Delaware Chancery Court Finds Boeing Board Supervisory Claims Meet Caremark Standards | Hogan Lovells
In In re The Boeing Company, the Delaware Court of Chancellery ruled that Boeing shareholders who sued the company for losses related to safety concerns with the Boeing 737 MAX aircraft had adequately argued that a majority of Boeing directors âface a high probability of liability for Boeing losses. . “Although it noted that the plaintiffs were pursuing” perhaps the most difficult theory in corporate law on which a plaintiff could hope to obtain a judgment “, the court nonetheless concluded that the plaintiffs had correctly alleged” failure. total of administrators to establish a reporting system for aircraft safety âandâ close their eyes to a red flag representing aircraft safety concerns. âAlthough allegations of mandatory oversight remainâ extremely difficult âto plead , this decision illustrates that they are far from impossible to plead, particularly where, as here, shareholders obtain a substantial discovery through a request for pre-litigation books and records under Article 220.
On October 29, 2018, a Boeing 737 MAX crashed shortly after takeoff, killing everyone on board. Five months later, a second Boeing 737 MAX crashes after take-off. Within days of the second crash, regulators around the world grounded all 737 MAXs for an extended period of time. As a result of the grounding, Boeing suffered billions of dollars in losses.
In 2019, a group of Boeing shareholders filed a derivative action against the company, alleging that Boeing directors were responsible for losses suffered by the company and its shareholders because they failed to exercise proper oversight over the companies. company activities. The plaintiffs were the New York State Common Retirement Fund, which is a public pension fund for employees of New York State and local governments, and the Fire and Police Pension Association of Colorado, which invests pension funds for Colorado firefighters, police and their beneficiaries. . The plaintiffs alleged that “Boeing directors and officers failed to oversee the security of mission critical aircraft to protect company and shareholder value,” the court summed up. Boeing decided to dismiss the complaint, arguing among other things that the complainants had not made viable allegations of a duty of surveillance under Maintenance mark.
The court noted that the plaintiffs were pursuing “perhaps the most difficult theory in corporate law on which a plaintiff could hope to obtain a judgment”, and that in order to survive the motion to dismiss, the plaintiffs had to allege “that a Majority of the directors face a substantial probability of liability for Boeing’s losses. “The court ruled that”[t]this may be based on the directors’ complete failure to establish a reporting system for aircraft safety, or on their closing their eyes to a red flag representing aircraft safety issues, “and concluded that” the shareholders have pleaded the two sources of accountability of the board. âThe court only dismissed the allegation that the board could be held responsible for failing to fire its CEO and other executives.
The court cited and cited numerous Boeing documents that the plaintiffs had obtained from the company pursuant to a Section 220 request and referred to in their opposition to rule on the petition. Based in part on these documents, the court ruled that the plaintiffs alleged that Boeing’s board of directors “often meets without mentioning or discussing safety at all”; âHad no way of receiving internal complaints about aircraft safety; ” and that “[t]The board has publicly lied about whether and how it oversees the safety of the 737 MAX. On the basis of these and other allegations, the tribunal found that the complainants alleged sufficient facts to show that “nine of the twelve members of the board of directors at the time of the filing of the initial complaint were at high risk of being held liable. for breach of their monitoring obligations â. The court noted that Maintenance mark did not isolate directors who did not “make a good faith effort â i.e., try to put in place a reasonable system of monitoring and reporting at the board level. The court further concluded that the plaintiffs had sufficiently alleged liability under the second Maintenance mark shutter by alleging “particular facts of which the board was aware of evidence of corporate misconduct – the proverbial red flag – but acted in bad faith by knowingly neglecting its duty to remedy this misconduct”.
The ruling shows that while derivative claims remain difficult to litigate, they can be viable when ample evidence is obtained prior to the complaint that allows the complainant to plead a reasonably conceivable claim that the board’s oversight activities have failed. meets the requirements set out in Maintenance mark.