Court Opinion

ID: 4908733
Source: CourtListenerOpinion
Date Created: 2021-09-07 20:05:09.426924+00
Date Added: 2024-06-11T08:13:17.303568
License: Public Domain

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE

IN RE THE BOEING COMPANY               )     C.A. No. 2019-0907-MTZ
DERIVATIVE LITIGATION                  )

                        MEMORANDUM OPINION
                        Date Submitted: June 25, 2021
                       Date Decided: September 7, 2021

Joel Friedlander, Jeffrey M. Gorris, and Christopher M. Foulds, FRIEDLANDER &
GORRIS, P.A., Wilmington, Delaware; Richard M. Heimann and Katherine Lubin
Benson, LIEFF CABRASER HEIMANN & BERNSTEIN, LLP, San Francisco,
California; Steven E. Fineman, Nicholas Diamond, Sean Petterson, Rhea Ghosh, and
Kartik S. Madiraju, LIEFF CABRASER HEIMANN & BERNSTEIN, LLP, New
York, New York, Attorneys for Co-Lead Plaintiffs.

Blake Rohrbacher, Kevin M. Gallagher, and Ryan D. Konstanzer, RICHARDS,
LAYTON & FINGER, P.A., Wilmington, Delaware; Joshua Z. Rabinovitz,
KIRKLAND & ELLIS LLP, Chicago, Illinois, Attorneys for Defendants and
Nominal Defendant The Boeing Company.

ZURN, Vice Chancellor.
        A 737 MAX airplane manufactured by The Boeing Company (“Boeing” or

the “Company”) crashed in October 2018, killing everyone onboard; a second one

crashed in March 2019, to the same result. Those tragedies have led to numerous

investigations and proceedings in multiple regulatory and judicial arenas to find out

what went wrong and who is responsible. Those investigations have revealed that

the 737 MAX tended to pitch up due to its engine placement; that a new software

program designed to adjust the plane downward depended on a single faulty sensor

and therefore activated too readily; and that the software program was insufficiently

explained to pilots and regulators. In both crashes, the software directed the plane

down.

        The primary victims of the crashes are, of course, the deceased, their families,

and their loved ones. While it may seem callous in the face of their losses, corporate

law recognizes another set of victims: Boeing as an enterprise, and its stockholders.

The crashes caused the Company and its investors to lose billions of dollars in value.

Stockholders have come to this Court claiming Boeing’s directors and officers failed

them in overseeing mission-critical airplane safety to protect enterprise and

stockholder value.

        Because the crashes’ second wave of harm affected Boeing as a company, the

claim against its leadership belongs to the Company. In order for the stockholders

to pursue the claim, they must plead with particularity that the board cannot be

                                            1
entrusted with the claim because a majority of the directors may be liable for

oversight failures. This is extremely difficult to do. The defendants have moved to

dismiss this action, arguing the stockholders have failed to clear this high hurdle.

      The narrow question before this Court today is whether Boeing’s stockholders

have alleged that a majority of the Company’s directors face a substantial likelihood

of liability for Boeing’s losses. This may be based on the directors’ complete failure

to establish a reporting system for airplane safety, or on their turning a blind eye to

a red flag representing airplane safety problems. I conclude the stockholders have

pled both sources of board liability. The stockholders may pursue the Company’s

oversight claim against the board. But the stockholders have failed to allege the

board is incapable of maintaining a claim against Boeing’s officers.                  The

stockholders’ other claim against the board, regarding their handling of the chief

executive officer’s retirement and compensation, is also dismissed.

      I.     BACKGROUND

      I draw the following facts from the Verified Amended Consolidated

Complaint, as well as the documents attached and integral to it.1

1
  Docket Item (“D.I.”) 131 [hereinafter “Am. Compl]. See, e.g., Himawan v. Cephalon,
Inc., 2018 WL 6822708, at *2 (Del. Ch. Dec. 28, 2018); In re Gardner Denver, Inc.
S’holders Litig., 2014 WL 715705, at *2 (Del. Ch. Feb. 21, 2014). Citations in the form
of “Defs.’ Ex. —” refer to the exhibits in support of Defendants’ Motion, available at D.I.
147 through D.I. 152 and D.I. 160. Citations in the form of “Pls.’ Ex. —” refer to exhibits
in support of Plaintiffs’ opposition to the Motion, available at D.I. 155. And citations in

                                            2
       Co-Lead Plaintiffs are Boeing stockholders. Co-Lead Plaintiff Thomas P.

DiNapoli is Comptroller of the State of New York, Administrative Head of the New

York State and Local Retirement System, and Trustee of the New York State

the form of “Hr’g Tr. —” refer to the transcript of the June 25, 2021 oral argument on
Defendants’ Motion, available at D.I. 169.
       Prior to filing this action, Plaintiffs pursued and received books and records pursuant
to 8 Del. C. § 220. Plaintiffs received over 44,100 documents totaling over 630,000 pages.
It is reasonable to infer that exculpatory information not reflected in the document
production does not exist. See Teamsters Local 443 Health Servs. & Ins. Plan v. Chou,
2020 WL 5028065, at *24 & n.314 (Del. Ch. Aug. 24, 2020).
      The Amended Complaint cites documents Plaintiffs obtained under Section 220.
The parties do not contest that under the incorporation by reference doctrine, I may
consider those documents and Defendants’ exhibits in support of the Motion to determine
whether the Amended Complaint has accurately referenced their contents in support of its
claims and in pleading demand futility. Reiter on Behalf of Cap. One Fin. Corp. v.
Fairbank, 2016 WL 6081823, at *5–6 (Del. Ch. Oct. 18, 2016).
        In briefing, Plaintiffs did not assert that any of the exhibits Defendants submitted
would be improper to consider on the Motion. See D.I. 155 at 1 n.1 & 42–44. At argument,
Plaintiffs’ counsel suggested that the Court should not consider Dennis Muilenburg’s
“Lion Air Talking Points” for the Board’s November 23, 2018 call, submitted as
Defendants’ Exhibit 86. See Hr’g Tr. 125–27. Specifically, Plaintiffs’ counsel argued that
“it is on its face a draft set of talking points that Mr. Muilenburg had”; and that “it’s not
incorporated by reference” because Plaintiffs “didn’t plead that they were recited . . . to the
board,” “it’s not a board meeting,” and “[i]t’s not a presentation,” but “could have been.”
Id. 125. But Plaintiffs pled that “[t]alking points for the call circulated among Muilenburg
and other executives expressed skepticism about media accounts of MCAS’s role in the
crash.” Am. Compl. ¶ 224. Plaintiffs’ brief in opposition to the Motion also relied on the
talking points. See D.I. 155 at 26. Defendants submitted Exhibit 86 in reply. See Defs.’
Ex. 86. I therefore consider Defendants’ Exhibit 86 on the Motion.
       At Defendants’ urging, I have considered their proffered exhibits to determine if
they show that Plaintiffs “misrepresented their contents” or if any inference that Plaintiffs
seek is unreasonable. Flannery v. Genomic Health, Inc., 2021 WL 3615540, at *8 (Del.
Ch. Aug. 16, 2021) (citing Voigt v. Metcalf, 2020 WL 614999, at *9 (Del. Ch.
Feb. 10, 2020)). Through that lens, I find they do no such work for Defendants; in fact,
Defendants’ exhibits support Plaintiffs’ allegations.

                                              3
Common Retirement Fund (“NYSCRF”). NYSCRF is a public pension fund for

New York State and local government employees. Co-Lead Plaintiff Fire and Police

Pension Association of Colorado (“FPPA”) is the Trustee for the Fire and Police

Members’ Benefit Investment Fund, which contains assets of governmental defined

benefit pension plans for Colorado firefighters, police officers, and their

beneficiaries. As of June 8, 2020, FPPA held approximately 9,165 shares of Boeing

stock, and NYSCRF held approximately 1,186,627 shares of Boeing stock.

      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 (“BCA” or “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 (the “737 MAX Grounding”) and attendant financial and reputational

harm to the Company.       Plaintiffs seek to hold the defendants in this action

                                        4
accountable for those harms under the principles articulated in In re Caremark

International Inc. Derivative Litigation2 and Marchand v. Barnhill.3

         The defendants are current and former Boeing officers (the “Officer

Defendants”) and members of Boing’s Board of Directors (the “Board”) (the

“Director Defendants,” and together with the Officer Defendants, “Defendants”),

who allegedly failed to oversee and monitor airplane safety.           The Director

Defendants include Dennis A. Muilenburg, W. James McNerney Jr., Kenneth M.

Duberstein, David L. Calhoun, Mike S. Zafirovski, Admiral Edmund P.

Giambastiani Jr., Susan C. Schwab, Caroline B. Kennedy, Arthur D. Collins Jr.,

Edward M. Liddy, Ronald A. Williams, Lynn J. Good, Randall L. Stephenson,

Robert A. Bradway, and Lawrence W. Kellner.4

         Many of Boeing’s Board seats were long-term and awarded to political

insiders or executives with financial expertise.    For example, Duberstein, the

longest-tenured Defendant and a lobbyist with “ultimate insider status,” served as a

McDonnell Douglas director from 1989 to 1997, and then as a Boeing director from

1997 through April 2019, including as Lead Director from 2005 through April 2018. 5

2
    698 A.2d 959 (Del. Ch. 1996).
3
    212 A.3d 805 (Del. 2019).
4
 Plaintiffs allege Defendant Raymond L. Conner was “vice chairman of Boeing” from
2014 to 2017. Am. Compl. ¶ 39. It is unclear whether Conner was vice chairman of the
Board. If he was a director, he is included as a “Director Defendant.”
5
    Am. Compl. ¶ 23.

                                         5
Duberstein was succeeded in that role by Defendant David L. Calhoun, a private

equity executive, who has been a Boeing director since 2009; was appointed Board

Chairman in October 2019 in the wake of the 737 MAX crashes; and was appointed

Boeing’s President and CEO in January 2020.

      The Officer Defendants have also had extensive tenures at Boeing. They

include the following:

      •     McNerney has been with Boeing since at least 2001. He served as

            Boeing’s CEO, President, and Chairman of the Board from 2005 until

            February 2016.

      •     Muilenburg is a career Boeing executive who started with the Company

            in 1985. He became Boeing’s Vice Chairman, President, and COO in

            December 2013; CEO in July 2015; and CEO and Chairman of the

            Board in March 2016, succeeding McNerney. After the 737 MAX

            crashes, in October 2019, Muilenburg was removed as Chairman and

            ultimately retired from the Company in December 2019.

      •     Defendant J. Michael Luttig served as Boeing’s EVP and General

            Counsel from May 2006 to May 2019. In May 2019, following the

            grounding of the 737 MAX, Luttig was named Counselor and Senior

            Advisor to CEO Muilenburg and the Board, but left the Company in

            December 2019.

                                       6
      •      Defendant Raymond L. Conner joined Boeing in 1977. He served as

             Boeing’s Vice Chairman from 2014 until his retirement in 2017, and

             President and CEO of BCA from 2014 until November 2016.

      •      Defendant Kevin G. McAllister was Boeing’s Executive Vice President

             and President and CEO of BCA from November 2016 (succeeding

             Conner) until his ouster in October 2019, following the Ethiopian

             Airlines Crash.

      •      Defendant Greg Hyslop has been Boeing’s chief engineer since July

             2016, overseeing all aspects of safety and technical integrity of Boeing

             products and services. Hyslop is also a member of Boeing’s Executive

             Council and reports to the Company’s President and CEO.

      •      Defendant Diana L. Sands is a member of Boeing’s Executive Council

             and has served as Senior Vice President of Boeing’s Office of Internal

             Governance and Administration since April 2014. As Boeing’s chief

             ethics and compliance officer, she leads Boeing’s ethics, compliance,

             corporate audit and trade controls activities, and reports to Boeing’s

             President and CEO and to Boeing’s Audit Committee, discussed infra.

      •      Defendant Greg Smith has served as Boeing’s CFO since 2011.

      In these roles, Defendants allegedly failed to carry out their respective duties

to monitor the safety and airworthiness of Boeing’s aircraft, and the extent of those

                                          7
alleged failures only surfaced in the wake of corporate trauma.          Rather than

prioritizing safety, Defendants lent their oversight authority to Boeing’s agenda of

rapid production and profit maximization. That misplaced Board focus caused

Boeing to bleed millions of dollars in fees, fines, and lost revenue, yet the Company

rewarded several of the Defendants with hefty compensation and retirement

packages.

                A.     Boeing Shifts Its Focus From Engineering And Safety To
                       Profits And Rapid Production.

          Founded in 1916, Boeing thrived as “an association of engineers.” 6 Its

executives were “conversant in engineering requirements.” 7 As a result, Boeing’s

culture emphasized engineering and safety, and Boeing emerged as a leading global

aerospace manufacturer.

          As the Company grew, its focus on safety and engineering fell away. In 1997,

Boeing acquired McDonnell Douglas, another airplane manufacturer with a long

history of pushing profits, shirking quality control, and designing products involved

in numerous safety incidents. With former McDonnell Douglas leaders at the helm,

Boeing’s corporate culture shifted from “safety to profits-first” and “focusing on

6
    Am. Compl. ¶ 44.
7
    Id.

                                            8
costs-cutting rather than designing airplanes.”8 As observed by a longtime Boeing

physicist:

         If your business model emphasizes productivity, employee
         engagement, and process improvement, costs go down faster. This was
         the essence of the “quality” business model Boeing followed in the mid-
         90s.

         The 777 had the best “learning curve” in the business. On the other
         hand, if your industry is mature, and your products are commodity-like,
         business school theory says a cost-cutting model is appropriate.

         Wal-Mart perfected its particular version of the cost-cutting business
         model. Amazon adapted that model to its industry. Boeing has adapted
         it to high-end manufacturing.9

As a result, many of Boeing’s engineers felt disenchanted, and in 2000 they staged

a forty-day strike to improve Company culture and regain a voice in decision

making. By 2001, Boeing relocated its headquarters from Seattle to Chicago in order

“to escape the influence of the resident flight engineers.” 10

         The internal shift to focus on cost-cutting exacerbated the inherent risks

associated with Boeing’s business. In the early 2000s, Boeing saw a sharp rise in

safety violations imposed by the Federal Aviation Administration (the “FAA”).

8
    Id. ¶ 47.
9
 Id. ¶ 55 (quoting Stan Sorscher, a longtime Boeing physicist and negotiator for the Society
for Professional Engineering Employees in Aerospace).
10
  Id. ¶ 5; see also id. ¶ 50. As Boeing’s then-CEO Phil Condit explained, “When the
headquarters is located in proximity to a principal business—as ours was in Seattle—the
corporate center is inevitably drawn into day-to-day business operations.” Id.

                                             9
Between 2000 and 2020, the FAA flagged twenty airplane safety violations for poor

quality control, poor maintenance, and noncompliant parts, as well as the Company’s

failure to provide its airline clients with crucial safety information. 11 Consequently,

Boeing faced fines ranging between $6,000 and $13 million.

         Quality suffered, and the Company was widely criticized, with prosecutors

asking, “Where was the leadership?”12 Management scandals ultimately led to the

ouster of two successive CEOs. Then, in 2005, McNerney was named CEO.

McNerney did not have a technical background, and after his appointment, Boeing

was described as a “weird combination of a distant building with a few hundred

people in it and a non-engineer with no technical skills whatsoever at the helm.” 13

         The Company’s safety record in the years that followed was spotty. In 2013,

the new 787 Dreamliner suffered a series of lithium-ion battery fires and was

grounded by the FAA. In 2014, the National Transportation Safety Board (“NTSB”)

directed Boeing to modify its process for developing safety assessments for designs

incorporating new technology, after having determined that (1) Boeing had made

misleading and unfounded claims about the lithium-ion battery system in its safety

assessment reports to the FAA; (2) Boeing’s certification engineers had not properly

11
  See id. ¶ 49. In comparison, the FAA cited Boeing’s competitor, Airbus, for only three
safety violations during the same period. Id.
12
     Id. ¶ 52.
13
     Id. ¶ 53.

                                          10
tested the lithium-ion battery system; and (3) Boeing’s safety assessment was

insufficient. Al Jazeera also conducted and released an investigative report that

detailed employee reports of ineffective quality control at a Dreamliner plant that

resulted in “foreign object debris” being left in the aircraft, and disclosed that a

Boeing customer was refusing to accept Dreamliners manufactured in that plant due

to quality concerns.14

         In addition to the Dreamliner issues, in July 2013, one of Boeing’s 777

airplanes crashed, killing three and seriously injuring dozens. An NTSB report

concluded that the crash was caused, at least in part, by inadequate plane

documentation and training manuals, and recommended improvements in those

areas.

         Boeing’s safety woes continued into 2015 as reflected in thirteen separate

pending or potential civil enforcement cases relating to quality control, safety

protocol violations, and manufacturing errors in production lines.         The FAA

investigated these claims and Boeing’s failure to take appropriate corrective actions.

In December 2015, Boeing entered into an unprecedented settlement with the FAA

(the “FAA Settlement”) and agreed to pay historic fines of $12 million, with up to

$24 million in additional fines deferred pending Boeing acting on a five-year

implementation of “additional significant systemic initiatives, to strengthen its

14
     Id. ¶¶ 118–21.

                                         11
regulatory compliance processes and practices.”15 On February 25, 2021, the FAA

announced in a press release it had assessed an additional $6.6 million in deferred

civil penalties and settlement costs against Boeing.16

                   B.   Boeing Lacked Any Formal, Board-Level Process To
                        Oversee Airplane Safety.

         Boeing did not implement or prioritize safety oversight at the highest level of

the corporate pyramid. None of Boeing’s Board committees were specifically tasked

with overseeing airplane safety, and every committee charter was silent as to

airplane safety. The Board recognized as much: former director John H. Briggs,

who retired in 2011, observed that the “board doesn’t have any tools to oversee”

safety.17 This stood in contrast to many other companies in the aviation space whose

business relies on the safety and flightworthiness of airplanes. 18

         From 2011 until August 2019, the Board had five standing Committees to

monitor and oversee specific aspects of the Company’s business:              (1) Audit,

(2) Finance, (3) Compensation, (4) Special Programs, and (5) Governance,

Organization and Nominating. The Audit Committee was Boeing’s primary arbiter

for risk and compliance. Specifically, it “evaluat[ed] overall risk assessment and

15
     Id. ¶ 123.
16
     Pls.’ Ex 1.
17
     Am. Compl. ¶ 57.
18
 Id. ¶ 67 (identifying board-level safety committees and control at Southwest Airlines,
Delta Airlines, United Airlines, JetBlue, Spirit Airlines, and Alaska Airlines).

