Boeing board of directors may face shareholder lawsuits after US court ruling

Sept 8, 2021: A Delaware judge has ruled that Boeing’s board of directors faces a lawsuit from shareholders over two fatal 737 MAX accidents that killed 346 people in less than six months.

Vice Chancellor Morgan Zurn ruled on Tuesday that Boeing shareholders could make some claims against the board, but rejected some others.

Zurn’s ruling in the Court of Chancery said the first of the two fatal Boeing  737 MAX crashes was a “red flag” about a key safety system known as MCAS “that the board should have heeded but instead ignored”.

Boeing said late Tuesday that it was “disappointed” by the court’s decision to allow the plaintiff’s case to proceed beyond this initial stage of litigation. “We will consider the next steps.”

The US Federal Aviation Administration lifted the Boeing 737 MAX flight ban in November after a 20-month review following fatal crashes in 2018 and 2019. Prosecution agreements and settlements worth more than $2.5 billion.

Zurn’s decision shows that some of the evidence presented by Boeing supports the shareholders’ allegations.

“The board has deliberately undermined it. It is also clear that the board has taken specific steps to monitor public concerns that have not been implemented,” the ruling said.

In a lengthy summary of the shareholders’ case, Zurn said the board “publicly lied about the safety oversight of the 737 MAX”.

The opinion also cites comments from Dave Calhoun, then-Boeing director, who became Boeing’s chief executive in January 2020 after the board removed CEO Dennis Muilenberg.

The ruling by Zurn cited Calhoun’s comments that “the Boeing board had been ‘notified immediately, as a board broadly,’ after the Lion Air crash and met ‘very, very quickly’ thereafter”.

He added that after the second crash of the Ethiopian Airlines 737 Max in March 2019, Calhoun represented that the board met within 24 hours of the crash to discuss the possible grounding of the Beoing 737 Max. “Every representation of Calhoun was incorrect,” Zurn’s decision said.

The accidents cost Boeing about  $20 billion.

Brian Quinn, a professor at Boston College Law School, said the decision paves the way for additional discovery and possibly a trial, although the trial is probably not likely.

The Boeing directors will want their lawyers to pay whatever settlement amount it takes from the directors’ insurance rather than admit liability according to Quinn.

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