Boeing Decision Appears to Narrow Potential Caremark Liability for Directors and Officers

In In re Boeing (Aug. 14, 2026), the Delaware Court of Chancery, at the pleading stage of litigation, dismissed Caremark claims brought against directors and officers of The Boeing Company (the "Company") after alleged manufacturing process defects led to a dramatic, mid-flight mechanical failure of a Boeing airplane, which followed two earlier catastrophic accidents due to alleged manufacturing defects in Boeing airplanes. The allegations included years-long, ongoing violations by the Company of manufacturing safety laws and regulations.

In two separate incidents in 2018 and 2019, a Boeing MAX 737 airplane crashed in mid-flight-resulting in hundreds of lives lost; the Company paying billions of dollars in fines and settlements; and the Company committing to regulators, the U.S. Department of Justice and stockholders to revamp its safety systems and culture. The recent incident occurred in 2024-when a Boeing MAX-9 737 airplane reached 15,000 feet, the mid-cabin door plug flew off, leaving a gaping hole in the airplane. The airplane made a safe emergency landing, and eight people sustained minor injuries. The Plaintiffs sued, claiming that Company directors and officers breached their oversight duties under Caremark by having ignored in bad faith numerous "red flags" of the Company's continued airplane manufacturing safety issues. The court dismissed the case, holding that the Defendants did not face a substantial likelihood of liability under Caremark, and therefore demand on the Company's board of directors (the "Board") to bring the derivative lawsuit was not excused.

Key Points

• The decision appears to reflect a narrower judicial view than in other recent cases of the bases on which Caremark claims may survive past the pleading stage. Historically, Caremark claims were almost always dismissed at the pleading stage, primarily due to the difficulty plaintiffs face in establishing that directors acted with scienter (i.e., in bad faith). In recent years, however, the court has more frequently let Caremark claims survive the pleading stage, adopting a broader view of the kind of circumstances that may establish bad faith. The recent Boeing decision appears to reflect again a narrower view. The factual context in Boeing is distinguishable from cases where the court has let Caremark claims survive-e.g., the Board had been engaged in a years-long effort to overhaul its safety systems and culture due to the two prior catastrophic accidents; there was no evidence that the Board made deliberate decisions not to comply, or to delay addressing noncompliance, with safety laws; and the corporate trauma, while dramatic, resulted in only minor injuries to just a few people. Nonetheless, in our view, the court's analysis, tone, and conclusions appear to suggest a return to judicial emphasis on the unlikelihood of survival of Caremark claims.
  
  
• The court emphasized judicial deference to board decisions as to how to respond to information it receives on the critical risks facing the company. Caremark requires that boards establish and monitor systems so that information reaches the board about the company's legal compliance and other key risks. Once a system is established and is being monitored, the baseline Caremark duties have been fulfilled, the court stated. A board's decisions as to how to respond to the information it receives involve an evaluation of business risk-a quintessential board function-and a board is entitled to judicial deference to such decisions under the business judgment rule. The court found the Plaintiffs' allegations did not support a reasonable inference that the Board deliberately disregarded oversight duties or purposefully violated the law. The directors did not face potential Caremark liability as they "believed they were reasonably performing their duties…," the court stated.
  
  
• The court took a narrow view of what may constitute a "red flag" for Caremark purposes. The court stated that regular reports of ongoing safety risks (including violations of law and regulations, persisting over several years) may simply have indicated that the information system the Board established was working. In the court's view, "[t]he Board received reporting on an ongoing risk [(i.e., manufacturing safety)] that management was working up and iteratively addressing, not a red flag of persistent noncompliance requiring board action to avoid illegality and traumatic consequences." The court viewed many of the alleged red flags as pertaining to ordinary safety-related business risks, not violations of positive law. It also considered many of the alleged red flags of noncompliance to be not sufficiently detailed, not sufficiently "waved in front of the Defendants," and/or not sufficiently related to the specific corporate trauma (the door blowout) so as to constitute red flags for Caremark purposes.

