WILMINGTON, Del. (Legal Newsline) — In a Sept. 7 ruling, Delaware Court of Chancery granted permission to Boeing stockholders, suing on behalf of the company, to pursue allegations the board of directors caused two deadly 737 plane wrecks through a lack of oversight.
But the opinion by Vice Chancellor Morgan Zurn did not tip her hand on whether she is likely to find those allegations have merit, Widener University Delaware Law School Emeritus Professor Lawrence Hamermesh says, even after reading all of Zurn's 103-page opinion. The board is alleged to have failed to properly oversee safety concerns and to not have reacted appropriately when the first 737 MAX went down in 2018.
"Even though the opinion and complaint are both informed by what is probably great detail, like background documents like board communications and minutes, the directors have presented their story, and I have no idea — and I don't think anybody from the outside can really have any idea — what that story is going to be in terms of what they did or didn't do in relation to the safety threats," Hamermesh told Legal Newsline.
Zurn cleared Boeing stockholders to pursue the liability claim against the directors, but also granted the board's motion to dismiss Count II of the suit pursuing liability from eight Boeing officers, including Dennis Muilenburg, a longtime Boeing executive who was removed from his role as chairman in October 2019 after the two 737 MAX crashes.
According to the ruling, none of the Boeing board committees were specifically involved with airplane safety oversight when the crashes occurred.
The first tragedy was in October 2018, when a Boeing 737 MAX crashed between two Indonesian cities, killing all 189 people on board. Only five months later, another 737 MAX fell on its way from Ethiopia to Kenya, claiming another 157 lives.
"This stood in contrast to many other companies in the aviation space whose business relies on the safety and flightworthiness of airplanes," Zurn wrote, comparing Boeing's to board-level safety and control procedures of Delta Airlines, United Airlines and others.
The Boeing board — comprised of political insiders or preferred executives, according to Zurn — declined during a February 2019 meeting to launch an internal investigation after the first crash, despite spreading knowledge that a new altitude control software on the 737s was faulty and to blame for the 2018 incident. The second happened less than a month after that meeting.
Two Boeing stakeholders lead the case: the New York State Common Retirement Fund, which held nearly 1.2 million shares of Being stock as of June 2020, and the Fire and Police Pension Association of Colorado, which held 9,165 shares at the same time.
Similar historical rulings to look to are limited, Hamermesh explained.
The directors may point out steps taken to promote safety to the court, such as various evaluation and monitoring efforts the plaintiffs left out in their complaint, Hamermesh said, but beyond that likelihood he couldn't predict more of what the defense will look like.
"That's what the story will look like, and really I don't know if there's a [story] there. The track record on these cases is limited," he said.
A comparative case that recently and visibly resurrects the theory of liability stemmed from Texas, according to the professor. In USA v. Blue Bell Creameries LP, the southern ice cream company paid out $19.35 million for distributing listeria-contaminated products that ultimately killed three and brought felony charges to its former president for attempting to cover up the incident.
Cases like Boeing's and Blue Bell's can be problematic, Hamermesh said. On one side, the cases reaffirm that directors and corporate officers will be held liable for important, obvious safety risks arising from the company's business and operations.
"Cases like this encourage the lawyers and others who advise boards to be proactive in dealing with those risks even more than they are now because, if you were inclined to get lazy about it before, this will dissuade you," he stated. "In a way, that's a major purpose of this sort of litigation."
On the other side, plaintiffs almost always settle for less than they believe they should ultimately get. Hamermesh said he is almost 100% certain that the Boeing shareholders will not be paid what they allege they are owed — that their final recovery will likely be in the millions, not billions.
"The other side of the coin is the risk that if it becomes too easy to overcome a motion to dismiss, the corporation is subjected to enormous pressure to settle to avoid litigation costs in a case that won't yield net benefits for the corporation or its stockholders," he said.
That settlement, after over 300 lives lost and billions in criminal penalties and lost revenue, is likely to take a long time.
"Given the scope of [the Boeing case], we're talking about what nobody can confuse as not a huge amount of money," Hamermesh stated.