In the United States District Court for the Northern District of Illinois Eastern Division

Case: 1:19-cv-02394 Document #: 164 Filed: 06/30/20 Page 1 of 60 PageID #:3236

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION

) ) IN RE THE BOEING COMPANY ) Case No. 19-cv-2394 AIRCRAFT SECURITIES LITIGATION ) ) Hon. John J. Tharp, Jr. ) )

MEMORANDUM IN SUPPORT OF MOTION TO DISMISS

John F. Hartmann, P.C. Joshua Z. Rabinovitz KIRKLAND & ELLIS LLP 300 N. LaSalle Chicago, IL 60654 (312) 862-2000

Craig S. Primis Matt Owen KIRKLAND & ELLIS LLP 1301 Pennsylvania Ave., N.W. Washington D.C. 20004

Counsel for Defendants

Dated: June 30, 2020

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Table Of Contents

Preliminary Statement ...... 1

Facts Alleged In The Complaint And Subject To Judicial Notice ...... 4

Argument ...... 7

I. Plaintiffs Do Not Plead With Particularity A False Or Misleading Statement...... 8

A. Plaintiffs Do Not Plead With Particularity That Defendants’ Statements About The Design Of The 737 MAX Were False Or Misleading...... 11

B. Plaintiffs Do Not Plead With Particularity That Defendants’ Statements About The Safety Of The 737 MAX Were False Or Misleading...... 13

C. Plaintiffs Do Not Plead With Particularity That Defendants’ Statements About Information Provided To Pilots Were False Or Misleading...... 20

D. Plaintiffs Do Not Plead With Particularity That Statements Regarding Boeing’s Progress Toward, Or The Potential Timing Of, The 737 MAX’s Return To Service Were False Or Misleading...... 23

E. Plaintiffs Do Not Plead With Particularity That Defendants’ Statements About Boeing’s Financial And Operational Performance Were False Or Misleading...... 28

II. Plaintiffs Do Not Plead Facts Giving Rise To A “Strong Inference” Of Scienter...... 30

A. Plaintiffs Do Not Plead Facts Giving Rise To A Cogent Inference Of Scienter...... 30

1. Plaintiffs Do Not Adequately Plead That Boeing Acted With Scienter...... 31

2. Plaintiffs Do Not Adequately Plead That The Individual Defendants Acted With Knowledge That Any Statements They Made Were False Or Misleading...... 31

3. Plaintiffs’ Circumstantial Allegations Do Not Support A Cogent Inference Of Scienter...... 35

B. The Most Compelling Inference From Plaintiffs’ Allegations Is That Defendants Did Not Act With Scienter...... 44

III. Plaintiffs Do Not Plead Loss Causation...... 46

Conclusion ...... 50

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Table Of Authorities

Cases

Alizadeh v. Tellabs, 2015 WL 557249 (N.D. Ill. Feb. 9, 2015) ...... 28

Anderson v. Abbott Labs., 140 F. Supp. 2d 894 (N.D. Ill. 2001) ...... 28

Arbitrage Event-Driven Fund v. Tribune Media, 2020 WL 60186 (N.D. Ill. Jan. 6, 2020) ...... 26

Asher v. Baxter Int’l, 377 F.3d 727 (7th Cir. 2004) ...... 25

Bastian v. Petren, 892 F.2d 680 (7th Cir. 1990) ...... 46

Brody v. Transitional Hosps., 280 F.3d 997 (9th Cir. 2002) ...... 9

Carvelli v. Ocwen Financial Corp., 934 F.3d 1307 (11th Cir. 2019) ...... 24

Cause of Action v. Chicago Transit Auth., 815 F.3d 267 (7th Cir. 2016) ...... 5

In re Ceridian Sec. Litig., 542 F.3d 240 (8th Cir. 2008) ...... 44

City of Livonia v. Boeing, 711 F.3d 754 (7th Cir. 2013) ...... 32

City of Monroe v. Bridgestone, 399 F.3d 651 (6th Cir. 2005) ...... 9, 16, 17

City of Westland v. MetLife, 129 F. Supp. 3d 48 (S.D.N.Y. 2015) ...... 26

Davis v. SPSS, Inc., 385 F. Supp. 2d 697 (N.D. Ill. 2005) ...... 26

Desai v. Gen. Growth Prop., 654 F. Supp. 2d 836 (N.D. Ill. 2009) ...... 25

DiLeo v. Ernst & Young, 901 F.2d 624 (7th Cir. 1990) ...... 8, 42, 45

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Dura Pharm. v. Broudo, 544 U.S. 336 (2005) ...... 8, 47

Fogel v. Vega, 759 F. App’x 18 (2d Cir. 2018) ...... 17

In re Ford Motor Company Securities Litigation, 381 F.3d 563 (6th Cir. 2004) ...... 18, 28

Fulton Cty. Emps. v. MGIC Inv., 675 F.3d 1047 (7th Cir. 2012) ...... 26

Gillis v. QRX Pharma, 197 F. Supp. 3d 557 (S.D.N.Y. 2016) ...... 18

Glazer Capital v. Magistri, 549 F.3d 736 (9th Cir. 2008) ...... 36

Higginbotham v. Baxter Int’l, 495 F.3d 753 (7th Cir. 2007) ...... 30, 39

Hirtenstein v. Cempra, Inc., 348 F. Supp. 3d 530 (M.D.N.C. 2018) ...... 18

Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242 (3d Cir. 2009)...... 26

Katyle v. Penn Nat. Gaming, 637 F.3d 462 (4th Cir. 2011) ...... 49

Makor Issues & Rights v. Tellabs, 513 F.3d 702 (7th Cir. 2008) ...... 10, 30, 31

In re Maximus Sec. Litig., 2018 WL 4076359 (E.D. Va. Aug. 27, 2018) ...... 50

McCready v. eBay, 453 F.3d 882 (7th Cir. 2006) ...... 37

McDonald v. Kinder-Morgan, 287 F.3d 992 (10th Cir. 2002) ...... 28

In re Midway Games Sec. Litig., 332 F. Supp. 2d 1152 (N.D. Ill. 2004) ...... 9, 26

Nguyen v. Endologix, __ F.3d __, 2020 WL 3069776 (9th Cir. June 10, 2020) ...... 32, 45

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Nozak v. Northern Dynasty Minerals, 804 F. App’x 732 (9th Cir. 2020) ...... 42

Omnicare v. Laborers District Council, 575 U.S. 175 (2015) ...... 9, 10, 13, 19, 22, 26, 29

In re Omnicom Sec. Litig., 597 F.3d 501 (2d Cir. 2010)...... 49

Phillips v. Scientific-Atl., 374 F.3d 1015 (11th Cir. 2004) ...... 30, 32

Pugh v. Tribune Co., 521 F.3d 686 (7th Cir. 2008) ...... 30, 34, 39, 44

Rahman v. Kid Brands, 736 F.3d 237 (3d Cir. 2013)...... 41

Rosenzweig v. Azurix Corp., 332 F.3d 854 (5th Cir. 2003) ...... 24

Searls v. Glasser, 64 F.3d 1061 (7th Cir. 1995) ...... 30

Shaw v. Digital Equip., 82 F.3d 1194 (1st Cir. 1996) ...... 9

Silverman v. Motorola, Inc., 2008 WL 4360648 (N.D. Ill. Sept. 23, 2008) ...... 26

Societe Generale v. Caterpillar, 2018 WL 4616356 (N.D. Ill. Sept. 26, 2018) ...... 42

Stransky v. Cummins Engine Co., 51 F.3d 1329 (7th Cir. 1995) ...... 9, 33

Tellabs v. Makor Issues & Rights, 551 U.S. 308 (2007) ...... 8, 30, 44

Tricontinental v. PwC, 475 F.3d 824 (7th Cir. 2007) ...... 46

TSC Indus. v. Northway, 426 U.S. 438 (1976) ...... 23

In re Yum! Brands Sec. Litig., 73 F. Supp. 3d 846 (W.D. Ky. 2014) ...... 18

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Zucco Partners v. Digimarc, 552 F.3d 981 (9th Cir. 2009) ...... 44

Statutes

15 U.S.C. § 78u-4(b)(1) ...... 12

15 U.S.C. § 78u-4(b)(2)(A)...... 8, 30

15 U.S.C. § 78u-5 ...... 10

15 U.S.C. § 78u-5(c)(1)(A)(i) ...... 10

15 U.S.C. § 78u-5(c)(1)(B)(ii) ...... 10

15 U.S.C. § 78u-5(c)(1)(B)(ii) ...... 10, 26

15 U.S.C. § 78u-5(i)(1)(B) ...... 10, 25

15 U.S.C. § 78u-5(i)(1)(C) ...... 10, 25

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Table of Exhibits

Ex. # Description

1 Flight Crew Operations Manual Bulletin for The Boeing Company (Nov. 6, 2018), http://www.avioesemusicas.com/wp-content/uploads/2018/10/TBC-19- Uncommanded-Nose-Down-Stab-Trim-Due-to-AOA.pdf

2 The Air Current: “Boeing issues 737 Max fleet bulletin on AoA warning after Lion Air crash” (Nov. 7, 2018), https://theaircurrent.com/aviation-safety/boeing-nearing-737-max-fleet-bulletin-on- aoa-warning-after-lion-air-crash/

3 FAA Emergency Airworthiness Directive (Nov. 7, 2018), https://rgl.faa.gov/Regulatory_and_Guidance_Library/rgad.nsf/0/83ec7f95f3e5bfbd86 25833e0070a070/$FILE/2018-23-51_Emergency.pdf

4 Preliminary Accident Investigation Report (Nov. 28, 2018), https://reports.aviation-safety.net/2018/20181029-0_B38M_PK- LQP_PRELIMINARY.pdf

5 Seattle Times: “U.S. pilots flying 737 MAX weren’t told about new automatic systems change linked to Lion Air crash” (Nov. 13, 2018), https://www.seattletimes.com/business/boeing-aerospace/u-s-pilots-flying-737-max- werent-told-about-new-automatic-systems-change-linked-to-lion-air- crash/#:~:text=Pilots%20flying%20Boeing's%20737%20MAX,pilot%20representativ es%20at%20both%20airlines

6 Boeing first quarter 2019 SEC Form 10-Q, filed April 24, 2019, https://www.sec.gov/Archives/edgar/data/12927/000001292719000030/a201903mar3 110-q.htm

7 GeekWire: “What did pilots know about 737 MAX control issue? Debate swirls after crash” (Nov. 13, 2018), https://www.geekwire.com/2018/pilots-know-737-max-control-issue-debate-swirls- crash/

8 Boeing Statement on Lion Air Flight 610 Preliminary Report, https://boeing.mediaroom.com/news-releases- statements?item=130336#:~:text=The%20Boeing%20Company%20is%20deeply,of% 20Lion%20Air%20Flight%20610.&text=The%20report%20explains%20that%20the, days%20prior%20to%20Flight%20610

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9 Transcript of “Mornings with Maria” (Nov. 13, 2018), https://advance.lexis.com/document?crid=6dfe2b2b-e232-46a5-b3f1- 61e0bb373b4a&pddocfullpath=%2fshared%2fdocument%2fnews%2furn%3acontentI tem%3a5TR5-3G61-JB20-G139-00000- 00&pdcontentcomponentid=437059&pdmfid=1000516&pdisurlapi=true&prid=1dc84 40a-c9ce-4cff-8275-636c828e4fd7&srid=ef8d4c74-6bc5-4f7d-a2e3- 8fb1fd80637e&cbc=0

10 CBS News: “Boeing to make standard an $80,000 warning light that was not on doomed planes”, https://www.cbsnews.com/news/boeing-737-max-plane-crash-company-to-make- standard-light-warning-pilots-of-sensor- malfunction/#:~:text=Boeing%20to%20make%20standard%20an%20%2480%2C000 %20warning,was%20not%20on%20doomed%20planes&text=After%20the%20crash %20of%20two,stall%20system%20to%20activate%20unnecessarily.