Background. An investigation by the National Transportation Security Board determined that the door incident occurred because the door plug was missing the four bolts that should have secured it to the aircraft's fuselage. Company personnel had removed the bolts to access defective rivets that needed to be replaced. After the rivets were replaced, the bolts were not reinserted. The employees closed the door plug without conducting a quality assurance inspection or creating records of the removal of the bolts. None of the employees working that day had experience in opening and closing door plugs. The NTSB's final report documented the probable cause of the door incident as "a series of production mishaps symptomatic of systemic nonconformance issues."

The Federal Aviation Administration's post-accident audit identified 97 alleged instances of regulatory noncompliance by the Company, including failures to comply with manufacturing quality control requirements. The FAA and other regulators demanded fines. In addition, certain Company stockholders filed suit under Caremark against 25 current and former Company directors and officers for alleged oversight failures. After briefing and oral argument, Justice Morgan T. Zurn (sitting by designation on the Court of Chancery) dismissed the case in full, with prejudice. The Justice concluded that, even with the "plaintiff-friendly eye" required at the pleading stage, the Plaintiffs' allegations did not support a reasonable inference that the Defendants had acted in bad faith.

A separate suit brought against the Defendants in federal court (the "Federal Action") for alleged disclosure failures relating to the door incident is still pending. (The plaintiffs in that suit suffered a major setback when the U.S. Court of Appeals for the Fourth Circuit issued a decision (Aug. 4, 2026) reversing the lower court's class certification order, on the basis that the plaintiffs failed to present a non-speculative model to calculate class-wide damages.) Public reputational fallout from the safety failures continues, including from allegations in a documentary film currently being televised that the Company for years has neglected quality control, consciously ignored safety problems, and persecuted whistleblowers.

Discussion

The Caremark claim. Under Caremark, a board's duty of oversight requires that directors (i) make a good faith effort to ensure that the corporation has proper reporting and monitoring systems in place with respect to legal compliance and other key risks facing the company, and (ii) not act in bad faith by ignoring clear warnings ("red flags") of potential illegal conduct or other corporate wrongdoing that may lead to a corporate trauma. In Boeing, the Plaintiffs asserted claims under (ii), alleging that the Board saw, but in bad faith ignored, "dozens of red flags" of systemic airplane manufacturing issues, which led to the door plug blowout incident.

The Board paid "substantial attention" to the issue of safety (and did not "consciously disregard" it). The court stressed that the Board was paying "substantial attention" to safety issues, even if its efforts had not resulted in meaningful improvement. The Board had designated two committees to oversee compliance risks related to airplane safety and quality (the Audit Committee and the Aerospace Safety Committee); and both of these committees met regularly and reported regularly to the Board. The Aerospace Safety Committee was comprised of independent directors with extensive engineering, manufacturing, aviation, or safety expertise. The Board met regularly and, at each meeting, airplane safety was discussed, including an update by management on safety and quality risks related to the airplane operational performance and production targets. The Aerospace Safety Committee regularly reviewed key risks and incidents pertaining to airplane safety through several specific reporting mechanisms; and the Audit Committee each year received a Compliance Risk Management ("CRM") Report outlining key compliance risks relating to manufacturing safety and the efforts be undertaken to mitigate them. "These channels presented the Board with information about Boeing's manufacturing challenges and efforts to address them," the court stated.

The Board did not act in "bad faith." Caremark liability is premised on breach of the bad faith prong of the duty of loyalty. Gross negligence or recklessness (the standard for a duty of care violation) is insufficient to establish director liability under Caremark. The court noted that Caremark liability "centers on a particular type of bad faith: 'intentional dereliction of duty' or 'conscious disregard for one's responsibilities'." Therefore, the court wrote, "[f]iduciaries who try to implement and attend to a reasonable board-level system of monitoring and reporting have met their baseline duty." They "do not face oversight liability if they believed they were reasonably performing their duties…." The court stated that "[t]here is a vast difference between an inadequate or flawed effort to carry out fiduciary duties and a conscious disregard for those duties"; and there is an "even wider gulph between imperfect [legal] compliance and purposeful lawbreaking." The court found the Plaintiffs' allegations did not support a reasonable inference that the Board consciously disregarded its duties or purposefully violated laws or regulations.

