In re Boeing Co. Derivative Litig. - No. 2019-0907-MTZ, 2021 Del. Ch. LEXIS 197 (Ch. Sep. 7, 2021)

Rule:

The law will hold directors personally liable only where, in failing to oversee the operations of the company, the directors knew that they were not discharging their fiduciary obligations. At the pleading stage, a plaintiff must allege particularized facts that satisfy one of the necessary conditions for director oversight liability articulated in case law: either that (1) the directors utterly failed to implement any reporting or information system or controls; or (2) having implemented such a system or controls, the directors consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.

Facts:

Co-Lead Plaintiffs are Boeing stockholders. Nominal Defendant Boeing is a global aerospace corporation that designs, manufactures, and sells commercial airplanes and other aviation equipment for the airline, aerospace, and defense industries. Boeing conducts its business in four segments. Its Boeing Commercial Airplanes segment is by far the most lucrative, generating approximately 61.7% of the Company's revenue in 2017 and 45% of its revenue in 2019. That decrease resulted from two fatal crashes involving Boeing's 737 MAX airplanes in 2018 (the Lion Air Crash) and 2019 (the Ethiopian Airlines Crash). Those tragedies caused preventable loss of life, as well as the grounding of Boeing's entire 737 MAX fleet in March 2019 and attendant financial and reputational harm to the Company. The defendants are current and former Boeing officers and members of Boeing's Board of Directors, who allegedly failed to oversee and monitor airplane safety. Plaintiffs seek to hold the defendants accountable for those harms. Defendants moved to dismiss all claims against them.

Issue:

Were the defendant directors liable for failure to oversee and monitor airplane safety?

Answer:

Yes.

Conclusion:

The court concluded that Plaintiffs have pled facts sufficient to render demand futile for claims against the Director Defendants, with one carveout. The court held that for purposes of Del. Ch. Ct. R. 23.1, plaintiffs pleaded with particularity that demand was futile for most claims against defendant directors because the fact that the management only communicated with the defendant directors regarding airplane safety on an ad hoc basis as necessary to further business strategy, and only gave defendant directors certain favorable information, indicated that the defendant directors failed to implement a reasonable reporting system to monitor the safety of the company's airplanes.