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`IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
`IN RE THE BOEING COMPANY
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`DERIVATIVE LITIGATION
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`Consol. C.A. No. 2019-0907-MTZ
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`DIRECTOR DEFENDANTS’ MOTION FOR CLARIFICATION
`PURSUANT TO COURT OF CHANCERY RULE 59(F)
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`Pursuant to Chancery Court Rule 59(f), the individual director defendants
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`hereby request clarification of the Court’s September 7, 2021 memorandum
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`opinion.1
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`1.
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`Based upon the partial record before it, this Court denied the motion to
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`dismiss in part and ruled that, at this early stage of the case, plaintiffs may proceed
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`with a claim against Boeing’s directors (but not its officers). The director defendants
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`remain confident that once the Court has the full record before it—including the
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`complete transcripts of Mr. Calhoun’s media interviews, the timeline and context of
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`the Board’s discussions and actions in the aftermath of the accidents, and testimonial
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`evidence from key witnesses, including the directors themselves—it will be clear
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`1 A motion for clarification, which is treated procedurally as a motion for
`reargument under Chancery Court Rule 59(f), “may be granted where the meaning
`of what the court has written is unclear.” Naughty Monkey LLC v. MarineMax Ne.
`LLC, 2011 WL 684626, at *1 (Del. Ch. Feb. 17, 2011); see Gore v. Al Jazeera Am.
`Holdings I, Inc., 2015 WL 721068, at *1 & n.1 (Del. Ch. Feb. 19, 2015) (granting
`motion for clarification under Rule 59(f) where opinion on motion for judgment on
`the pleadings could be construed as having made rulings on merits of contract claim).
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`EFiled: Sep 10 2021 05:52PM EDT
`Transaction ID 66922937
`Case No. 2019-0907-MTZ
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`that the Board conducted extensive and good faith oversight of safety at the Boeing
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`Company, both before and after the accidents.
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`2.
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`Litigating that dispute, of course, remains for another day. This motion
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`instead seeks clarification of the Court’s ruling, which contains categorical
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`statements that the Board and Mr. Calhoun misled the public about the Board’s
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`safety oversight. The Court could not have meant to make findings that adopt
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`plaintiffs’ view of the case at this early stage of litigation without access to the
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`complete record of transcripts and testimony that will tell the full story.
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`Accordingly, defendants respectfully request that the Court clarify that its ruling
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`concludes that plaintiffs have met their pleading burdens under Rules 12(b)(6) and
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`23.1 for certain Caremark claims, without resolving any of the contested factual
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`issues or ultimate legal questions in this case.
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`3.
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`As the Court noted, in deciding motions to dismiss under both Rule
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`23.1 and Rule 12(b)(6), courts “accept[] well-pled allegations as true, and make[]
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`reasonable inferences in favor of the plaintiff.” Op. 64 (quoting Beam ex rel. Martha
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`Stewart Living Omnimedia, Inc. v. Stewart, 833 A.2d 961, 976 (Del. Ch. 2003),
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`aff’d, 845 A.2d 1040 (Del. 2004)); see id. at 65 (quoting Savor, Inc. v. FMR Corp.,
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`812 A.2d 894, 896-97 (Del. 2002)). Inferences drawn in plaintiffs’ favor at the
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`pleading stage, however, are drawn solely for the purpose of deciding the motion to
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`dismiss, and are not determinative of later stages of litigation, where plaintiffs will
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`have the burden to establish the facts necessary to prove their case. See Teamsters
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`Local 443 Health Servs. & Ins. Plan v. Chou, 2020 WL 5028065, at *24 (Del. Ch.
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`Aug. 24, 2020).2
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`4.
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`Although courts must view the facts in the light most favorable to
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`plaintiffs for purposes of ruling on a motion to dismiss, they may not make findings
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`of fact in that ruling. See Holmes v. D’Elia, 129 A.3d 881, 2015 WL 8480150, at
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`*2 n.11 (Del. 2015) (observing that a trial court’s opinion dismissing a complaint
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`under Rule 12(b)(6) included “certain sentences that might be read in isolation as
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`findings of fact,” but emphasizing that “[r]ead in full context,” the true meaning was
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`that the plaintiff “had pled no facts supporting a pleading stage inference”). Rather,
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`courts consider whether “under any state of facts consistent with the factual
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`allegations of the complaint the plaintiff would be entitled to a judgment.” White v.
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`Panic, 783 A.2d 543, 549 n.12 (Del. 2001) (emphasis added) (quoting Lewis v.