The Board's decisions as to how to respond to information it received on key risks were business-risk decisions entitled to business judgment deference. While the Company allegedly violated numerous regulatory requirements, spanning several years, the court stressed that the Board had established a reasonable information reporting system and was monitoring it. Therefore, the Board's responses to the risks it learned of, including the legal noncompliance issues, were part of the Board's "quintessential function" in managing the Company's operations and were not subject to judicial second-guessing. There is a legal presumption that directors made decisions in good faith, "even if their actions turn out poorly in hindsight." Importantly, the court saw no indication that the Board had consciously decided to have the corporation violate laws or regulations.

The safety issues and regulatory noncompliance noted in regular reports to the Board may simply have indicated that the Company's information reporting system was working. It was from the regular reports the Board received from the Audit Committee and Aerospace Safety Committee that the Plaintiffs crafted 95 pages of allegations, contending that nearly every update about the Company's manufacturing risks amounted to a red flag. The court noted that Caremark's very purpose is "as a prod towards the greater exercise of care by directors in monitoring their corporations' compliance with legal standards." As such, updates addressing "general risks" could be "evidence that the reporting system [was] working as it should." The court stated that the Plaintiffs' view "risk[ed] recasting the volume and depth of Boeing's reporting from a best practice into evidence of disloyalty"-in other words, "If everything is a red flag, then nothing is."

To be a red flag for Caremark purposes, a warning signal must: (i) have sufficiently put the Board on notice of "a need to act"-i.e., it "must inspire a need to act so clear that to ignore it implies a conscious disregard of duty"; (ii) have actually been seen by the directors-i.e., it had to be "bright enough to put the board on notice that the corporation was violating the law or otherwise headed for a corporate trauma"; (iii) have implied misconduct sufficiently similar to that which caused the corporate trauma that then unfolded; and (iv) not have been related to routine business risks that were within the Board's ambit in managing the company's day-to-day operations.

The court held that the following warning signals were not red flags for Caremark purposes:

• Workforce, supply chain, and manufacturing process. The Board received regular reports noting the following problems that could readily lead to safety-related human error: (i) the Company's post-pandemic workforce was new and inexperienced and that the recruiting environment was the most difficult in decades; (ii) unforeseen defects had been discovered in the supply chain; (iii) there had been unpredictable delays in the manufacturing process; and (iv) "traveled work"-a process under which airplanes are moved down the assembly line even when work at a particular station is incomplete-continued although the Company had committed to end it. The court viewed these issues as relating to general, ongoing business risks in connection with the Company's day-to-day operations.
  
  
• Removal of public data. The Board received numerous reports of "Letters of Investigation," "notices of Formal Compliance Actions," and "notices of Formal Corrective Action from the FAA" relating to ongoing employee failures to maintain FAA-mandated records regarding the Company's removal of data from public registries. The court held that these were not red flags because they "were not waved in front of the Defendants." The Plaintiffs did not plead that the Board "was aware of the exact subject of those compliance actions"-nothing in the language of the Company's Plea Agreement with the FAA "implie[d] the Board knew of those particular actions, what they were about, or that Boeing's policy governing removals was inadequate."
  
  
• Stamping. The Board received 2022 and 2023 CRM Reports from the Aerospace Safety Committee that identified "Production & Quality" as a high-priority risk and, within that category, reported ongoing, years-long noncompliance with "manufacturing stamping" (a process for certifying a manufacturing step as complete and maintaining records documenting the removal and replacement of parts). The court viewed these reports as "not disclos[ing] a need for board action"; and stated that, in any event, the Company had been "extremely attentive to the issue," with management reporting to the Board the steps being taking to address the issue, although they had not resulted in meaningful improvement.
  
  
• General safety. The Board also received regular updates on other potential noncompliance risks. These disclosed, for example, excess Foreign Object Debris (items or debris improperly left in aircraft during the assembly process, which can damage the aircraft); compliance risks related to the installation of "unapproved parts"; internal audit findings indicating deficient "tool inventory controls"; and allegations of retaliation against employees trained to act as safety inspectors. The court stated that these issues related to general safety risks, not risks that contributed specifically to the door plug blowout incident.

