Two union pension funds that own
The funds—the Cleveland Bakers and Teamsters Pension Fund, and the Construction and General Building Laborers’ Local Union No. 79 General Fund—could be prejudiced without more time to probe whether the Boeing board breached fiduciary duties in connection with the plane model’s safety, Delaware Chancery Court Chancellor Andre G. Bouchard ruled Tuesday.
“There is a very real risk of preclusion,” Bouchard said, granting the funds’ motions to intervene and put the lawsuits on hold. He said he would enter a formal order on the docket as soon as it is written.
The derivative lawsuits will be on hold indefinitely, with a review at 90 days, he said.
The stay of the derivate lawsuits is important to because it prevents the company from moving ahead quickly with a motion to dismiss. If the case is dismissed, other shareholders who are still in the midst of gathering documents won’t be able to bring similar claims later, even if they find more evidence.
The pension funds filed the records demands with Boeing—under Section 220 of Delaware’s corporate law—after two deadly crashes involving Boeing’s Super Max aircrafts shook the public’s faith in the company and caused its stock value to plummet.
The three shareholder derivative cases—filed by Arthur Isman, the Kirby Family Partnership, and Jon Slotoroff—have been rushed and “rely on abbreviated investigations that resulted in incomplete document productions,” the Cleveland fund argued in its motion.
“By commencing derivative litigation on an incomplete documentary record, the Derivative Plaintiffs have needlessly heightened the risk of adverse rulings,” the motion said. “By choosing to rush to the courthouse instead of diligently pursuing and completing their investigations, the Derivative Plaintiffs have demonstrated that they cannot adequately represent CB’s interests.”
The Local Union No. 79 fund, which sued Boeing in August for documents, argued in its motion that the scope of the derivative suits was too limited.
“Local 79 has already developed facts and theories beyond those in the Slotoroff and Kirby Actions,” Local 79 wrote.
Lion Air Flight 610 crashed Oct. 29, 2018, shortly after taking off in Indonesia, killing 189 people. Ethiopian Airlines Flight 302 crashed March 10, 2019, killing 157 people.
Investigations revealed that the crashes resulted from errors in an automatic safety system that pilots were unable to override.
The three derivative stockholder suits all allege that various board members breached their fiduciary duties in connection with the safety of Boeing’s 737 Super Max airplanes.
A motion to consolidate the shareholders’ derivative cases has been postponed pending a decision on the pension funds’ motions to intervene.
Boeing in November moved to dismiss the Isman suit as premature.
Aviation authorities, including the Federal Aviation Administration, grounded all of Boeing’s Super Max airplanes in March. Boeing announced Dec. 17 that is would stop production of the aircraft.
The case is Isman v. Bradway, Del. Ch., No. 2019-0794, oral argument 1/21/20.