November 30, 2020
A Boeing shareholder told the Seventh Circuit during oral arguments Monday that the aerospace giant’s bylaws deprive shareholders of their rights to bring federal derivative claims over allegedly misleading proxy statements made about its 737 Max jets.
Seafarers Pension Plan, which has alleged in Illinois federal court that current and former Boeing board members and executives made false and misleading statements about the development and operation of 737 Max, is asking the Seventh Circuit to overturn a district court decision to enforce a forum selection clause in Boeing’s bylaws. Seafarers argues the clause, which states that the Delaware Chancery Court “shall be the sole and exclusive forum for … any derivative action,” takes away the right of shareholders to assert certain claims.
Enforcing the forum bylaw eliminates shareholders’ right to assert derivative claims under the Securities Exchange Act and violates Congress’s mandate that federal courts retain exclusive jurisdiction over those claims, Seafarers attorney Carol V. Gilden of Cohen Milstein Sellers & Toll PLLC told the three-judge panel.
“It’s quite clear there are strong federal interests in terms of protecting the securities markets, in terms of enforcing federal jurisdiction, that certainly outweigh any effort to, if you will, kick the case to Delaware,” Gilden said.
Delaware state court doesn’t have the full body of the law and all the regulations that come into play “when a company like Boeing files with the [U.S. Securities and Exchange Commission] a proxy statement that is then disseminated to investors and used to solicit their votes on things like the directors, executive compensation and shareholder proposals,” Gilden said.
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Seafarers contends in its lawsuit, filed in Illinois federal court in December 2019, that misrepresentations were made in proxy statements about the 737 Max so shareholders would “re-elect and entrench” the same problematic board members whose oversight failures caused the two crashes.
It says the district court overly relied on the Bonny decision when it granted Boeing’s dismissal bid in June.
Judges Frank Easterbrook, Diane Wood and David Hamilton sat on the panel for the Seventh Circuit.
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