By Bill Rigby and Kyle Peterson

SEATTLE/CHICAGO (Reuters) - Boeing Co on Tuesday asked a court to throw out a government case that accuses the plane-maker of putting a production line for the 787 Dreamliner in South Carolina to punish its unionized Washington-based workers for past labor strikes.

The case has become the fulcrum of a larger conflict between supporters of labor union rights and those who believe U.S. companies should have the freedom to build factories where they want, for whatever reasons they choose.

A hearing before an administrative law judge started on Tuesday in Seattle, the home of Boeing's commercial airplane division. The process could take months, judge Clifford Anderson warned.

The National Labor Relations Board, a government agency that is independent but dominated by Democrats, has "ample evidence" that Boeing acted in retaliation, one of its lawyers told the judge on Tuesday.

Boeing immediately filed a motion to dismiss the case in court, claiming its move to protect itself from potential future strikes was legitimate, and that it had added more than 3,000 jobs in the Seattle area since the Charleston, South Carolina, plant was conceived, so no workers had lost jobs or suffered any harm.

A lawyer representing Boeing characterized the NLRB complaint as "rather a strange runaway shop case," a labor term used to describe the relocation of facilities to avoid union involvement.

Addressing about 20 lawyers and another 60 or so people in the courtroom, Anderson urged both sides to consider a settlement.

Both Boeing and the International Association of Machinists and Aerospace Workers, District Lodge 751 (IAM) -- which represents the company's workers in Washington and filed the original complaint against Boeing in 2010 -- said on Tuesday they are open to settlement talks.

But neither side seems willing to budge on its stance, and sources close to the matter said on Tuesday that a quick settlement was unlikely.

The NLRB has until next Tuesday to reply to Boeing's motion to dismiss. Until then, the parties are meeting periodically to discuss what documents need to be exchanged. Presentation of evidence and arguments before the judge are not expected to start for several weeks.

Neither Boeing nor the NLRB said what it was spending on the litigation. The NLRB has seven lawyers on the case.

Lafe Solomon, the NLRB's acting general counsel, will testify on Friday in South Carolina at a field hearing on the complaint before the House Committee on Oversight and Government Reform. He had initially declined the request for his testimony, citing the ongoing open case.

"This is a very simple case, and it's an egregious case," the general counsel for the International Association of Machinists and Aerospace Workers said on a conference call with reporters on Tuesday.

"Work stoppages are protected by law as part of concerted activity. So is the collective bargaining process," IAM General Counsel Christopher Corson added.

Boeing Chief Executive Officer Jim McNerney has weighed in on the complaint several times, saying the NLRB has overreached its authority.

Boeing shares closed up 2.3 percent at $74.64 on Tuesday on the New York Stock Exchange.

INTIMIDATION?

Tom Wroblewski, local IAM president in Seattle, has said Boeing opened the South Carolina line to "intimidate our members with the idea that the company would take away their work unless they made concessions at the bargaining table."

The $750 million 787 plant opened on Friday.

The company has said it did not violate the law by putting its second 787 production line in South Carolina, where workers will assemble three planes each month. The South Carolina jobs are new to Boeing and are not a relocation of work previously done in Washington, it says.

Boeing said if it loses the NLRB case, it would be forced to assemble those three planes in Washington, where it is set to produce seven 787s per month.

The 2009 decision to open the 787 line in South Carolina came after an aggressive campaign by workers in Washington's Puget Sound area to keep the project there.

The IAM went on strike for 58 days in 2008 over a contract dispute. The strike led to one of the costly delays that have put the 787 program over budget and about three years behind schedule. Boeing also blames glitches in its global supply chain for the delays.

The 787, a lightweight, carbon-composite aircraft, is set for first delivery in the third quarter of this year.

The NLRB and Boeing expect the first round of hearings before the administrative law judge to take weeks or months. The losing side may then appeal, first to the NLRB board, then to a federal court, and finally to the U.S. Supreme Court.

The first several days of the hearing are likely to be largely procedural, featuring no testimony.

J. Michael Luttig, Boeing's general counsel and a former appeals court judge, has said he anticipates losing before an administrative law judge, but prevailing at the U.S. Court of Appeals.

REPERCUSSIONS

The dispute has drawn the attention of pro-business politicians and industry leaders, who believe the charge against Boeing makes a broader statement about U.S. government support for business.

John Engler, former Michigan governor and President of Business Roundtable, an association of U.S. CEOs, said on Tuesday the NLRB charge weakens the general business outlook.

"If suddenly (we get) more decisions like the NLRB decision that they announced relative to Boeing, that goes in the opposite direction," Engler said on a conference call. "That dims optimism."

South Carolina Republicans last week complained that the NLRB case threatens industry and jobs in their state. Senator Lindsey Graham told Reuters that the labor relations board is "stacked with union stooges."

Senator Lamar Alexander, Tennessee Republican, has said he will propose legislation prohibiting the NLRB from taking similar action against other companies.

(Additional reporting by Nick Zieminski in New York)

(Editing by Gary Hill and Sofina Mirza-Reid)