WILMINGTON, Del. (Legal Newsline) – Stockholders of Boeing suing on behalf of the company have plausibly alleged that a lack of oversight on the part of the board of directors led to two catastrophic wrecks of its 737 planes in 2018-19.
Vice Chancellor Morgan Zurn, of the Delaware Court of Chancery, made that ruling on Sept. 7 in derivative litigation brought by the law firms Friedlander & Gorris and Lieff Cabraser.
Zurn was tasked with answering whether those lawyers have alleged that a majority of the Boeing board of directors face a substantial likelihood of liability for the loss of value to the company following those wrecks.
“This may be based on the directors’ complete failure to establish a reporting system for airplane safety, or on their turning a blind eye to a red flag representing airplane safety problems,” she wrote. “I conclude the stockholders have pled both sources of board liability.
“The stockholders may pursue the Company’s oversight claim against the board.”
Attorneys snagged a massive client to serve as a co-lead plaintiff – the New York State and Local Retirement System. It held more than 1.1 million shares of Boeing stock.
In October 2018, a Boeing 737 Max crashed on its way from Jakarta, Indonesia, to Pangkal Pinang. All 189 passengers and crew died.
Five months later, Ethiopian Airlines Flight 302 – another Boeing 737 Max – crashed during its flight to Kenya and killed all 157 people on board.
The 737 Max had a new software program that adjusted the plane downward when it tended to pitch upward, Zurn’s ruling says. But in the two wrecks, faulty sensors sent the planes needlessly downward and caused the crashes.
The ensuing derivative litigation says Boeing’s board of directors – a group of political insiders or executives with financial expertise, Zurn wrote, with long-term appointments. They are alleged to have failed to monitor the safety and airworthiness of Boeing planes.
The result – a hastily made, unsafe 737 Max, more than 300 dead and a loss of billions in criminal penalties and $20 billion more not from litigation, the suit says. The plaintiffs will now need to prove the board of directors should be responsible. Zurn’s ruling even notes safety complaints from within the company before the first crash made it to senior management but not to board members.
The board will face the fact that it declined to pursue an internal investigation during a February meeting and the Ethiopian Airlines flight crashed less than a month later.
“The Board did not regularly allocate meeting time or devote discussion to airplane safety and quality control until after the second crash,” Zurn wrote. “Nor did the Board establish a schedule under which it would regularly assess airplane safety to determine whether legitimate safety risks existed.”