U.S. District Court Denies Boeing Motion to Dismiss Fraud and Misrepresentation Claims Arising from the 737 MAX Grounding

U.S. District Court Denies Boeing Motion to Dismiss Fraud and Misrepresentation Claims Arising from the 737 MAX Grounding

On September 30, 2022, the U.S. District Court for the Western District of Washington issued an Order denying The Boeing Company’s (“Boeing”) motion to dismiss Polskie Linie Lotnicze LOT S.A.’s a/k/a LOT Polish Airlines (“LOT”) fraud and misrepresentation claims arising from the approximately two-year grounding of Boeing’s 737 MAX aircraft (the “Order”). The decision is significant because Boeing had previously succeeded in having fraud and misrepresentation claims brought by lessors and operators dismissed, notwithstanding the two fatal 737 MAX crashes, the grounding, Boeing’s Deferred Prosecution Agreement with the U.S. Department of Justice arising from Boeing’s misconduct during the Federal Aviation Administration’s certification of the MAX, the many other governmental investigations of Boeing’s misconduct, and Boeing’s settlement of shareholder, carrier, and lessor claims arising from the MAX grounding.

In LOT’s complaint, it demonstrated that it leased fourteen 737 MAX aircraft from Boeing. LOT received five of these aircraft in March 2019 but due to the crashes in 2018 and 2019 of Lion Air Flight 610 and Ethiopian Airlines Flight 302 all 737 MAX aircraft were grounded. Due to this grounding, LOT could not fly the five MAX aircraft in its possession and it never received delivery of the additional nine. Through its Complaint, LOT seeks to recover for the financial losses it sustained as a result of its inability to operate its five MAX aircraft during the grounding, as well as its losses occasioned by the fact that the grounding was so long that it was unable to obtain delivery of nine others.

In its Complaint, LOT alleged that Boeing’s public advertisements concerning its development and manufacture of the 737 MAX, and its private communications with LOT and civil aviation regulators, misrepresented and omitted several key differences between the 737 MAX and prior iterations of Boeing’s 737 aircraft. Specifically, relying in part on public documents from governmental investigations, LOT’s Complaint alleged that Boeing procured certification of the 737 MAX by withholding from civil aviation regulators that the new, larger engines used in the 737 MAX created inherent flight stability risks.

LOT further alleged that Boeing’s attempt to mitigate the risks it created with its new larger engines through implementation of its new software-based flight control logic MCAS (Maneuvering Characteristics Augmentation System) instead created additional safety risks on the 737 MAX; risks that Boeing purposefully withheld from regulators, LOT, and the aviation industry worldwide. Significantly, LOT alleged that Boeing was aware of each of the numerous problems with 737 MAX set forth within the Complaint at the time that Boeing withheld such knowledge from LOT and civil aviation regulators, and misrepresented the nature of the problems to those same entities. LOT further alleged that Boeing continued that misconduct even after the first fatal 737 MAX crash.

After LOT filed its Complaint and served discovery, Boeing moved to dismiss each of LOT’s causes of action, and to stay discovery pending the Court’s resolution of Boeing’s motion to dismiss. In support of its motion to dismiss LOT’s fraud and misrepresentation claims, Boeing first argued that LOT’s Complaint failed to allege that Boeing’s material misrepresentations and omissions were made with the knowledge of their falsity at the time of the alleged misconduct. The Court disagreed, holding that LOT “easily satisfied this standard with the detailed allegations” in its Complaint. The Court further held that Boeing’s argument that LOT was required to prove Boeing’s knowledge of the falsity of its statements at the pleadings stage “flips the [motion to dismiss] standard on its head,” by asking the non-moving plaintiff to come forward with evidence of Boeing’s knowledge without the benefit of discovery.

Boeing also argued that LOT’s fraud and misrepresentation claims failed for lack of materiality and LOT’s failure to demonstrate its reliance on Boeing’s false statements, claiming that LOT was aware of the defects Boeing allegedly concealed at the time it took delivery of at least one of its five 737 MAX aircraft. Boeing argued that because such delivery occurred after the Lion Air Flight 610 crash, and after Boeing had revealed MCAS’s existence, LOT must not have cared about the inherent safety risks on the 737 MAX set forth in LOT’s Complaint. The Court rejected this argument as well. First, the Court explained that Boeing’s first communication concerning MCAS occurred after LOT had leased 737 MAX aircraft, and after it had taken delivery of several of those aircraft. Second, the Court explained that LOT had alleged that Boeing’s initial revelation of MCAS itself was misleading and contained material omissions, meaning that the fact that LOT continued to accept delivery of 737 MAX aircraft after it was aware of MCAS’s existence was insufficient to demonstrate that LOT believed that MCAS was immaterial, and that LOT did not rely on Boeing’s misrepresentations.

Finally, Boeing argued that LOT’s fraud and misrepresentation claims were preempted by Washington State’s Product Liability Act, but the Court rejected that argument as well, holding that LOT’s detailed Complaint allegations went beyond mere allegations of a product defect.

Based on its rejection of Boeing’s motion to dismiss LOT’s fraud and misrepresentation claims, the Court denied as moot Boeing’s motion to stay discovery, meaning that Boeing will be required to respond to LOT’s already served discovery, and that Boeing cannot shield itself from future discovery.

The Court granted that part of Boeing’s motion to dismiss that was aimed at LOT’s other causes of action. However, that ruling is less significant first because the Court granted LOT leave to amend its Complaint to further support those causes of action. The Court’s ruling regarding LOT’s other causes of action also is less significant because LOT’s fraud and misrepresentation claims do not provide a basis for Boeing to narrow the scope of discovery that LOT may seek, or to limit LOT’s damages, notwithstanding that amending LOT’s other causes of action could provide LOT additional avenues for recovery.

In short, LOT’s defeat of Boeing’s motion to dismiss allows LOT’s tort claims to proceed, and provides a roadmap to other potential litigants seeking to recover damages from Boeing arising out of its misconduct associated with its development, manufacture, and certification of its 737 MAX aircraft, as well as its response in the aftermath of the two fatal crashes.

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[1] Polskie Linie Lotnicze LOT S.A. v. The Boeing Company, No. 2:21-cv-01449-RSM, ECF No. 39 (W.D. Wash. Sept. 30, 2022).

[2] See, e.g., Smartwings, A.S. v. The Boeing Company, No. 2:21-cv-00918-RSM, 2022 WL 579342 (W.D. Wash. Feb. 25, 2022); Timaero Ireland Ltd. v. The Boeing Co., No. 19 C 8234, 2021 WL 963815 (N.D. Ill. Mar. 15, 2021).

[3] Deferred Prosecution Agreement, Jan. 7, 2021, United States of America v. The Boeing Company, No. 4:21-CR-00005-O (Dist. Ct. N.D. Tex.).

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