11 Summary of Subject Matter, U.S. House of Representatives, Committee on Transportation and Infrastructure (Dec. 6, 2019), https://docs.house.gov/meetings/PW/PW00/20191211/110296/HHRG-116-PW00- 20191211-SD001.pdf

12 Boeing CEO Dennis Muilenburg Remarks at the George W. Bush Presidential Center Forum on Leadership (Apr. 11, 2019), https://boeing.mediaroom.com/news-releases-statements?item=130424

13 Boeing SEC Form 8-K (June 26, 2019), https://www.sec.gov/Archives/edgar/data/12927/000001292719000049/a201906jun26 8k.htm

14 Boeing SEC Form 8-K (July 18, 2019), https://www.sec.gov/Archives/edgar/data/12927/000001292719000053/a201907jul18 8-k.htm

15 Boeing Second-Quarter 2019 Performance Review, https://s2.q4cdn.com/661678649/files/doc_presentations/2019/07/2Q19-Presentation- (1).pdf

16 Morgan Stanley Laguna Conference presentation (Sept. 11, 2019), https://s2.q4cdn.com/661678649/files/doc_presentations/2019/09/Boeing-Forward- Looking-Statement-Morgan-Stanley-2019.pdf

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17 Transcript of “In Conversation With Boeing CEO Dennis Muilenburg” (June 26, 2019), https://aspen-ideas-festival-production.s3.us-east-2.amazonaws.com/nulle9c99c96- 89c8-49f9-9708-6e39fec9c27a/AIF-062619-240-Conversation-Muilenburg.pdf

18 New York Times: “Two-Thirds of the 737 Max 8 Jets in the World Have Been Pulled From the Skies” (Mar. 12, 2019), https://www.nytimes.com/2019/03/12/business/boeing-737-grounding-faa.html

19 Fourth-Quarter 2018 Performance Review and 2019 Guidance (Jan. 30, 2019), https://s2.q4cdn.com/661678649/files/doc_financials/quarterly/2018/q4/4Q18- Presentation.pdf

20 Cowen Aerospace/Defense & Industrials Conference presentation (Feb. 6, 2019), https://s2.q4cdn.com/661678649/files/doc_presentations/2019/02/Boeing-Forward- Looking-Statement-Cowen-2019.pdf

21 Boeing 2018 SEC Form 10-K (Feb. 8, 2019), https://www.sec.gov/ix?doc=/Archives/edgar/data/12927/000001292719000010/a201 812dec3110k.htm

22 Transcript of Cowen & Co. Aerospace/Defence & Industrials Conference (Feb. 6, 2019), https://s2.q4cdn.com/661678649/files/doc_events/2019/2019-Cowen-Conference- Transcript.pdf

23 Transcript of Hearing Before The Committee on Transportation and Infrastructure of the U.S. House of Representatives (Oct. 30, 2019), https://www.govinfo.gov/content/pkg/CHRG-116hhrg38282/pdf/CHRG- 116hhrg38282.pdf

24 Seattle Times: “Dispute arises among U.S. pilots on Boeing 737 MAX system linked to Lion Air crash”, https://www.seattletimes.com/business/boeing-aerospace/dispute-arises-among-u-s- pilots-on-boeing-737-max-system-linked-to-lion-air-crash/

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Preliminary Statement

This is a securities fraud action, filed on the heels of two tragic and highly publicized ac-

cidents in October 2018 and March 2019 involving the Boeing 737 MAX aircraft. While Plain-

tiffs’ complaint reproduces in painstaking detail media reports related to the 737 MAX and its

development and certification process, it fails utterly to plead the essential elements of a securities

fraud claim—that Defendants intentionally made false statements in the wake of the 737 MAX

accidents that caused losses to investors—under the heightened pleading requirements of Rule 9(b) and the Private Securities Litigation Reform Act. Plaintiffs’ action should therefore be dismissed.

The 737 MAX is the latest variant of Boeing’s 737 model aircraft, the most traveled upon

aircraft in commercial aviation history, and the accidents in late 2018 and early 2019 have been the subject of a high degree of congressional and regulatory scrutiny. After the second accident, the FAA and foreign regulators issued orders grounding all 737 MAXs and stopping delivery of new aircraft. Since that time, Boeing has worked with regulatory authorities to certify the 737

MAX to return to service. That process has taken longer than expected, and Boeing has revised its estimates of the plane’s return to service on several occasions. The 737 MAX accidents and grounding orders have had a significant impact on Boeing, which has disclosed billions of dollars in lost revenue and profits. Coinciding with these disclosed financial impacts and delays in the plane’s return to service, Boeing’s stock price also experienced a significant decline.

Although the stock price decline is readily explained by these historic events, Plaintiffs instead parse the public statements that the Company has made since the accident and attribute the decline to alleged deliberate misstatements. Even so, their complaint devotes hundreds of para- graphs to a broadside attack on the design and development of the 737 MAX, involving events that occurred years before the class period began, alleging that Boeing designed and developed the

737 MAX poorly, made poor judgments about how pilots would react in emergencies, and failed

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to disclose to pilots new software called the Maneuvering Characteristics Augmentation System, or “MCAS.” But this is not a design defect product liability case, nor is it a regulatory investigation. It is an action for securities fraud, and securities fraud claims require the plaintiff to plead that the defendant intentionally or recklessly made false or misleading statements to deceive purchasers of securities. Allegations that Boeing should have designed the 737 MAX differently, made different engineering judgments, or communicated with pilots differently may be appropriate issues in other types of legal proceedings, but they do not plead a violation of the securities laws.

Plaintiffs’ strategy is apparently to plead an avalanche of allegations in the hope that the sheer volume will obscure the critical defects in their complaint at least long enough to survive a motion to dismiss and get them into discovery, where their leverage to negotiate a favorable settlement might be greater. But notwithstanding their best efforts, the flaws in Plaintiffs’ complaint are obvious and glaring. Each constitutes an independent and sufficient basis for dismissal.

First, Plaintiffs fail to allege an actionable false or misleading statement. Many of Plain- tiffs’ alleged misstatements, such as those regarding the 737 MAX’s safety, are the kinds of statements that courts have consistently held cannot form the predicate of a securities fraud claim.

Other alleged misstatements are statements of opinion, which can only be actionable if the opinion did not fairly align with the information the speaker knew—something Plaintiffs do not even attempt to allege. And still other alleged misstatements are not actionable because Plaintiffs mischaracterize what the speaker said, frequently disregarding their own allegations putting the statements in context showing that they are neither false nor misleading.

Equally fundamentally, the complaint lacks any allegation connecting the supposed pre- class period events—which often relate to technical engineering judgments made at the working level during the 737 MAX’s development—with the senior executives who made the subsequent

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statements Plaintiffs claim are untrue. The Seventh Circuit has made clear, repeatedly, that when

considering in a securities fraud case whether a company “knew” a statement was inaccurate,

courts do not consider the collective knowledge of all the company’s employees, but rather the knowledge of the individuals who made, prepared, or approved the alleged misstatement. A plaintiff must plead these details with particularity. But here, Plaintiffs fail not only to satisfy the heightened pleading rules, but also to plead any connection at all between the allegations they claim show Boeing “knew” certain facts and anyone involved in making alleged misstatements.

As a result, Plaintiffs do not plead with particularity facts supporting a strong inference of scienter, as the law requires. Plaintiffs’ allegations fail to give rise to a cogent inference of scienter for any of the Defendants with respect to any alleged misstatement. And at a minimum, any such inference is less compelling than the opposing, commonsense inference of nonfraudulent intent: that Defendants believed the 737 MAX was a safe airplane; believed pilots had the necessary information and training to safely operate that airplane; and, after the grounding, estimated in good faith the progress toward and timing of the plane’s possible return to service.

Finally, Plaintiffs fail to allege loss causation: that any “corrective disclosure” of the truth with respect to any of the alleged misstatements caused an investment loss. Plaintiffs allege eight days on which information about the 737 MAX was publicly disclosed and Boeing’s stock price declined. However, Plaintiffs do not allege any information disclosed on those days that corrected any alleged misstatements, and in each case there is an obvious explanation for the stock price declines other than the correction of fraud: the effects on Boeing of accidents themselves and a series of unanticipated delays in the 737 MAX’s return to service.

For each of these reasons, Plaintiffs’ complaint should be dismissed for failure to state an actionable claim under the federal securities laws.

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Facts Alleged In The Complaint And Subject To Judicial Notice

In August 2011, Boeing announced the launch of the 737 MAX program. (Docket #144

“Compl.” ¶ 51) Boeing spent almost six years, from 2011 through 2017, developing, testing, and certifying the 737 MAX. As Plaintiffs’ complaint notes, the plane “went through thousands of hours of tests and evaluation.” (Id. ¶ 197)

In 2012, tests showed that the 737 MAX’s larger engines, and their position on the plane’s

wings, created a tendency for the plane’s nose to pitch up under conditions not expected to occur

in commercial air travel involving a high “angle of attack” and high speeds. (Id. ¶ 68) To address

this potential issue, Boeing added a software function, MCAS, to the aircraft’s flight control com-

puter to automatically adjust the plane’s nose down in those extreme circumstances. (Id. ¶ 76) In

2016, during initial flight testing of the 737 MAX, the plane “wasn’t handling well when nearing

stalls at low speeds.” (Id. ¶ 136) As a result, Boeing modified the design of MCAS to adjust the

nose of the plane down when it encountered high angles of attack at low speeds as well. (Id.)

On October 29, 2018, Lion Air Flight 610 crashed shortly after takeoff. (Id. ¶ 186) During

the flight, MCAS activated after receiving inaccurate information from one of the plane’s angle of

attack sensors (“AOA sensors”), which incorrectly indicated the plane’s nose was too high. (Id.

¶ 181) Plaintiffs allege that Boeing had received warnings regarding the “facility in which those

[AOA] sensors were manufactured.” (Id. ¶ 159) But Plaintiffs do not allege those warnings concerned AOA sensors, do not allege that the AOA sensor on the Lion Air plane (or, later, the Ethi- opian Airlines plane) was manufactured defectively by Boeing, and do not allege that anyone at

Boeing knew of any defect.

Plaintiffs allege that Boeing met with FAA officials “immediately” after the Lion Air accident to explain the “details” of MCAS. (Id. ¶ 212) On November 6, 2018, only days after the accident, Boeing issued a bulletin to flight crews, explaining that “[t]he Indonesian National

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Transportation Safety Committee has indicated that Lion Air flight 610 experienced erroneous

AOA data.” (Id. ¶ 353) The bulletin continued:

Boeing would like to call attention to an AOA failure condition that can occur during manual flight only.… In the event of erroneous AOA data, the pitch trim system can trim the stabilizer nose down in increments lasting up to 10 seconds. The nose down stabilizer trim movement can be stopped and reversed with the use of the electric stabilizer trim switches but may restart 5 seconds after the electric stabilizer trim switches are released. Repetitive cycles of uncommanded nose down stabilizer continue to occur unless the stabilizer trim system is deactivated through use of both STAB TRIM CUTOUT switches in accordance with the existing procedures in the Runaway Stabilizer NNC [Non-Normal Checklist].

(Ex. 1)1 The bulletin then further elaborated the operating instructions for pilots if the AOA failure condition occurred. (Id.) It also warned that pilots might need to use the plane’s electric stabilizer trim to adjust the pitch of the plane’s nose “to neutralize control forces” before deactivating the electric stabilizer trim system. (Id.)