                                            12
risk management practices”; “perform[ed a] central oversight role with respect to

financial statement, disclosure, and compliance risks”; and “receiv[ed] regular

reports from [Boeing’s] Senior Vice President, Office of Internal Governance and

Administration with respect to compliance with our ethics and risk management

policies.”19

         The Audit Committee’s charter identifies its responsibilities as

         •       “[o]btain[ing] and review[ing], on an annual basis, a formal written

                 report prepared by the independent auditor describing [Boeing’s]

                 internal quality-control procedures”;

         •       reviewing “[a]ny material issues raised by the most recent internal

                 quality-control review, or peer review, of [Boeing], or by any inquiry

                 or investigation by governmental or professional authorities, within the

                 preceding five years, respecting one or more independent audits carried

                 out by [Boeing]”;

         •       “[d]iscuss[ing] with management the Company’s policies, practices

                 and guidelines with respect to risk assessment and risk management”;

         •       “[a]t least annually receiv[ing] reporting by the [Senior Vice President,

                 Office of Internal Governance and Administration] on the Company’s

19
     Id. ¶ 59.

                                             13
                 compliance with its risk management processes, and by the General

                 Counsel on pending Law Department investigations of alleged or

                 potentially significant violations of laws, regulations, or Company

                 policies”; and

         •       “[m]eet[ing] with the [Senior Vice President, Office of Internal

                 Governance and Administration] to review the Company’s ethics and

                 business conduct programs and the Company’s compliance with related

                 laws and regulations.”20

The Audit Committee was obligated to regularly report to the Board regarding those

topics, including “the Company’s compliance with legal or regulatory

requirements,” and “the implementation and effectiveness of the Company’s ethics

and compliance programs to support the Board’s oversight responsibility.”21

         Although the Audit Committee was tasked with handling risk generally, it did

not take on airplane safety specifically. Its yearly updates regarding the Company’s

compliance risk management process did not address airplane safety. For example,

when the Board discussed audit plans in 2014 and 2017, respectively, it did not

mention or address airplane safety. Specifically as to the 737 MAX, from its

development through its grounding in 2019, the Audit Committee never mentioned

20
     Id. ¶ 61.
21
     Id. ¶ 62.

                                            14
“safety.” 22     Nor did it address product safety issues related to the design,

development, or production of the 737 MAX, or ask for presentations on the topic.

         Rather, consistent with Boeing’s emphasis on rapid production and revenue,

the Audit Committee primarily focused on financial risks to the Company. For

example, its February 2011 audit plan focused on “production rate readiness

activities” and “supplier management rate readiness.” 23 Its presentations centered

on whether Boeing had liquidity, capital, and supply chain resources sufficient to

fund aggressive production of the 737 MAX.24 Even after the Lion Air Crash in

2018, chief compliance officer Sands’s risk management update to the Audit

Committee in December 2018 did not identify product safety as a “compliance risk”

for 2018.25

         The Audit Committee also oversaw an Enterprise Risk Visibility (“ERV”)

process.26 The ERV process annually provided senior management and the Board

with a “comprehensive view of key Boeing Risks and the actions taken to address

them,” as curated from “[a]ll business units, major functions, and risk and

22
     Id. ¶¶ 60, 62–64.
23
     Id. ¶ 64.
24
     See Defs.’ Ex. 6; Defs.’ Ex. 10; Am. Compl. ¶¶ 60, 63; see also infra note 32.
25
     Am. Compl. ¶ 65.
26
     Defs.’ Ex. 7 at -14500; Hr’g Tr. 9.

                                              15
compliance disciplines.” 27        The Audit Committee annually reviewed the top

strategic, operational, and compliance risks the ERV process identified, and

subsequently reported those risks to the Board, which in turn reviewed

management’s mitigation of those risks. 28 The ERV process also played an

important role in Boeing’s internal Corporate Audit group, which evaluated priority

risk areas within the Company. 29 Based on the results of annual ERV risk

assessments, the Corporate Audit group annually submitted an audit plan to review

top risks.30 But neither the Corporate Audit group nor the ERV process specifically

emphasized airplane safety; they primarily focused on production and financial

risks.31

         Airplane safety was not a regular set agenda item or topic at Board meetings.

Audit Committee and ERV materials reveal that airplane safety risks were not

discussed.32 While the Board sometimes discussed production line safety, the Board

27
     Defs.’ Ex. 7 at -14501.
28
     Id. at -14502–04.
29
     Defs.’ Ex. 9 at -14488; Defs.’ Ex. 10 at -17591; Hr’g Tr. 9.
30
     Defs.’ Ex. 9 at -14488–89.
31
  See Defs.’ Ex. 7; Defs.’ Ex. 8 at -11183–84; Defs.’ Ex. 9; Defs.’ Ex. 10 at -17575–92;
Defs.’ Ex. 23; Defs.’ Ex. 24 at -16424, -16426; Defs.’ Ex. 25 at -16997; see also infra note
32.
32
   Defs.’ Ex. 6; Defs.’ Ex. 7 at -14501–04; Defs.’ Ex. 9 at -14489–90, -14495; Defs.’ Ex.
10; Defs.’ Ex. 13; Defs.’ Ex. 23; Defs.’ Ex. 24 at -16424, -16426; Defs.’ Ex. 25 at -16981;
see also Am. Compl. ¶¶ 64–66. Discussions or mentions of “safety” are similarly absent
from the Audit Committee Report and Enterprise Risk Visibility Review sections of the
Board meeting minutes Defendants submitted. Ex. 8 at -11183–84, -11187; Defs.’ Ex. 11

                                              16
often met without mentioning or discussing safety at all. 33 The Board did hear

presentations discussing “Environment, Health & Safety,”34 including regarding the

workplace safety program “Go4Zero.” 35 Communications mentioning “safety,”

“quality,” or “risk” do not reflect substantive discussion related to airplane safety. 36

at -12506; Defs.’ Ex. 12 at -12648–49; Defs.’ Ex. 19 at -11606; Defs.’ Ex. 26 at -13570,
-13573; Defs.’ Ex. 27 at -11921–23; Defs.’ Ex. 28; Defs.’ Ex. 29; Defs.’ Ex. 34 at -12382–
83; Defs.’ Ex. 37 at -12972; Defs.’ Ex. 39 at -8135; Defs.’ Ex. 44; see also Am. Compl. ¶
64. Defendants’ Exhibits 28, 29, 39, and 44 were largely redacted in Defendants’ Section
220 production.
33
   Defs.’ Ex. 11; Defs.’ Ex. 12; Defs.’ Ex. 18; Defs.’ Ex. 37; Defs.’ Ex. 38; Defs.’ Ex. 40;
Defs.’ Ex. 42; Defs.’ Ex. 43; Defs.’ Ex. 44; Defs.’ Ex. 46; Defs.’ Ex. 50; Defs.’ Ex. 51;
Defs.’ Ex. 52. These documents do not support Defendants’ argument that the Board had
a reporting structure and processes to oversee airplane safety and the 737 MAX. See Hr’g
Tr. 8.
34
  See, e.g., Defs.’ Ex. 9 at -14495 (listing “safety” within “Environment, Health & Safety”
in the Appendix D Risk Universe); Defs.’ Ex. 10 at -17589 (“Supply Chain Operations
(SCO) Environment, Health & Safety, Safety Management System Renton 737 Programs
Governance” and “Evaluate processes for Renton site safety oversight related to ‘Go for
Zero’ execution to achieve overall relevant Enterprise Safety objectives”); see also Defs.’
Ex. 7; Defs.’ Ex. 10 at -17572–73, -17583, -17587; Defs.’ Ex. 20 at -13047, -13066; Defs.’
Ex. 23 at -15866; Defs.’ Ex. 24 at -16426; Defs.’ Ex. 25 at -16981; Defs.’ Ex. 84 at
-618225, -618235, -618240, -618242, -618248.
35
  See, e.g., Defs.’ Ex. 19 at -11603 (“Mr. Shanahan then provided a Safety Update. He
began by reviewing the evolution of the ‘Go for Zero’ safety program since 2007. He next
reviewed safety performance and workplace injury statistics for operations and non-
operations activities. Mr. Shanahan then reviewed safety focus areas, including
improvements in final assembly and structures manufacturing, ongoing prevention
activities and the roles of data analytics in improving safety performance.”); see also Defs.’
Ex. 10 at -17589; Defs.’ Ex. 16 at -11076; -11078; Defs.’ Ex. 17 at -11646.
36
  Defs.’ Ex. 6 at -20519; Defs.; Ex. 8 at -11183; Defs.’ Ex. 16 at -11073, -11077–80; Defs.’
Ex. 17 at -11646; Defs.’ Ex. 20 at -13057; Defs.’ Ex. 21 at -2692; Defs.’ Ex. 22 at -18837–
38 (“Model-Based Engineering (MBE) – Progress . . . Improve safety, quality,
productivity, cost”); Defs.’ Ex. 25 at -16997; Defs.’ Ex. 37 at -12967; Defs.’ Ex. 39 at
-8133, -8135; Defs.’ Ex. 40 at -8086; Defs.’ Ex. 41 at -8315; Defs.’ Ex. 42 at -12481; Defs.’
Ex. 43 at -12842; Defs.’ Ex. 44 at -2501; Defs.’ Ex. 45 at -1960; Defs.’ Ex. 50 at -2711;

                                             17
         Management’s periodic reports to the Board did not include safety

information.        Muilenburg sent the Board a monthly business summary and

competitor dashboard, and management made occasional presentations at Board

meetings.37 Those management communications focused primarily on the business

impact of airplane safety crises and risks.38

         Further, the Board did not have a means of receiving internal complaints about

airplane safety. Before 2019, Boeing’s principal internal safety reporting process

was the Safety Review Board (“SRB”). The SRB was Boeing’s principal internal

safety reporting process, but it had no link to the Board and no Board reporting

mechanism.39 The SRB operated below the level of the most senior officers; the

complaints and concerns fielded by the SRB were handled by Boeing’s mid-level

management like the Program Functional Chief Design Engineer, the Chief Pilot,

the Chief Project Engineer, and the Product Safety Chief Engineer and factory

leaders.       Without a Board-level reporting mechanism, safety issues and

whistleblower complaints reported to the SRB did not come to the Board’s attention.

Defs.’ Ex. 52 at -11401; Defs.’ Ex. 62 at -13680–81; Defs.’ Ex. 63 at -13682; Defs.’ Ex.
70 at -13684.
37
     See, e.g., Defs.’ Ex. 62.
38
  Am. Compl. ¶¶ 7, 8, 14, 17, 18, 57–76; see Defs.’ Ex. 60 at -13677; Defs.’ Ex. 73 at
-2944; Defs.’ Ex. 74 at -2947; see also supra notes 34-36 and accompanying text.
39
     Hr’g Tr. 30–33; Am. Compl. ¶¶ 74–76.

                                            18
Neither the Audit Committee, nor any other Board committee, reviewed

whistleblower complaints related to product safety.

               C.    Boeing Develops The 737 MAX In An Effort To Outpace Its
                     Competitors.

         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. Boeing’s

primary production focus was on its “blockbuster” 737 MAX, which became one of

the Company’s key revenue sources.40

         By 2008, Boeing was falling behind on production and sales as compared to

its primary competitor, Airbus.      In 2010, Airbus announced its fuel-efficient

A320neo, which sold well and quickly gained ground on Boeing’s 737, which had

not been updated since the late 1990s. As Boeing clients began considering Airbus’s

fuel-efficient jets, Boeing felt production and sales pressure.

         In 2010 and early 2011, Boeing considered two options for updating its

existing 737 Next Generation (“737 NG”) model: either develop an entirely new

airplane, which could take a decade, or redesign the current model with larger, more

efficient engines in six years. In an effort to regain competitive ground, and amid

concerns about production cost and timing, Boeing elected to update the 737 NG. If

40
     See Am. Compl. ¶ 6.

                                          19
developed as a “derivative plane,” Boeing would only need to secure FAA

certification for those changes between the 737 NG and the new plane.41 The FAA

assesses the minimum level of “differences training” required for a pilot to fly a new

airplane by evaluating the similarity between the new and prior versions of the

airplane.42

           At a June 2011 Board meeting, the Board and senior management considered

the potential redesign of the 737 NG. Jim Albaugh, Head of BCA, pressed the

production and sales benefits of the 737 NG’s potential “re-engine”: gains in fuel

efficiency, non-recurring investment costs, capital costs, and expedited re-design

schedules.43 The Board concluded the reconfigured airplane would have larger and

more fuel-efficient engines intended to “restore[] competitive advantage over

[Airbus’s] NEO.”44

           So at an August 2011 Board meeting, the Board approved development of

Boeing’s next generation of narrow-body commercial aircraft: the 737 MAX, which

would be a reconfigured version of the 737 NG that “incorporat[ed] new engine

technology and such other modifications and upgrades as are deemed appropriate in

41
     Id. ¶ 138.
42
     Id. ¶ 163.
43
     Id. ¶ 133.
44
     Id.

                                          20
light of prevailing market conditions.”45 The August 2011 Board minutes describe

the “strategy and objectives associated with a re-designed 737 airplane, including

increasing customer value, maintaining market share and a competitive advantage

over the Airbus 320neo, reducing risk and enabling wide body product

investment.”46 According to three people present at the August Board meeting, no

Board member asked about the safety implications of reconfiguring the 737 NG with

larger engines. Rather, the Board inquired about engine options, program personnel,

development schedule contingencies, and customer contract provisions regarding

performance and penalties; the Board’s primary concern was “how quickly and

inexpensively the Company could develop the 737 MAX model to compete with

Airbus’s A320neo.” 47 The Board delegated to McNerney all authority over the

multi-year effort to approve the 737 MAX’s final specifications, and deliver and

build it, without having to return to the Board.

                        1.     Boeing Implements The “MCAS” System In The
                               737 MAX.

         In developing and marketing the 737 MAX, Boeing prioritized (1) expediting

regulatory approval and (2) limiting expensive pilot training required to fly the new

model. As explained by a former Boeing engineer who worked on the 737 MAX’s

45
     Id. ¶ 135; see id. ¶¶ 6, 133–34.
46
     Id. ¶ 267.
47
     Id. ¶ 134.

                                           21
flight controls, Boeing “wanted to A, save money and B, to minimize the

certification and flight-test costs.”48

         Because the Company was months behind Airbus in developing a new

airplane, Boeing set a “frenetic” pace for the 737 MAX program, resulting in hastily

delivered technical drawings and sloppy, deficient blueprints.49 Boeing’s engineers

were instructed to maintain “commonality” with the 737 NG in order to expedite

FAA certification.50 But maintaining commonality posed unique design issues.

         In particular, the 737 MAX’s larger engine needed to be situated differently

on the airplane’s wings, shifting its center of gravity. Because of that engine

placement, the 737 MAX tended to tilt too far upwards, or “pitch up,” in flight.51

Initial attempts to resolve the issue with aerodynamic solutions failed. So Boeing

addressed the issue with new software: the Maneuvering Characteristics

Augmentation System, or “MCAS.”52 MCAS moved the leading edge of the plane’s

entire horizontal tail, known as the “horizontal stabilizer,” to push the airplane’s tail

up and its nose down.53

48
     Id. ¶ 138.
49
     Id. ¶ 137.
50
  Id. ¶ 138 (explaining that “commonality” is “an industry term that evaluates how similar
one model is to its predecessor”).
51
     Id. ¶ 150.
52
     Id. ¶¶ 9, 152–53, 155.
53
     Id. ¶ 152.

                                           22
         As originally designed, MCAS would activate only if the plane pitched up at

both a high angle of attack (or “AOA”) and a high G-force (the plane’s acceleration

in a vertical direction). During 2016 flight testing, Boeing changed MCAS to allow

it to activate at low speeds; as such, it “could be automatically triggered simply by a

high AOA.”54

         The external sensor for AOA was highly vulnerable to false readings or failure

for numerous reasons, such as general weather, lightning, freezing temperatures,

software malfunctions, or birds. The AOA’s sensor’s vulnerability was well-known:

between 2004 and 2019, failed AOA sensors were flagged to the FAA in more than

216 incident reports, including instances that required emergency landings. MCAS

had only one AOA sensor, creating a “single point of failure” that violated the

fundamental engineering principle requiring redundancy “so that one single error in

a complex system does not cause total system failure.”55 If the single AOA sensor

was triggered, even for a flawed reason unrelated to the plane’s pitch, MCAS would

“correct” the aircraft by pushing its nose down.56

54
     Id. ¶ 155.
55
  Id. ¶¶ 159–60. A 2011 FAA Advisory Circular warned that “[h]azards identified and
found to result from probable failures are not acceptable in multiengine airplanes,” and that
“[i]n these situations, a design change may be required . . . such as increasing redundancy.”
Id. ¶ 159.
56
  Id. ¶ 190 (“[A]n analysis performed by the manufacturer showing that if an erroneously
high single [AOA] sensor input is received by the flight control system, there is a potential
for repeated nose-down trim commands of the horizontal stabilizer.”).

                                             23
         In 2013, Boeing engineers proposed that the 737 MAX implement a

Dreamliner safety feature called “synthetic airspeed” to detect a false AOA signal.57

Managers rejected that proposal due to additional cost and pilot training, and MCAS

remained dependent on a single fickle AOA sensor. Engineers remained skeptical;

in late 2015, one queried: “[a]re we vulnerable to single AOA sensor failures with

the MCAS implementation or is there some checking that occurs?”58

         Boeing’s analyses and FAA disclosures about MCAS underestimated its

lethality. In 2014, Boeing submitted a System Safety Assessment (an “Assessment”)

to the FAA calculating the effect of possible MCAS failures. The Assessment did

not consider the possibility that MCAS could trigger repeatedly, effectively giving

the software unlimited authority over the plane. Boeing concluded MCAS was not

a “safety-critical system.”59 After MCAS was revised to rely on the single AOA

sensor, internal safety analyses concluded that MCAS could cause “catastrophic”

failures if it took a pilot more than ten seconds to identify and respond to the

software’s activation.60 But the analyses assumed the pilot would react within four

seconds, and so concluded that the likelihood of a “hazardous event” due to an

57
     Id. ¶ 161.
58
     Id. ¶ 160.
59
     Id. ¶ 154.
60
     Id. ¶ 156.

                                         24
MCAS failure was nearly inconceivable.61 It would later be revealed that Boeing’s

four-second reaction time assumption was a “gross underestimate.” 62

           Boeing did not update the 2014 FAA Assessment for MCAS as revised.

