Boeing Facing ERISA Lawsuit in the Wake of 737 MAX Plane Crashes [UPDATE]
by Erin Shaak
Last Updated on April 7, 2021
Burke et al. v. The Boeing Company et al.
Filed: March 31, 2019 ◆§ 1:19-cv-02203
The Boeing Company has been hit with a proposed class action lawsuit filed by two investors in its employee retirement plan who claim the aircraft manufacturer failed to disclose known safety issues with its 737 MAX series.
The Boeing Company The Boeing Employee Benefit Plans Committee The Boeing Employee Benefit Investment Committee
Illinois
Case Updates
April 6, 2021 – Lawsuit Dismissed
The lawsuit detailed on this page was dismissed in November 2020 after the judge overseeing the case ruled that Boeing did not have fiduciary duty over the company stock fund.
U.S. District Judge Virginia M. Kendall noted in a November 12 opinion and order, found here, that third party Newport Trust Company had in August 2017 been assigned by the employee benefit investment committee (EBIC) “exclusive fiduciary authority and responsibility” over the stock fund.
“Newport, then—not Boeing, not the EBIC, and not [the individual defendants]—had fiduciary responsibility over the Stock Fund,” the judge wrote. “This alone is sufficient to dispose of Plaintiffs’ claims against Defendants.”
The judge added, however, that even if Boeing did have fiduciary responsibility for the stock fund, the plaintiffs had failed to plausibly allege an alternative action consistent with securities laws that the defendants could have taken that would not have been viewed by a prudent fiduciary as more likely to harm the fund than to help it.
In other words, though the plaintiffs argued that Boeing should have publicly disclosed the known safety issues with the 737 MAX airplanes, they failed to adequately plead that a prudent fiduciary could not conclude that such a disclosure would do more harm than good to the plan, the order states.
Given the problems with the 737 MAX were the subject of highly publicized investigations, “it is entirely plausible” that a prudent fiduciary could have concluded that a public disclosure would do more harm than good to the plan, Judge Kendall argued. Moreover, the judge added, a public disclosure may have involved releasing incomplete or inaccurate information that “could have spooked the market and resulted in an outsized drop in the value of Boeing stock.” Such a drop could have harmed plan participants holding Boeing stock as well as those who planned to sell their stock during the period covered by the lawsuit, according to the order.
Though the judge gave the plaintiffs 21 days to file an amended complaint, they have instead appealed her decision.
Check back here for updates on any new developments.
The Boeing Company has been hit with a proposed class action lawsuit filed by two investors in its employee retirement plan who claim the aircraft manufacturer breached its fiduciary duties by failing to disclose known safety issues with its 737 MAX series. Citing Employee Retirement Income Security Act (ERISA) violations, the lawsuit claims Boeing should have known the problems would eventually manifest themselves to the public and cause a drop in Boeing stock prices, which indeed took a hit after two 737 MAX aircraft were involved in fatal crashes.
According to the lawsuit, the Boeing employee benefit plan includes as an investment option the VIP Stock Fund, which allows participants to invest in Boeing stock. However, the price of Boeing stock, the case alleges, has been artificially inflated “for many years,” as the company has failed to disclose known problems with its Boeing 737 MAX series.
Following technological advances, the suit explains, the aircraft in the MAX series were fitted with larger, more fuel-efficient engines that, when installed on the same airframe as previous models, materially changed the balance and flight characteristics of the plane. As a result, the case goes on, the flight control systems for the MAX aircraft had to be adjusted to offset the imbalance caused by the new engine placement. According to the complaint, the modified control systems began exhibiting problems during takeoff and would incorrectly detect danger of a stall, forcing the nose of the plane down. Boeing was aware of the issue, the suit says, and developed a warning light system for the planes that would alert pilots if there was a problem with the aircraft’s sensors. Rather than making the warning system standard, however, the company supposedly offered it as an optional $80,000 add-on.
The safety issues and the decision to make warning systems optional would have been widely “analyzed, reviewed and discussed among Boeing executives well beyond the engineering divisions,” the lawsuit says. Thus, the case argues, Boeing knew for years that the 737 MAX aircraft “faced crucial safety problems” that would eventually become known to the public, yet remained silent and allowed retirement plan members to continue purchasing Boeing stock at inflated prices.
The truth began to reveal itself, according to the complaint, in October 2018 when a 737 MAX crashed in Indonesia shortly after takeoff. The tragic incident was again repeated in March 2019, when a 737 MAX went down just minutes after taking off in Ethiopia.
In the wake of the two crashes, the case says, regulatory agencies in almost every country grounded the 737 MAX aircraft, causing Boeing to suffer “significant setbacks.” In response, Boeing’s stock price reportedly plummeted, injuring participants in its retirement plan.
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