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Boeing Investors’ Crash Suits to Be Led by N.Y. Pension Fund

Aug. 4, 2020, 5:45 PM

The public pension funds of New York and Colorado are best positioned to lead a consolidated shareholder lawsuit blaming Boeing Co.'s board and management for the fallout from two catastrophic 737 Max 8 crashes, a Delaware judge ruled Tuesday.

The states’ complaint “more cogently focuses on, and contains more factual allegations relevant to, board knowledge,” Chancellor Andre G. Bouchard wrote for the Chancery Court in a brief order, citing “the massive disparity in stock ownership and the unique internal resources” the pension funds could marshal.

Moreover, the states’ earlier records suit, though filed later than those brought by other investors, “obtained meaningful additional documents regarding” the firing of ex-CEO Denis A. Muilenburg in December, the judge said.

The suits accuse Boeing’s board and senior leadership of engaging in virtually no oversight as it developed and rolled out the Max 8. That “epochal corporate governance failure” makes them responsible for commercial crashes in Ethiopia and Indonesia that killed 346 people in total and led to the jet model’s worldwide grounding, the suits claim.

Pre-Suit Demand Issue

Investigations concluded that both crashes, and other near misses, were the result of errors by a new automatic safety system that forced the planes’ noses down during their ascent. Many pilots weren’t aware of the system, which lacked the redundancy that’s typical of aviation safety features.

The Federal Aviation Administration’s approval process has also faced criticism—including by the National Transportation Safety Board—that it relied too heavily on Boeing personnel, while the company faces a probe into the pressure it put on regulators.

Bouchard’s Tuesday decision formally consolidated four of the five shareholder suits, with Lieff Cabraser Heimann & Bernstein LLP and Friedlander & Gorris PA as co-lead counsel for the plaintiffs. It came about a week after a July 30 telephone hearing over the leadership issue.

The fifth case will remain paused while Boeing and the consolidated plaintiffs fight over whether conflicts of interest affecting the company’s board would have made it futile to demand an internal investigation before suing.

The shareholder leading that suit waived his right to contest the independence of Boeing’s board by making such a pre-suit demand, which was rejected, Bouchard noted in a separate order.

A Wave of Litigation

The Delaware action is part of a wave of litigation over the deadly Max 8 crashes. A Chicago federal judge in June threw out a derivative action bringing similar governance claims, citing a Delaware forum selection clause in Boeing’s bylaws.

The scores of cases facing the company also include wrongful death suits, securities fraud claims, racketeering allegations involving Southwest Airlines Co., and a suit for lost pay by the Southwest pilots union.

Boeing announced in September that it had begun settling the wrongful death cases, and it has reportedly settled 90% of claims filed over the Ethiopia crash. It’s also facing a Securities and Exchange Commission probe into its risk disclosures to investors.

The company eventually shook up its board, established a new safety committee, forced other high-profile resignations, and submitted Muilenburg to congressional questioning before ousting him.

That was too little, too late, the derivative suits say.

Boeing, its board, and its executives are represented by Richards, Layton & Finger PA. The shareholder leading the separate suit, Arthur Isman, is represented by Cooch & Taylor PA and Scott & Scott Attorneys at Law LLP.

The case is In re Boeing Co. Deriv. Litig., Del. Ch., No. 2019-0907, 8/4/20.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editor responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com

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