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`Vogelstein, 699 A.2d 327, 338 (Del. Ch. 1997)); see Desimone v. Barrows, 924 A.2d
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`908, 914 (Del. Ch. 2007) (“[T]he key issue under Rales . . . is whether, assuming the
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`2 Citing Teamsters, the Court found it “reasonable to infer that exculpatory
`information not reflected in the document production does not exist.” Op. 3 n.1
`(citing Teamsters, 2020 WL 5028065, at *24 & n.314). Importantly, however, the
`court in Teamsters drew that inference solely in light of “the [p]laintiff-friendly
`standard at this pleading stage,” and observed that “[w]hether [the inference] will
`bear out upon discovery is a matter that awaits a record.” Teamsters, 2020 WL
`5028065, at *24.
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`pled facts to be true, a majority of the Sycamore board faces a substantial likelihood
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`of personal liability[.]”) (emphasis added).
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`5.
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`That is true regardless of the level of detail included in a complaint’s
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`factual allegations, and even if a complaint’s allegations draw on a substantial
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`number of documents. Even where a complaint makes “detail[ed]” allegations
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`“based upon documents received as part of a request for books and records,” courts
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`“make[] no findings of fact at this stage,” in part because “[d]efendants have not had
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`the opportunity to rebut the majority of the factual contentions.” In re INFOUSA,
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`Inc. S’holders Litig., 953 A.2d 963, 973 (Del. Ch. 2007). “The doctrine of
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`incorporation by reference does not enable a court to weigh evidence on a motion to
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`dismiss.” In re Dell Techs. Inc. Class V S’holders Litig., 2020 WL 3096748, at *14
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`(Del. Ch. June 11, 2020); see id. at *13 (rejecting attempt to “treat[] . . . motions to
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`dismiss as if the court could weigh evidence and make findings of fact”).
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`6.
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`Notwithstanding the Court’s recitation of the governing legal standards,
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`various statements in its opinion could be read to resolve hotly contested factual
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`issues between the parties. The opinion throughout makes statements about disputed
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`factual issues without making clear that the Court is simply reciting plaintiffs’
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`allegations. See, e.g., Op. 12 (“Boeing did not implement or prioritize safety
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`oversight at the highest level of the corporate pyramid.”); id. at 25 (“Boeing and its
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`well-connected leadership had significant sway over the FAA, and the FAA often
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`permitted Boeing to self-regulate.”); id. at 32 (“The Board was unaware of
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`whistleblower complaints regarding airplane safety, compliance, workforce
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`exhaustion, and production schedule pressure at the 737 MAX facility.”). The
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`opinion is thus open to being read as if it were making factual determinations,
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`including about the veracity of the Board and the Chief Executive Officer. See, e.g.,
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`id. at 55 (“The Board publicly lied about if and how it monitored the 737 MAX’s
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`safety.”). The nature of the Court’s statements could suggest that the Court has
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`resolved questions that are for summary judgment or trial rather than a motion to
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`dismiss. As explained below, the Court should clarify that its statements were based
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`on considering plaintiffs’ allegations under Rules 12(b)(6) and 23.1, and were not
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`intended to be findings of fact at this stage of the case.
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`7.
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`The opinion’s analysis demonstrates the problem acutely. There, the
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`Court’s statements could be taken to resolve factual issues of what the Board knew
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`and whether it appropriately monitored safety—and indeed even the ultimate legal
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`question of whether the Board should be held liable. For instance, at various points
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`the opinion comes close to suggesting that the Board actually breached its fiduciary
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`duties, without tying its statements to plaintiffs’ allegations. See, e.g., Op. 84 (“The
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`Board passively accepted Muilenburg’s assurances” and “did not press for more
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`information.”); id. at 86 (“Management’s ad hoc reports were also one-sided at best
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`and false at worst, conveying only favorable and optimistic safety updates and
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`assurances that the quality of Boeing’s aircraft would drive production and
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`revenue.”).
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`8.
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`In discussing whether any breach of fiduciary duty was knowing, the
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`opinion goes beyond saying that the plaintiffs’ allegations support an inference of
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`scienter—the only conclusion necessary in ruling on a motion to dismiss. Rather,
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`the opinion says that “no inference is needed: the difficult scienter element is
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`directly met by the Board’s own words. They confirm that directors knew the Board
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`should have had structures in place to receive and consider safety information.” Op.
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`90 (emphasis added); see id. at 89 (“[T]he pleading-stage record supports an explicit
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`finding of scienter.”) (emphasis added). Again, the opinion’s definitive language
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`gives the incorrect impression that the Court has resolved the question of what the
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`Board knew. Of course, the Court could not make an actual finding of scienter when
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`it has not had the opportunity to review Board communications that are not yet in
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`the record, or to hear testimony from the Board. Such testimony is especially critical
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`to understanding communications among Board members, or between the Board and
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`management, that occurred in person or over the phone rather than by email.
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`9.
