Overview
On December 17, 2019, Cohen Milstein filed an unredacted public version of a derivative shareholder complaint, which was previously filed under seal by Cohen Milstein on December 11, 2019, in the United States District Court for the Northern District of Illinois on behalf of the Seafarers Pension Plan (“Seafarers”), and derivatively on Boeing’s behalf against certain current and former directors and officers of Boeing. On June 8, 2020, the district court granted Boeing’s motion to dismiss for lack of jurisdiction based on the enforcement of a forum selection clause in Boeing’s bylaws (the “Forum Bylaw”) against Seafarers’ derivative claims arising under the Securities Exchange Act of 1934 (the “Exchange Act”).
This case ultimately went before the United States Court of Appeals for the Seventh Circuit, which determined in January 2022 that Boeing’s Forum Bylaw, as enforced, improperly barred the Seafarers’ federal derivative claims, thereby reviving the litigation in the lower court. (Boeing’s Forum Bylaw had only allowed such suits to be filed in the Delaware Court of Chancery.)
On December 14, 2022, the Honorable Harry D. Leinenweber of the United States District Court for the Northern District of Illinois granted final approval of a settlement that includes a $6.25 million payment related to Seafarers’ derivative Exchange Act claims and a corporate governance reform requiring Boeing to revise its Forum Bylaw to enable stockholders to file derivative claims, where federal courts possess exclusive jurisdiction over such claims, in either the Delaware federal court (i.e., where Boeing is incorporated) or the Eastern District of Virginia federal court (i.e., where Boeing is headquartered).
This revision to Boeing’s Forum Bylaw is a shared settlement term with the settlement of the Delaware Chancery Court class action, which was granted final approval by the Delaware Chancery Court on January 13, 2023. As a part of this settlement, the Court also certified the settlement class of shareholders who brought the suit before the Delaware Chancery Court.
As a result, these two settlements mandating bylaw changes have established a significant victory for shareholder rights.
Case Background
The lawsuit alleges that the named directors and officers repeatedly violated the federal securities laws by filing false and misleading proxy statements when seeking Boeing’s shareholders’ votes on the re-election of directors, executive compensation, and the appointment of an independent chairman, without disclosing: (i) Boeing’s inadequate internal and disclosure controls, as well as ineffective risk management systems; (ii) the existence of a December 2015 settlement with the Federal Aviation Administration (the “FAA”), as well as Boeing’s commercial airplane unit’s performance of its continuing obligations under the agreement, including annual reports to the FAA for a period of five years; (iii) operational and reporting failures that did not appropriately address how Boeing developed and operated the 737 MAX fleet in violation of federal and international laws, and Boeing’s requirements under its settlement with the FAA and retaliatory practices against its employees reporting safety violations; and (iv) the Board-approved compensation programs that incentivized the concealment of the 737 MAX fleet’s illegal design flaw.
The lawsuit also alleged that these defendants breached their fiduciary duties, with respect to their oversight of the safety, regulatory, and compliance matters pertinent to Boeing’s commercial airline business, thus allowing Boeing to design and market the 737 MAX airplane with fatal design flaws that ultimately killed 346 people in two crashes and placed millions of other passengers’ lives at risk before 737 MAX airplanes were grounded worldwide in mid-March 2019.
The lawsuit further claims that Boeing concealed the existence of those design flaws from its customers, the FAA and international regulators and the public, denying their existence after the crashes, all the while Defendants received salaries, bonuses and other remuneration from sales of the defective airplane.
“In addition to the tragic loss of life in not one, but two devastating crashes, the culmination of Boeing’s deceit and malfeasance has led to multiple investigations worldwide, Congressional hearings, a DOJ criminal probe, dozens of lawsuits, and now Boeing’s halting of all production of the 737 MAX. This has cost the company billions, not to mention irreparable reputational harm going forward. And the fallout is continuing,” said Carol Gilden, a partner at Cohen Milstein who is overseeing the derivative action against Boeing in Chicago. “Boeing’s Board and senior executives must be held accountable for these monumental failings. Our shareholder derivative lawsuit seeks to do just that.”