John Volney, associate Michael Kalis, as well as Chicago lawyers Stephen Siegel, Alexander Berg and Elizabeth Wolicki of Novack and Macey.
Damages Xavian seeks from Boeing and Marsh include actual damages under the violation of the federal Defend the Trade Secrets Act, lost profits, an alternative reasonable royalty measure of damages, punitive damages and attorneys’ fees.