Boeing’s technical pilots deceived the FAA by failing to disclose that MCAS as

revised activated only upon the AOA sensor signal, regardless of speed, increasing

the likelihood that MCAS would activate.

                       2.    Boeing Pushes Expedited Certification And
                             Rapid Production.
           Based on purported commonality with the 737 NG, Boeing sought “Level B”

pilot training for the 737 MAX, which can be done on a tablet computer without

costly flight simulator training.63 More extensive training would incur additional

costs, defeat the economies from commonality with the 737 NG, and make the 737

MAX less competitive with the Airbus 320neo. Between 2014 and 2017, Boeing

touted that flight simulator training would not be necessary on the 737 MAX.

           Boeing and its well-connected leadership had significant sway over the FAA,

and the FAA often permitted Boeing to self-regulate. Boeing put “tremendous

61
     Id.
62
     Id.
63
     Id. ¶ 164.

                                            25
pressure” on its Chief Technical Pilot Mark Forkner to obtain Level B pilot training

for the 737 MAX.64

         In August 2016, the FAA issued a provisional report establishing Level B

training for the 737 MAX. In November, after Boeing had revised MCAS, Forkner

texted a colleague that MCAS was “running rampant” on a flight simulator when

operating at a low speed and then texted: “so basically I lied to the regulators

(unknowingly).”65 Still, Forkner stressed to the FAA that it should not reference

MCAS in its report because it was “outside the normal operating envelop[e].”66

         In July 2017, the FAA published the final 737 MAX report providing for

Level B differences training determination. Based on Boeing’s failure to submit a

new Assessment on the revised MCAS and misrepresentation of MCAS’s safety

risks, the FAA deleted all information about MCAS from the July 2017 report.67

Forkner emailed a Boeing colleague bragging that his “jedi mind tricks” had worked

on the FAA.68

64
     Id. ¶ 105.
65
     Id. ¶ 169; see id. Ex. A; id. Ex. B at A-10.
66
   Id. ¶ 170 (“[O]ne of the Program Directives we were given was to not create any
differences . . . That is what we sold to the regulators who have already granted us the
Level B differences determination. To go back to them now, and tell them there is in fact
a difference . . . would be a huge threat to that differences training determination.”).
67
     Id. ¶ 106; id. Ex. B.
68
     Id. ¶ 171.

                                                26
         As a result of the FAA’s decision, the 737 MAX airplane manuals and pilot

training materials for U.S.-based airlines lacked specific information about MCAS.69

Specifically, no substantive description of MCAS appeared in Boeing’s three

documents for pilots flying new models: (1) the Flight Crew Operations Manual

(“FCOM”), the primary pilot reference; (2) the Quick Reference Handbook, a

shorter emergency manual for abnormal flight situations; and (3) the Flight Crew

Training Manual, which provides general recommendations on flying maneuvers

and techniques. After the Lion Air and Ethiopian Airlines Crashes, senior FAA

officials testified before Congress that MCAS should have been explained in those

manuals.

         After securing Level B training, Boeing continued to conceal issues with the

737 MAX. The airplane was supposed to have an “AOA disagree alert” to identify

malfunction in the airplane’s AOA sensor and prevent it from triggering MCAS’s

“repeated nose-down trim commands of the horizontal stabilizer.”70 That alert was

a standard feature of the 737 NG.71 Boeing included the alert in the March 2017

“type certificate” submitted to the FAA, so the alert was required in all planes

produced.72 But in August 2017, Boeing learned the alert did not function due to a

69
     Id. ¶¶ 106, 173; id. Ex. B.
70
     Id. ¶¶ 175, 190.
71
     Id. ¶ 175.
72
     Id. ¶ 177.

                                          27
software issue; to make it work, customers needed to purchase an optional “add-on”

feature for $80,000 called an “AOA indicator display.” 73 The AOA disagree alerts

did not work in at least 80% of the 737 MAX planes Boeing delivered—including

the Lion Air and Ethiopian Airlines planes that crashed. Boeing did not tell the FAA

or its customers that the majority of its planes had inoperable AOA disagree alerts

until after the Lion Air Crash in 2018. And even after the 2019 Ethiopian Airlines

Crash, Boeing continued to insist that the AOA indicator display was not a

“required” safety feature and that it was appropriate to offer it as an optional “add

on.”74 Boeing decided to repair the AOA disagree alert via a software update that

was not scheduled to roll out until 2020.

                     3.    Boeing Successfully Markets The 737 MAX In
                           Emerging Markets And Presses The Board’s
                           Business Objectives; Boeing’s Employees
                           Question The 737 MAX’s Safety, But Those
                           Concerns Never Reach The Board.

         Four months after announcing the 737 MAX in 2011, Boeing had logged more

than 1,000 orders and commitments for the airplane from airlines and leasing

customers worldwide. By 2014, Boeing had over 2,700 737 MAX orders from fifty-

seven customers. And by the end of 2016, Boeing had 4,300 orders from ninety-two

73
     Id. ¶ 176.
74
     Id. ¶ 180.

                                            28
customers. The 737 MAX had become the fastest-selling airplane in Boeing’s

history.

         Many of those sales originated from Boeing’s target customers in emerging

markets. Boeing pursued those customers in a cost-saving and revenue-enhancing

strategy, knowing that in many countries with expanding fleets of low-cost airlines,

the quality of pilot training was not consistently as high as in the United States.

Those countries took their safety cues from the FAA. Although Lion Air and Garuda

Indonesia Airlines both initially requested simulator training on their newly

purchased 737 MAX airplanes, Boeing pressed that computer-based training was

sufficient.75 Boeing never required or provided simulator training. By December

2017, Boeing had sold numerous 737 MAX airplanes to airlines in Southeast Asia,

including Lion Air.

         Boeing began fulfilling customer orders in May 2017.76 By 2018, Boeing’s

profits from the 737 MAX skyrocketed.77 The BCA accounted for approximately

60% of the Company’s record $101.1 billion in annual revenue and approximately

75
   Id. ¶ 143 (explaining that “rather than provide costly simulator training, Boeing
employees emphasized that the ‘FAA, [European regulators], Transport Canada, China,
Malaysia, and Argentinia [sic] authorities have all accepted the [computer-based training]
requirement’”).
76
     Id. ¶ 144.
77
     Id. ¶ 146.

                                           29
$8 billion, or 80%, of the Company’s annual net earnings.78 By the end of 2018, the

value of Boeing’s total backlog of orders—a measure of financial health for an

airplane manufacturer—had risen to $490 billion, with the BCA accounting for $412

billion and nearly 5,900 jetliners, more than 4,000 of which were 737 MAX

airplanes.

           Boeing struggled to keep up with demand and customer expectations and to

meet the Board’s production and delivery target of fifty-seven airplanes per month.

In July and August 2018, deliveries averaged approximately thirty-nine airplanes per

month. Falling behind, Boeing employees worked in a “factory in chaos,” facing

intense pressure to maintain production schedules.79

           As Boeing’s 737 MAX’s sales accelerated, its employees grew concerned

about the airplane’s safety. For example, in summer 2018, a longtime general

manager and engineer at the 737 MAX plant in Renton, Washington, tried to raise

“Recovery Operations & Safety Concerns” with the 737 program’s general manager

and factory leader, writing, “[R]ight now all my internal warning bells are going

off. . . . And for the first time in my life, I’m sorry to say that I’m hesitant about

putting my family on a Boeing airplane.”80 At a meeting, the engineer expressed

78
     Id.
79
     Id. ¶ 148.
80
     Id. ¶ 87.

                                          30
that he had “seen larger operations shut down for far less safety issues . . . in the

military and those organizations have national security responsibilities.” 81 The

manager responded, “The military isn’t a profit making organization.” 82 The

engineer retired from Boeing soon thereafter. Before and after the Lion Air Crash,

similar concerns came in from other employees regarding unrelenting and dangerous

economic pressure from senior management to produce the 737 MAX rapidly and

cheaply.83

81
     Id. ¶ 89.
82
     Id.
83
   See id. ¶ 90 (“Separately, in 2018, . . . a Boeing engineering manager working on the 737
MAX, expressed frustration to Director of Global Operations . . . that Boeing had selected
‘the lowest cost supplier and sign[ed] up to impossible schedules,’ which reflected
unrelenting and dangerous economic pressure from senior management: [‘]I don’t know
how to fix these things . . . it’s systemic. It’s culture. It’s the fact that we have a senior
leadership team that understand very little about the business and yet are driving us to
certain objectives. . . . Sometimes you just have to let things fail big so that everyone can
identify a problem . . . maybe that’s what needs to happen rather than just continuing to
scrape by.[’]”); id. ¶ 91 (“In July 2018, Boeing’s Test and Evaluation department voiced
concerns to ‘Boeing Executive Leadership’ regarding the ‘considerable pressure’ the 737
MAX program faced over production schedules. The department’s letter identifies the
‘ero[sion of] safety margins’ due to the declining average experience among senior
production pilots.         [Boeing’s] Employee Relations Director . . . forwarded the
communication to defendant Hyslop, Boeing’s chief engineer, but . . . mischaracterized the
letter as seeking mainly compensation and additional benefits, without flagging the safety
concerns of overworked employees.”); id. ¶ 92 (“[I]n November 2018, after the Lion Air
Crash, . . . a Quality Assurance Inspector and nearly 30-year Boeing veteran, recounted
mistreatment ‘for reporting serious quality problems,’ explaining that ‘[n]o one should
have to go through this when trying to do what is right – to assure the quality of our
product.’ He added, ‘I have stood alone during these past months trying to assure that we
have addressed these quality issues. I had only hoped that management would have stood
with me.’ [The employee] identified another whistleblower . . . a former quality specialist
and compliance monitor, whom he said was also harassed in retaliation for reporting of
‘quality concerns’ related to the 737 MAX.”).

                                             31
      While some of these complaints made their way to senior management, none

made it to the Board.      The Board was unaware of whistleblower complaints

regarding airplane safety, compliance, workforce exhaustion, and production

schedule pressure at the 737 MAX facility.

         D.     Undisclosed Issues With The 737 MAX Ultimately Cause The
                Lion Air and Ethiopian Airlines Crashes; The Board Continues
                To Shirk Safety Oversight, Receiving Only Sporadic Updates
                About The 737 MAX From Management.

      On October 29, 2018, a new 737 MAX flying as Lion Air Flight 610 crashed

in the Java Sea minutes after taking off from Jakarta, Indonesia, killing all 189

passengers and crew. Satellite data show the plane rising and falling repeatedly, as

MCAS continually activated to force the airplane’s nose downwards. The plane’s

black box data revealed that the pilots searched the Quick Reference Handbook’s

checklist for abnormal flight events, but it said nothing about MCAS, which was

later identified as the cause of the tragedy. Within days of recovering the black box,

Boeing started revising MCAS.

      The FAA quickly conducted a risk assessment analysis and concluded what

many at Boeing already knew:         that there was an unacceptably high risk of

catastrophic failure if MCAS was not changed, estimating that the then-existing fleet

of Boeing 737 MAX planes would average one fatal crash stemming from MCAS

every two to three years if the software was not corrected. Boeing then conducted

its own risk assessment and reached a conclusion consistent with the FAA’s. On

                                         32
November 6, Boeing issued an Operations Manual Bulletin to the airlines (the

“Manual Bulletin”), stating, “[i]n the event of erroneous AOA sensor data, the pitch

trim system can trim the stabilizer nose down in increments lasting up to 10

seconds.”84 It did not name MCAS.

         The next day, November 7, the FAA issued an Emergency Airworthiness

Directive (the “Emergency Directive”), indicating that “an unsafe condition exists

that requires immediate action by an owner/operator.”85 The Emergency Directive

described “an analysis performed by the manufacturer showing that if an erroneously

high single [AOA] sensor input is received by the flight control system, there is a

potential for repeated nose-down trim commands of the horizontal stabilizer.”86 The

FAA mandated that Boeing revise its flight manuals “to provide the flight crew

horizontal stabilizer trim procedures to follow under certain conditions.” 87 In

response, Muilenburg emailed Greg Smith warning the mandate might harm

productivity: “[w]e need to be careful that the [airplane flight manual] doesn’t turn

into a compliance item that restricts near-term deliveries.”88

84
     Id. ¶ 188.
85
     Id. ¶ 189.
86
     Id. ¶ 190.
87
     Id. ¶ 191.
88
     Id. ¶ 211.

                                          33
         On November 12, The Wall Street Journal published an article entitled

“Boeing Withheld Information on 737 Model, According to Safety Experts and

Others” (the “WSJ Article”).89 It reported that “neither airline managers nor pilots

had been told such a[n MCAS] system had been added to the latest 737 variant—

and therefore aviators typically weren’t prepared to cope with the possible risks.”90

It reported disdain by pilots who questioned why they were not properly trained on

the MCAS system.91 Finally, the WSJ Article reported that the FAA learned the new

flight control systems “were not highlighted in any training materials or during

lengthy discussions between carriers and regulators about phasing in the latest 737

derivatives” and that Boeing purposefully withheld that critical information. 92

                        1.       The Board Passively Receives Lion Air Crash
                                 Updates From Muilenburg, But Does Not
                                 Initiate Action.

         Management did not bring the Lion Air Crash to the Board’s attention for over

a week. Muilenburg first contacted the Board, Smith, and McAllister regarding the

Lion Air Crash on November 5.93 His half-page email identified the players in the

89
     Id. ¶¶ 195–98; id. Ex. D.
90
     id. Ex D; id. ¶ 198.
 Id. Ex. D (“It’s pretty asinine for them to put a system on an airplane and not tell pilots
91

who are operating the airplane, especially when it deals with flight controls . . . . Why
weren’t they trained on it?”); id. ¶ 198.
92
     id. Ex. D; id. ¶ 197.
93
     id. ¶¶ 208–09; Defs.’ Ex. 55.

                                             34
investigation, reported that the Indonesian investigator “publicly said today that the

airspeed indicator on the airplane that crashed was damaged during the last four

flights of the airplane,” and concluded, “We believe the 737 MAX fleet is safe.”94

It did not mention MCAS, the lack of redundancy for a faulty sensor, or the missing

sensor alert or specific pilot instructions.

         Muilenburg updated the Board again between November 8 and 23, spurred by

unfavorable information about the 737 MAX and Lion Air Crash becoming public.95

On November 13, Director Arthur Collins forwarded Muilenburg a news summary:

“I am sure you have already read [the WSJ Article] and will brief the [B]oard on this

topic.” 96 Muilenburg consulted with then-current and former Lead Directors

Calhoun and Duberstein about the WSJ Article and its fallout.97 Calhoun advised

Muilenburg to contact the Board. And so on November 13, Muilenburg sent a memo

to the Board regarding the Lion Air Crash.98 He told the Board the WSJ Article was

“categorically false” and “wrongly claims Boeing withheld from customers and

flight crews information related to a pitch augmentation system that’s unique to the

94
     Defs.’ Ex. 55.
95
     See Defs.’ Ex. 53; Defs.’ Ex. 56; Defs.’ Ex. 57; Defs.’ Ex. 58.
96
     Am. Compl. ¶ 212.
97
     See id. Ex. E.
98
     See id. Ex. D.

                                               35
737 MAX.”99 And he blamed the Lion Air flight crew for the crash.100 He did not

explain that Boeing knew MCAS was vulnerable and susceptible to failure, nor that

pilots were not informed about or trained on MCAS.

            The next day, Muilenburg informed Duberstein that Calhoun “suggested that

my note to the Board focus solely on the Lion Air matter given the importance and

visibility,” and that he would update the Board on Lion Air the following

weekend.101 Duberstein’s response focused on the negative public reaction to the

Lion Air Crash and its impact on production: “Press is terrible. Very tough. Lots

of negative chatter I’m picking up. Not pleasant. We need to address more

aggressively concerns merging re 737 line, deliveries, and Lion Air.”102 Muilenburg

responded that he was “working all angles” on public relations, government

relations, and investor relations, including “working airline operations leaders to get

messages and counter pilot comments (who are motivated to get separate type rating

for MAX – equals more pay).”103

            On November 17, Boeing executives, including Muilenburg, Smith,

McAllister, Hyslop, and Luttig, discussed a Bloomberg article that Muilenburg

99
     Id.; Defs.’ Ex. 57.
100
      Am. Compl. Ex. D.
101
      See id. Ex. E.
102
      Id.
103
      Id.; id. ¶ 214.

                                            36
characterized as “filled with misleading statements and inaccuracies – implying that

we hid MCAS from operators and that procedures were not covered in

training/manuals.”104

         On November 18, after The New York Times published an article addressing

MCAS’s role in the Lion Air crash, Muilenburg sent the Board another letter.105 He

bemoaned “a steady drumbeat of media coverage—and continued speculation—on

what may have caused the accident” and again falsely suggested that the 737 MAX

was safe.106 Muilenburg took the same position in November 19 and 20 internal

messages to Boeing employees and executives.

         Then, on November 21, Muilenburg emailed the Board to invite them to an

“optional” November 23 Board call for an update on the Lion Air Crash from

Muilenburg, Luttig, and Smith.107 This was the first time the Board convened after

the crash. There are no minutes. Management’s talking points for the call explained

that erroneous AOA data “contributed to the mishap,” and that the Lion Air repair

shop may not have followed the approved repair process on the sensor. 108 The

104
      Id. ¶ 217.
105
      Defs.’ Ex. 58; Am. Compl. ¶ 218.
106
      Defs.’ Ex. 58.
107
   Am. Compl. ¶¶ 223–24; Defs.’ Ex. 59 (“Consider this phone call ‘optional’,
understanding that many of you have family and friend activities planned for this coming
weekend.”).
108
      Defs.’ Ex. 86.

