## Facts

- Stockholders brought a derivative action on behalf of Boeing alleging fiduciary breaches tied to board-level oversight of airplane safety, focusing on the 737 MAX program.
- Two 737 MAX aircraft crashed (Lion Air Flight 610 in October 2018; Ethiopian Airlines Flight 302 in March 2019), with investigations attributing the loss of control to MCAS, which relied on a single sensor and was not adequately explained to pilots and regulators.
- The crashes led to a worldwide grounding in March 2019 and substantial financial, regulatory, and reputational harm to Boeing.
- Plaintiffs alleged that before the first crash the board lacked any meaningful board-level system to monitor airplane safety: no safety-focused committee, no regular safety reporting protocol, and little documented safety discussion in board materials.
- Plaintiffs further alleged that after the first crash the board failed to respond to red flags: it did not promptly demand detailed safety information, delayed focused board attention, emphasized return-to-service and communications, and did not pursue timely internal investigation or sustained follow-through.
- Plaintiffs did not make a pre-suit demand and relied on books-and-records documents to plead particularized facts.
- Defendants moved to dismiss under Court of Chancery Rule 23.1 (demand futility) and Rule 12(b)(6).

## Issues

1. Whether plaintiffs pleaded particularized facts showing demand futility because a majority of directors faced a substantial likelihood of liability under Caremark for oversight failures involving mission-critical airplane safety.
2. Whether the complaint adequately alleged a non-exculpated duty-of-loyalty breach under Caremark based on (a) an utter failure to implement board-level safety reporting systems and/or (b) conscious failure to monitor or respond to red flags after the first crash.
3. Whether plaintiffs pleaded demand futility as to derivative claims against officers by showing the board could not impartially decide whether to pursue claims against them.

## Decision

- The court denied the motion to dismiss as to the director defendants, holding plaintiffs adequately pleaded demand futility and a substantial likelihood of liability under both Caremark prongs.
- The court held airplane safety was mission critical to Boeing’s core, heavily regulated business, making structured board-level oversight essential.
- The court found it reasonably inferable that the board failed in good faith to implement a board-level safety monitoring and reporting system.
- The court also found plaintiffs adequately alleged the board failed in good faith to respond to post–Lion Air red flags, supporting an inference of conscious inaction.
- The court granted the motion to dismiss as to officer defendants because plaintiffs did not plead particularized facts excusing demand for officer claims.

## Legal Principles

- A board may face duty-of-loyalty liability for bad-faith oversight failures if it (1) utterly fails to implement any reporting or information system or controls, or (2) having implemented such a system, consciously fails to monitor or oversee it.
- When a risk is essential and mission critical to the business and subject to significant regulation, the board must make a good-faith effort to ensure a meaningful, board-level system exists to bring that risk information to the board.
- Demand is excused under Rule 23.1 only if particularized facts show a majority of directors face a substantial likelihood of liability or otherwise cannot exercise independent business judgment on a demand.
- Books-and-records evidence may support pleading-stage inferences about what the board did not do, including from the absence of documented oversight activity in board materials.

## Conclusion

The Court of Chancery allowed derivative Caremark claims to proceed against Boeing’s directors based on pleaded failures to implement and to use board-level safety oversight mechanisms for a mission-critical risk, while dismissing officer claims because plaintiffs did not plead demand futility for pursuing those claims.


In re The Boeing Co. Derivative Litig., C.A. No. 2019-0907-MTZ, 2021 WL 4059934 (Del. Ch. Sept. 7, 2021)