The next day, November 7, 2018, the FAA issued an Emergency Airworthiness Directive requiring the guidance in Boeing’s bulletin to be included in the flight manual. (Compl. ¶ 195;

Ex. 3) Like the bulletin, the FAA Directive advised that “if an erroneously high single angle of attack (AOA) sensor input is received by the flight control system, there is a potential for repeated nose-down trim commands of the horizontal stabilizer.” (Ex. 3 at 1) Prompted by “analysis per- formed by [Boeing],” the FAA determined that this situation was an “unsafe condition” that “is likely to exist or develop in other products of the same type design.” (Id.) It continued: “This condition, if not addressed, could cause the flight crew to have difficulty controlling the airplane, and lead to excessive nose-down attitude, significant altitude loss, and possible impact with ter- rain.” (Id.) Consistent with the bulletin, the FAA directed pilots to use the Runaway Stabilizer

1 The Court can take judicial notice of the bulletin, and the other documents cited herein, and consider them on this motion to dismiss not for their truth, but for the fact that the information in them was public. Cause of Action v. Chicago Transit Auth., 815 F.3d 267, 277 n.13 (7th Cir. 2016). The bulletin was widely acces- sible on the internet no later than November 7, the day after Boeing issued it. (Ex. 2) 5

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procedure from the existing 737 MAX flight manual to address the condition. (Id. at 3) The FAA

concluded that the procedure enabled pilots to address the potential “unsafe condition,” and that

the plane was safe to continue in service. (Id.)

As Plaintiffs allege, the Lion Air plane’s AOA sensor had also malfunctioned on the flight

before Flight 610, erroneously triggering MCAS, and the pilots in that instance “simply switch[ed]

off the flight-control system” and successfully controlled the plane. (Compl. ¶ 205) Plaintiffs themselves note that the Indonesian regulator’s preliminary report about the Lion Air crash concluded that the pilots on Flight 610 “did not do what the pilots the day before had done – and what

Boeing indicated was the appropriate counter measure.” (Id.)

On November 10, 2018, Boeing sent a message to all 737 MAX operators explaining that

“[a] pitch augmentation system function called ‘Maneuvering Characteristics Augmentation Sys- tem’ (MCAS) is implemented on the 737-8, -9 (MAX) to enhance pitch characteristics with flaps

UP and at elevated angles of attack.” (Ex. 4 at 53) Plaintiffs acknowledge that Boeing had “disclosed” that the pitch trim system “was called the MCAS” by November 13. (Compl. ¶ 196)

On November 13, 2018, the Seattle Times published a story stating that pilots had not been

told “about a key change to an automatic system that’s been linked to the fatal crash of a Lion Air

jet last month.” (Ex. 5 at 1) The newspaper reported that this change was the addition of MCAS, which the article stated “automatically pushes the nose of the aircraft down when a bladelike sensor

[the AOA sensor] that sticks out of the fuselage indicates that the nose is pitched up and putting the plane in danger of a stall.” (Id. at 2) It further reported that “Boeing had shared with” American

Airlines “details” of MCAS. (Id. at 3) The same day as the article was published, Boeing’s CEO,

Dennis Muilenburg, was interviewed on Fox Business Channel, where he explained that “there are

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new systems on the airplane that are designed to take advantage of the capabilities of the airplane

and provide control capability in high angle of attack conditions.” (Compl. ¶ 198)

On March 10, 2019, Ethiopian Airlines Flight 302 crashed. (Id. ¶ 227) As with the Lion

Air accident, MCAS activated during flight based on erroneous data from an AOA sensor and forced the nose of the plane down. (Id. ¶¶ 132, 228) On March 11, Boeing announced it was already in the process of developing a software enhancement for the 737 MAX that would include updates to MCAS to address this kind of unintended occurrence. (Id. ¶ 235) On March 13, 2019, the FAA issued an order grounding the 737 MAX fleet. (Id. ¶ 242)

On April 5, 2019, Muilenburg noted that both accidents “were caused by a chain of events, with a common chain link being erroneous activation of the aircraft’s MCAS function.” (Id. ¶ 413)

He indicated Boeing was taking steps to eliminate the risk that an erroneous activation would occur again. (Id.) Periodically, between June and November 2019, Muilenburg disclosed the Com- pany’s estimates of the possible timing of FAA certification of the updates to the 737 MAX. (Id.

¶¶ 443-457) The earliest such estimate he disclosed was the end of summer 2019. (Id.) As the certification process proceeded, the estimate was revised to the end of 2019. (Id.) Before and

during this period, Boeing repeatedly cautioned that the timetable for certification and the plane’s

return to service was contingent on the regulatory process. (Ex. 6 at 50; Compl. ¶ 264) Ultimately,

the process has taken longer than estimated, and the FAA still has not lifted the grounding order.

Argument

Plaintiffs here allege that Boeing, Muilenburg, and Boeing’s CFO, Gregory Smith, made

fraudulent public statements regarding the 737 MAX in violation of § 10(b) of the Securities Ex-

change Act of 1934. (Compl. ¶ 476) They allege Defendants made these statements during the

period from November 7, 2018—shortly after the first crash—to December 16, 2019 (the “Class

Period”). (Id.) They seek to bring this action on behalf of all purchasers of Boeing securities

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during the Class Period. (Id., p. 1)

To state a claim under § 10(b), a plaintiff must allege: (1) a material misrepresentation,

(2) scienter, (3) a connection with the purchase or sale of a security, (4) reliance on the misrepre-

sentation, (5) economic loss, and (6) loss causation. Dura Pharm. v. Broudo, 544 U.S. 336, 341-

42 (2005). Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act

(“PSLRA”) heighten the pleading standards for such claims. Tellabs v. Makor Issues & Rights,

551 U.S. 308, 313 (2007). Rule 9(b) requires a plaintiff to plead “the who, what, when, where, and how” of the alleged fraud. DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir. 1990). The

PSLRA requires a plaintiff to identify each alleged misstatement, allege with particularity why it

was misleading, and “state with particularity facts giving rise to a strong inference that the defend-

ant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A).

Plaintiffs do not satisfy these requirements for three independent reasons, each of which is

sufficient for dismissal. First, Plaintiffs do not plead with particularity that Defendants made an

actionable misrepresentation. Second, Plaintiffs do not plead with particularity facts creating a

strong inference that Defendants made any misrepresentation with scienter. Third, Plaintiffs do

not plead that their investment losses were caused by the correction of any supposed misstatement.

I. Plaintiffs Do Not Plead With Particularity A False Or Misleading Statement.

Plaintiffs allege Defendants made more than 40 misstatements on 32 days in the 13 months

following the first accident. The alleged misstatements concern: (1) the design of the 737 MAX;

(2) the safety of the plane; (3) the information provided to pilots; (4) progress toward the plane’s

return to service and estimates of the timing; and (5) Boeing’s financial and operational

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performance.2 Each of Plaintiffs’ allegations suffers from one or more dispositive defects.

First, Plaintiffs often mischaracterize the statements they allege are false or misleading.

E.g., infra at 11, 12, 22, 24, 27.

Second, Plaintiffs do not plead with particularity facts that demonstrate the alleged mis-

statements were false or misleading. A statement is false if it is literally inaccurate, and misleading

only if it “affirmatively create[s] an impression of a state of affairs that differs in a material way

from the one that actually exists.” Brody v. Transitional Hosps., 280 F.3d 997, 1006 (9th Cir.

2002). A plaintiff cannot plead falsity merely by alleging a company failed to disclose an im-

portant fact, as Plaintiffs repeatedly do in their complaint. (Compl. ¶¶ 341, 383, 447) “Mere

silence about even material information is not fraudulent absent a duty to speak.” Stransky v.

Cummins Engine Co., 51 F.3d 1329, 1331 (7th Cir. 1995).

Third, many of the alleged misstatements cannot serve as the basis for a § 10(b) claim because they “lacked a standard against which a reasonable investor could expect them to be pegged.” City of Monroe v. Bridgestone, 399 F.3d 651, 671 (6th Cir. 2005). This rule has special force in fraud-on-the-market cases, like this one, because the market can be expected to discount statements that lack sufficient specificity to change the mix of total available information. See id. at 676; Shaw v. Digital Equip., 82 F.3d 1194, 1218 (1st Cir. 1996); In re Midway Games, 332 F.

Supp. 2d 1152, 1164-65 (N.D. Ill. 2004). Under these standards, statements like “the 737 MAX is safe and safety is a core value for us at Boeing” are not actionable. Infra at 16-17, 24-25, 29.

Fourth, many of the alleged misstatements are opinions. In Omnicare v. Laborers Dist.,

2 Because of the number of alleged misstatements, and because often a single paragraph of the complaint alleges multiple statements that Plaintiffs allege were false or misleading for multiple reasons, the appendix to the brief sets out each alleged misstatement in chronological order, which category the statement falls into, and where in Part I of this brief (regarding whether Plaintiffs have alleged any actionable false or misleading statements) the statement is addressed. 9

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575 U.S. 175 (2015), the Supreme Court held that statements of opinion are analyzed differently by investors than are statements of fact—emphasizing that it “is no small task” to base a claim on a statement of opinion. Id. at 187. Opinion statements can form the basis of a securities fraud claim only if a plaintiff pleads with particularity that the speaker did not actually believe the opinion professed or that the opinion did not “fairly align” with the information in the speaker’s possession at the time. Id. at 185, 188-89. “The investor must identify particular (and material) facts going to the basis for the issuer’s opinion—facts about the inquiry the issuer did or did not conduct or the knowledge it did or did not have—whose omission makes the opinion statement at issue misleading to a reasonable person reading the statement fairly and in context.” Id. at 194. Many of the statements identified by Plaintiffs fall short of this standard. Infra at 13, 18-19, 22, 26, 29.

Fifth, several of the alleged misstatements are protected by the statutory safe harbor for forward-looking statements. 15 U.S.C. § 78u-5. Forward-looking statements include statements

“of the plans and objectives of management for future operations” and statements “of future economic performance.” 15 U.S.C. § 78u-5(i)(1)(B) & (C). The safe harbor provides that a defendant

“shall not be liable with respect to any forward-looking statement” if either (1) the statement is

“identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement,” id. § 78u-5(c)(1)(A)(i); or (2) “the plaintiff fails to prove” that the officer who approved the statement had “actual knowledge … that the statement was false or misleading.” Id. § 78u-5(c)(1)(B)(ii) (emphasis added).3 Infra at 25-26, 29.

Applying these principles to the alleged misstatements in the complaint establishes that

Plaintiffs do not satisfy the first element of their § 10(b) claim for any alleged misstatement.

3 The Seventh Circuit has made clear that a plaintiff must not only prove but also allege actual knowledge. See Makor Issues & Rights v. Tellabs, 513 F.3d 702, 705 (7th Cir. 2008). 10

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A. Plaintiffs Do Not Plead With Particularity That Defendants’ Statements About The Design Of The 737 MAX Were False Or Misleading.

Plaintiffs fail to plead with particularity facts establishing that the four statements regarding

Boeing’s design of the 737 MAX were false or misleading.

November 13, 2018: Plaintiffs allege Dennis Muilenburg lied in an interview on Novem-

ber 13, 2018, by “den[ying] that the 737 MAX in the Lion Air Crash had ‘a new system that wasn’t

disclosed to the pilots.’” (Compl. ¶ 359) Plaintiffs allege Muilenburg’s statement was false and

misleading “because MCAS was an entirely new system that had never been used on any prior

Boeing commercial plane.” (Id. ¶ 360)

This allegation is based on a mischaracterization of what Muilenburg actually said. In

response to the interviewer’s assertion that “there are [sic] new system that wasn’t disclosed to the

pilots,” Muilenburg responded:

No, there are new systems on the airplane that are designed to take advantage of the capabilities of the airplane and provide control capability in high angle of attack conditions and those systems operate properly and again in certain failure modes if there is an inaccurate angle of attack sensor feeding information to the airplane there is a procedure to handle that.

(Id., emphasis added) An article from the same day describing the interview stated, “Muilenburg

acknowledged that the MCAS was a new feature for the 737 MAX, and that its potential failure

modes merits further investigation.” (Ex. 7, emphasis added; see also Ex. 4 at 53) Contrary to

Plaintiffs’ allegations, Muilenburg neither denied that MCAS was a new system, nor denied it

could present an issue in certain “failure modes.” And Muilenburg did not address one way or the

other in this statement whether the system had previously been disclosed to pilots.

