A divided U.S. Court of Appeals for the Seventh Circuit revived the lawsuit, saying Judge Harry D. Leinenweber shouldn’t have deferred to a company bylaw requiring certain shareholder lawsuits to be filed in Delaware Chancery Court, widely considered the country’s top forum for business disputes.
The ruling comes about two months after Boeing’s board agreed to a $237.5 million settlement resolving parallel investor litigation in Delaware, where shareholder claims against Boeing were consolidated after Leinenweber dismissed the federal case in June 2020.
Judge David F. Hamilton, writing for the Seventh Circuit, said Leinenweber misread the Delaware law authorizing companies headquartered in the state—most major U.S. corporations—to require that derivative cases, a type of governance litigation, be heard there.
The statute refers to courts “in” the state, not courts “of” the state—meaning it includes federal courts—and it’s also limited by the caveat requiring the bylaws to be applied “consistent with applicable jurisdictional requirements,” Hamilton noted.
Because the Securities Exchange Act “gives federal courts exclusive jurisdiction” over federal securities fraud claims, applying the Boeing bylaw would mean the investor claims “may not be heard in any forum,” the judge wrote. “That result would be contrary to Delaware corporation law.”
Delaware’s top court handed down a landmark ruling in March 2020 authorizing “federal forum” provisions superficially like Boeing’s. But the decision shouldn’t be read to cover bylaws that require investors to give up “non-waivable rights under the federal Exchange Act,” Hamilton said.
The state supreme court ruling “neither applies to claims brought under the Exchange Act of 1934 nor bars securities plaintiffs from bringing as-applied challenges to federal forum provisions,” he added.
Judge Diane P. Wood joined the decision.
Judge Frank H. Easterbrook dissented, saying the Boeing bylaw doesn’t actually require investors to give up unwaivable securities claims. At most it effectively bans shareholders from pursuing such claims against the board on a derivative basis, meaning on the company’s behalf, Easterbrook said.
“Nothing in Boeing’s bylaw strips plaintiff,” a pension fund, of “the ability to file a direct” securities suit on its own behalf, the judge wrote.
The pension fund is represented by Cohen Milstein Sellers & Toll PLLC. Boeing and its board are represented by Kirkland & Ellis LLP.
The case is Bradway v. Boeing Co., 7th Cir., No. 20-2244, 1/7/22.