The rejection of a motion to dismiss in the parallel Federal Action did not support an inference of bad faith under Caremark. Justice Zurn noted that "the scienter inquiries [in the two actions] were not the same." The Federal Action addressed whether the Company's disclosure about its oversight (generally, statements about its commitment to safety) was sufficient, while the Delaware case concerned whether the "oversight itself" was sufficient. The Justice acknowledged that, in denying the motion to dismiss, the federal court "must have found" that the allegations against the Defendants satisfied the Exchange Act's scienter requirements. However, the federal court's decision as to scienter was not sufficiently detailed to support a reasonable inference of bad faith in the Delaware case, as it "[did] not discuss the allegations on which the court relied or the rationale for the court's conclusions."

While the court reiterated longstanding Caremark principles, its analysis and tone seem to suggest a narrower view of potential Caremark liability than in other recent cases. One notable example of a recent decision in which the court took a broader view is Brewer v. Turner ("Regions Bank") (2025). In that case, Chancellor Kathaleen St. J. McCormick held that: (i) a whistleblower complaint from a disgruntled former executive was a red flag-although historically the court had stressed that whistleblower complaints were not red flags because they are mere accusations, not evidence, of wrongdoing; (ii) a series of warnings, none of which alone rose to the level of a red flag, could in combination constitute red flags; and (iii) although the defendants did not ignore red flags of the company's legal noncompliance, their delay in ending the noncompliance for a year and a half while they considered how to address the problem supported a reasonable inference that they had acted in bad faith. A critical distinguishing feature of Regions Bank was that the court viewed that board as having made a deliberate decision to delay ending the company's noncompliance so that the company would have time to develop a plan to replace the revenue it knew would be lost when the illegal practices ended (i.e., the board decided to prioritize profits over legal compliance). Nonetheless, the general tenor of the Regions Bank decision seems to suggest a broader view of potential liability under Caremark.

Practice Points

• A board must focus on legal compliance and other risks central to the business-supported by management, the audit committee, and the company's outside auditors and legal counsel. A board should: identify the key risks facing the company; establish a reporting system so that the board receives information on the key risks; delegate responsibility for oversight of the key risks to specific board committees; consider setting a regular schedule for reporting from management on key risks; be proactive in seeking out additional reports when appropriate; seek to ensure that the board is informed about how management is dealing with the company's critical risks (especially with respect to legal noncompliance); consider whether the steps management is taking to address critical risks are appropriate; establish effective management of key risks as a corporate priority; and maintain a record, such as in board minutes, of the board's risk oversight efforts.
  
  
• Management should: establish regular processes and protocols to keep the board apprised of key legal compliance and other practices, risks, reports, and developments; not hide from the board nor underplay wrongdoing by the company relating to such developments; inform the board when it learns of red flags (or yellow flags) about key risks (including complaints or reports from regulators or whistleblowers); tailor risk management strategies to the company's specific circumstances and risk profile; inform the board of the oversight practices of other companies in its industry or peer companies; and integrate risk management considerations into the company's corporate strategies and decision making generally.
  
  
• A board should make a good faith effort to end illegal practices within an appropriate timeframe. While the substance and timing of a board's response to legal noncompliance are within its purview to decide s a business matter, reasonably prompt action will be particularly warranted when the board becomes aware that the noncompliance has been ongoing for an extended period of time; involves multiple violations; may result in loss of life or threats to human health and safety; may result in significant fines or penalties or other significant corporate harm; and/or relates to the company's central compliance risks.
  
  
• In deciding whether information received by the board constitutes a red flag for Caremark purposes, the board should consider: whether the risk involves legal noncompliance or other central risks facing the company (or, instead, routine operational issues, even if related to legal compliance and safety); the source of the information; the magnitude of the risk; whether the potential harm involves only financial injury or also direct impact on human life, health or safety; whether there are other warning signals as to the same or similar risk; the extent to which management is addressing the issue; whether the company's relevant practices differ from those of peer companies; and whether there are indications that board-level action is required. The clearer and more extreme the risk, and the more significant the potential harms, the more the board should be involved.

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