Boeing reprieved in 401(k) stock-drop case

A judge this week dismissed claims the company breached its fiduciary duty to plan participants by failing to disclose safety issues with its 737 Max model

401(k) participants who sued Boeing over stock losses stemming from the firm’s disastrous 737 Max crashes were this week dealt a major setback.

In a class-action lawsuit filed last year, two Boeing retirement plan participants alleged that the company breached its fiduciary duty to the plan by failing to disclose safety issues with the model that were connected to two crashes in 2018 and 2019 and quickly eroded the price of the company’s stock.

But a federal judge on Thursday dismissed the lawsuit, writing in an order that the defendants did not have fiduciary responsibility over the Boeing VIP Stock Fund, which represented $10.8 billion at the end of 2018, or about 19% of the Voluntary Investment Plan’s total $58.7 billion at the time. Further, the plaintiffs failed to plead that a prudent fiduciary would not have known that proactively disclosing safety issues with the 737 Max would have done more harm than good to the retirement plan, according to the judge’s order.

On Oct. 29, 2018, a Lion Air flight on a 737 Max crashed in the Java Sea, resulting in the deaths of all 188 people on board. Then on March 10, 2019, an Ethiopian Flight on the same model crashed shortly after takeoff, killing the 157 people aboard. In both cases, investigations pointed to faulty sensors misreading the angle relative to the ground as being too high, triggering the planes’ maneuvering characteristics augmentation systems, which responded by pushing the planes’ noses down, court records stated.

“Boeing did not disclose the existence of the MCAS to airlines and pilots, did not warn pilots that they were the back-up to the automated system, did not train pilots on the MCAS, and did not include instructions about the MCAS in the pilot manuals,” the order read.

The highly publicized crashes and subsequent investigations had a negative effect on Boeing’s stock price. The proposed class period in the lawsuit extends from Oct. 29, 2018, the date of the first crash, and March 31, 2019.

Following news that the company had reportedly been aware of the alleged safety issues, Boeing’s stock price fell from $442 per share on March 8, 2019 to $375 per share four days later, court records state.

By comparison, the company’s share price was as low as $95 per share as of March 20, 2020, though it had rebounded to about $185 as of Friday.

“Even accepting Boeing stock is traded in an efficient market, public disclosure might have entailed releasing incomplete or inaccurate information which could have spooked the market and resulted in an outsized drop in the value of Boeing stock,” the judge wrote in the order. “This could have harmed both those plan participants holding Boeing stock and those planning to sell their Boeing stock during the class period.”

The case is not necessarily over, as it was dismissed without prejudice. The plaintiffs have 21 days from the order to file an amended complaint that addresses deficiencies outlined by the judge.

The case is unrelated to a long-running 401(k) excessive-fee lawsuit Boeing settled several years ago in a massive $57 million agreement.

A lawyer representing the plaintiffs did not immediately respond to a request for comment.