Boeing To Face Shareholder Lawsuit over 737 Max Lapses

 - September 8, 2021, 8:11 AM
Boeing 737 Max 8s sit parked in Moses Lake, Washington, during the type's grounding in October 2019. (Photo: Barry Ambrose)

A Delaware judge on Tuesday ruled that Boeing’s board of directors must face a shareholder lawsuit claiming liability for the twin 737 Max crashes that killed a total of 346 people. In his ruling, judge Morgan Zurn said the first crash—involving a Lion Air Max 8 in October 2018—should have raised a “red flag” that the board did not heed before another Max 8 crashed in Ethiopia less than five months later.

Zurn dismissed some of the investors' claims, including one charging the board with granting former CEO Dennis Muilenburg a $60 million retirement package to, in effect, buy his silence over the depth of board members’ ignorance over the Max. However, the judge did allow the plaintiffs to pursue a claim over board member oversight, citing the directors’ failure to establish a reporting system for airplane safety and “turning a blind eye” to evidence of safety problems.

In a statement, Boeing expressed its displeasure with the ruling. “We are disappointed in the court's decision to allow the plaintiffs' case to proceed past this preliminary stage of litigation,” it said. "We will review the opinion closely over the coming days as we consider next steps."

In January Boeing reached an agreement with the Justice Department to pay $2.5 billion in penalties to resolve a criminal charge of conspiracy to defraud the Federal Aviation Administration’s Aircraft Evaluation Group (FAA AEG) in connection with its assessment of the Max. In a statement, the Justice Department’s acting assistant attorney general said that Boeing employees “chose the path of profit over candor” by concealing material information from the FAA about the faulty operation of the Max’s maneuvering characteristics augmentation system (MCAS).

In this latest ruling, Zurn described the evolution of Boeing’s corporate culture from one dedicated to an engineering focus to one more interested in cost-cutting and profits. By 2019, he wrote, the board had become “distanced” from safety information, maintaining no connection with the company’s Safety Review Board (SRB), which operated below the level of “most” senior officers.

“Without a board-level reporting mechanism, safety issues and whistleblower complaints reported to the SRB did not come to the board’s attention,” read the opinion. “With the board so distanced from safety information, and on the heels of recent safety incidents and inquiries, Boeing continued to push production and forego implementing meaningful systems to monitor airplane safety.”