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`Finally, in deciding whether plaintiffs had stated a viable claim, the
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`opinion does sometimes say merely that plaintiffs had met their pleading burden at
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`the Rule 23.1 stage. See, e.g., Op. 92. But the opinion also contains far broader
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`language about the ultimate issues in this case. See, e.g., id. at 93 (“I can appreciate
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`the breadth of Plaintiffs’ theory in view of the Board’s pervasive failures under prong
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`one and the scale of the tragedy that followed.”); id. at 94 (“I need not decide today
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`whether Plaintiffs’ prong two theory is cognizable in view of my conclusion that the
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`Board utterly failed under prong one.”) (emphasis added); ibid. (“Assuming
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`Defendants are correct, the Board nonetheless ignored the Lion Air Crash and the
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`consequent revelations about the unsafe 737 MAX.”). That language could wrongly
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`be taken to prejudge the issues to come in this litigation.
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`10. This Court should therefore clarify that the statements in its opinion
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`concern whether plaintiffs have met their pleading burdens under Rules 12(b)(6) and
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`23.1, because as the opinion now stands it threatens to cause public readers to
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`mistakenly conclude that the Court has reached ultimate factual or legal conclusions
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`about the extent of the Board’s oversight.3 For example, the Court states that “[t]he
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`Board publicly lied about if and how it monitored the 737 MAX’s safety.” Op. 55.
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`The Court relied on allegations in plaintiffs’ complaint that statements in 2019 by
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`then-Lead Director Calhoun were “false.” Id. at 56; see id. at 91 (“Each of Calhoun’s
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`public representations was knowingly false.”). But the transcripts of the relevant
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`interviews—which were given to plaintiffs in the Section 220 production—show
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`3 See, e.g., Jef Feeley & Julie Johnson, Boeing Board to Face Investors’ Suit
`Over 737 Max Crashes, BLOOMBERG (Sept. 7, 2021) (stating that the Court “backed
`up [plaintiffs’] contentions, noting Calhoun made four misstatements”).
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`either that plaintiffs are misquoting Calhoun or that Calhoun’s statements were
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`accurate. See Exs. A, B, C. Only by taking snippets of Calhoun’s statements out of
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`context can plaintiffs meet Rule 23.1’s demanding standard.
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`11. For instance, plaintiffs allege that Calhoun lied when he said the Board
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`met after the Lion Air crash “very, very quickly.” Op. 55. According to the court’s
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`recitation of plaintiffs’ allegations, Calhoun said that the Board “met within twenty-
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`four hours” of the accident. Id. at 91 (citing Compl. ¶ 274). But what Calhoun
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`actually said was that the Board was briefed on the process of the NTSB
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`investigation by then-CEO Muilenburg not long after the crash; there was no
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`reference to a meeting “within 24 hours” of the Lion Air crash. See Ex. A at
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`BCWA00619607 (“CALHOUN: . . . Dennis briefed the board on the process that
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`we will now be under as directed by the NTSB and the experts that had been
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`deployed to understand and so that’s how it goes. MACMILLAN: Is that 24 hours,
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`36 hours? CALHOUN: I won’t be able to tell you the hours but let’s just say it was
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`very, very quickly.”). And in fact the record shows that Muilenburg sent a message
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`to the Board on November 5, 2018, informing them of the international regulatory
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`protocols that would govern the official investigations of the Lion Air accident by
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`the NTSB and the Indonesian government.4 See Defs.’ Mot. to Dismiss, Ex. 55.
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`4 Plaintiffs suggest that a briefing within a week after the accident would
`somehow reflect Board or management inattention, but the timeline must be
`understood in the context of this accident: it occurred over water in Indonesia, which
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`Although that is the earliest evidence of management’s briefing the Board currently
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`in the record, discovery may well show earlier contacts and provide additional
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`context for the amount of time it took for the international investigating authorities
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`and company to receive information about the accident. That only highlights why
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`findings of fact would not be appropriate at this stage of the case.
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`12. The Court also repeated plaintiffs’ allegation that Calhoun falsely
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`claimed, in the wake of the Lion Air crash, that the Board had considered the safety
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`risk associated with the 737 MAX and whether to recommend grounding the 737
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`MAX fleet. See Op. 55-56. Again, plaintiffs’ allegations are at odds with the factual
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`record, which shows that the Board was briefed on the circumstances of the Lion Air
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`accident repeatedly by Muilenburg in the days and weeks following the accident,
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`including in a special Board meeting on November 23 devoted solely to the topic of
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`the Lion Air accident. Those briefings specifically addressed information related to
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`the safety of the 737 MAX, including the determinations of Boeing engineers and
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`meant that Boeing was reliant on Indonesian authorities to provide critical
`information, and it took time for those authorities to recover the plane and compile
`data. Thus, although the opinion faults Muilenburg’s November 5 email because
`“[i]t did not mention MCAS, the lack of redundancy for a faulty sensor, or the
`missing sensor alert or specific pilot instructions,” Op. 35, these details were only
`emerging or not known at the time. Boeing provided its guidance to pilots on
`November 6, the day after Muilenburg’s message, and issued a fleetwide message
`to operators describing MCAS to 737 MAX operators on November 10. See Defs.’