December 7, 2018: On December 7, 2018, Muilenburg said in an interview that “we pur-

posely designed the airplane to behave in the same way” as prior 737 models, and that “even though it’s a different airplane design, the control laws that fly the airplane are designed to make

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the airplane behave the same way in the hands of the pilot.” (Compl. ¶ 373) Plaintiffs allege that this statement was false because “the 737 MAX had substantial design changes from older 737 models and did not behave in the same way as those older models for many reasons.” (Id. ¶ 374)

Plaintiffs again ignore what Muilenburg actually said. Muilenburg did not deny that the

737 MAX included “substantial design changes” from prior models; he stated explicitly that “it’s

a different airplane design.” (Compl. ¶ 373) And Muilenburg did not say the 737 MAX always

“behave[d] the same way” as prior models; he said Boeing “designed” it to behave like prior mod-

els so that there could be “seamless training and introduction for our customers,” which explained

Boeing’s intention behind the design of the 737 MAX. (Id.) It is also unclear what Plaintiffs

believe Muilenburg’s statements concealed. Even before this statement, Plaintiffs acknowledge,

Boeing had already disclosed that MCAS was new on the 737 MAX, had been linked to the Lion

Air accident, and had not behaved as intended. Supra at 4-7.

March 11, 2019: The day after the second accident, Boeing issued a press release that

included the statement “MCAS does not control the airplane in normal flight; it improves the be-

havior of the airplane in a non-normal part of the operating envelope.” (Compl. ¶ 396) Plaintiffs do not allege any reason why this statement was false or misleading, as required by the PSLRA.

15 U.S.C. § 78u-4(b)(1). Nor do they plead facts showing that MCAS does control the airplane in

“normal flight.” To the contrary, they allege it is designed to activate at elevated angles of attack in conditions “nearing a stall,” and that it activated during the accident flights due to a sensor malfunction. Supra at 4, 7. The market could not have understood Boeing’s statement to deny the potential for such erroneous activation: the March 11 press release acknowledged that exact potential problem. (Compl. ¶ 396 (Flight Crew Operations Manual “already outlines an existing procedure to safely handle the unlikely event of erroneous data coming from an angle of attack

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(AOA) sensor”)) Boeing’s initial November 6 bulletin and the FAA’s Directive had made the same disclosure. Supra at 4-6.

April 24, 2019: During Boeing’s April 24, 2019 earnings call—after the FAA’s order

grounding the 737 MAX—Muilenburg was asked “how did this slip through the engineering or-

ganization? How did it slip through the FAA?” (Compl. ¶ 425) Muilenburg responded:

[T]here is no technical slip or gap here, right? … I can tell you with confidence that we understand our airplane. We understand how the design was accomplished, how the certification was accomplished and remain fully confident in the product that we put in the field. But we also know there are areas where we can improve, and that is the source of the software update. But there was no surprise or gap or unknown here or something that somehow slipped through a certification process.

(Id.) Plaintiffs assert Muilenburg’s statement that “there is no technical slip or gap here” was false.

(Id.) But whether there was a “slip or gap” in the design and certification process is a matter of opinion. Plaintiffs do not allege Muilenburg believed there had been such a slip or gap. Nor do they allege his opinion did not “fairly align” with the information in his possession at the time.

Omnicare, 575 U.S. at 188, 194. To the contrary, Plaintiffs allege that during the plane’s development Boeing identified the risk of erroneous MCAS activation and concluded that “pilots would recognize it and correct it.” (Compl. ¶ 99) Thus, the issue did not slip through Boeing’s engineering organization, but was the subject of a considered process. While Plaintiffs may criticize Boe- ing’s engineering analysis, the fact that Boeing made a judgment on the issue establishes the issue was not a technical “slip” or a “gap.” At the least, it underscores Plaintiffs’ failure to plead that the information in Muilenburg’s possession did not fairly align with the opinion he disclosed.

B. Plaintiffs Do Not Plead With Particularity That Defendants’ Statements About The Safety Of The 737 MAX Were False Or Misleading.

The largest category of alleged misstatements concerns the safety of the 737 MAX.

(Compl. ¶¶ 356, 359, 365, 366, 369, 370, 395, 396, 397, 402, 406, 407, 413) For example, on

November 13, 2018, Dennis Muilenburg said “the 737 MAX is safe and safety is a core value for

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us at Boeing.” (Id. ¶ 356) On November 27, 2018, Boeing provided “assurance that the 737 MAX is as safe as any airplane that has ever flown the skies.” (Id. ¶ 369) On March 22, 2019, Boeing stated: “All Boeing airplanes are certified and delivered to the highest levels of safety consistent with industry standards.” (Id. ¶ 407) These statements, and the others in this category, are not actionable for three reasons.

Not False Or Misleading: Plaintiffs allege that statements that the 737 MAX was safe were false because of alleged deficiencies in MCAS’s development, certification, and operation, and because “Boeing did not include a reference to the MCAS in the flight control manual.”

(Compl. ¶ 358) But Plaintiffs’ allegations mischaracterize Boeing’s statements regarding the plane’s safety. None of the Company’s statements misrepresented MCAS’s operation or even addressed the circumstances of its development and certification. To the contrary, they reflected the Company’s (and the FAA’s) judgment at the time that the airplane was safe notwithstanding the possibility of erroneous MCAS activation, particularly after Boeing’s bulletin to operators and the FAA’s airworthiness directive pointed pilots to the existing procedures for addressing the resulting runaway stabilizer condition.

That it was possible for MCAS to activate erroneously was well known when the safety statements were made. Boeing’s November 6, 2018 bulletin informed operators expressly of the possibility that erroneous angle of attack data could cause repeated activations of “the pitch trim system,” of which MCAS was a part. (Ex. 1) The FAA’s airworthiness directive provided a similar description, identifying this as an “unsafe condition” that was “likely” to occur on other

737 MAXs. (Ex. 3) Both Boeing and the FAA advised pilots to follow existing procedures to address the condition. (Id.) Additionally, as Plaintiffs themselves allege, Boeing described MCAS in a communication to airlines within days of its November 6 bulletin: On November 13, a Seattle

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Times article publicly reported on that communication, as well as the belief that repeated MCAS activation was a contributing factor in the Lion Air accident. (Ex. 5)

As this context makes clear, the safety statements did not deny the possibility of erroneous

MCAS activation; rather those statements were plainly focused on the availability of existing procedures for responding to the condition resulting from such erroneous activation. In his November

13, 2018 interview, Muilenburg followed his statement that “the 737 MAX is safe” by acknowledging that “there were some indications of an inaccurate angle of attack signal that was being sent to the [Lion Air] airplane and of course our airplane has the ability to handle that with procedures in place [a]nd we’ve already issued a couple of bulletins to pilots and operators that point them back to existing flight procedures to handle this kind of situation.” (Compl. ¶ 197) Boeing’s

November 27, 2018 press release, providing “assurance that the 737 MAX is as safe as any airplane that has ever flown the skies” (id. ¶ 369), similarly emphasized the procedures for responding to

runaway stabilizer. While recognizing that the Lion Air flight experienced “automatic nose down

trim,” it called out the “runaway stabilizer non-normal checklist” as the procedure “prescribed by

the 737 MAX Flight Crew Operations Manual, and reaffirmed in [the bulletin and FAA directive],

as the appropriate procedure to address unintended horizontal stabilizer movement, regardless of

source.” (Ex. 8)

Both statements also cautioned that the investigation into the Lion Air accident was con-

tinuing and might bring additional facts to light related to the plane’s safety. In Muilenburg’s

November 13 interview, for example, he explained that the Lion Air investigation was “ongoing,”

and that it was important to do the investigation “in a diligent and thorough manner. Bottomline

is we want to ensure safety in the system.” (Ex. 9 at 9) The November 27 statement likewise

reflects that the investigation was “ongoing” and said “Boeing was taking every measure to fully

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understand all aspects of this accident.” (Ex. 8) In light of these caveats, no reasonable investor

could have understood Defendants’ safety statements to be opining that MCAS could not errone-

ously activate as it had on the Lion Air flight, or that no improvements were possible to the original

MAX design and flight manuals. Instead, those statements reflected Defendants’ understanding

of the airplane’s safety at the time, after Boeing and the FAA had already issued the bulletin and

airworthiness directive providing additional guidance to pilots, and as Boeing and the FAA were

gathering additional information as part of the investigative process.

In addition, two of the safety statements were issued after the second accident and after

regulators had grounded the 737 MAX fleet. (Compl. ¶ 407 (March 22, 2019), ¶ 413 (April 5,

2019)) Both statements explicitly acknowledged the risk of erroneous MCAS activation. (Ex. 10;

Compl. ¶ 413) Further, by that time, investors already knew a second plane had crashed. They

also knew the FAA and regulators around the world had grounded all 737 MAXs. Supra at 7.

Muilenburg’s statements of his confidence in the safety of the MAX or Boeing’s practices regarding its planes generally could not have misled investors into misunderstanding those facts.

Immaterial As A Matter Of Law: The safety statements are also insufficiently specific

for reasonable investors to have considered them important in making investment decisions. Supra

at 9. For example, in City of Monroe, Bridgestone’s ATX tire had been involved in a series of

accidents. 399 F.3d at 661-63. In the face of those accidents, Bridgestone made a number of

public statements about its tires, including that it had “no reason to believe there is anything wrong

with [its ATX tires]”; that it had “full confidence” in the tires; and that “rigorous testing under

diverse conditions at our proving grounds around the world helps ensure reliable quality.” Id. at

671. Ultimately, Bridgestone recalled the tires, and shareholders then alleged these earlier state-

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ments were fraudulent “because they were made ‘while in possession of specific, adverse infor-

mation undermining the truth of those statements.’” Id. The Sixth Circuit disagreed. It held the

statements immaterial, concluding that they were “best characterized as loosely optimistic state-

ments insufficiently specific for a reasonable investor to find them important to the total mix of

information available.” Id.4

For the same reasons, Defendants’ statements about the safety of the 737 MAX are not

actionable. None of the statements was pegged to objectively verifiable data or “anything meas-

urable.” City of Monroe, 399 F.3d at 671; see also Fogel v. Vega, 759 F. App’x 18, 21, 24 (2d Cir.

2018) (holding statement regarding company’s “core values” to be immaterial as a matter of law).

And like Bridgestone’s statements that its “rigorous testing” helped “ensure reliable quality” and that it had “full confidence” in its ATX tires, Boeing’s statements that “the 737 MAX is as safe as any airplane that has ever flown the skies” and that “Boeing continues to have full confidence in

the safety of the 737 MAX” did not include any objective measure that investors could use to

assess the assertion’s accuracy. (Compl. ¶¶ 369, 402) Similarly, the statement that “[a]ll Boeing airplanes” are “certified and delivered to the highest levels of safety consistent with industry standards” was an invocation of company practices designed to assure safety, and a reference to the fact that all Boeing airplanes—including the 737 MAX—must be certified by the FAA before entering commercial operation. (Id. ¶ 407, emphasis added) Plaintiffs do not allege that the 737 MAX was not in fact certified, and the statement is otherwise nonspecific about the “levels of safety” and

“industry standards” to which it is referring. (Id. ¶ 141) As a result, as courts have held in similar contexts, these statements are immaterial to a reasonable investor as a matter of law.

4 The court reached a different conclusion on only one statement: Bridgestone’s assertion that “objective data clearly reinforces our belief that these are high-quality, safe tires.” Id. at 671-74. Plaintiffs cite no comparable Boeing statements relying on objective data, and therefore this holding demonstrates further why the alleged misstatements here are not actionable. 17

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Statements Of Opinion: Finally, the safety statements are opinions, and the facts that

Plaintiffs plead do not satisfy the exacting standard for alleging their falsity. Supra at 9-10. Be- cause “safety” is a subjective continuum rather than a binary proposition, courts consistently treat product-safety statements like those Plaintiffs challenge as statements of opinion—even when

those products are involved in accidents or recalled.