                                          37
talking points included an explanation of MCAS, and described Boeing’s post-Lion

Air Crash updates to operators regarding erroneous AOA sensors and MCAS. They

also explained the “further safety enhancement” of a software update “that will limit

the airplane’s response in case of erroneous AOA sensor data” and “further reduce

the risk associated with a discrepant AOA sensor and help reduce pilot workload.”109

The talking points also provided that “the function performed by MCAS” was

referenced in the FCOM, that the “appropriate flight crew response to uncommanded

trim, regardless of cause, is contained in existing procedures,” and that “any

suggestion that we intentionally withheld information about airplane functionality

from our customers simply isn’t true.”110 They disclosed a meeting the week before

with the acting FAA Administrator, who “understood how MCAS works and

believes the 737 MAX is a safe airplane,” and who knew about the repair shop

investigation.      Finally, the talking points expressed frustration with people

“commenting freely, including customers, pilot unions, media, and aerospace

industry punditry,” and addressed Lion Air’s orders, other customers’ orders, and

Boeing’s stock price.111

109
      Id.
110
      Id.
111
      Am. Compl. ¶ 224; Defs.’ Ex. 86.

                                         38
         Muilenburg’s subsequent written communications to the Board again blamed

Lion Air’s crew, and stressed that Boeing’s external statement denying its fault was

“showing up in the initial media coverage, which has focused largely on Lion Air’s

operations, maintenance practices and decision to fly with malfunctioning angle of

attack sensors.” 112 Muilenburg encouraged Boeing’s public relations team to

maintain that the 737 MAX was safe, and on December 13, he reported to the Board

that “members of our Communications team met with Wall Street Journal editors in

New York to further discuss ongoing coverage and restate our expectation for fair

and fact-based reporting.”113

                      2.     The Board Formally Addresses The Lion Air
                             Crash For The First Time In December 2018,
                             But Does Not Focus On The 737 MAX’s Safety
                             Then Or Thereafter.

         After the November 23 optional update, the Board did not formally convene

and address the Lion Air Crash until its regularly scheduled Board meetings on

December 16 and 17. Consistent with the fact that safety was not a regular topic of

Board discussion, the minutes reflect that the Board’s primary focus relating to the

737 MAX and Lion Air Crash was on restoring profitability and efficiency in light

of longstanding supply chain issues. Over the course of two days, the Board

112
      Am. Compl. ¶ 226.
113
      Defs.’ Ex. 60; see Am. Compl. ¶ 227.

                                             39
allocated five total minutes to eight different “Watch Items,” one of which was

“progress working through supply chain and factory disruption affecting MAX

deliveries.”114 The Board allocated another five minutes to reviewing a four-page

legal memo “including matters related to the Lion Air incident.” 115 And it allocated

ten minutes to Compliance Risk Management.116 The associated risk management

report contained one page on the FAA Settlement, which said nothing about the 737

MAX or airplane safety generally. 117 In the Executive Session presentation, the

“Lion Air incident” was listed as a “Hot Topic.”118

         The Audit Committee met, too. The material it intended to present to the full

Board included an “Ethics and Compliance Update,” but did not contain any

meaningful information about the 737 MAX’s safety or safety generally. 119 An

Ethics and Compliance Update presentation dated December 17, 2018, included a

chart summarizing “Substantiated Cases” of eight categories of “Inquiries and

Investigations,” including “Safety, Health & Environmental” alongside “Sexual

Harassment,” “Proper Use of Co. Time or Resources,” and “Information

114
      Defs.’ Ex. 61 at 2; Defs.’ Ex. 84 at -618197, -618203.
  Defs.’ Ex. 14; Defs.’ Ex. 61 at 2; Defs.’ Ex. 84 at -618197, -618204–07. That memo
115

was wholly redacted in Defendants’ Section 220 production.
116
      Defs.’ Ex. 84 at -618197.
117
      Id. at -618233.
118
      Am. Compl. ¶ 231.
119
      Defs.’ Ex. 84 at -618218–28.

                                              40
Integrity.”120 The agendas for the Audit Committee’s forthcoming 2019 meetings

did not indicate any focus on airplane safety.121 The December 16 and 17 Board

meeting did not result in any meaningful action to address airplane safety by either

the full Board or the Audit Committee.

            The Board next received information about the Lion Air Crash on January 16,

2019, when Muilenburg sent his monthly business summary and competitor

dashboard.122 It began with a one-paragraph “brief update on the ongoing Lion Air

flight 610 accident investigation” that was proceeding with Boeing’s “full

support.”123 Muilenburg also noted that Boeing is “exploring potential 737 MAX

software enhancements that, if made, would further improve the safety systems,”

and maintained that “airlines around the world continue to operate the MAX safely”

and were “ma[king] significant new orders and commitments, expressing strong

confidence in the airplane.” 124 After mentioning safety in passing, Muilenburg

moved on to a detailed discussion of the market’s confidence in the 737 MAX, and

Boeing’s “financials” and “strong operating performance and solid cash generation,”

which were “driven by solid commercial . . . deliveries . . . as well as continued

120
      Id. at -618225.
121
      Id. at -618301.
122
      Am. Compl. ¶ 233; Defs.’ Ex. 62.
123
      Defs.’ Ex. 62.
124
      Id.

                                             41
focus on productivity.”125 He expressed that Boeing had “set a new industry and

company record and validated our team’s 737 recovery efforts,” and noted that 2019

was “already off to a strong start,” as the Company was “focus[ed]” on “driving 737

production line stability and preparation for the 57 aircraft per month rate

decision.”126 The dashboard concluded with an overview of political issues affecting

the Company.127

            Muilenburg sent his next monthly business summary and competitor

dashboard to the Board on February 13.128 It did not mention the Lion Air Crash.129

Muilenburg wrote that Boeing would continue to work with the FAA on a

“737 MAX software enhancement that, when implemented, will further improve

system safety;” that “[d]espite recent media speculation,” nothing had been decided

about the “software update and its timing;” and that “[w]e’ll keep engaging media

and other stakeholders on the merits of the airplane, our processes and our

people.”130 It went on:

            And on 737, we’re driving production line stability and engaging key
            suppliers, with a particular focus on CFM engines, as we prepare for a
            decision later this year on increasing rate to 57 airplanes per month. . . .

125
      Id.
126
      Id.
127
      Id.
128
      Am. Compl. ¶ 234; Defs.’ Ex. 63.
129
      See generally Defs.’ Ex. 63.
130
      Id. at -13683.

                                                42
            We remain on track to achieve our quarterly delivery target of 206
            planes (including 147 737s), and ramp-up of 737 deliveries in February
            and March remains an intense focus area.131
And it highlighted financials, noting that “Boeing stock [recently] closed at an all-

time high.”132

            One week later, on February 20, Executive Vice President and General

Counsel Michael Luttig provided a report to the Audit Committee summarizing

significant legal matters, including the “Lion Air Accident.”133

                        3.     The Board Decides To Forego Investigation, And
                               Boeing Belatedly Admits It Deceived The FAA.

            The Board next met formally on February 24 and 25. As reflected in the

Executive Session presentation, two of the “Other Updates” on “Key Topics” were

“737 Production” and “Lion Air Accident.”134 On February 25, the Board issued an

addendum to its meeting minutes summarizing a legal update from Luttig.135 The

addendum states that the Board “decided to delay any investigation until the

conclusion of the regulatory investigations or until such time as the Board

determines that an internal investigation would be appropriate.” 136

131
      Id. at -13862.
132
      Id.
133
      Defs.’ Ex. 15. The remainder of that report was redacted in the Section 220 production.
134
      Defs.’ Ex. 64 at -575.
135
      Pls.’ Ex. 4; Am. Compl. ¶ 238.
136
      Pls.’ Ex. 4.

                                              43
          By January 2019, the Department of Justice (“DOJ”) had opened a criminal

investigation into whether Boeing had defrauded the FAA when obtaining

certification of the 737 MAX. In February 2019, Boeing gave the DOJ Forkner’s

November 2016 text messages admitting he had lied to the FAA.137 Muilenburg and

Luttig were aware of the text messages in the first couple of months of 2019.

Muilenburg, Luttig, and Boeing did not provide those text messages to the FAA until

October 2019. The FAA demanded an explanation for Forkner’s remarks and

“Boeing’s delay in disclosing the document to its safety regulator.” 138

          As stated in Boeing’s eventual 2021 agreement with the DOJ, Boeing “did not

timely and voluntarily disclose to the Fraud Section the offense conduct described

in the Statement of Facts” and Boeing’s cooperation “was delayed and only began

after the first six months of the Fraud Section’s investigation, during which time the

Company’s response frustrated the Fraud Section’s investigation.”139 As a result,

Boeing agreed to pay a “Total U.S. Criminal Monetary Amount” of $2.513 billion,

composed of a criminal monetary penalty of $243.6 million, compensation payments

to Boeing’s 737 MAX airline customers of $1.77 billion, and the establishment of a

$500 million crash-victim beneficiaries fund.140

137
      Am. Compl. ¶¶ 10, 235, 290; id. Ex. A; id. Ex. B.
138
      Pls.’ Ex. 5; Am. Compl. ¶ 278.
139
      Am. Compl. Ex. B ¶¶ 4(b)–(c); id. ¶¶ 13, 106, 123, 239, 290.
140
      Id. ¶ 296; id. Ex. B.

                                             44
                       4.     MCAS Causes The Ethiopian Airlines Crash.

         On March 10, less than one month after the Board declined to pursue an

internal investigation, another 737 MAX crashed. Ethiopian Airlines Flight ET 302

went down shortly after taking off, killing all 157 passengers and crew. The pilots

followed Boeing’s recommended emergency procedures, but could not regain

control of the plane because MCAS repeatedly activated.

                       5.     Muilenburg Does Damage Control, But The
                              Board Does Not Assess The Safety Of Boeing’s
                              Airplanes.

         Boeing quickly issued a public statement before authorities released any

details about the Ethiopian Airlines Crash. On March 11, the Company emphasized

that if the Ethiopian Airlines pilot followed the checklist of procedures in the flight

manual, he “[would] always be able to override the flight control using electric trim

or manual trim.”141 But by that time, one-third of the world’s fleet of in-service 737

MAX aircraft had been grounded, and several United States Senators called for the

FAA to ground the 737 MAX.

         That same day, Muilenburg emailed the Board. While stating that “[o]ur

objective is to ensure our teams are centered on our priorities, including safety,

quality and stability,” 142 Muilenburg’s comments were not geared toward taking

141
      Id. ¶ 248.
142
      Defs.’ Ex. 66 at -620851.

                                          45
action to address and improve the 737 MAX’s safety. Nor were they made in

response to any Board inquiry as to the airplane’s safety. Instead, Muilenburg

addressed the Board’s objectives for the 737 MAX:                “ongoing production

operations,” revenue, and reputational achievement.143 He advised the Board that

management was engaging in extensive outreach with Boeing’s customers and

regulators to “reinforce our confidence in the 737 MAX.”144 He touted that the FAA

had issued a notification reinforcing the 737 MAX’s airworthiness, and “mentioned

the pending MAX software enhancement with the expectation it will mandate

upgrade in April.”145 He concluded by addressing how Boeing intended to handle

the Ethiopian Airlines Crash in the media and internal communications, and directed

inquiries to Boeing’s media relations team.

            Thereafter, Muilenburg reviewed and responded to an all-employee email

prepared by that team. He thought the note was “solid,” but “lack[ed] a statement

about our confidence in the fundamental safety of the MAX.” 146

            This goes back to our discussion last night on answering two basic
            questions: is the MAX safe? And was MCAS involved? We need to
            make a strong statement on the first, and be clear that there are no
            supporting facts on the second.147

143
      Id.
144
      Id.
145
      Id.
146
      Am. Compl. ¶ 243.
147
      Id.

                                            46
            Muilenburg emailed the Board again on March 12, providing a “quick interim

update” before a formal Board call the following day.148 Muilenburg stated that “[a]s

you’ve seen in the news flow today, additional international authorities have

grounded the 737 MAX,” but assured the Board that those decisions were driven

solely by “public/political pressure, not by any new facts.” 149

            During this pivotal period, Boeing was engaged in continuous conversations

with the FAA, and Muilenburg spoke with Department of Transportation Secretary

Elaine Chao and President Donald Trump in an attempt to keep the 737 MAX flying.

On March 12, FAA officials reiterated their position that domestic flights of the 737

MAX would continue. At least one director, Liddy, praised Muilenburg’s efforts

during this period.150

                        6.    The FAA Grounds The 737 MAX, But The
                              Board’s Focus Remains On Restoring Boeing’s
                              Reputation And Sales.

            On March 13, the FAA’s investigation of the Ethiopian Airline Crash

indicated that the plane experienced the same pattern of repeated steep dives and

148
      Defs.’ Ex. 68.
149
      Id.
150
   Am. Compl. ¶ 252 (“I, for one, really appreciate the strong leadership you’re
demonstrating in a very challenging situation. Your leadership will prevail.”).

                                            47
climbs caused by MCAS that preceded the Lion Air Crash. The FAA grounded the

737 MAX, becoming the final major aviation regulator to do so.

            After the FAA grounded the planes, the Board held a call with management

regarding the Ethiopian Airlines Crash and whether Boeing should itself ground the

fleet.151 The Board did not consider, deliberate, or decide on grounding the plane or

other immediate remedial measures until after the second crash and the FAA’s

grounding over Boeing’s objection.          No Board minutes or agendas between

November 2018 and March 2019 reference a discussion about grounding the 737

MAX.

            Nonetheless, Boeing jumped at the opportunity to claim credit for the

grounding. Later on March 13, Muilenburg told the Board that Boeing had managed

to get its own messaging out about the grounding before the FAA released its

statement.152

            That evening, Muilenburg followed up with his monthly business update,

which began with his efforts to rehabilitate Boeing’s image.153 In particular, he

shared that “Kevin McAllister and I spent time walking the 737 production line in

Renton, where we filmed a joint video for team members.”154 With the comment

151
      See Defs.’ Ex. 69; Am. Compl. ¶¶ 255–56.
152
      Defs.’ Ex. 69.
153
      Defs.’ Ex. 70.
154
      Id.

                                           48
that “safety . . . is our top priority,” Muilenburg disclosed that for the first time, he

“added safety metrics to our monthly report.”155 This marked one of the first formal

implementations of safety reporting to the Board. Muilenburg initiated this update.

His addition continued to focus on production, including “year-to-date targets and

actuals for lost workday cases, recordable injuries and near misses.”156 His March

business summary then turned to the 737 MAX’s business performance and ability

to meet delivery targets.157

            Over the next six weeks, Muilenburg’s communications to the Board focused

on restoring Boeing’s reputation and returning the 737 MAX to service. And some

Directors’ messages to Muilenburg echoed his focus on reputational and production

triage. For example, on March 21, Giambastiani emailed Muilenburg to direct him

to an article from Aviation Week and emphasized a comment suggesting the pilots

were at fault for the two crashes. 158 And on March 26, Duberstein emailed

Muilenburg to inquire about the reputational impact of an emergency landing of a

Southwest 737 MAX due to engine problems, complaining that the report “[l]ed the

network news” and was “[a]nother reputational hit at us and no comment from us.”159

155
      Id.
156
      Id.
157
      Id.
158
      Am. Compl. ¶ 259 (“More importantly for the pilot . . . FLY THE PLANE.”).
159
      Id. ¶ 260.

                                            49
         On April 4, a preliminary report on the Ethiopian Airlines Crash identified

MCAS as a contributing cause for the accident. After sending a draft to the full

Board, Boeing issued a press release maintaining that most “accidents are caused by

a chain of events” and that was the case for the two crashes.160

                   E.   In April 2019, The Board Adopts Safety Oversight Measures.

         Some directors questioned Boeing’s approach. On March 15, Arthur Collins

and then-Lead Director David Calhoun recommended a Board meeting devoted to

product safety. As Collins explained to Calhoun,

         In light of the two 737 MAX 8 crashes and subsequent global fleet
         grounding, the previous grounding of Air Force KC-46 tankers, and the
         Amazon 767 cargo plane crash, I believe we should devote the entire
         board meeting (other than required committee meetings and reports) to
         a review of quality within Boeing. This would start with an update on
         what we know about each of the three previously mentioned situations,
         but then include a review of quality metrics and actions that are either
         currently in place or planned to assure that the highest level of quality
         is designed into all Boeing products or incorporated into all
         manufacturing, customer training, and service support activities. In
         addition to providing necessary information for the Board, this type of
         agenda would underscore the board’s (and management’s) unwavering
         commitment to quality and safety above all other performance criteria.
         I recognize that this type of approach needs to be communicated
         carefully so as not to give the impression that the board has lost
         confidence in management (which we haven’t) or that there is a
         systemic problem with quality throughout the corporation (which I
         don’t believe there is), but I’m sure this can be done. . . . I’ll leave the
         decision in your hands with Dennis [Muilenburg].161

160
      Id. ¶ 262.
161
      Id. Ex. C.

                                             50
Collins followed up on the “category of ‘lessons learned,’” reminding Calhoun that,

at Medtronic (on whose board they both had served), Collins “began each board

meeting, executive committee meeting, and operating review with a review of

product quality/safety—before any discussion of financial performance, market

share/competitive activities, new product development timetables, and certainly

stock price.”162 He stressed that people “paid close attention to the priorities of

senior management, and everyone in the corporation understood that nothing was

more important to the CEO and the board than quality/safety,” and that “[i]t’s hard

to quantify the impact of this approach, but it certainly was important.” 163

            Calhoun forwarded Collins’s messages to Muilenburg, who responded that it

was “[g]ood input”; that he “added Safety data to the Board lead-off briefing, and

just added it to my monthly Board note too”; and that “just so you know, Safety data

is the first data we look at during our internal ExCo reviews.” 164 Thereafter,

Muilenburg and Calhoun held a call regarding Collins’s suggestions for making

safety a Board priority.165

            At the Board’s next regularly scheduled meeting on April 28 and 29, the Board

focused on the Ethiopian Airlines Crash and its implications for the Company. In

162
      Id.
163
      Id.
164
      Id. I infer “ExCo” refers to management’s Executive Council.
165
      See id.

                                              51
contrast to prior Board meetings, the Board dedicated approximately two hours and

fifteen minutes to discussing the 737 MAX. For the first time, the Board critically

assessed MCAS, the FAA certification process, and pilot training requirements.

