Overview
On July 8, 2020, Cohen Milstein, on behalf of the Seafarers Pension Plan (the “Seafarers”) and all other similarly situated stockholders of The Boeing Company (“Boeing”), filed a verified class action complaint against Boeing and the current members of its Board of Directors (the “Board”) to challenge a forum selection provision in Boeing’s bylaws (the “Forum Bylaw”) that designates the Delaware Court of Chancery as the sole forum for its stockholders to assert derivative claims. Plaintiff also alleges that Boeing’s Board breached its fiduciary duties by maintaining and enforcing this Forum Bylaw against stockholder derivative claims filed in federal court possessing exclusive jurisdiction for such claims. (This suit relates to Seafarers Pension Plan v. Bradway, et al., Case No. 19-cv-08095, pending in the United States District Court for the Northern District of Illinois, Eastern Division, where, on June 8, 2020, the court granted Boeing’s motion to dismiss for lack of jurisdiction based on the enforcement of the Forum Bylaw (the “Federal Action”). That decision was later reversed by the United States Court of Appeal for the Seventh Circuit on January 7, 2022.)
The Seafarers allege that the enforcement of Boeing’s Forum Bylaw violates Delaware law because it deprives the Seafarers, along with all Boeing stockholders, of their substantive rights to assert derivative claims under the Securities Exchange Act of 1934 (the “Exchange Act”) or any other federal law mandating exclusive federal jurisdiction.
On January 13, 2023,Vice Chancellor, Morgan T. Zurn, of the Delaware Court of Chancery certified a settlement class of Boeing investors, and then granted final approval of the Delaware class action against Boeing and its Board. The Delaware settlement involved a corporate governance reform requiring Boeing to revise its Forum Bylaw to enable stockholders to file derivative claims, where federal courts possess exclusive jurisdiction over such claims, in either the Delaware federal court (i.e., where Boeing is incorporated) or the Eastern District of Virginia federal court (i.e., where Boeing is headquartered). This revision to Boeing’s Forum Bylaw was also a shared settlement term with the settlement of the Federal Action. On December 14, 2022, the District Court for the Northern District of Illinois granted final approval of the settlement of the Federal Action, which also includes a $6.25 million payment related to Seafarers’ derivative Exchange Act claims.
Other Important Rulings in the Boeing Forum Bylaws Cases
- On January 7, 2022, the United States Court of Appeals for the Seventh Circuit determined that Boeing’s Forum Bylaw, as enforced, improperly barred the Seafarers’ federal derivative claims in violation of both federal and Delaware law, thereby re-opening the litigation in the federal court.
Case Background
This case arose due to the Boeing Board’s use of the Forum Bylaw as a weapon against its stockholders, including the Seafarers, to eliminate their rights to assert derivative claims under the Exchange Act. In this regard, on December 11, 2019 in the federal district court for the Northern District of Illinois, the Seafarers, a long-time stockholder of Boeing, asserted federal derivative claims against Boeing’s current and former officers and directors for their repeated violations of Section 14(a) of the Exchange Act by disseminating materially false and misleading proxy statements during the period 2017 through 2019. In response, Boeing’s Board moved to dismiss the Seafarers’ federal derivative claims on forum non conveniens grounds, arguing that the Forum Bylaw required all shareholder derivative actions to be filed in the Delaware Court of Chancery, and that therefore the Seafarers could not bring derivative Section 14(a) claims under the Exchange Act, notwithstanding that the Delaware Court of Chancery does not have jurisdiction over these federal claims. On June 8, 2020, the Northern District of Illinois dismissed the Seafarers’ Section 14(a) claims based on Boeing’s Forum Bylaw.
In its newly filed complaint in Delaware Chancery Court, the Seafarers asserts that Boeing’s Forum Bylaw is invalid under Delaware law for several reasons. First, the Forum Bylaw violates the jurisdictional requirements of Section 115 of the Delaware General Corporation Law (“DGCL”) in that it does not allow a stockholder to file federal derivative claims in federal court if the Delaware Court of Chancery does not have the jurisdiction to hear such claims. Next, the Seafarers alleges the Board’s use of the Forum Bylaw to bar the Seafarers’ Exchange Act claims violates Sections 109(b) and 115 of the DGCL. Notably, Boeing’s Forum Bylaw also eliminates the important check that stockholder derivative actions serve on directors’ power under Delaware law insofar as the Forum Bylaw prevents a court from determining Boeing’s directors’ liability for their potential wrongdoing under the Exchange Act (or any other federal derivative claim that the Delaware Court of Chancery cannot hear). Finally, the Seafarers alleges that the Boeing Board breached its fiduciary duties by: (1) maintaining the Forum Bylaw in violation of Section 115’s jurisdictional requirements, and (b) using the Forum Bylaw for the inequitable purpose of unjustly depriving the Seafarers of its substantive right to assert derivative Exchange Act claims in any forum.
Accordingly, in this action, the Seafarers seeks to: (i) invalidate Boeing’s Forum Bylaw because it violates Section 115’s jurisdictional requirements; (ii) invalidate Boeing’s Forum Bylaw as applied to Boeing’s stockholders’ Exchange Act claims under Sections 109(b) and 115 of the DGCL; (iii) have the Court enter an order to prohibit Boeing’s Board from enforcing the Forum Bylaw in connection with any derivative Exchange Act claims and/or requiring Boeing’s Board to promptly rescind or amend Boeing’s Forum Bylaw to conform with Delaware law, and (iv) hold Boeing’s Board liable for its breaches of fiduciary duty related to the Forum Selection Bylaw.
Case name: Seafarers Pension Plan, et al. v. The Boeing Company, et al., Case No. 2020-0556, Court of Chancery of the State of Delaware