For instance, in In re Ford Motor Company Securities Litigation, 381 F.3d 563 (6th Cir.

2004), the Ford Explorer SUV was involved in numerous accidents while equipped with a particular type of tire. Id. at 567. Investors alleged that Ford misrepresented the safety of the Explorer when it responded to recall requests by saying the “Ford Explorer is an extremely safe and thor- oughly engineered vehicle.” Id. at 571. Despite a subsequent recall, the Sixth Circuit held those allegations insufficient because the statement was an opinion, and the plaintiffs offered “no basis” to conclude the defendants “did not believe the opinions expressed.” Id. Similarly, Hirtenstein v.

Cempra, Inc., 348 F. Supp. 3d 530 (M.D.N.C. 2018), concerned a pharmaceutical that had been subject to objective testing—“Phase 3 clinical trials.” Id. at 556. The defendants made statements based on the test results, touting the “safety” of the drug and their belief that it was “incredibly safe.” Id. Even in this circumstance, where the product had been subject to objective testing, the court held the statements to be opinions, “because ‘[r]easonable persons may disagree over how to analyze data and interpret results, and neither lends itself to objective conclusions.’” Id.; see also Gillis v. QRX Pharma, 197 F. Supp. 3d 557, 597 (S.D.N.Y. 2016) (holding that a statement that data from a clinical study “showed a respiratory safety advantage” compared to other treat- ments was an opinion); In re Yum! Brands Sec. Litig., 73 F. Supp. 3d 846, 862-64 (W.D. Ky. 2014)

(deeming statements regarding safety to be opinions, including “[a]ll restaurants … must adhere to strict food quality and safety standards,” the company acts “to ensure food safety,” and any

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suspected unsafe product is withdrawn “until safety can be assured”).

The safety statements alleged here are similarly opinions. And Plaintiffs do not allege facts

sufficient to plead with particularity the narrow circumstances in which those opinions can be actionable under Omnicare. Supra at 9-10. First, Plaintiffs do not allege that Muilenburg or any-

one else at Boeing who prepared or approved any safety statement did not in fact hold the belief

stated.5 Second, Plaintiffs do not allege that the opinions about safety did not “fairly align[] with

the information in the issuer’s possession at the time.” Omnicare, 575 U.S. at 188. Plaintiffs do

not identify any “particular (and material) facts going to the basis for” each opinion whose omis-

sion makes the safety statements misleading. Id. They do not allege what basis Muilenburg (or

anyone else who made or approved any particular alleged misstatement) had for his opinion at all.

Moreover, as their allegations show, Muilenburg made the safety statements after the FAA had

issued its airworthiness directive and allowed the 737 MAX to continue operating. While Plaintiffs

do allege that other individuals at Boeing supposedly knew about issues with the plane (e.g.,

Compl. ¶¶ 91-112), they do not allege that Muilenburg or others who made or approved any al-

leged misstatement knew about those issues when they made the safety statements.6 Therefore,

Plaintiffs’ allegations do not satisfy the Omnicare standard.

5 Plaintiffs do not allege any individual who prepared or approved any statement attributed to “Boeing,” much less allege what that person knew. Allegations of corporate knowledge based on the knowledge of those not alleged to have been involved with the alleged misstatement are inadequate. Infra at 31.

6 Plaintiffs allege Muilenburg learned in February 2019 of text messages from a Boeing pilot sent in 2016 about a simulator for the 737 MAX that had experienced MCAS issues. (Compl. ¶ 340) These messages do not demonstrate that the information in Muilenburg’s possession did not fairly align with his opinion statements, for the reasons explained below. Infra at 34-35. 19

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C. Plaintiffs Do Not Plead With Particularity That Defendants’ Statements About Information Provided To Pilots Were False Or Misleading.

Plaintiffs allege that Defendants’ statements about information provided to pilots of 737

MAX planes were false and misleading. Specifically, they claim as fraudulent statements regarding (1) information in the 737 MAX flight manuals, and (2) the 737 MAX’s flight deck display.

Flight Manuals: On November 6, 2018, shortly after the first accident, Boeing issued the bulletin “direct[ing] flight crews to existing procedures to address th[e] condition” experienced on the Lion Air plane. (Compl. ¶ 353); supra at 4-5. On November 13, 2018, Boeing’s CEO responded to an interview question by explaining that information for pilots about what steps to take in the event of a condition similar to the Lion Air flight is “part of the training manual. It’s an existing procedure.” (Id. ¶ 361) He made a similar statement the next day. (Id. ¶ 365) And a

Boeing press release included a similar statement in March 2019. (Id. ¶ 396)

Plaintiffs do not allege facts undermining the truth of these statements. That is, they do not allege the manual did not actually contain a procedure for pilots to follow if a condition similar to the Lion Air flight occurred. The portions of the November 6, 2018 bulletin that Plaintiffs quote direct pilots to an existing procedure, the “Runaway Stabilizer NNC.” (Compl. ¶ 353) The day after Boeing issued the bulletin, the FAA issued the airworthiness directive referring pilots to the same procedure. Supra at 5-6. Plaintiffs cannot credibly allege Boeing and the FAA highlighted a procedure that did not exist. Nor can they credibly allege the procedure was not sufficient to address conditions similar to the Lion Air flight. Indeed, the FAA directed pilots to follow it in those circumstances. As Plaintiffs themselves allege, the pilots on the Lion Air flight immediately before the first accident experienced the same condition as Lion Air 610, followed the procedure, and were able to safely fly the plane to its intended destination. Supra at 6.

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Even so, Plaintiffs allege that Defendants’ statements were misleading because “the flight

control manual did not even mention MCAS.” (Compl. ¶ 355) But that does not render the state-

ments false or misleading. None of the alleged misstatements says that the flight manual men-

tioned MCAS by name. Rather, the statements direct pilots to the information most relevant to

them: the procedure to address a condition that could occur in flight. Those statements are not

misleading merely because the manual containing the procedure did not also name each flight

control law operating in the background that could cause the condition to occur. And again, any suggestion that Boeing was attempting to hide the existence of MCAS is refuted by Plaintiffs’ own allegation that by November 13—at most a week after the issuance of the bulletin—newspaper articles were already reporting that Boeing had described the existence and functionality of MCAS to its customers. (Compl. ¶ 196; see also Ex. 4 at 53)

Flight Deck Display: Plaintiffs also allege Boeing made misrepresentations about the

“AOA Disagree Alert”—a cockpit indicator on the flight deck display that alerts when the plane’s two AOA sensors provide conflicting data about the plane’s angle of attack. On April 28, 2019,

Southwest Airlines indicated it had not known until after the Lion Air accident that the AOA Dis- agree Alert was not operative on most 737 MAXs. (Compl. ¶ 431) In response, Boeing issued three statements indicating its belief that the Alert was not needed to safely fly the 737 MAX. (Id.

¶¶ 432, 433, 442) Plaintiffs allege these statements were false because (i) “the FAA Administrator himself stated on July 11, 2019 that the AOA Disagree Alert was part of the approved MAX design and FAA regulations required the AOA Disagree Alert to be installed on every delivered airplane,” and (ii) “Boeing represented in the MAX’s certification documents that the AoA Disagree Alert was to be a standard, non-optional safety feature of the aircraft.” (Id. ¶ 434)

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Again, Plaintiffs mischaracterize what was actually said. Plaintiffs contort the FAA Ad- ministrator’s statement that the AOA Disagree Alert was required because it was part of the approved airplane design into a statement that the Alert was needed for safety. The Administrator did not say the Alert was needed for safety. Quite the opposite: In the same document on which

Plaintiffs base their allegation, the FAA Administrator stated that the AOA Disagree Alert “was not necessary to meet FAA safety regulations.” (Ex. 11 at 11 (emphasis added)) Plaintiffs’ complaint is also internally inconsistent: As Plaintiffs themselves allege, Boeing’s certification documents described the AOA Disagree Alert as a “standard, non-optional feature” on the aircraft— not as a safety feature. (Compl. ¶ 124) Boeing’s subsequent statements about the AOA Disagree

Alert feature were fully consistent with this distinction and the FAA Administrator’s statement.

In addition, Boeing’s statements that the AOA Disagree Alert was not needed to safely fly the 737 MAX were statements of opinion, reflecting Boeing’s engineering judgments, and Plain- tiffs’ allegations do not satisfy Omnicare’s requirements to plead that anyone who prepared or approved the statement did not actually believe the opinion or that the opinion did not “fairly align” with the information in their possession. Supra at 9-10. As discussed above, Plaintiffs’ sources show the FAA Administrator had reached the same conclusion. (Ex. 11 at 11) That others may disagree with Boeing’s (and the FAA’s) opinion does not render the opinion false or misleading.

Nor do Plaintiffs plead facts demonstrating these alleged misstatements were material to investors. By April 29, 2019, when the first of the statements was made, the MAX had been grounded for more than six weeks, so there was no impact to active flight operations. Further, the grounding orders meant that the MAX would not fly again until changes (including updated software that installed the AOA Disagree Alert) were made. (Compl. ¶ 406) Whether Boeing had

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previously determined that the Alert was necessary for safety or for some other reason was there-

fore immaterial to any reasonable investor’s investment decision. See TSC Indus. v. Northway,

426 U.S. 438, 449 (1976) (a fact is material “if there is a substantial likelihood that a reasonable

shareholder would consider it important in deciding how to vote”).

D. Plaintiffs Do Not Plead With Particularity That Statements Regarding Boeing’s Progress Toward, Or The Potential Timing Of, The 737 MAX’s Return To Service Were False Or Misleading.

Plaintiffs also allege Defendants made false or misleading statements regarding Boeing’s

progress toward the 737 MAX’s return to service and the timing of when that might occur. For

instance, Muilenburg stated on April 11, 2019, that, since the Lion Air crash, “our top engineers

and technical experts have been working tirelessly in collaboration with the FAA and our custom-

ers to finalize and implement a software update that will ensure accidents like these never happen

again.” (Compl. ¶ 415) On April 24, 2019, Boeing stated in an SEC Form 10-Q that Boeing was

“making steady progress on the path to final certification for a software update for the 737 MAX.”

(Id. ¶ 419)7 Regarding the estimated timing of the return to service, on June 26, 2019, Muilenburg said he was “looking at” the end of summer 2019. (Id. ¶ 443) On September 11, 2019, Muilenburg

updated that estimate, stating that Boeing was “targeting early fourth quarter for a return to service

of the 737 MAX.” (Id. ¶ 456) Two months later, on November 11, 2019, Muilenburg stated: “it

is possible that the resumption of MAX deliveries to airline customers could begin in December.”

(Id. ¶ 457; see also id. ¶¶ 448, 451, 454)

7 See also id. ¶¶ 420, 423, 437, 438, 441, 453, 456. Plaintiffs mischaracterize part of the statement in ¶ 415, alleging Muilenburg said “[W]e continue to demonstrate that we’ve identified and met all certification requirements.” (Id. ¶ 415; bracket in original) Muilenburg’s full statement was: Boeing “will conduct additional test and production flights in the coming weeks as we continue to demonstrate that we’ve identified and met all certification requirements. We look forward to completing near-term milestones on the path to final certification.” (Ex. 12 at 2) Thus, Muilenburg did not convey that Boeing had completed the certification process for the 737 MAX updates. To the contrary, he was clear that work was ongoing, and described what Boeing would do as it completed the work. 23

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As discussed below, neither Muilenburg’s broad statements of progress in the regulatory

process nor the estimates of when the MAX would return to service are actionable misstatements.

