January 7, 2022
- Seventh Circuit revives case after it was sent to Delaware
- Boeing bylaw would require waiver of unwaivable claims
Boeing Co. and its board must face federal securities litigation in Chicago over claims they misled investors about its 737 Max 8 jetliner before two high-profile crashes that killed 346 people, a federal appeals court ruled Friday, reversing a novel decision that had sent the case to Delaware.
A divided U.S. Court of Appeals for the Seventh Circuit revived the lawsuit, saying Judge Harry D. Leinenweber shouldn’t have deferred to a company bylaw requiring certain shareholder lawsuits to be filed in Delaware Chancery Court, widely considered the country’s top forum for business disputes.
The ruling comes about two months after Boeing’s board agreed to a $237.5 million settlement resolving parallel investor litigation in Delaware, where shareholder claims against Boeing were consolidated after Leinenweber dismissed the federal case in June 2020.
Judge David F. Hamilton, writing for the Seventh Circuit, said Leinenweber misread the Delaware law authorizing companies headquartered in the state—most major U.S. corporations—to require that derivative cases, a type of governance litigation, be heard there.
The statute refers to courts “in” the state, not courts “of” the state—meaning it includes federal courts—and it’s also limited by the caveat requiring the bylaws to be applied “consistent with applicable jurisdictional requirements,” Hamilton noted.
Because the Securities Exchange Act “gives federal courts exclusive jurisdiction” over federal securities fraud claims, applying the Boeing bylaw would mean the investor claims “may not be heard in any forum,” the judge wrote. “That result would be contrary to Delaware corporation law.”
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The pension fund is represented by Cohen Milstein Sellers & Toll PLLC. Boeing and its board are represented by Kirkland & Ellis LLP.
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