          The Board also initiated Board-level safety reporting for the first time. On

April 4, the Board established the Committee on Airplane Policies and Processes

(the “Airplane Committee”). Even then, the Airplane Committee’s fact-finding

sessions intended to inform the Committee’s conclusions and recommendations

were sparsely attended: Giambastiani was the sole Board attendee at more than half

of the Committee’s eighteen fact-finding sessions with internal and external experts,

including on topics such as airline training requirements and an overview of BCA’s

safety process.

          Between April and August 2019, the Airplane Committee entertained

presentations on seven new topics—including “[c]ommercial airplane design and

manufacturing and policies and processes,” “aircrew training requirements,” and

“engineering and safety organizational structures in related industries”—none of

which had been the subject of previous Board briefings.166 For example, in April

2019, Lynne Hopper, Boeing’s Vice President of BCA Engineering, and Beth

Pasztor, BCA’s Vice President of Safety, Security & Compliance, presented to the

Board for the first time.

166
      Id. ¶ 70.

                                           52
          On May 6, for the first time, the Airplane Committee formally requested

information about the cause of the crashes. As Committee chair, Giambastiani asked

Hyslop to provide information about pilot training requirements, Boeing’s “Quick

Action” checklists for emergencies, and airlines that had purchased an AOA disagree

alert. 167 And in late June, Giambastiani proposed that product safety reports

evaluated by the SRB “should feed to [A]udit [C]ommittee” and “should go to

CTO/CFO and [be] shared with Board”; that the Audit Committee should have

“visibility of high risk issues”; and that “the entire list of safety issues on the MAX

[should be] reported to Dennis [Muilenburg]/Greg [Hyslop].” 168

          The Airplane Committee also recommended that the Board establish another

committee dedicated to safety. And so on August 26, the Board established the

Aerospace Safety Committee “for the purpose of assisting the Board in the oversight

of the safe design, development, manufacture, production, operations, maintenance,

and delivery of the aerospace products and services of the Company.” 169 It was also

responsible for overseeing the airplane certification process and Company protocols

for engaging with the FAA. In turn, the Aerospace Safety Committee quickly

recommended that the Board create yet another oversight committee. On September

167
      Id. ¶ 72.
168
      Id. ¶ 81 (alteration in original).
169
      Id. ¶ 73.

                                           53
30, the Board created a Product and Services Safety Organization that was

responsible for, among other things, investigating “cases of undue pressure and

anonymous product and service safety concerns raised by employees,” and

represented Boeing’s first mechanism or reporting line to convey employee

complaints to the Board.170

          Product safety reporting processes up to executives and the Board were

operational by October 20. And at the December 15 Board meeting, the Audit

Committee received a compliance risk management report from chief compliance

and ethics officer Sands that, for the first time, included a category for “Safety.” In

comparison, Sands’s report from the December 2018 Board meeting following the

Lion Air Crash had not covered product safety at all.

          Muilenburg also embraced the new focus on safety. In an email to McAllister,

Hyslop, Smith, and other senior Boeing officials, he wrote,

          As part of our lessons learned from the MAX, we need to have a clear
          understanding of how safety risk is being assessed, and appropriately
          “test” those items that are assessed as “medium” or at a “minor” or
          “major”         hazard     level       to       ensure     the      right
          visibility/action/communication. . . . This is an exceptionally important
          process improvement area for us all.171

170
      Id. ¶ 93.
171
      Id. ¶ 82.

                                             54
By late 2019, Muilenburg began receiving “granular weekly reports of potential

safety issues discussed at meetings of rank-and-file engineers - something that did

not happen in the past.”172 And Muilenburg eventually acknowledged that access to

better information would have supported grounding the 737 MAX fleet shortly after

the Lion Air Crash.173

                   F.   The Board Attempts To Preserve Its Image, Despite
                        Eschewing Safety Oversight Initiatives Until April 2019.

          The Board publicly lied about if and how it monitored the 737 MAX’s safety.

As the Board was establishing formal safety monitoring processes, then-Lead

Director Calhoun held a series of interviews with major newspapers with the

following corporate objective: “Position the Boeing Board of Directors as an

independent body that has exercised appropriate oversight.” 174 As to the Lion Air

Crash, Calhoun represented that the Board had been “notified immediately, as a

board broadly,” after the Lion Air crash and met “very, very quickly” thereafter;175

participated in evaluating the safety risk associated with the 737 MAX; and

considered grounding the 737 MAX after the Lion Air Crash, but concluded the

172
      Id. ¶ 83.
173
   Id. ¶ 84 (“[I]f we knew back then what we know now, we would have grounded right
after the first accident.”).
174
      Id. ¶ 263.
175
      Id. ¶¶ 268–69.

                                           55
crash “was an anomaly” that did not warrant grounding the airplane. 176 As to the

Ethiopian Airlines Crash, Calhoun represented that the Board met within twenty-

four hours of the crash to discuss potential grounding of the 737 MAX and

recommended that the 737 MAX be grounded. Each of Calhoun’s representations

was false.

         In addition, Calhoun and the Board would publicly denounce Muilenburg.

Muilenburg had come under fire from the FAA, but as of November 5, 2019,

Calhoun maintained that, “[f]rom the vantage point of our board, Dennis has done

everything right.” 177 With additional scrutiny, regulators learned the extent of

Boeing’s deceit under Muilenburg’s leadership, and the FAA came down on him.

On December 22, after learning that the FAA had reprimanded Muilenburg and after

The New York Times published an article reporting on his deficiencies, the Board

called a meeting and voted to terminate Muilenburg and replace him with Calhoun,

“to restore confidence in the Company moving forward as it works to repair

relationships with regulators, customers, and all other stockholders.” 178

         The Board did not terminate Muilenburg for cause, and publicly characterized

his departure as his “resignation,” and later as his “retirement.”179 In doing so, the

176
      Id. ¶ 271.
177
      Id. ¶ 280.
178
      Id. ¶¶ 284–85.
179
      Id. ¶¶ 288–89.

                                          56
Board enabled Muilenburg to retain unvested equity awards worth approximately

$38,642,304.180 The Board also announced that Luttig would “retire,” allowing him

to keep his unvested equity awards as well.181 As alleged, the Board chose this path

because “[a]ny public dispute between Boeing and Muilenburg would have exposed

the Board’s prolonged support of Muilenburg and lack of safety oversight.” 182

          Calhoun became CEO in January 2020. In that role, he publicly questioned

Muilenburg’s leadership, shifting blame away from the Board. Calhoun stated that

the Board “never seriously questioned [Muilenburg’s] strategy, in part because

before the first MAX crash off the coast of Indonesia in October 2018, the company

was enjoying its best run in years,” and painted Muilenburg as a money-hungry

leader that was willing to prioritize profits over quality and safety.183 In Calhoun’s

words, “If [the Board] w[as] complacent in any way, maybe, maybe not, I don’t

know. . . . We supported a C.E.O. who was willing and whose history would suggest

that he might be really good at taking a few more risks.”184

180
      Id. ¶ 286.
181
      Id. ¶ 289.
182
      Id. ¶ 287.
183
   Id. ¶ 291 (quoting a New York Times article as stating, “[Calhoun had] never be able to
judge what motivated [Muilenburg], whether it was a stock price that was going to continue
to go up and up, or whether it was just beating the other guy to the next rate increase,” and
that “[i]f anybody ran over the rainbow for the pot of gold on stock, it would have been
[Muilenburg]”).
184
      Id. (alterations in original).

                                             57
             G.    Corporate Trauma Inspires This Suit.

         The 737 MAX fleet was grounded for twenty months, until November 18,

2020. During that period, Boeing was federally mandated to cure the defects in the

737 MAX’s MCAS system and AOA sensor and to revamp pilot training. But these

measures did not rectify the significant damage the Lion Air and Ethiopian Airlines

Crashes and the 737 MAX Grounding caused to Boeing’s profitability, credibility,

reputation, and business prospects. Nor did they unwind Boeing’s exposure to

substantial criminal, regulatory, and civil liability. In 2020, Boeing estimated that it

had incurred non-litigation costs of $20 billion, and litigation-related costs in excess

of $2.5 billion. Litigation continues on multiple fronts, and customers cancelled

orders.      And in January 2021, Boeing consented to the filing of a criminal

information charging the Company with conspiracy to defraud the United States and

thereby incurring billions of dollars in penalties.185

         The corporate harm Boeing suffered inspired numerous books and records

requests and derivative actions filed in this Court in 2019. The Court consolidated

the plenary actions and appointed NYSCRF and FPPA as Co-Lead Plaintiffs on

August 3, 2020.186 Plaintiffs filed the Verified Amended Consolidated Complaint

on January 29, 2021 (the “Amended Complaint”), addressing the DOJ’s criminal

185
      Id. ¶ 11; Am. Compl. Ex. B.
186
      D.I. 88.

                                           58
penalties.187 Count I asserts a derivative claim for breach of fiduciary duty against

the Director Defendants, alleging they consciously breached their fiduciary duties

and violated their corporate responsibilities by (1) before the Lion Air Crash, failing

to implement any reasonable information and reporting system to monitor and

oversee the safety of Boeing’s airplanes; (2) after the Lion Air Crash, despite being

made aware of red flags concerning the operation, development, and nondisclosure

of MCAS, consciously disregarding their duty to investigate and to remedy any

misconduct uncovered; and (3) after the Ethiopian Airlines Crash, falsely assuring

the public about the safety of the 737 MAX and MCAS and deciding to cash out

Muilenburg’s unvested equity-based compensation.188 Count II asserts a derivative

claim for breach of fiduciary duty against the Officer Defendants, alleging they

consciously breached their fiduciary duties or, at a minimum, acted with gross

187
      See generally Am. Compl.
188
    Id. ¶ 305. Plaintiffs originally alleged that the Director Defendants breached their
fiduciary duties before the Lion Air Crash by ignoring several red flags concerning airplane
safety. Id. At oral argument, Plaintiffs shifted this theory. See Hr’g Tr. 135–36 (“MR.
FRIEDLANDER: Frankly, Your Honor, I think it’s better not to think of those as red flags
for Marchand in the sense of that -- like Marchand never uses the concept of red flags. . . .
I would say these are points of emphasis to illustrate the problems that the reporting system
had . . . because there’s an affirmative obligation to create a reporting system of the type
described in Marchand. We’re saying they didn’t do it, and then we said which Marchand
requires. And as a second argument, and they had red flags and nonetheless they still didn’t
do it. But really it’s all incorporated under the affirmative obligation of Marchand to create
it. THE COURT: So you would like me to look at those more under prong one as a
deficient reporting system [rather] than under prong two, red flags? MR. FRIEDLANDER:
Yeah. But I think they’re important . . . .”).

                                             59
negligence by (1) consciously and repeatedly failing to implement and actively

monitor or oversee a compliance and safety program; (2) consciously disregarding

their duty to investigate red flags and to remedy any misconduct uncovered; and (3)

covering up the extreme safety risks of Boeing’s aircraft.

         On March 19, Defendants moved to dismiss pursuant to Court of Chancery

Rules 12(b)(6) and 23.1 (the “Motion”). 189 Defendants submitted eighty-eight

exhibits in support of the Motion.190 The parties briefed the Motion as of June 4.191

I heard argument on June 25 and took the Motion under advisement. 192

         II.     ANALYSIS

         Defendants have moved to dismiss all claims against them pursuant to Court

of Chancery Rule 23.1 for failure to plead that demand is futile.

         Plaintiffs assert Defendants’ breaches of fiduciary duty harmed Boeing. Thus,

the claims belong to Boeing and the decision whether to pursue the claim

presumptively lies with the Board. 193 But our law recognizes that, “[i]n certain

189
      D.I. 145; D.I. 146.
190
      D.I. 147; D.I. 148; D.I. 149; D.I. 150; D.I. 151; D.I. 152; D.I. 160.
191
      D.I. 146; D.I. 155; D.I. 159.
192
      D.I. 167; Hr’g Tr.
193
    White v. Panic, 783 A.2d 543, 550 (Del. 2001) (“In most situations, the board of
directors has sole authority to initiate or to refrain from initiating legal actions asserting
rights held by the corporation.”); see Aronson v. Lewis, 473 A.2d 805, 811 (Del. 1984) (“A
cardinal precept of the General Corporation Law of the state of Delaware is that directors,
rather than shareholders, manage the business and affairs of the corporation.”), overruled
on other grounds by Brehm v. Eisner, 746 A.2d 244 (Del. 2000).

                                                60
circumstances, stockholders may pursue litigation derivatively on behalf of the

corporation as a matter of equity to redress the conduct of a torpid or unfaithful

management . . . where those in control of the company refuse to assert (or are unfit

to consider) a claim belonging to it.”194 “Because stockholder derivative suits by

[their] very nature . . . impinge on the managerial freedom of directors, our law

requires that a stockholder satisfy the threshold demand requirements of Court of

Chancery Rule 23.1 before he is permitted to assume control of a claim belonging

to the corporation.”195

      Rule 23.1 requires pleadings to “comply with stringent requirements of factual

particularity that differ substantially from the permissive notice pleadings governed

solely by Chancery Rule 8(a).”196 To satisfy Rule 23.1, the stockholder must plead

with particularity either that she made a demand on the company’s board of directors

to pursue particular claims and was refused, or why any such demand would be

futile, thereby excusing the need to make a demand altogether. 197 Where, as here,

194
   In re CBS Corp. S’holder Class Action & Deriv. Litig., 2021 WL 268779, at *27 (Del.
Ch. Jan. 27, 2021), as corrected (Feb. 4, 2021) (quoting Cumming v. Edens, 2018 WL
992877, at *11 (Del. Ch. Feb. 20, 2018) (internal quotation marks omitted)).
195
  Horman v. Abney, 2017 WL 242571, at *6 (Del. Ch. Jan. 19, 2017) (quoting Aronson,
473 A.2d at 811) (internal quotation marks omitted).
  Brehm, 746 A.2d at 254; accord In re Citigroup Inc. S’holder Deriv. Litig., 964 A.2d
196

106, 120–21 (Del. Ch. 2009).
197
  Beam ex rel. Martha Stewart Living Omnimedia, Inc. v. Stewart, 845 A.2d 1040, 1044
(Del. 2004); Wood v. Baum, 953 A.2d 136, 140 (Del. 2008).

                                         61
the stockholder plaintiff foregoes a demand on the board, she “must plead

particularized facts creating a reasonable doubt concerning the Board’s ability to

consider the demand.”198

         Demand futility turns on “whether the board that would be addressing the

demand can impartially consider [the demand’s] merits without being influenced by

improper considerations.” 199 While the continued utility of a binary approach to

demand futility has been called into question, for now, Delaware still applies one of

two tests when deciding whether demand upon the board would be futile. 200 The

first, established in Aronson v. Lewis, “applies to claims involving a contested

transaction i.e., where it is alleged that the directors made a conscious business

decision in breach of their fiduciary duties.”201 The second, established in Rales v.

198
   CBS, 2021 WL 268779, at *28; Citigroup, 964 A.2d at 121 (“Demand is not excused
solely because the directors would be deciding to sue themselves. Rather, demand will be
excused based on a possibility of personal director liability only in the rare case when a
plaintiff is able to show director conduct that is so egregious on its face that board approval
cannot meet the test of business judgment, and a substantial likelihood of director liability
therefore exists.” (footnotes and internal quotation marks omitted)).
199
      Rales v. Blasband, 634 A.2d 927, 934 (Del. 1993).
200
   See United Food & Commerc. Workers Union v. Zuckerberg, 250 A.3d 862, 877 (Del.
Ch. 2020) (observing that “the Aronson test has proved to be comparatively narrow and
inflexible in its application, and its formulation has not fared well in the face of subsequent
judicial developments”).
201
    Wood, 953 A.2d at 140 (citing Aronson, 473 A.2d at 814) (explaining the two demand
futility tests). Under Aronson, the plaintiff must plead particularized facts that create a
reasonable doubt that (i) the directors are disinterested and independent or (ii) the
challenged transaction was otherwise the product of a valid exercise of business judgment.
Id.

                                              62
Blasband,202 applies where a majority of the current members of the board “had not

participated in the challenged decision,”203 or “where the subject of a derivative suit

is not a business decision . . . [such as when the board is alleged to have violated its]

oversight duties.”204

         Here, the parties agree that Rales governs.205 “The central question of a Rales

inquiry, no matter the context, is the same: ‘whether the board can exercise its

business judgment on the corporate behalf in considering demand.’”206 In refining

that question, Rales instructs that a director cannot objectively exercise her business

judgment in considering a demand if she is either (1) “interested,” meaning, among

other things, that she faces a “substantial likelihood of liability” for her role in the

alleged corporate wrongdoing; or (2) not independent of another interested

fiduciary.207

202
      634 A.2d at 927.
203
      Zuckerberg, 250 A.3d at 887.
204
   Wood, 953 A.2d at 140; see also Horman, 2017 WL 242571, at *6 (holding that Rales
applies “when a plaintiff challenges board inaction such as when a board is alleged to have
consciously disregarded its oversight duties”).
205
   See D.I. 146 at 58 (“Whether the Board’s decision to terminate Muilenburg is
considered under Aronson or Rales, . . . Plaintiffs fail to establish demand futility.” (citing
Zuckerberg, 2020 WL 6266162, at *9–18)); id. at 60 (assessing Plaintiffs’ claims under
Rales); D.I. 155 at 38 (citing and applying Rales).
206
   McElrath ex rel. Uber Techs. v. Kalanick, 2019 WL 1430210, at *8 (Del. Ch.
Apr. 1, 2019) (quoting Inter-Mktg. Gp. USA, Inc. v. Armstrong, 2019 WL 417849, at *4
(Del. Ch. Jan. 31, 2019)), aff’d sub nom. McElrath v. Kalanick, 224 A.3d 982 (Del. 2020).
207
   Rales, 634 A.2d at 934, 936 (noting that, at bottom, the court must “determine whether
or not the particularized factual allegations of a derivative stockholder complaint create a

                                              63
            “On a motion to dismiss pursuant to Rule 23.1, the Court considers the same

documents, similarly accepts well-pled allegations as true, and makes reasonable

inferences in favor of the plaintiff—all as it does in considering a motion to dismiss

under Rule 12(b)(6).”208 Given the heightened pleading requirements of Rule 23.1,

however, “conclusory allegations of fact or law not supported by allegations of

specific fact may not be taken as true.”209 “Because of the absence of a precise

formula in the Rule for pleading compliance with the demand requirement, the

sufficiency of a complaint under Rule 23.1 is determined on the basis of the facts of

each case.”210

            “Rule 23.1 does not abrogate Rule 12(b)(6).”211 But because “the standard

under Rule 12(b)(6) is less stringent than the standard under Rule 23.1, a complaint

that survives a Rule 23.1 motion to dismiss generally will also survive a Rule

reasonable doubt that, as of the time the complaint is filed, the board of directors could
have properly exercised its independent and disinterested business judgment in responding
to a demand”); CBS, 2021 WL 268779, at *28 (same); In re Clovis Oncology, Inc. Deriv.
Litig., 2019 WL 4850188, at *11 (Del. Ch. Oct. 1, 2019) (stating that when board oversight
is challenged, “such improper influence arises if a majority of the board’s members are
compromised because [] they face a substantial likelihood of personal liability with respect
to at least one of the alleged claims” (internal quotation marks omitted)).
208
   Beam, 833 A.2d at 976 (Del. Ch. 2003) (citing White, 783 A.2d at 549), aff’d, 845 A.2d
1040 (Del. 2004).
209
  Grobow v. Perot, 539 A.2d 180, 187 (Del. 1988), overruled on other grounds by Brehm,
746 A.2d at 244.
210
      Brehm, 746 A.2d at 268 (Hartnett, J. concurring).
211
      Id.