Statements Of Progress: Plaintiffs do not allege facts demonstrating that the “progress”

statements were false. The statements all indicated Boeing was still actively working on obtaining

certification of the updates for the 737 MAX, and Plaintiffs do not allege that was not true. Plain- tiffs allege the statements “misled investors into believing that [Boeing] would soon correct the

MAX’s underlying safety deficiencies, such that the 737 MAX would be recertified for flight and positively impact Boeing’s business and financial results.” (Id. ¶ 427) But that is not what the statements say. Nor do they say the FAA would not impose additional conditions that could delay the 737 MAX’s return to service, as Plaintiffs acknowledge the FAA ultimately did. (Id. ¶ 264)

In fact, as described below, Boeing’s public statements stated expressly that the plane’s return to service was subject to approval by the FAA and other regulators.

Moreover, statements of “progress” are too vague to be actionable. The Eleventh Circuit’s decision in Carvelli v. Ocwen Financial Corp., 934 F.3d 1307 (11th Cir. 2019), is on point. In

Carvelli, a mortgage finance company had entered into a consent order with regulators that required improvements to internal testing, to be verified by an outside monitor. Id. at 1314. Later, the company said it “‘felt good about the progress’ it had made towards its ‘national mortgage settlement compliance.’” Id. at 1321. The court held the statement was immaterial because the defendant “never said it was in compliance with regulations but rather made vague statements about its efforts towards compliance.” Id. at 1322. Thus, the court concluded, the statement “can’t be classified as [a] material misrepresentation because no reasonable investor would have considered [it] in making investment decisions.” Id.; see also Rosenzweig v. Azurix Corp., 332

F.3d 854, 870 (5th Cir. 2003) (“‘[M]aking steady progress’ is precisely the sort of generalized

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positive characterization that is not actionable under the securities laws.”). So too here.

Return to Service Estimates: Boeing’s estimates of when the 737 MAX might return to

service are not actionable both because they are forward-looking statements and because they are

statements of opinion. Plaintiffs fail to satisfy the high bar necessary to plead their falsity.

First, the estimates are subject to the statutory safe harbor for forward-looking statements.

Supra at 10. They reflect “plans and objectives of management for future operations” and

statements of “future economic performance,” and therefore fall within the definition of forward-

looking statements. 15 U.S.C. § 78u-5(i)(1)(B), (C). And they were accompanied by meaningful

cautionary language explaining why the actual return to service date could differ from the estimate.

Boeing’s first quarter SEC Form 10-Q, filed on April 24, 2019, cautioned that the actual return to

service could vary from Boeing’s estimates based on the “conditions surrounding return to service

of the 737 MAX fleet”—that is, conditions the FAA and other regulators set for certifying the updates to the plane. (Ex. 6 at 30) All of Boeing’s estimates were made in the wake of this caution

and are treated as subject to it. See Asher v. Baxter Int’l, 377 F.3d 727, 732 (7th Cir. 2004)

(“cautionary language must be treated as if attached to every one of [defendant’s] oral and written statements”); Desai v. Gen. Growth Prop., 654 F. Supp. 2d 836, 846 (N.D. Ill. 2009) (similar).

Boeing further cautioned in its June 26, 2019 SEC Form 8-K that it “will not offer the 737 MAX for certification by the FAA until we have satisfied all requirements for certification of the MAX and its safe return to service.” (Ex. 13) Boeing reiterated cautions in other disclosures, including a July 18, 2019 SEC Form 8-K; a presentation accompanying its July 24, 2019 earnings call; and a written warning accompanying the September 11, 2019 investor conference presentation. (Ex.

14 at 3; Ex. 15 at 12; Ex. 16 at 2) Boeing thus accompanied its forward-looking estimates with meaningful cautionary language, and that language warned of the precise risk that, in fact,

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occurred: that Boeing did not control “the conditions” regulators might set for the 737 MAX’s return.8

Independently, Boeing’s return to service estimates are protected by the safe harbor be-

cause Plaintiffs do not plead any facts showing that Muilenburg, or anyone who prepared or ap-

proved the estimates, had “actual knowledge” that they were inaccurate. 15 U.S.C. § 78u-

5(c)(1)(B)(ii). Plaintiffs do not allege, for example, that Muilenburg (or any other relevant person)

knew in June 2019 that Boeing was not “looking at” the end of the summer as the “timeframe” for

the 737 MAX’s return to service (Compl. ¶ 443); that in September 2019, Boeing was not “target-

ing” early fourth quarter for return to service (id. ¶ 456); or that in November 2019 it was not

“possible” that deliveries to customers “could” resume in December. (Id. ¶ 457)

Second, the timing estimates are statements of opinion, and Plaintiffs’ allegations do not

satisfy Omnicare. Supra at 9-10; City of Westland v. MetLife, 129 F. Supp. 3d 48, 68 (S.D.N.Y.

2015) (“While … estimates involve some factual inputs, they necessarily require judgment and

thus are statements of opinion or belief.”). Plaintiffs do not plead that Muilenburg or anyone who

prepared or approved any of the estimates did not believe the estimate at the time it was made.

Nor do Plaintiffs plead facts demonstrating that the estimates did not fairly align with what those

individuals knew at the time.

Plaintiffs allege that, sometime between June 17 and 23, 2019, the FAA Administrator

asked Muilenburg for Boeing to “slow down its talk of progress … [to] giv[e] the FAA space to

8 See Fulton Cty. Emps. v. MGIC Inv., 675 F.3d 1047, 1049-50 (7th Cir. 2012) (affirming dismissal and holding cautionary language was sufficient because it was not a “generic warning”); Institutional Inv’rs Grp. v. Avaya, Inc., 564 F.3d 242, 256-58 (3d Cir. 2009) (cautionary language was sufficient because it contained “a detailed list of specific factors and uncertainties that could affect [the company’s] future economic performance”); Arbitrage Event-Driven Fund v. Tribune Media, 2020 WL 60186, *8 (N.D. Ill. Jan. 6, 2020) (holding cautionary language sufficient on a motion to dismiss); Silverman v. Motorola, Inc., 2008 WL 4360648, *12 (N.D. Ill. Sept. 23, 2008) (same); Davis v. SPSS, Inc., 385 F. Supp. 2d 697, 711 (N.D. Ill. 2005) (same); In re Midway Games, Inc. Sec. Litig., 332 F. Supp. 2d 1152, 1167 (N.D. Ill. 2004) (same). 26

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exercise scrutiny.” (Compl. ¶ 262) Nothing about that request is inconsistent with Muilenburg’s

statement, on June 26, 2019, that Boeing was “looking at” the end of summer—three months later.

Muilenburg did not represent that the FAA had approved that estimate, and in fact he qualified the estimate by saying “I’m not going to give you a specific timeline.” (Ex. 17 at 6) Nor do Plaintiffs allege the Administrator gave Muilenburg any specific information that contradicted his statement of the general timeframe Boeing was “looking at.”

Plaintiffs also allege that, in November 2019, Muilenburg asked the new FAA Adminis- trator to “consider allowing the company to begin delivering airplanes before they were cleared to fly,” and the Administrator indicated he “would look into it.” (Compl. ¶ 299) Plaintiffs characterize the Administrator’s response as a “refus[al] to give Muilenburg the concessions he was requesting” (id.), and allege that Muilenburg’s statement in November 2019 that it was “possible”

that 737 MAX deliveries “could begin in December, after certification,” was inconsistent with this

“refusal.” (Id. ¶¶ 332, 457) Plaintiffs again mischaracterize what was said. Muilenburg’s state-

ment referred to deliveries “after certification,” not to his allegedly pending request to the Admin-

istrator to begin deliveries before the FAA had certified the 737 MAX to return to service. (Id.

¶ 457) Nothing about the Administrator’s agreement to look into pre-certification deliveries con-

tradicts Muilenburg’s statement of a “possible” certification in December.9

9 Plaintiffs also allege that, on March 13, 2019, immediately after the FAA grounded the 737 MAX fleet, Muilenburg stated that Boeing was “supporting” the FAA’s decision. (Compl. ¶ 402) Plaintiffs claim the statement was false because, prior to the FAA issuing the grounding order, “Boeing fought against the decision to ground the MAX.” (Id. ¶ 404) This “fight,” according to Plaintiffs, was that “Muilenburg called the President and personally ‘made the case that the 737 MAX planes should not be grounded in the United States.’” (Id.) However, even accepting Plaintiffs’ allegations as true, according to the news article Plaintiffs cite, Muilenburg’s call to the President occurred on March 12, the day before the FAA issued the grounding order. (Ex. 18) And Plaintiffs allege that the FAA’s decision to ground the 737 MAX was based on information it first obtained and analyzed on March 13—after Muilenburg’s call. (Compl. ¶ 404) Nothing about Boeing’s prior opposition to a grounding order renders false or misleading its statement of support for the grounding order once this new information was available. Nor do Plaintiffs allege any facts plausibly suggesting this alleged misstatement was material. Supra at 22-23. 27

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E. Plaintiffs Do Not Plead With Particularity That Defendants’ Statements About Boeing’s Financial And Operational Performance Were False Or Misleading.

Finally, Plaintiffs attack statements regarding Boeing’s financial and operational perfor-

mance, made in the period between the first and second accidents. This category includes state-

ments of historical fact, such as a January 30, 2019 statement that “[t]he 737 program delivered

111 MAX airplanes in the fourth quarter.” (Compl. ¶ 376; see also id. ¶ 377) It also includes

statements of pending orders for the 737 MAX and planned production increases. (Id. ¶ 378 (stat-

ing “our current [737 MAX] production rate of 52 per month and planned increase to 57 this year”);

see also id. ¶¶ 379-81, 387, 389) Plaintiffs allege these statements were fraudulent not because

they were inaccurate, but because they “did not disclose that the positive 737 MAX sales figures

the Company reported were not sustainable or reliable drivers of revenue in light of the underlying problems that rendered the planes fundamentally unsafe and unsaleable.” (Id. ¶ 376) None of these statements is actionable.

First, Plaintiffs do not allege that any statements of historical performance were false. “Ac- curate statements of historical fact, such as past financial results, are not actionable.” Anderson v.

Abbott Labs., 140 F. Supp. 2d 894, 908 (N.D. Ill. 2001); Ford, 381 F.3d at 570 (“Because plaintiffs

have not alleged the historical inaccuracy of Ford’s financial and earnings’ statements, such state-

ments are not misrepresentations.”); McDonald v. Kinder-Morgan, 287 F.3d 992, 998 (10th Cir.

2002) (“It is well-established that the accurate reporting of historic successes does not give rise to

a duty to further disclose contingencies that might alter the revenue picture in the future.”). While

Plaintiffs fault Boeing for not providing additional disclosures qualifying these historical results,

“an accurate report of past successes does not contain an implicit representation that the trend is

going to continue.” Alizadeh v. Tellabs, 2015 WL 557249, *11 (N.D. Ill. Feb. 9, 2015). All of

Plaintiffs’ claims based on Boeing’s accurate statements of financial and operational performance

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should be dismissed on this basis alone.

Second, the remaining statements in this category are forward-looking estimates of pro-

duction numbers and sales orders that are independently protected by both prongs of the safe harbor. Supra at 10. The statements were accompanied by meaningful cautionary language. On

January 30, 2019, concurrently with the first of the statements (Compl. ¶ 378), Boeing enumerated

22 risks to its estimates, including “our aircraft being subject to stringent performance and relia- bility standards,” “our reliance on our commercial airline customers” and “potential adverse de- velopments in new or pending litigation and/or government investigations.” (Ex. 19 at 13) The same risks accompanied subsequent estimates. (Ex. 20 at 2; Ex. 21 at 5-14) These cautions were meaningful and in fact warned of the types of risks that actually materialized and adversely af- fected Boeing’s sales and production. Independently, Plaintiffs do not allege Muilenburg, Smith, or anyone who prepared or approved any of these forward-looking estimates had “actual knowledge” that the estimates were false or misleading. Supra at 10. The failure to allege such knowledge is dispositive.

Third, some of the statements supporting the forward-looking estimates are immaterial as a matter of law, and statements of opinion for which Plaintiffs have not satisfied Omnicare.