`Mot. to Dismiss Reply Br., Ex. 86 at BCWA00620398.
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`the FAA that the aircraft remained safe to fly. See Defs.’ Mot. to Dismiss Reply Br.,
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`Ex. 86. Calhoun’s statement that the Board accepted these technical judgments from
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`Boeing management and the FAA, after receiving detailed briefings from
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`Muilenburg and others, is unremarkable and not refuted by any evidence in the
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`record. Indeed, plaintiffs point to nothing more than the absence of any Board
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`minutes about a possible grounding. Silence hardly meets plaintiffs’ high burden
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`under Rule 23.1—but more importantly, the Court could not have meant to resolve
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`the accuracy of Calhoun’s statements at the Rule 23.1 stage.
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`13. Returning to timing, plaintiffs allege and the Court repeated that
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`Calhoun lied when he “represented that the Board met within twenty-four hours of
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`the [Ethiopian Airlines] crash.” Op. 56. What Calhoun actually said was that the
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`Board met within a day of learning about the potential role of MCAS in the crash.
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`See Ex. A at BCWA00619608. That is true: the Board learned about MCAS’s
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`possible role on the evening of March 12, and the Board met the next morning on
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`March 13 and recommended grounding the 737 MAX. See id. at BCWA00619608-
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`09. When this Court has before it a more complete factual record, including the
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`defendants’ testimony, transcripts of Calhoun’s interviews, and a full accounting of
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`the Board’s meetings and communications with management, it will be clear that
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`Calhoun’s representations as to the Board’s timing were accurate. In the meantime,
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`this is not the appropriate stage for resolving the parties’ factual disputes, and the
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`Court should clarify that its ruling did not do so.
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`14. One final example is illustrative. On the key question of whether the
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`Board knowingly ignored a safety risk, the Court relied primarily on plaintiffs’
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`selective quotation of a March 2019 email from Director Arthur Collins to Calhoun.
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`The Court stated that Collins’s email “confirm[s] that directors knew the Board
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`should have had structures in place to receive and consider safety information.” Op.
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`90. To be sure, Collins was suggesting that the Board devote an entire two-day
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`meeting to “a review of quality within Boeing.” Compl., Ex. C at BCWA00620836.
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`But far from recognizing that the Board had neglected safety previously, Collins
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`expressly noted that his proposal “would underscore the board’s . . . unwavering
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`commitment to quality and safety above all other performance criteria.” Ibid.
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`(emphasis added). Indeed, Collins said that his proposal would “need[] to be
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`communicated carefully so as not to give the impression . . . that there is a systemic
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`problem with quality throughout the corporation (which I don’t believe there is).”
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`Ibid. (emphasis added). Treating Collins’s email as evidence of scienter not only
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`defies its plain text but sets a dangerous precedent: no director will dare to raise
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`possible improvements in the wake of an accident if doing so will be taken as
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`evidence of bad faith. See Pettry v. Smith, 2021 WL 2644475, at *10 (Del. Ch. June
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`28, 2021) (“[I]f action is taken by the Company to remediate the alleged harm, that
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`is a reflection of a lack of bad faith on the part of the Board.”) (emphasis added).
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`15. The Court’s statements about factual falsity, knowledge, and potential
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`liability have real consequences for the directors, for the company, for its employees
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`and shareholders, and for the public. Because the Court could not have meant to
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`resolve key factual disputes at this stage of the case, let alone in the absence of a
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`fuller record and witness credibility determinations, the director defendants
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`respectfully submit that the Court should clarify that its ruling merely establishes
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`that plaintiffs have met their pleading burdens under Rules 12(b)(6) and 23.1 for
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`certain Caremark claims, without resolving any of the ultimate contested factual or
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`legal issues in this case.
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`Dated: September 10, 2021
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`/s/ Kevin G. Abrams
`Kevin G. Abrams (#2375)
`J. Peter Shindel, Jr. (#5825)
`ABRAMS & BAYLISS LLP
`20 Montchanin Road, Suite 200
`Wilmington, Delaware 19807
`(302) 778-1002
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`Attorneys for Defendants Robert A.
`Bradway, David L. Calhoun, Arthur D.
`Collins Jr., Kenneth M. Duberstein,
`Admiral Edmund P. Giambastini Jr.,
`Lynn J. Good, Lawrence W. Kellner,
`Caroline B. Kennedy, Edward M. Liddy,
`W. James McNerney Jr., Dennis A.
`Muilenburg, Susan C. Schwab, Randall L.
`Stephenson, Ronald A. Williams, and
`Mike S. Zafirovsky
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`Words: 2,949
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`-13-
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