                                              64
12(b)(6) motion to dismiss, assuming that it otherwise contains sufficient facts to

state a cognizable claim.”212 The standards governing a motion to dismiss under

Court of Chancery Rule 12(b)(6) for failure to state a claim for relief are well settled:

         (i) all well-pleaded factual allegations are accepted as true; (ii) even
         vague allegations are “well-pleaded” if they give the opposing party
         notice of the claim; (iii) the Court must draw all reasonable inferences
         in favor of the non-moving party; and ([iv]) dismissal is inappropriate
         unless the “plaintiff would not be entitled to recover under any
         reasonably conceivable set of circumstances susceptible to proof.” 213

Thus, the touchstone “to survive a motion to dismiss is reasonable

‘conceivability.’” 214      This standard is “minimal” 215 and plaintiff-friendly. 216

“Indeed, it may, as a factual matter, ultimately prove impossible for the plaintiff to

prove his claims at a later stage of a proceeding, but that is not the test to survive a

motion to dismiss.”217 Despite this forgiving standard, the Court need not “accept

conclusory allegations unsupported by specific facts” or “draw unreasonable

212
      In re Walt Disney Co. Deriv. Litig., 825 A.2d 275, 285 (Del. Ch. 2003).
213
      Savor, Inc. v. FMR Corp., 812 A.2d 894, 896–97 (Del. 2002) (citations omitted).
214
   Cent. Mortg. Co. v. Morgan Stanley Mortg. Cap. Hldgs. LLC, 27 A.3d 531, 537 (Del.
2011).
215
      Id. at 536 (citing Savor, 812 A.2d at 896).
216
   See, e.g., Clouser v. Doherty, 175 A.3d 86 (Del. 2017) (TABLE); In re USG Corp.
S’holder Litig., 2021 WL 930620, at *3–4 (Del. Ch. Mar. 11, 2021).
217
      Cent. Mortg. Co., 27 A.3d at 536.

                                               65
inferences in favor of the non-moving party.”218 “Moreover, the court is not required

to accept every strained interpretation of the allegations proposed by the plaintiff.”219

         I conclude that (1) Plaintiffs have pled facts sufficient to render demand futile

for claims against the Director Defendants, with one carveout, but (2) Plaintiffs have

failed to plead demand futility for the claims against the Officer Defendants.

Accordingly, the Motion is granted and denied in part as to Count I, and granted as

to Count II.

               A.     With One Exception, Plaintiffs Have Pled That Demand Is
                      Futile For Claims Against The Director Defendants.

         For Count I, Plaintiffs assert demand is futile because “from at least

November 18, 2019 (the date of filing of the first derivative complaint alleging

demand futility) through and including today, a majority of the members of the

Board have faced a substantial likelihood of liability for failing to make any good

faith effort to implement and oversee a board-level system to monitor and report on

safety.”220 At bottom, Plaintiffs’ position is that nine of the twelve board members

218
    Price v. E.I. du Pont de Nemours & Co., 26 A.3d 162, 166 (Del. 2011), (citing Clinton
v. Enter. Rent-A-Car Co., 977 A.2d 892, 895 (Del. 2009)), overruled on other grounds by
Ramsey v Ga. S. Univ. Advanced Dev. Ctr., 189 A.3d 1255 (Del. 2018).
219
   In re Trados Inc. S’holder Litig., 2009 WL 2225958, at *4 (Del. Ch. July 24, 2009)
(internal quotation marks omitted) (quoting In re Gen. Motors (Hughes) S’holder Litig.,
897 A.2d 162, 168 (Del. 2006)).
220
      Am. Compl. ¶ 299.

                                            66
at the time the original complaint was filed221 face a substantial likelihood of liability

for failure to fulfill their oversight duties under the standards set forth in

Caremark,222 as applied by the Delaware Supreme Court in Marchand.223

         As Chancellor Allen first observed in Caremark, and as since emphasized by

this Court many times, perhaps to redundance,224 the claim that corporate fiduciaries

have breached their duties to stockholders by failing to monitor corporate affairs is

“possibly the most difficult theory in corporation law upon which a plaintiff might

hope to win a judgment.”225 A decade after Caremark, our Supreme Court affirmed

the doctrine Chancellor Allen announced there and clarified that our 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

221
   Id. ¶¶ 22–43; see id. ¶ 301 (alleging that when the original complaint was filed, six of
the twelve Board members had served for at least five years before the 2019 Ethiopian
Airlines Crash); D.I. 146 at 6 n.2 (detailing changes on the Board since the original
complaint was filed).
222
      698 A.2d 959.
223
      212 A.3d 805.
224
    See Chou, 2020 WL 5028065, at *1 (“It has become among the hoariest of Chancery
clichés for an opinion to note that a derivative claim against a company’s directors, on the
grounds that they have failed to comply with oversight duties under Caremark, is among
the most difficult of claims in this Court to plead successfully.”).
225
   Caremark, 698 A.2d at 967; Globis P’rs, L.P. v. Plumtree Software, Inc., 2007
WL4292024, at *7 (Del. Ch. Nov. 30, 2007) (same); Desimone v. Barrows, 924 A.2d 908,
939 (Del. Ch. 2007) (same); Guttman v. Huang, 823 A.2d 492, 506 n.33 (Del. Ch. 2003)
(same).

                                            67
obligations.”226 At the pleading stage, a plaintiff must allege particularized facts that

satisfy one of the necessary conditions for director oversight liability articulated in

Caremark: 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.”227 I respectfully refer to these conditions as Caremark “prong one” and

“prong two.”

            “Delaware courts routinely reject the conclusory allegation that because

illegal behavior occurred, internal controls must have been deficient, and the board

must have known so.” 228 Rather, the plaintiff must plead with particularity “a

sufficient connection between the corporate trauma and the board.” 229 “To be sure,

even in this context, Caremark does not demand omniscience.” 230 But it does

mandate that “to satisfy their duty of loyalty, directors must make a good faith effort

to implement an oversight system and then monitor it.” 231

226
      Stone v. Ritter, 911 A.2d 362, 370 (Del. 2006).
227
      Id.
228
      Desimone, 924 A.2d at 940.
229
   La. Mun. Police Emps.’ Ret. Sys. v. Pyott, 46 A.3d 313, 340 (Del. Ch. 2012), rev’d on
other grounds, 74 A.3d 612 (Del. 2013).
230
      Clovis, 2019 WL 4850188, at *13.
231
      Marchand, 212 A.3d at 821.

                                              68
          The Caremark standard “draws heavily upon the concept of director failure to

act in good faith,”232 and does not constitute a freestanding fiduciary duty that could

independently give rise to liability.233 Because “[t]he test is rooted in concepts of

bad faith,” “a showing of bad faith is a necessary condition to director oversight

liability.”234 As our Supreme Court explained in In re Walt Disney Co. Derivative

Litigation, the “intentional dereliction of duty” or “conscious disregard for one’s

responsibilities,” which “is more culpable than simple inattention or failure to be

informed of all facts material to the decision,” reflects that directors have acted in

bad faith and cannot avail themselves of defenses grounded in a presumption of good

faith.235 In order to plead a derivative claim under Caremark, therefore, a plaintiff

must plead particularized facts that allow a reasonable inference the directors acted

with scienter which in turn “requires [not only] proof that a director acted

232
      Stone, 911 A.2d at 369.
233
      Citigroup, 964 A.2d at 122–23.
234
      Id. at 123.
235
   906 A.2d 27, 66 (Del. 2006); Citigroup, 964 A.2d at 125 (“[O]ne can see a similarity
between the standard for assessing oversight liability and the standard for assessing a
disinterested director’s decision under the duty of care when the company has adopted an
exculpatory provision pursuant to § 102(b)(7). In either case, a plaintiff can show that the
director defendants will be liable if their acts or omissions constitute bad faith. A plaintiff
can show bad faith conduct by, for example, properly alleging particularized facts that
show that a director consciously disregarded an obligation to be reasonably informed about
the business and its risks or consciously disregarded the duty to monitor and oversee the
business.”).

                                              69
inconsistent[ly] with his fiduciary duties,” but also “most importantly, that the

director knew he was so acting.”236

                     1.      The Motion Is Denied In Part As To Count I;
                             Plaintiffs Have Pled Particularized Facts
                             Demonstrating A Majority Of The Director
                             Defendants Face A Substantial Likelihood Of
                             Caremark Liability.

          Plaintiffs’ Caremark theory breaks the Company’s 737 MAX trauma into

three periods of time: before the first crash, between the two crashes, and after the

second crash. As crystallized at argument, Plaintiffs’ theory before the Lion Air

Crash maps onto Caremark’s first prong, asserting the Board utterly failed to

implement any reporting or information systems or controls.237 Plaintiffs further

assert the first Lion Air Crash was a red flag the Board ignored under prong two,

while continuing to fall short under prong one. Plaintiffs contend the Board’s prong

two deficiencies culminated in the Ethiopian Airlines Crash. And after both crashes,

Plaintiffs assert the Director Defendants breached their fiduciary duties by allowing

Muilenburg to retire with his unvested equity compensation.                 Plaintiffs have

236
    In re Massey Energy Co., 2011 WL 2176479, at *22 (Del. Ch. May 31, 2011) (emphasis
omitted); Citigroup, 964 A.2d at 123 (“[T]o establish oversight liability a plaintiff must
show that the directors knew they were not discharging their fiduciary obligations or that
the directors demonstrated a conscious disregard for their responsibilities such as by failing
to act in the face of a known duty to act.”).
237
      See Hr’g Tr. 135–36.

                                             70
sufficiently alleged the Director Defendants face a substantial likelihood of liability

under their Caremark theories, but not with regard to Muilenburg’s compensation.

                              a.     Plaintiffs Have Stated A Claim Under
                                     Caremark Prong One.

         Directors may use their business judgment to “design context- and industry-

specific approaches tailored to their companies’ businesses and resources. But

Caremark does have a bottom-line requirement that is important: the board must

make a good faith effort—i.e., try—to put in place a reasonable board-level system

of monitoring and reporting.”238 This oversight obligation is “designed to ensure

reasonable reporting and information systems exist that would allow directors to

know about and prevent wrongdoing that could cause losses for the Company.”239

“[O]nly a sustained or systematic failure of the board to exercise oversight—such as

an utter failure to attempt to assure a reasonable information and reporting system

exists—will establish the lack of good faith that is a necessary condition to

liability.”240

         Our Supreme Court’s recent decision in Marchand addressed the contours of

a Caremark prong one claim when the company is operating in the shadow of

238
      Marchand, 212 A.3d at 821 (footnote omitted).
239
      Citigroup, 964 A.2d at 131.
240
      Id. at 122 (internal quotation marks omitted).

                                               71
“essential and mission critical” regulatory compliance risk.241 Distinct from many

Caremark cases evaluating the company’s systems to monitor financial wrongdoing

like accounting fraud,242 Marchand addressed the regulatory compliance risk of food

safety and the failure to manage it at the board level, which allegedly allowed the

company to distribute mass quantities of ice cream tainted by listeria. Food safety

was the “most central safety and legal compliance issue facing the company.” 243 In

the face of risk pertaining to that issue, Marchand noted the board’s oversight

function “must be more rigorously exercised.” 244 This “entails a sensitivity to

compliance issues intrinsically critical to the company.” 245

         Marchand held the board had not made a “good faith effort to put in place a

reasonable system of monitoring and reporting” when it left compliance with food

safety mandates to management’s discretion, rather than implementing and then

overseeing a more structured compliance system. 246 The Court considered the

241
      Marchand, 212 A.3d at 824; see Clovis, 2019 WL 4850188, at *12.
242
      E.g., Stone, 911 A.2d 362; Hughes, 897 A.2d 162; Citigroup, 964 A.2d 106.
243
   Marchand, 212 A.3d at 824 (stating “food safety was essential and mission critical”);
see also id. at 822 (observing that food safety “has to be one of the most central issues at
the company” and “a compliance issue intrinsically critical to the company’s [monoline]
business operation”).
244
      Clovis, 2019 WL 4850188, at *13 (citing Marchand, 212 A.3d at 824).
245
   Id. (alterations, footnotes, internal quotation marks omitted) (quoting Marchand, 212
A.3d at 822).
246
      Marchand, 212 A.3d at 821–24.

                                            72
absence of various board-level structures “before the listeria outbreak engulfed the

company.” 247        The Court concluded that the complaint fairly alleged several

dispositive deficiencies:

            • no board committee that addressed food safety existed;
            • no regular process or protocols that required management to keep
              the board apprised of food safety compliance practices, risks, or
              reports existed;
            • no schedule for the board to consider on a regular basis, such as
              quarterly or biannually, any key food safety risks existed;
            • during a key period leading up to the deaths of three customers,
              management received reports that contained what could be
              considered red, or at least yellow, flags, and the board minutes of
              the relevant period revealed no evidence that these were disclosed
              to the board;
            • the board was given certain favorable information about food safety
              by management, but was not given important reports that presented
              a much different picture; and
            • the board meetings are devoid of any suggestion that there was any
              regular discussion of food safety issues.248

            Like food safety in Marchand, airplane safety “was essential and mission

critical” to Boeing’s business,        249
                                             and externally regulated.   250
                                                                               Considering

247
      Id. at 822.
248
      Id.
249
      Id. at 824.
250
   See Chou, 2020 WL 5028065, at *18 (“[W]hen regulations governing drug health and
safety are at issue, ABC’s Board must actively exercise its oversight duties in order to
properly discharge its duties in good faith. The allegations here are a prime example:
flouting laws meant to ensure the safety and purity of drugs destined for patients suffering
from cancer is directly inimical to the central purpose of ABC’s business.”); Clovis, 2019
WL 4850188, at *13 (“[W]hen a company operates in an environment where externally
imposed regulations govern its ‘mission critical’ operations, the board’s oversight function
must be more rigorously exercised.”).

                                               73
Marchand’s mandate that the board rigorously exercise its oversight function with

respect to mission critical aspects of the company’s business, such as the safety of

its products that are widely distributed and used by consumers, as well as the failings

Marchand identified as giving rise to the reasonable inference that the board faced

a substantial likelihood of liability under prong one, I conclude that Plaintiffs have

carried their burden under Rule 23.1 for their prong one claim. To be clear, I do not

track the deficiencies Marchand identified because they are any sort of prescriptive

list; “[a]s with any other disinterested business judgment, directors have great

discretion to design context- and industry-specific approaches tailored to their

companies’ businesses and resources.”251 I echo Marchand because it is dispositive

in view of Plaintiffs’ remarkably similar factual allegations.

                                   i.    The Board had no committee
                                         charged with direct responsibility to
                                         monitor airplane safety.

         The Amended Complaint alleges the Board had no committee charged with

direct responsibility to monitor airplane safety. While the Audit Committee was

charged with “risk oversight,” safety does not appear in its charter. Rather, its

oversight function was primarily geared toward monitoring Boeing’s financial

risks.252

251
      Marchand, 212 A.3d at 821.
252
      See Hr’g Tr. 30–33.

                                          74
          Perhaps because the Audit Committee was not asked to do so, the pleading

stage record indicates the Audit Committee did not regularly or meaningfully

address or discuss airplane safety. The yearly report the Audit Committee received

on Boeing’s compliance risk management process did not include oversight of

airplane safety.253 Specifically as to the 737 MAX, the Audit Committee never

assessed its safety risks, including those regarding MCAS and the AOA sensor,

during its development before the Lion Air Crash or after; nor did the Audit

Committee ask for presentations or information on the topic. 254 Similarly, the ERV

process and Corporate Audit group did not address airplane safety.255

          Defendants press that the Audit Committee addressed “risk” broadly, pointing

to one-off instances like when it responded to FAA questions about the Dreamliner

battery incident, or when it referred to “quality” or “safety” in passing. But those

occasional occurrences fail to dislodge Plaintiffs’ allegations that the Board did not

specifically charge the Audit Committee with monitoring airplane safety. And to

the extent Defendants point to risk analysis mechanisms and reports, like the ERV

process and the Corporate Audit group, 256 in the absence of any allegation or

253
      Hr’g Tr. 20–23.
254
      Id. 32.
255
      See supra notes 31–32.
256
   See Defs.’ Ex. 7; Defs.’ Ex. 9; Defs.’ Ex. 10; Defs.’ Ex. 23; Defs.’ Ex. 24; Defs.’ Ex.
25.

                                           75
indication that they were devoted to airplane safety, the reasonable inference is that

they fall within the Audit Committee’s financial and regulatory risk mandate.

      At the pleading stage, the existence of the Audit Committee, Corporate Audit

group, and ERV process cannot support the conclusion that the Board established

any committee or process charged with direct responsibility to monitor airplane

safety. To the contrary, the Board did not establish the Airplane Committee, which

was explicitly tasked with overseeing airplane safety, until April 2019; the Airplane

Committee was the first Board committee to formally request information about the

cause of the crashes.

      The lack of Board-level safety monitoring was compounded by Boeing’s lack

of an internal reporting system by which whistleblowers and employees could bring

their safety concerns to the Board’s attention. More than three months after the

Ethiopian Airlines Crash, Giambastiani proposed that once safety concerns were

evaluated by the SRB, they should be elevated to the Audit Committee, CTO, and

CFO, and thereafter be shared with the Board.

