Seafarers Pension Plan ex rel. Boeing Co. v. Bradway

• Decision Date: 07 January 2022
• Docket Number: No. 20-2244,20-2244
• Citation: 23 F.4th 714
• Parties: SEAFARERS PENSION PLAN, derivatively ON BEHALF OF The BOEING COMPANY, Plaintiff-Appellant, v. Robert A. BRADWAY, et al., Defendants-Appellees, The Boeing Company, Nominal Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

23 F.4th 714

SEAFARERS PENSION PLAN, derivatively ON BEHALF OF The BOEING COMPANY, Plaintiff-Appellant,

v. Robert A. BRADWAY, et al., Defendants-Appellees,The Boeing Company, Nominal Defendant-Appellee.

No. 20-2244

United States Court of Appeals, Seventh Circuit.

Argued November 30, 2020

Decided January 7, 2022

Carol V. Gilden, Attorney, Cohen Milstein Sellers & Toll PLLC, Chicago, IL, Amy Miller, Richard A. Speirs, Attorneys, Cohen Milstein Sellers & Toll, New York, NY, for Plaintiff - Appellant Seafarers Pension Plan, derivatively on behalf of The Boeing Company

Joshua Z. Rabinovitz, Attorney, Kirkland & Ellis LLP, Chicago, IL, for Defendants - Appellees

Before Easterbrook, Wood, and Hamilton, Circuit Judges.

Hamilton, Circuit Judge.

On October 29, 2018, a Boeing 737 MAX airliner crashed in the sea near Indonesia, killing everyone on board. A few months later, on March 10, 2019, a second 737 MAX crashed in Ethiopia, again killing everyone on board. Within days of the second crash, all 737 MAX airliners around the world were grounded. The United States Federal Aviation Administration kept the planes grounded until November 18, 2020, when it was satisfied that serious problems with the planes' flight control systems had been corrected.

In December 2019, plaintiff Seafarers Pension Plan, a shareholder of the Boeing Company, filed this derivative suit on behalf of Boeing under Section 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78n(a)(1). The suit alleges that Boeing officers and board members made materially false and misleading public statements about the development and operation of the 737 MAX in Boeing's 2017, 2018, and 2019 proxy materials. The district court dismissed the suit without addressing the merits, applying a Boeing bylaw that gives the company the right to insist that any derivative actions be filed in the Delaware Court of Chancery. We reverse. Because the federal Exchange Act gives federal courts exclusive jurisdiction over actions under it, applying the bylaw to this case would mean that plaintiff's derivative Section 14(a) action may not be heard in any forum. That result would be contrary to Delaware corporation law, which respects the non-waiver provision in Section 29(a) of the federal Exchange Act, 15 U.S.C. § 78cc(a).

I. Factual and Procedural Background

The Boeing Company is an international aerospace company headquartered in Illinois and incorporated under Delaware law. Plaintiff Seafarers Pension Plan is a Boeing shareholder. In addition to the loss of 346 lives, the 737 MAX accidents and the subsequent grounding of all 737 MAX planes and ensuing investigations and litigation will end up costing Boeing billions of dollars. This case is a part of that larger picture, but it presents issues that do not call upon us to address the merits of plaintiff's claims or their role in the larger aftermath of the 737 MAX crashes.

The Seafarers Plan filed this derivative suit under Section 14(a) of the Securities Exchange Act of 1934 alleging that Boeing's current and former officers and directors disseminated materially false and misleading proxy statements from 2017 through 2019. See 15 U.S.C. § 78n(a)(1) ; 17 C.F.R. § 240.14a-9. The Exchange Act gives federal courts exclusive jurisdiction over suits filed under the Act. 15 U.S.C. § 78aa. The Seafarers Plan therefore filed its complaint in the Northern District of Illinois, where Boeing is headquartered.

The defendants moved to dismiss based on the doctrine of forum non conveniens, invoking a Boeing bylaw that provides in relevant part:

With respect to any action arising out of any act or omission occurring after the adoption of this By-Law, unless the Corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for ... any derivative action or proceeding brought on behalf of the Corporation ....

The defendants conceded that enforcement of the forum bylaw would foreclose the Seafarers Plan's federal derivative suit entirely. They argued, however, that Delaware law offered a sufficient substitute that would allow the Seafarers Plan to vindicate its substantive rights under the Exchange Act of 1934. The district court agreed with defendants and dismissed the suit. Seafarers Pension Plan v. Bradway , 2020 WL 3246326, at *4 (N.D. Ill. June 8, 2020).¹

Applying the forum bylaw to this case is contrary to Delaware corporation law and federal securities law. In Part III, we explain that the forum bylaw is unenforceable as applied to this case because its application would violate Section 115 of the Delaware General Corporation Law. Delaware corporation law gives corporations considerable leeway in writing bylaws, including bylaws with choice-of-forum provisions, but it respects federal securities law and does not empower corporations to use such techniques to opt out of the Exchange Act. In Part IV, we address the cases the district court relied upon to grant dismissal. Before we discuss the merits, however, we address in Part II the appropriate standard of review.