(Compl. ¶ 378 (“Our customers continue to recognize the superior value proposition of our more

fuel-efficient airplanes as reflected in the strong intake of new orders we saw last year.”); ¶ 381

(“That airplane is creating value in the market for our customers.”); ¶ 381 (“But in terms of the

MAX, the demand signals in the marketplace continue to be very strong.”)); supra at 9-10.10

10 Plaintiffs also allege as a false statement Gregory Smith’s statement at an investor conference that “certification is a big part of any development program, but I’d like to think we get well ahead of that.” (Compl. ¶ 387) This allegation is not well-pleaded in two respects: first, the question—and answer—were about “paperwork,” not MCAS (Ex. 22 at 5); and second, Smith was using Boeing’s prior experience certifying

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II. Plaintiffs Do Not Plead Facts Giving Rise To A “Strong Inference” Of Scienter.

Plaintiffs’ complaint also should be dismissed because Plaintiffs fail to adequately plead scienter. Scienter is “an intent to deceive, demonstrated by knowledge of the statement’s falsity

or reckless disregard of a substantial risk that the statement is false.” Higginbotham v. Baxter Int’l,

495 F.3d 753, 756 (7th Cir. 2007); see also Searls v. Glasser, 64 F.3d 1061, 1066 (7th Cir. 1995)

(holding that a plaintiff must demonstrate “at least … recklessness so severe that it is the functional equivalent of intent”). To plead scienter, a plaintiff must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-

4(b)(2)(A). That “strong inference” must be both “cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, 551 U.S. at 309. In other words, a “strong inference” requires satisfying two requirements: “first the inference must be cogent, and second it must be as cogent as the opposing inference.” Makor, 513 F.3d at 705. And a plaintiff must satisfy that standard with respect to each defendant and each alleged misstatement. See Pugh v. Tribune

Co., 521 F.3d 686, 693 (7th Cir. 2008) (plaintiff “must create a strong inference of scienter with respect to each individual defendant.”); Phillips v. Scientific-Atl., 374 F.3d 1015, 1017-18 (11th

Cir. 2004) (plaintiff must plead scienter “with respect to each alleged violation of the statute”).

A. Plaintiffs Do Not Plead Facts Giving Rise To A Cogent Inference Of Scienter.

Plaintiffs’ allegations fail at the first step of the scienter analysis: They do not give rise to

a cogent inference that any Defendant acted with deceptive intent for any alleged misstatement.

the 737 MAX and other airplane models as examples in talking about the certification of the 777X, a different airplane model entirely. (Id. (“And so, taking all of that and applying that onto the 777X….”)) The complaint uses ellipses to conceal the substance of Smith’s response. 30

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1. Plaintiffs Do Not Adequately Plead That Boeing Acted With Scienter.

Plaintiffs allege throughout the complaint that “Boeing knew” various facts. (E.g., Compl.

¶ 84 (“[A]s Boeing knew, AoA sensors had a history of malfunction”); id. ¶ 101 (“Boeing knew that if a pilot reacted with just a six-second delay from optimal response time….”); id. ¶ 188 (“Boe- ing knew that this pattern was consistent with a pilot struggling with the MCAS system.”); id.

¶ 223 (“Boeing knew from the start of the Class Period that the MAX should not have been allowed to fly until MCAS was redesigned and rebuilt….”)) But mere allegations of what a corporation

“knew,” even about specific facts, are insufficient to plead scienter. “Intent to deceive is not a corporate attribute.” Makor, 513 F.3d at 707. “To establish corporate liability for a violation of

Rule 10b-5 requires look[ing] to the state of mind of the individual corporate official or officials who make or issue the statement (or order or approve it or its making or issuance, or who furnish information or language for inclusion therein, or the like).” Id. at 708.

Here, as explained below, Plaintiffs do not allege with particularity facts supporting a strong inference that either Muilenburg or Smith made any statement with scienter. Nor do they allege that anyone else who prepared or approved any alleged misstatement acted with scienter.

As a result, they do not plead Boeing’s scienter.

2. Plaintiffs Do Not Adequately Plead That The Individual Defendants Acted With Knowledge That Any Statements They Made Were False Or Misleading.

Plaintiffs do not adequately plead that either individual defendant knew any statement he made was false or misleading. Plaintiffs fail to make any allegations about Gregory Smith’s knowledge. And Plaintiffs’ allegations about Dennis Muilenburg’s knowledge are almost as thin.

Muilenburg’s Interactions With The FAA: Plaintiffs allege that Muilenburg’s interactions with the FAA indicated to him (or should have) that his estimates of the timing of the 737

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MAX’s return to service were too optimistic. (Compl. ¶¶ 331-32) As an initial matter, this allegation relates only to statements about progress toward and the timing of the return to service, and thus cannot support scienter for any of the alleged misstatements on other subjects. Phillips, 374

F.3d at 1017-18 (a plaintiff must plead scienter for “each alleged violation of the statute”). But even with respect to return to service, Plaintiffs’ allegations do not support scienter because they rely on the improbable inference that Muilenburg would lie to investors about something he knew would soon be revealed as a lie. Such an inference “does not resonate in common experience” because it “depends on the supposition that defendants would rather keep the stock price high for a time and then face the inevitable fallout once [the] problem was revealed.” Nguyen v. Endologix,

__ F.3d __, 2020 WL 3069776, *8 (9th Cir. June 10, 2020) (rejecting the argument, holding that

“the PSLRA neither allows nor requires us to check our disbelief at the door”).

Plaintiffs allege four interactions between Muilenburg and the FAA. First, they allege then-FAA Administrator Elwell asked Muilenburg in June 2019 “to slow down talk of [Boeing’s] progress” toward the 737 MAX’s return to service, and that Muilenburg responded, “[w]e’re not going to push.” (Compl. ¶ 332) Even if the Administrator did ask Muilenburg to “slow down” talk of progress, that would not indicate that Boeing was not in fact making progress. Nor do

Plaintiffs allege the Administrator said anything to Muilenburg that contradicted Boeing’s estimates on the possible timing of the 737 MAX’s return to service. City of Livonia v. Boeing, 711

F.3d 754, 759 (7th Cir. 2013) (“[U]nless the complaint created a strong inference that [those] who made the allegedly false statements about the timing of the First Flight, knew they were false, there would be no fraud.”).

Second, Plaintiffs allege that a December 22, 2019 New York Times article reported a regulatory official’s views of an August 2019 meeting at which Boeing representatives made a

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presentation about Boeing’s progress. (Compl. ¶¶ 275, 332) The article reported the regulatory

official’s view that “the Boeing representatives were ‘not ready.’” (Id.) To begin with, December

22, 2019, when the article was published, was after the close of the Class Period; Plaintiffs do not allege the regulatory official’s view was communicated to any Boeing employee during the Class

Period, much less to Muilenburg. See Stransky, 51 F.3d at 1332 (Rule 10b-5 “implicitly precludes basing liability on circumstances that arise after the speaker makes the statement”). Moreover, the article concerns the view of one person about Boeing’s preparation for a single meeting. (Compl.

¶ 275) Just because one person concluded that Boeing’s presenters were “not ready” at that meeting does not mean Boeing was not making progress towards certification, or support an inference

that Muilenburg believed the return to service estimates were inaccurate.

Third, Plaintiffs assert the FAA Administrator “refused” Muilenburg’s November 2019

request to permit Boeing to deliver 737 MAXs to customers before certification. As previously discussed, this mischaracterizes Plaintiffs’ own allegation. Supra at 27.

Fourth, Plaintiffs allege the FAA chastised Muilenburg in December 2019 for “putting pressure on the agency to move faster.” (Compl. ¶ 332) However, this alleged discussion occurred after all of the alleged misstatements, and so cannot support an inference of scienter.

Edward Pierson’s Concerns: Plaintiffs allege that Edward Pierson, who worked at one of

Boeing’s production facilities, raised concerns about production quality to the head of Boeing’s

737 Program in the summer of 2018 (Compl. ¶ 336), and sent a letter raising similar production

issues to Muilenburg in December 2018, a few months after the Lion Air accident (id. ¶ 337).

These allegations do not support any inference of deceptive intent for any alleged misstate-

ment for at least two reasons. First, Plaintiffs do not allege that Pierson’s concerns about produc-

tion issues had anything to do with MCAS (which is not alleged to have had production issues) or

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the subject of any of the alleged misstatements (which did not address production issues). Second, the letter Pierson sent to Muilenburg does not support scienter because, as the Seventh Circuit has held, knowledge of accusations does not constitute knowledge of their accuracy. Pugh, 521 F.3d at 695 (holding that an allegation that earlier lawsuits filed against defendants gave them actual knowledge of fraud “completely misses the boat” because litigation confers knowledge only “of accusations of fraud, not fraud itself”). Plaintiffs do not allege what Muilenburg learned about the accuracy of any of Pierson’s accusations, or how any such knowledge could support scienter for alleged misstatements unrelated to production issues.

2016 Technical Pilot Text Message Conversation: Plaintiffs allege that, in February

2019, Muilenburg learned about a 2016 “text message” conversation involving a Boeing technical pilot, Mark Forkner. Plaintiffs allege the communication indicated “MCAS was malfunctioning in the MAX flight simulator” and Forkner had unknowingly provided inaccurate information to the FAA. (Compl. ¶¶ 118, 340) Plaintiffs allege that Muilenburg learning of this message supports an inference that his statements regarding the MAX’s safety were made with scienter. As an initial matter, information Muilenburg learned in February 2019 could not support an inference of scienter for any alleged misstatements he made before that time. And as to Muilenburg’s later statements, Plaintiffs’ suggested inference is implausible in light of the text message itself and what

Plaintiffs allege about it. On its face, the message concerned an employee’s experience in a simulator, not the airplane, and nothing in the message indicates the employee had concerns related to aircraft safety. (Id. ¶ 116) Moreover, Plaintiffs fail to allege any credible basis to believe that

Muilenburg could not have believed his statements about the 737 MAX’s safety based on being shown an employee’s single message sent more than two years earlier regarding his experience on a simulator, without context as to its meaning or importance. Among other things, Plaintiffs do

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not plead what caused the 2016 simulator issue or what actions Boeing took in response, or why

Muilenburg should have viewed the message as casting doubt on the 737 MAX’s safety when he saw it in February 2019, after months of intensive regulatory engagement regarding MCAS following the Lion Air accident. Thus, Plaintiffs’ allegations regarding the 2016 message do not support any inference, much less the “compelling” one required by law, that Muilenburg knew statements he made about the 737 MAX in or after February 2019 were false.

3. Plaintiffs’ Circumstantial Allegations Do Not Support A Cogent Inference Of Scienter.

Seeking to buttress their allegations of actual knowledge, Plaintiffs make other allegations they contend give rise to a circumstantial case for inferring scienter. These allegations do not support the strong inference Plaintiffs must establish: that each Defendant acted with intent to deceive with each alleged misstatement, or that each Defendant’s actions with regard to each alleged misstatement were an extreme departure from ordinary care.

Defendants’ “Admissions”: Plaintiffs allege “Defendants have admitted that the 737

MAX was unsafe, its operating manual was dangerously incomplete (including because it did not

discuss MCAS), MCAS was fundamentally flawed including because it relied on a single point of

failure, and Boeing lied to regulators about the need for simulator training to fly the MAX safely.”

(Compl. ¶ 318) This allegation mischaracterizes the complaint’s factual allegations, which do not

plead with particularity that Muilenburg, Smith, or anyone who prepared or approved any of the alleged misstatements admitted any of these things.

Plaintiffs first cite Muilenburg’s congressional testimony that he was “responsible” and

“accountable” for Boeing’s airplanes. (Compl. ¶ 319) That statement was not an admission that the 737 MAX was unsafe or that “MCAS was fundamentally flawed.” (Id. ¶ 318) Accepting responsibility and accountability is something that many CEOs do as leaders of their companies.

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Acknowledging that “the buck stops here” is not an admission previous statements were false, or of any role in any prior supposed misconduct. See Glazer Capital v. Magistri, 549 F.3d 736, 748-

49 (9th Cir. 2008) (rejecting argument that a general acceptance of responsibility supports an inference of actual knowledge or of scienter).