                                ii.      The Board did not monitor, discuss,
                                         or address airplane safety on a
                                         regular basis.

      Zooming out from the committee level, Plaintiffs have alleged specific facts

supporting the conclusion that the Board writ large did not formally address or

monitor safety. The Board did not regularly allocate meeting time or devote

                                         76
discussion to airplane safety and quality control until after the second crash. Nor did

the Board establish a schedule under which it would regularly assess airplane safety

to determine whether legitimate safety risks existed.

         The period after the Lion Air Crash is emblematic of these deficiencies. The

Board’s first call on November 23 was explicitly optional. The crash did not appear

on the Board’s formal agenda until the Board’s regularly scheduled December

meeting; those board materials reflect discussion of restoration of profitability and

efficiency, but not product safety, MCAS, or the AOA sensor. 257 The Audit

Committee devoted slices of five-minute blocks to the crash, through the lens of

supply chain, factory disruption, and legal issues—not safety.258

         The next board meeting, in February 2019, addressed factory production

recovery and a rate increase, but not product safety or MCAS.259 At that meeting,

the Board affirmatively decided to delay its investigation into the 737 MAX,

notwithstanding publicly reported concerns about the airplane’s safety. Weeks later,

after the Ethiopian Airlines Crash,260 the Board still did not consider the 737 MAX’s

257
   See id. ¶¶ 230–31; Defs.’ Ex. 61; see also Defs.’ Ex. 64 at -575 (identifying the Lion
Air Crash as a “key topic” with no mention of safety).
258
      Defs.’Ex. 14; Defs’ Ex. 61 at 2; Defs’. Ex. 84 at -618197, -618203–07.
259
      Am. Compl. ¶ 237; Defs.’ Ex. 64 at -575.
260
      Am. Compl. ¶ 248; Defs.’ Ex. 66 at -620851.

                                             77
safety. It was not until April 2019—after the FAA grounded the 737 MAX fleet—

that the Board built in time to address airplane safety.261

         Defendants argue the Board “regularly discussed” safety as part of its strategic

initiatives, pointing to slide decks that nod to “safety” as an “enduring value”262 and

as part of a “production system” that was simultaneously focused on “[a]ccelerating

productivity.”263 They also point out that the Board was updated on the 737 MAX’s

development, production, and certification,264 and that the Board inspected the plants

where the 737 MAX was assembled, including on a June 2018 inspection of the

Everett production site.265 Defendants stress that the Board “oversaw the quality and

safety of the 737 MAX program through monitoring the progress of the FAA’s

extensive certification review of the 737 MAX.”266

         But the invocations of safety Defendants highlight must be considered in the

broader context Plaintiffs plead. The Board focused on the 737 MAX’s production,

development, and certification in order to assess production timelines and revenue

261
      Am. Compl. ¶ 79; Defs.’ Ex. 75; Defs.’ Ex. 77.
262
      Defs.’ Ex. 16 at -11080, -13052.
263
   Defs.’ Ex. 17 at -11645; see also Defs.’ Ex. 20 at -13057 (including the tagline
“[e]nsuring the safety, integrity and quality of Boeing products” in a test evaluation
update).
264
   D.I. 146 at 19–22; Defs.’ Ex. 8 at -11183; Defs.’ Ex. 28; Defs.’ Ex. 29; Defs.’ Ex. 39 at
-8133; Defs.’ Ex. -8086; Defs.’ Ex. 41 -8314; Defs.’ Ex. 52 at -11403.
265
      Defs.’ Ex. 26; Defs.’ Ex. 27; Defs.’ Ex. 28; Defs.’ Ex. 29.
266
      D.I. 146 at 20.

                                               78
expectations, and to strengthen the Company’s relationships with FAA officials—

not to consider customer safety. 267        The Board and management’s passive

invocations of quality and safety, and use of safety taglines, fall short of the rigorous

oversight Marchand contemplates.

         And under Marchand, minimal regulatory compliance and oversight do not

equate to a per se indicator of a reasonable reporting system. “[T]he fact that

[Boeing] nominally complied with F[A]A regulations does not imply that

the board implemented a system to monitor [airplane] safety at the board level.

Indeed, these types of routine regulatory requirements, although important, are not

typically directed at the board.”268 The fact that Boeing’s management was seeking

minimal regulatory certification and periodically informing the Board of its progress

in pursuit of production-based business objectives “does not rationally suggest that

the board implemented a reporting system to monitor [airplane] safety or [Boeing’s]

operational performance,” as “[t]he mundane reality that [Boeing] is in a highly

regulated industry and complied with some of the applicable regulations does not

foreclose any pleading-stage inference that the directors’ lack of attentiveness rose

267
   Am. Compl. ¶¶ 127–28 (addressing board presentations containing taglines such as
“Performance, schedule, and cost certain . . . Stingy with a purpose” and “Transforming
production system to support market demand,” and “Imperatives” such as “Break Cost
Curve,” “Faster to Market,” and “Affordability Culture”).
268
      Marchand, 212 A.3d at 823.

                                           79
to the level of bad faith indifference required to state a Caremark claim.” 269 As

Marchand made plain, the fact that the company’s product facially satisfies

regulatory requirements does not mean that the board has fulfilled its oversight

obligations to prevent corporate trauma.

                                     iii.      The Board had no regular process
                                               or protocols requiring management
                                               to apprise the Board of airplane
                                               safety; instead, the Board only
                                               received ad hoc management
                                               reports that conveyed only favorable
                                               or strategic information.

            As alleged, the Board did not simply fail to assess safety itself; it also failed

to expect or demand that management would deliver safety reports or summaries to

the Board on a consistent and mandatory basis.                 The Amended Complaint’s

allegations and exhibits incorporated by reference show that the Board received

intermittent, management-initiated communications that mentioned safety in name,

but were not safety-centric and instead focused on the Company’s production and

revenue strategy. And when safety was mentioned to the Board, it did not press for

further information, but rather passively accepted management’s assurances and

opinions.270

269
      Id.
  See Defs. Ex. 53; Defs.’ Ex. 56; Defs.’ Ex. 58; Defs.’ Ex. 59; Defs.’ Exs. 62–63; Defs.’
270

Ex. 86; Am. Compl. ¶¶ 214, 224, 225, 227, 228.

                                               80
         For mission-critical safety, discretionary management reports that mention

safety as part of the Company’s overall operations are insufficient to support the

inference that the Board expected and received regular reports on product safety.271

Boeing’s Board cannot leave “compliance with [airplane] safety mandates to

management’s discretion rather than implementing and then overseeing a more

structured compliance system.”272 An effective safety monitoring system is what

allows directors to believe that, unless issues or “red flags” make it to the board

through that system, corporate officers and employees are exercising their delegated

powers in the corporation’s best interest.273

         Here, the reports the Board received throughout the 737 MAX’s development

and FAA certification were high-level reports focused on the Company’s operations

and business strategy; the Board did not expect any safety content.274 After the Lion

Air Crash, management’s communications to the Board demonstrate the lack of a
                                                                       275
Board process or protocol governing such communications.                     None of

271
      See Marchand, 212 A.3d at 823–24.
272
      Clovis, 2019 WL 4850188, at *12 (describing Marchand).
273
  See Forsythe v. ESC Fund Mgmt. Co. (U.S.), 2007 WL 2982247, at *7 (Del. Ch.
Oct. 9, 2007).
274
      See Defs.’ Ex. 40 at -8086; Defs.’ Ex. 41.
275
   See, e.g., Am. Compl. ¶ 91(“In July 2018, Boeing’s Test and Evaluation department
voiced concerns to ‘Boeing Executive Leadership’ regarding the ‘considerable pressure’
the 737 MAX program faced over production schedules. The department’s letter identifies
the ‘ero[sion of] safety margins’ due to the declining average experience among senior
production pilots.      [Boeing’s] Employee Relations Director . . . . forwarded the

                                              81
Muilenburg’s communications in the weeks following the Lion Air Crash were

initiated by a Board request, either as a one-off or as part of a standing protocol.

Muilenburg sent them at his discretion. 276 In the absence of a safety mandate,

Muilenburg’s self-directed communications to the Board focused on discrediting

media reports faulting MCAS, and on blaming Lion Air repair shops and crew.

         Muilenburg did not send any communication to the Board about the Lion Air

Crash until November 5, 2018, roughly one week after it happened.277 In that email,

he disclosed that an airspeed indicator was damaged, but treated the Lion Air crash

as a public relations problem and maintained to the Board that the “737 MAX fleet

is safe.”278 Muilenburg contacted the Board again after the WSJ Article was printed:

he gave lip service to the idea that “[t]he safety of our planes is our top priority,” but

claimed the references to withholding information “are categorically false,” that

existing flight crew procedures were adequate, and that the 737 MAX was safe.279

Muilenburg’s assurances to the Board that the 737 MAX was safe were based on

unreliable information, as he emphasized the “rigorous test program” Boeing

communication to defendant Hyslop, Boeing’s chief engineer, but . . . mischaracterized the
letter as seeking mainly compensation and additional benefits, without flagging the safety
concerns of overworked employees.”).
276
      See Defs.’ Ex. 53; Defs.’ Ex. 56; Defs.’ Ex. 57; Defs.’ Ex. 58; Am. Compl. ¶¶ 206, 229.
277
   At argument, Boeing’s counsel explained this was so because the crash occurred
overseas and in the water. See Hr’g Tr. 27.
278
      Defs.’ Ex. 55.
279
      Am. Compl. Ex. D.

                                              82
endured “[t]o earn FAA certification.”280 His primary focus was the restoration of

Boeing’s public image.281

         In the months that followed, Muilenburg’s updates focused on Boeing’s image

and the accident’s impact on the 737 MAX’s production and delivery schedule, not

product safety.282 His monthly dashboard reports to the Board and regular updates

on Company engineering initiatives addressed production and cost expectation and

challenges, but not safety. 283 He repeatedly told the Board the 737 MAX was safe

and blamed pilot and maintenance error.284 Nothing indicates that the Board pressed

him for more information about the cause of the accident or questioned

management’s conclusion.285

280
      Id.; accord Defs.’ Ex. 57.
281
      Am. Compl. Ex. D; accord Defs.’ Ex. 57.
282
    See, e.g., Defs.’ Ex. 56 (focusing on “our strong performance [a]s supported by our
continued 737 recovery); Defs.’ Ex. 58 (stating that Boeing “must allow [the investigation]
to run its course,” maintaining the “[b]ottom line” that “the 737 MAX is safe,” and
ultimately concluding with an update on “737 production” and touting that the Company
completed “43 deliveries for October,” “an all-time high for the month and a positive sign
or production recovery plane and supplier management efforts are working”); Defs.’ Ex.
60.
283
      See Defs.’ Ex. 21; Defs.’ Ex. 22 at -18838.
284
      See, e.g., Am. Compl. ¶¶ 218, 225; Defs.’ Ex. 58.
285
   While Muilenburg himself was Chairman of the Board at this time, Defendants have
not attempted to impute his knowledge to the Board as a whole. See Am. Compl. ¶ 37.

                                              83
            Muilenburg’s notes did not reference any Board-level directives for reporting

or on investigating the Lion Air Crash. 286 Rather, they indicated that Boeing’s

management was taking charge while the Board remained a passive recipient of

updates: management would “determine whether any action is required,” and

Muilenburg would “share additional details, if available, in [his] monthly update.”287

Those updates, too, were discretionary and not Board-ordered safety reports.

            The Board’s reliance on management-directed intermittent safety reporting

continued after the Ethiopian Airline Crash.            The Board passively accepted

Muilenburg’s assurances that Boeing’s “teams are centered on our priorities,

including safety, quality and stability,” 288 as an “ongoing” component of its

“production operations”; 289 and that public and regulatory backlash was driven

solely by “public/political pressure, not by any new facts” about the 737 MAX’s

safety.290 The Board did not press for more information. On March 12, Muilenburg

emailed the Board about engagement with high federal executive branch officials to

286
      See Defs.’ Ex. 57.
287
      E.g., Defs.’ Ex. 55.
288
      Defs.’ Ex. 66 at -620851.
289
      Id.
290
      Defs.’ Ex. 68.

                                              84
keep the 737 MAX flying.291 One outside director praised Muilenburg’s “strong

leadership.”292

            It was not until April 2019, the month following the Ethiopian Airline Crash,

that Boeing’s Vice President of BCA Engineering and BCA’s Vice President of

Safety, Security & Compliance presented to the Board. This was the first time that

the Board or any of its committees heard a presentation from either member of

management, “despite their roles leading engineering and safety, respectively, for

Boeing’s largest segment.”293

            The nature and content of management’s ad hoc reports to the Board indicate

that the Board had no regular process or protocols requiring management to apprise

the Board of airplane safety.294 Nothing in the Amended Complaint or documents

291
      Id.
292
      Am. Compl. ¶ 252.
293
      Id. ¶ 71.
294
     Hr’g Tr. 14–16 (“THE COURT: Where can I see that expectation and practice from the
board’s side rather than management coming forward and – you’ve pointed me to some
examples of management coming forward to the board. Can you point me to any examples
of where the board has expressed its expectation that management do so? MR.
RABINOVITZ: I can’t point you to a written protocol, Your Honor . . . [But] the fact that
this practice existed is a meaningful indication of the protocol that did exist between
management and the board. The board doesn’t need to say so. The proof is in the pudding,
as it were. . . . THE COURT: Just before you do that, just to put a bit of a finer point on
it, the protocol that you’re offering is manifested only when management chose to elevate
issues to the board? MR. RABINOVITZ: This specific part, right. Elevating specific
safety issues when management believed they warranted board attention. I cannot point to
that in writing.”).

                                              85
submitted supports the inference that the Board requested those reports or expected

those reports to contain safety information.295

         Management’s ad hoc reports were also one-sided at best and false at worst,

conveying only favorable and optimistic safety updates and assurances that the

quality of Boeing’s aircraft would drive production and revenue. Management

reported its unsupported conclusion that MCAS and the AOA sensor did not cause

the crashes and that the 737 MAX remained airworthy and able to meet production

goals. Management told the Board that “the function performed by MCAS” was

referenced in the Flight Crew Operations Manual, and expressed frustration with

public commentary.296 Muilenburg also told the Board that Boeing was developing

a “737 MAX software enhancement that, when implemented, will further improve

system safety,” and that “[d]espite recent media speculation,” nothing had been

decided about the “software update and its timing”—understating that

“enhancement[’s]” lifesaving importance.297

         Because the Board did not have any formal procedures in place to monitor the

safety of Boeing’s airplanes, the Board was not privy to the truth about MCAS, AOA

sensor vulnerabilities, or how those issues were handled in FAA certification and

295
      See id. 14–16, 19–21, 32, 47–48.
296
      Am. Compl. ¶ 224.
297
      Id. ¶ 234; Defs.’ Ex. 63 at -13683.

                                            86
pilot training. 298    It accepted Muilenburg’s denials, deflections, and repeated

insistence that the 737 MAX was safe, even after the press faulted MCAS and

insufficient training for the Lion Air Crash.

          The fact that management only communicated with the Board regarding

safety on an ad hoc basis as necessary to further business strategy, and the fact that

management only gave the board “certain favorable information” but not “important

reports that presented a much different picture,” indicate that the Board failed to

implement a reasonable reporting system to monitor the safety of Boeing’s

airplanes.299

                                  iv.      Management saw red, or at least
                                           yellow, flags, but that information
                                           never reached the Board.

          In Marchand, the Supreme Court agreed with the plaintiff that management’s

knowledge about growing safety issues in the company and failure to report those

issues to the board was “further evidence that the board had no food safety reporting

system in place.”300 Where management received reports that contained what could

be considered red, or at least yellow, flags, and the board minutes of the relevant

298
   See Hr’g Tr. 32 (“MR. RABINOVITZ: I do not think there is anything in the record
suggesting that the board was briefed on the MCAS at all before the – before the first 737
MAX accident.”).
299
      See Marchand, 212 A.3d at 822.
300
      Id. at 817.

                                           87
period revealed no evidence that these were disclosed to the board, it is reasonable

to infer the absence of a reporting system. 301 Here, as in Marchand, Boeing

management knew that the 737 MAX had numerous safety defects, but did not report

those facts to the Board.

          In the critical period leading up to the Lion Air Crash, Boeing management

received formal complaints from employees who questioned the safety of the 737

MAX. Further, Boeing’s Internal Safety Analysis found that if a pilot took more

than ten seconds to identify and respond to the MCAS activation, the result would

be catastrophic. Forkner made MCAS’s vulnerability issues known within the

Company. But before the Lion Air Crash, there is no evidence that management

apprised the Board of the AOA disagree sensor’s malfunctions or the probability of

catastrophic failure.302

          After the Lion Air Crash, Boeing started revising MCAS and, like the FAA,

performed a risk assessment that concluded an unacceptably high risk of catastrophic

failure. Boeing also pushed out the Manual Bulletin, and the FAA issued the

301
      Id. at 822.
302
   See Hr’g. Tr. 32 (“MR. RABINOVITZ: I do not think there is anything in the record
suggesting that the board was briefed on the MCAS at all before the – before the first 737
MAX accident.”).

                                           88
Emergency Directive.303 But management told the Board the 737 MAX was safe,

and did not brief the Board on the risks of MCAS.

         Thus, safety concerns known to management failed to make their way to the

Board, supporting the conclusion that the Board failed to establish a reporting

system.

                                 v.      In addition to the inferences drawn
                                         above, the pleading-stage record
                                         supports an explicit finding of
                                         scienter.

         Plaintiffs have pled facts that allowing a reasonable inference that the

directors breached their duties of oversight with scienter: not only did the Director

Defendants act inconsistently with their fiduciary duties, but they also knew of their

shortcomings.304 In Marchand, the Delaware Supreme Court inferred scienter from

the lack of any board committee focused on safety; any regular process or protocols

requiring management to report on safety risks; any regular schedule for the board

to address safety; any board minutes or documents suggesting that they regularly

discussed safety; any evidence that red, or at least yellow, flags, were disclosed to

the board; and any evidence that management conveyed both favorable and

303
      Am. Compl. ¶¶ 189–91.
304
  See, e.g., Horman, 2017 WL 242571, at *7 (quoting Massey, 2011 WL 2176479, at
*22).