II. Standard of Review

The Seafarers Plan argues that we should decide de novo the legal question whether the forum bylaw is enforceable. Defendants argue that dismissal on forum non conveniens grounds should be reviewed more deferentially, only for an abuse of discretion. We have often said that forum non conveniens calls for a trial court to exercise its sound discretion and that we review such dismissals or denials of dismissals for abuse of discretion. E.g., Mueller v. Apple Leisure Corp. , 880 F.3d 890, 893–94 (7th Cir. 2018), quoting Deb v. SIRVA, Inc. , 832 F.3d 800, 805 (7th Cir. 2016) ; see also Piper Aircraft Co. v. Reyno , 454 U.S. 235, 257, 261, 102 S.Ct. 252, 70 L.Ed.2d 419 (1981) (finding no abuse of discretion in granting dismissal in tort case in U.S. court arising from aircraft crash in Scotland). If we were dealing with an ordinary choice-of-forum clause in a contract, that standard would apply.

The specific problem here is different, calling for what amounts to de novo review. Boeing's forum bylaw presents only questions of law, which we ordinarily review de novo. The district court explained that it dismissed this case because it concluded, as a matter of law, that the Boeing forum bylaw was enforceable in this case. Seafarers Pension Plan , 2020 WL 3246326, at *4. In a wide range of contexts, we have explained that if a district court exercises its discretion based on an erroneous view of the law, it will necessarily abuse its discretion. See, e.g., Cassell v. Snyders , 990 F.3d 539, 545 (7th Cir. 2021), quoting Abbott Labs. v. Mead Johnson & Co. , 971 F.2d 6, 13 (7th Cir. 1992) (in deciding preliminary injunction motion, "district court ‘abuses its discretion when it commits ... an error of law’ "); Schleicher v. Wendt , 618 F.3d 679, 688 (7th Cir. 2010) (holding "district court did not commit a legal error, or abuse its discretion" in deciding that plaintiffs offered sufficient evidence to invoke fraud-on-the-market theory to prove reliance prong of Rule 10b-5 claim). In this context, it is well-settled that the enforceability of a contract's forum-selection clause is a question of law that we review de novo. E.g., Bonny v. Society of Lloyd's , 3 F.3d 156, 159 (7th Cir. 1993) ; see also Continental Ins. Co. v. M/V ORSULA , 354 F.3d 603, 607 (7th Cir. 2003) ; Hugel v. Corp. of Lloyd's , 999 F.2d 206, 207 (7th Cir. 1993) ; Northwestern Nat'l Ins. Co. v. Donovan , 916 F.2d 372, 375 (7th Cir. 1990). Because the district court based its decision on its view of legal issues, de novo review of the governing questions of law is appropriate here.

III. Applying Delaware Corporation Law

The most straightforward resolution of this appeal is under Delaware corporation law, which we read as barring application of the Boeing forum bylaw to this case invoking non-waivable rights under the federal Exchange Act. We first address in Part III-A the nature of plaintiff's derivative Exchange Act claim and then in Part III-B the relevant Delaware statutes and case law on such forum-selection bylaws.

A. Plaintiff's Derivative Claims Under the Exchange Act of 1934

Plaintiff's derivative suit under Section 14(a) is straightforward. Section 14(a) and its implementing regulation, SEC Rule 14a-9, prohibit material misstatements or omissions in a proxy statement. 15 U.S.C. § 78n(a)(1) ; 17 C.F.R. § 240.14a-9(a). To state a claim under Section 14(a), a plaintiff must allege that (i) the proxy statement contained a material misstatement or omission, which (ii) caused plaintiff's injury, and (iii) that the proxy solicitation itself, rather than the particular defect in the solicitation, was an essential link in the accomplishment of the transaction. Mills v. Electric Auto-Lite Co. , 396 U.S. 375, 384–85, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970). As noted, the Exchange Act provides that only federal courts may exercise jurisdiction over claims that arise under the Act. 15 U.S.C. § 78aa. Section 14(a) may be enforced in private actions by shareholders asserting their own rights and in derivative actions asserting rights of a corporation harmed by a violation. J.I. Case Co. v. Borak , 377 U.S. 426, 431–32, 84 S.Ct. 1555, 12 L.Ed.2d 423 (1964).

In a derivative suit under Section 14(a), the theory "is that a corporation's board has been so faithless to investors' interests that investors must be allowed to pursue a claim in the corporation's name." Robert F. Booth Trust v. Crowley , 687 F.3d 314, 316–17 (7th Cir. 2012). A derivative suit is considered "an asset of the corporation" and permits "an individual shareholder to bring ‘suit to enforce a corporate cause of action against officers, directors, and third parties.’ " Kamen v. Kemper Financial Servs., Inc. , 500 U.S. 90, 95, 111 S.Ct. 1711, 114 L.Ed.2d 152 (1991), quoting Ross v. Bernhard , 396 U.S. 531, 534, 90 S.Ct. 733, 24 L.Ed.2d 729 (1970) ; Lefkovitz v....