                                         89
unfavorable safety information to the board. 305 Those allegations support an

inference of scienter here as well.

            But no inference is needed: the difficult scienter element is directly met by

the Board’s own words. They confirm that directors knew the Board should have

had structures in place to receive and consider safety information. Collins’s March

15, 2019 email to Calhoun is exemplary. In the absence of Board meetings and

discussions about safety before the crashes, Collins pitched that “we should devote

the entire board meeting (other than required committee meetings and reports) to a

review of quality within Boeing,” because “[i]n addition to providing necessary

information for the Board, this type of agenda would underscore the board’s (and

management’s) unwavering commitment to quality and safety above all other

performance criteria.” 306 Collins’s follow-up email on the “category of ‘lessons

learned’” reflected on his and Calhoun’s time at Medtronic, where they “began each

board meeting, executive committee meeting, and operating review with a review of

product quality/safety—before any discussion of financial performance, market

share/competitive activities, new product development timetables, and certainly

stock price,”307 so that “everyone in the corporation understood that nothing was

305
      Marchand, 212 A.3d at 822.
306
      Am. Compl. Ex. C.
307
      Id.

                                              90
more important to the CEO and the board than quality/safety.” 308 In response,

Muilenburg “added Safety data to the Board lead-off briefing, and . . . monthly

Board note too,”309 and the Board held its first meetings to formally address airplane

safety.

            That the Board knowingly fell short is also evident in the Board’s public

crowing about taking specific actions to monitor safety that it did not actually

perform. Calhoun hustled to “[p]osition the Boeing Board of Directors as an

independent body that has exercised appropriate oversight.”310 He falsely touted that

the Board was immediately contacted and met “very, very quickly” after the Lion

Air Crash; 311 participated in evaluating the 737 MAX’s safety risks; considered

grounding the 737 MAX after the Lion Air Crash;312 met within twenty-four hours

of that crash to consider grounding; and recommended grounding. 313 Each of

Calhoun’s public representations was knowingly false.314 They evidence that at least

Calhoun knew what the Board should have been doing all along.

308
      Id.
309
      Id.
310
      Am. Compl. ¶ 263.
311
      Id. ¶¶ 268–69.
312
      Id. ¶ 271.
313
      Id. ¶¶ 274–75.
314
   See, e.g., id. ¶¶ 271–76; Defs.’ Ex. 69. As stated, Count I of the Amended Complaint
categorizes the Board’s public deception as a breach of fiduciary duty. Although the parties

                                            91
                                         *****

          Plaintiffs have met their “onerous pleading burden” under Caremark prong

one, and are entitled to discovery to prove out that claim. 315 As espoused in

Marchand, the Board has a rigorous oversight obligation where safety is mission

critical, as the fallout from the Board’s utter failure to try to satisfy this “bottom-line

requirement” 316 can cause “material suffering,” even short of death, “among

customers, or to the public at large,” and attendant reputational and financial harm

to the company. 317 Plaintiffs allege a majority of the Director Defendants face

liability under that theory, and have stated a claim.

                             b.    Plaintiffs Have Stated A Post-Lion Air
                                   Claim Under Caremark Prong Two.

          Plaintiffs also contend the Director Defendants face a substantial likelihood

of liability under Caremark prong two because they ignored the Lion Air Crash and

other red flags about the 737 MAX’s safety before the Ethiopian Airlines Crash.318

“To state a prong two Caremark claim, Plaintiff must plead particularized facts that

the board knew of evidence of corporate misconduct—the proverbial red flag—yet

did not focus on that allegation in briefing or at argument, to the extent Plaintiffs pursue
the Board’s misrepresentations as an independent breach, the Motion is DENIED.
315
      Marchand, 212 A.3d at 824.
316
      Id. at 821.
317
      Chou, 2020 WL 5028065, at *1.
318
   By the time of the October 2018 Lion Air Crash, Stephenson and McNerney were no
longer on the Board.

                                            92
acted in bad faith by consciously disregarding its duty to address that misconduct.”319

Plaintiffs have done so here.

       A classic prong two claim acknowledges the board had a reporting system,

but alleges that system brought information to the board that the board then

ignored.320 In this case, Plaintiffs’ prong two claim overlaps and coexists with their

prong one claim; Plaintiffs assert the Board ignored red flags at the same time they

utterly failed to establish a reporting system.321

       I can appreciate the breadth of Plaintiffs’ theory in view of the Board’s

pervasive failures under prong one and the scale of the tragedy that followed.

Boeing’s safety issues manifested in the Lion Air Crash—an accident the Board

319
   Id. at *17 (alterations and internal quotation marks omitted) (quoting Reiter, 2016 WL
6081823, at *8).
320
   See, e.g., Pettry on behalf of FedEx Corp. v. Smith, 2021 WL 2644475, at *7–12 (Del.
Ch. June 28, 2021) (reciting the Caremark prong two standard, and finding that the board
did not ignore red flags that were elevated through the company’s reporting system);
Clovis, 2019 WL 4850188, at *13 (quoting Marchand, 212 A.2d at 821) (“Caremark’s
second prong is implicated when it is alleged the company implemented an oversight
system but the board failed to ‘monitor it.’”); cf. Chou, 2020 WL 5028065, at *17–26
(concluding that the board consciously ignored red flags that were raised to the board where
“Plaintiffs allege[d] that the Director Defendants face a substantial likelihood of liability
under both prongs of Caremark”).
321
   See, e.g., Chou, 2020 WL 5028065, at *26 (“Because the Complaint survives under a
‘prong two’ theory, I need not decide whether the Director Defendants face a substantial
likelihood of liability under ‘prong one’ of Caremark. I note, however, that the Davis Polk
Report indicates that several years after acquiring Specialty, ABC had a woefully
inadequate compliance system. While the implication of a ‘prong one’ claim is
unnecessary to survive the Defendants’ Motion, it nonetheless speaks to a lax approach (at
best) to compliance at ABC.”).

                                             93
could not help but learn about, despite the lack of a Board-level monitoring system.

Unlike many harms in the Caremark context, which include financial misconduct

that the board can likely discover only through an internal system, the Board did not

require an internal system to learn about the Lion Air Crash and the attendant MCAS

failures.322 The Lion Air Crash and its causes were widely reported in the media;

those reports reached the Board; and the Board ignored them.323

         But I need not decide today whether Plaintiffs’ prong two theory is cognizable

in view of my conclusion that the Board utterly failed under prong one. Defendants

press that “the Board had extensive reporting systems and controls,” including its

Audit Committee, ERV, ethics and compliance reporting portals, internal audits

group, and regular management and legal updates.324 Assuming Defendants are

correct, the Board nonetheless ignored the Lion Air Crash and the consequent

revelations about the unsafe 737 MAX.

         The Lion Air Crash was a red flag about MCAS that the Board should have

heeded but instead ignored. The Board did not request any information about it from

management, and did not receive any until November 5, 2018, over one week after

it happened. In that communication, Muilenburg advanced management’s position

322
      See, e.g., Am. Compl. ¶¶ 195–98, 208–09; id. Ex. D; Defs.’ Ex. 55; Hr’g Tr. 32.
323
      See Am. Compl. ¶¶ 195–98, 208–09; id. Ex. D; Defs.’ Ex. 55.
324
      D.I. 146 at 38.

                                             94
that the 737 MAX was safe, and the Board passively accepted that position. The

November 12 WSJ Article circulated the theory that MCAS had serious engineering

defects that were concealed from regulators and pilots, which required immediate

investigation and remediation. The Board was aware of that article, but did not

question management’s contrary position. The Section 220 record does not reveal

evidence of any director seeking or receiving additional written information about

MCAS or the AOA sensor, Boeing’s dealings with the FAA, how it had obtained

FAA certification, the required amount of pilot training for the 737 MAX, or about

airplane safety generally.325

         When the Board finally convened to address the Lion Air Crash, the call was

optional. The full Board did not anchor the tragedy as an agenda item until it met

for its regularly scheduled Board meeting in December 2018, and its focus at that

meeting was on the continued production of the 737 MAX, rather than MCAS,

potential remedial steps, or safety generally.326 And when the Board eventually

considered whether it should investigate the causes of the Lion Air Crash, at the

February 2019 Board meeting, the Board formally resolved to “delay any

325
    See In re Tyson Foods, Inc., 919 A.2d 563, 578 (Del. Ch. 2007) (“[I]t is more reasonable
to infer that exculpatory documents would be provided than to believe the opposite: that
such documents existed and yet were inexplicably withheld.”).
326
      Am. Compl. ¶ 231–32; Defs.’ Ex. 84 at -618203.

                                            95
investigation until the conclusion of the regulatory investigations or until such time

as the Board determines that an internal investigation would be appropriate.” 327

         Electing to follow management’s steady misrepresentations that the 737 MAX

fleet was safe and airworthy, the Board treated the crash as an “anomaly,” a public

relations problem, and a litigation risk,328 rather than investigating the safety of the

aircraft and the adequacy of the certification process. The Board’s declination to

test the modicum of information it received and seek the truth of the 737 MAX’s

safety, despite reported information calling it into question, do not indicate a mere

“failed attempt” to address a red flag.329 As alleged and supported by the Section

220 record, the Board was aware or should have been aware that its response to the

Lion Air Crash fell short.330

327
      Am. Compl. ¶ 238; Pls.’ Ex. 4.
328
      Am. Compl. ¶ 271.
329
   Cf. Richardson v. Clark, 2020 WL 7861335, at *11 (Del. Ch. Dec. 31, 2020); In re
Qualcomm FCPA S’holder Deriv. Litig., 2017 WL 2608723, at *4 (Del. Ch.
June 16, 2017).
330
   See Am. Compl. Ex. C (addressing “lessons learned’ and the Board’s need to begin
addressing safety in a formal setting); Rich ex rel. Fuqi Int’l, Inc. v. Yu Kwai Chong, 66
A.3d 963, 983–84 (Del. Ch. 2013) (finding scienter where company’s directors “knew that
there were material weaknesses in [the company’s] internal controls”); cf. In re GoPro,
Inc., 2020 WL 2036602, at *13 (Del. Ch. Apr. 28, 2020) (declining to find that Plaintiffs
offered “well-pled facts supporting an inference that a majority of the Demand Board
personally knew about Karma’s defect, could meaningfully address the issue at the Board
level and yet elected to do nothing”).

                                           96
                      2.       Plaintiffs Have Not Pled Particularized Facts
                               Demonstrating The Director Defendants Face A
                               Substantial Likelihood Of Liability With
                               Respect To Muilenburg’s Retirement And
                               Compensation.

         Plaintiffs also allege that the Director Defendants consciously breached their

fiduciary duties by allowing Muilenburg to receive unvested equity-based

compensation in a quiet retirement, despite knowing that he misled the FAA and the

Board, and failed in his response to the Lion Air and Ethiopian Airlines Crashes.

Plaintiffs couch this claim as one for waste or, in the alternative, bad faith. 331 But

Plaintiffs have not alleged particularized facts sufficient to demonstrate that the

Director Defendants face a substantial likelihood of liability under these rigorous

standards.332

         Plaintiffs   do    not    meaningfully       challenge     the    independence        and

disinterestedness of the Board as to the terms of Muilenburg’s departure. Plaintiffs

theorize the Board bought Muilenburg’s silence because he knew the depth of the

Board’s ignorance about the 737 MAX. Plaintiffs contend that the Board acted out

of self-interest by allowing Muilenburg to retire and claim his unvested equity

331
      See D.I. 155 at 56–61.
332
   This is true whether the Board’s decision to terminate Muilenburg is considered under
Aronson or Rales. See Zuckerberg, 250 A.3d at 877–90; see also D.I. 146 at 58 (“Whether
the Board’s decision to terminate Muilenburg is considered under Aronson or
Rales, . . .Plaintiffs fail to establish demand futility.”); id. at 60 (assessing Plaintiffs’ claims
under Rales); D.I. 155 at 38 (citing and applying Rales).

                                                97
because “Muilenburg could have accused the Board members of unfairly

scapegoating him for doing what the Board wanted.”333 They argue “[t]he Board’s

pronounced lack of safety oversight incentivized the Board members not to make an

enemy of Muilenburg at a time of public clamor over whether the Board bore any

culpability for the mass fatalities and resulting financial catastrophe at Boeing.”334

But Plaintiffs do not plead particularized facts supporting their theory that “[p]aying

Muilenburg encouraged his silence about his interactions with the Board.” 335

Nothing in the Section 220 production gives rise to the reasonable inference that

Muilenburg intended to retaliate against the Board by placing the blame at its feet.

This theory is conclusory.

            Further, Plaintiffs have not pled particularized facts giving rise to the

inference that the Board would face a substantial likelihood of liability under waste

or bad faith theories. “[T]he standard for waste is a very high one that is difficult to

meet,”336 and “to prevail on a waste claim the plaintiff must overcome the general

presumption of good faith by showing that the board’s decision was so egregious or

irrational that it could not have been based on a valid assessment of the corporation’s

333
      D.I. 155 at 59.
334
      Id. at 60.
335
      Id.
336
      In re Walt Disney Co. Deriv. Litig., 907 A.2d 693, 759 (Del. Ch. 2005).

                                              98
best interests.”337 “[T]o excuse demand on grounds of waste the Complaint must

allege particularized facts that lead to a reasonable inference that the director

defendants authorized ‘an exchange that is so one sided that no business person of

ordinary, sound judgment could conclude that the corporation has received adequate

consideration.’” 338 The burden to establish a claim for bad faith is similarly

stringent. A finding of bad faith in the fiduciary context is rare.339 “Absent direct

evidence of an improper intent, a plaintiff must point to a decision that lacked any

rationally conceivable basis . . . to survive a motion to dismiss.”340

            The Amended Complaint and the Section 220 record do not support such

claims here, as it is reasonable to infer that the Board was validly exercising its

business judgment when it decided to allow Muilenburg to retire with compensation.

At that time, Boeing was facing substantial backlash and had spent millions of

337
      Citigroup, 964 A.2d at 136 (alterations and internal quotation marks omitted).
338
      Id.
339
   See In re Saba Software, Inc. S’holder Litig., 2017 WL 1201108, at *20 (Del. Ch.
Mar. 31, 2017) (citing In re Chelsea Therapeutics Int’l Ltd. S’holders Litig., 2016 WL
3044721, at *1 (Del. Ch. May 20, 2016)). That said, I acknowledge the bulk of this opinion
concludes the Director Defendants face liability for bad faith dereliction of their oversight
duties.
340
    In re Essendant, Inc. S’holder Litig., 2019 WL 7290944, at *14 (Del. Ch. Dec. 30, 2019)
(alteration and internal quotation marks omitted) (quoting Chen v. Howard-Anderson, 87
A.3d 648, 684 (Del. Ch. 2014)); see also Chelsea Therapeutics, 2016 WL 3044721, at *1
(stating that in cases where “there is no indication of conflicted interests or lack of
independence on the part of the directors,” a finding of bad faith should be reserved for
situations where “the nature of [the directors’] action can in no way be understood as in the
corporate interest: res ipsa loquitur”).

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dollars addressing the 737 MAX corporate trauma. Even accepting as true that the

Board allowed Muilenburg to go quietly and with full pockets to avoid further public

criticism, it is reasonable to infer that doing so was in furtherance of the legitimate

business objective of avoiding further reputational and financial harm to the

Company.341 Accordingly, Plaintiffs have failed to allege particularized facts that

the decision to forego Muilenburg’s termination for cause “was otherwise the

product of a valid exercise of business judgment.” 342 The Motion is therefore

granted as to Plaintiffs’ Muilenburg compensation claims.

             B.     The Motion Is Granted As To Count II’s Claim Against The
                    Officer Defendants.

         Defendants have also moved to dismiss all claims against the Officer

Defendants under Rules 23.1 and 12(b)(6). Defendants argue that Plaintiffs do not

plead with particularity facts establishing that demand is excused for Count II of

their Complaint, alleging breach of fiduciary duty by Boeing’s officers. 343

341
    See Shabbouei v. Potdevin, 2020 WL 1609177, at *12 (Del. Ch. Apr. 2, 2020) (“[T]he
Board was operating well-within the bounds of proper business judgment when it decided
to settle with [the former CEO] rather than fire him ‘for cause,’ a decision that could have
embroiled the Company in an embarrassing legal battle with its former CEO.”); Seinfeld v.
Slager, 2012 WL 2501105, at *6 (Del. Ch. June 29, 2012) (“Other factors may also
properly influence the board, including ensuring a smooth and harmonious transfer of
power, securing a good relationship with the retiring employee, preventing future
embarrassing disclosure and lawsuits, and so on.”).
342
      Aronson, 473 A.2d at 814.
343
      D.I. 146 at 60.

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Defendants further argue that Delaware does not recognize Caremark claims against

officers, and that Plaintiffs have failed to allege that the Officer Defendants breached

their duty of care.344

         In briefing, Plaintiffs did not address Defendants’ demand futility arguments

as to Count II.345 Instead, Plaintiffs’ theory under Rule 23.1 presumably turns on the

assumption that the Officer Defendants can face Caremark liability, and that

therefore demand was futile as to all Defendants facing the same claim. But

Plaintiffs have not pled this with the requisite particularity, nor have they argued that

any of the Director Defendants are beholden to or dominated by the Boeing officers

such that they would be unable to assess Count II regardless of the theory of

liability.346 Indeed, the Amended Complaint’s demand futility allegations do not

address the Officer Defendants, asserting only that “a majority of the members of

the Board have faced a substantial likelihood of liability for failing to make any good

faith effort to implement and oversee a board-level system to monitor and report on

344
      See id. at 61–62.
345
      See generally D.I. 155; D.I. 159 at 33.
346
   E.g., In re MetLife, Inc. Deriv. Litig., 2020 WL 4746635, at *13 n.186 (Del. Ch.
Aug. 17, 2020) (pointing out that plaintiffs did not argue that any board members were
beholden to management so as to disable them from evaluating the claims); Rales, 634
A.2d at 936.

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safety.”347 Accordingly, Count II is dismissed pursuant to Rule 23.1, and therefore

I need not address Defendants’ arguments under Rule 12(b)(6).

      III.   CONCLUSION

         The Motion is GRANTED in part and DENIED in part. The parties shall

submit an implementing order with twenty days of this decision.

347
      Am. Compl. ¶ 299.

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