Plaintiffs next allege that a Boeing engineer, John Hamilton, testified that, within a week after the Lion Air accident, “Boeing’s senior executives knew that ‘MCAS activation’ played a key role in the Lion Air crash.” (Compl. ¶ 320) This testimony does not suggest deceptive intent, for Boeing contemporaneously disclosed that information publicly. Supra at 4-7.

Plaintiffs also allege Hamilton testified “that the 737 MAX was unsafe without making

necessary changes to the MCAS software” and “that MCAS and the MAX ‘didn’t quite follow the

assumptions that [Boeing] base[d] the design on.’” (Compl. ¶ 320) Plaintiffs mischaracterize

Hamilton’s testimony: He did not testify that the 737 MAX was “unsafe without making changes

to MCAS.” Plaintiffs do not quote any such testimony from Hamilton, and none exists. (Ex. 23)

Likewise, Hamilton did not admit that “MCAS and the MAX” did not follow Boeing’s

assumptions; he stated that “while the crew—the captain of Lion Air was trimming out the airplane as it was getting MCAS when he handed over the control, it didn’t quite follow the assumptions

that we had based the design on. So we knew we needed to put an operation manual bulletin out

to remind crews——.” (Id. at 54, emphasis added) Although cut off by the questioner, Hamilton’s

clear meaning was that the Lion Air crew—not MCAS or the MAX—did not follow Boeing’s

assumptions. This interpretation is confirmed by Hamilton’s next sentence, stating that Boeing’s

response was to “put an operation manual bulletin to remind crews” of proper procedures, which

makes sense only if it was the crew that had not followed Boeing’s assumptions. Finally, Hamilton did not ascribe knowledge to any particular individual, so no matter how his testimony is

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interpreted, it does not suggest Muilenburg or Smith reached whatever conclusion Hamilton did.

Plaintiffs next allege Defendants have “admitted that, although they represented to customers that the AOA Disagree Alert was a standard feature on the MAX, ‘the disagree alert was not operable on all airplanes because the feature was not activated as intended.’” (Compl. ¶ 321) But

Plaintiffs do not allege that Muilenburg or Smith made any such representation to any customer, much less that either was aware that the Alert was not standard when the representation was made.

Moreover, an “admission” that the AOA Disagree Alert was not installed on most 737 MAXs does not constitute an admission that the plane was unsafe. Boeing on multiple occasions publicly stated its conclusion that the 737 MAX was safe without an operative AOA Disagree Alert, and the FAA agreed. Supra at 21-22. Whatever Plaintiffs think of that conclusion, they cannot allege it supports a cogent inference of intent to deceive about the MAX’s safety.11

Finally, Plaintiffs allege “737 MAX Chief Technical Pilot Mark Forkner admit[ed] [in

emails] that he ‘lied to the regulators’” and tricked regulators and customers into accepting that

the 737 MAX did not require simulator training. (Compl. ¶ 322) But nothing in Forkner’s emails

suggests he believed the 737 MAX was unsafe or the flight manual was incomplete. Supra at 34-

35. The Court is required to accept Plaintiffs’ well-pled allegations of fact, but not their (mis)char-

acterization of documents. See McCready v. eBay, 453 F.3d 882, 891 (7th Cir. 2006) (courts, on

a motion to dismiss, “can independently examine the document and form [our] own conclusions

as to the proper construction and meaning to be given the material”). Regardless, Plaintiffs do not

allege that these email exchanges involved Muilenburg, Smith, or others who were involved in

11 The same goes for the decision to “wait” until 2020 to implement the software change that installed the AOA Disagree Alert. (Compl. ¶ 321) This decision is not alleged to have involved anyone who made, prepared, or approved the statements at issue, and therefore does not support scienter with respect to any alleged misstatement. Nor does the decision to “wait” even suggest those who knew of that decision knew the 737 MAX was unsafe; to the contrary, it suggests they believed the plane was safe without the Alert. 37

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making, preparing, or approving any alleged misstatement.

2015 FAA Settlement Agreement: Plaintiffs allege that a December 18, 2015 settlement agreement with the FAA required an “‘increase [in] the focus and prioritization of BCA managers on regulatory compliance,’ including by identifying ‘the BCA executive-level positions [] whose duties include primary responsibility for implementation’ of a new comprehensive ‘Regulatory

Compliance Plan.’” (Compl. ¶ 324, quoting settlement agreement) As a result, Plaintiffs allege,

“Boeing’s profound safety failures in the development and production of the MAX were reported to the highest levels of the BCA organization.” (Id. ¶ 327)

These allegations do not support a strong inference of scienter. First, Plaintiffs do not allege, let alone with particularity, any specific “safety failure” that was reported up through the regulatory compliance structure created by the Settlement Agreement. Second, Plaintiffs do not plead any basis for concluding that compliance with the Settlement Agreement required, or resulted in, reporting about the subject of any alleged misstatement. Certainly, none of the provi- sions of the Agreement they identify has to do with any of those subjects. (Id. ¶¶ 323-25) Finally,

Plaintiffs allege the settlement agreement required the involvement only of “BCA executive-level positions” and reporting within the “BCA organization.” (Id. ¶ 324) But “BCA” is short for Boe- ing Commercial Airplanes, a business unit within Boeing (id. ¶ 188; see also Ex. 21 at 1), while

Muilenburg and Smith were the CEO and CFO of the larger corporate entity. Plaintiffs do not allege that Muilenburg or Smith—or any other individuals involved in making the statements at issue—had a role within BCA, were involved in the compliance activities required by the Settle- ment Agreement, or learned a fact through any such activities that contradicted their public statements. Accordingly, Plaintiffs fail to plead any connection between the Settlement Agreement and knowledge on the part of the Defendants, let alone the strong inference of scienter required.

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Boeing’s 737 MAX “Fixes”: Plaintiffs allege Boeing was working on “fixes” to the 737

MAX “from the beginning of the Class Period,” which they allege shows Defendants knew the plane was “fundamentally unsafe.” (Compl. ¶ 328) Specifically, Plaintiffs allege, Boeing was developing software that would “require MCAS [to] use two AoA sensor[s] to trigger activation,” would “install the AoA Disagree alert that was supposed to be standard,” and would make it easier for pilots to override MCAS if it did activate erroneously. (Id. ¶ 329) These enhancements to

MCAS cannot form the basis for an inference of scienter as a matter of law, as the Seventh Circuit has held that subsequent remedial measures cannot be used to plead scienter, because “drawing an inference from such facts does not comport with Federal Rule of Evidence 407.” Pugh, 521 F.3d at 695; Higginbotham, 495 F.3d at 760.

Plaintiffs’ suggestion also does not follow as a matter of logic: that Boeing was improving the 737 MAX does not support an inference that Defendants believed the plane was unsafe. As explained above, as reflected in their public statements at the time, Boeing—and the FAA—believed the 737 MAX was safe despite the potential for erroneous activation of MCAS, because there was a procedure pilots are trained to follow in the event of unintended activation of the horizontal stabilizer, whatever the cause. This procedure had been reiterated to pilots by both Boeing and the FAA in the wake of the Lion Air accident, and in light of this guidance, the FAA allowed the MAX to continue flying while Boeing developed a software update. Thus, there is no basis to infer from Boeing’s development of an MCAS update that Defendants believed the plane was unsafe without that update, much less that Boeing intended to deceive investors about whether there was an issue at all—particularly because Defendants’ (and the FAA’s) public statements consistently acknowledged the possibility of erroneous MCAS activation, while also noting that the accident investigation was ongoing. Supra at 14-16.

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Nor does Plaintiffs’ allegation that Boeing sent a letter to the FAA on November 13, 2018,

“requesting permission to update the 737 MAX 8’s flight manual to include MCAS, but said nothing to investors or to the pilots and passengers who continued to fly on the 737 MAX,” support a strong inference of scienter. (Id. ¶ 330) Plaintiffs also allege that by November 13, Boeing had

published a bulletin describing the risk of inaccurate AOA sensor data causing the automated pitch

trim system to activate erroneously and highlighted the proper procedure to address an erroneous

activation. Supra at 4-5. Plaintiffs further allege that Boeing had publicly disclosed the existence

of MCAS by November 13. (Compl. ¶ 196; Ex. 4 at 53) That Boeing sought to add to the flight manual what it had already made public does not suggest deceptive intent. Indeed, Plaintiffs allege that pilots met with Boeing representatives in November and demonstrated they had learned about

MCAS. Infra at 40. These statements and actions are inconsistent with an inference that Defend- ants intentionally sought to mislead investors about MCAS.

Pilots Opining They Lacked Information: As just discussed, Plaintiffs allege that Boeing representatives met with pilots in November 2018, and some of those pilots expressed anger that they did not know about MCAS earlier. (Compl. ¶¶ 333-34) That allegation cannot support an inference of scienter for three reasons. First, the allegation substantiates that by the end of No- vember—only weeks after the crash—pilots did know about MCAS. As Plaintiffs allege, Boeing

disclosed information about MCAS, including the name of the system, by November 13. (Id.

¶ 196; Ex. 4 at 53) The allegation that pilots were upset they did not learn of MCAS earlier, but

now knew of it, does not support an inference that Defendants “learned that pilots lacked necessary

information to safely fly the 737 MAX,” as Plaintiffs assert.

Second, the complaint and the underlying source for Plaintiffs’ allegation make clear that—

in the very same meetings—other pilots “pushed back against the criticism of Boeing.” (Ex. 24;

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Compl. ¶ 201, citing an article entitled “Dispute arises among U.S. pilots on Boeing 737 MAX

system linked to Lion Air Crash” (emphasis added)) For instance, the chairman of the United

Airlines pilots’ union explained that “many systems on an airplane work in the background without

the pilot’s knowledge,” and that “while the 737 pilot manual doesn’t specifically describe the new

system [MCAS], it does include a standard procedure to shut down the flight-control behavior it

induces—whether it’s the new system causing it or something else.” (Ex. 24 at 2-3) Plaintiffs do

not explain how a dispute among pilots about whether Boeing had provided enough information about the 737 MAX before the Lion Air accident supports an inference that Defendants intentionally made deceptive statements after that accident.

Third, the individuals who allegedly attended these meetings—Craig Bomben, John Molo- ney, and Mike Sinnett—are not alleged to have made, prepared, or approved any of the alleged misstatements. Nor are they alleged to have conveyed the substance of those discussions to those who did make the alleged misstatements.

Core Operations: Plaintiffs allege “Defendants’ scienter is evidenced by the critical nature of the 737 MAX to Boeing – including its safety, certification, and sales.” (Compl. ¶ 341) This appears to be a “core operations” allegation—that is, that executives should be assumed to know of facts that are critical to their company. But just because executives stay abreast of their company’s key operations does not mean they know every fact about those operations. For the core operations inference to make sense, the plaintiff would have to plead that the particular fact at issue was recognized as central at the time of the alleged misstatement. See Rahman v. Kid Brands,

736 F.3d 237, 247 (3d Cir. 2013). That is particularly true in a case like this, with a company that makes hundreds of products, each one highly complex and consisting of thousands of parts and systems, across a wide spectrum of specialized fields. There is no basis to infer that Boeing’s CEO

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or CFO knew details of the software design or certification on a particular airplane—and Plaintiffs do not allege facts establishing their exposure to such information. See Societe Generale v. Cat- erpillar, 2018 WL 4616356, *8 (N.D. Ill. Sept. 26, 2018) (“[E]ven assuming each individual defendant here was aware of Caterpillar’s tax position regarding CSARL, it does not necessarily follow that they disbelieved their statements or sought to deceive investors with their statements.”);

Nozak v. Northern Dynasty Minerals, 804 F. App’x 732, 733 (9th Cir. 2020) (rejecting proposed core operations inference because “Plaintiffs have not provided ‘detailed and specific allegations about management’s exposure to factual information within the company’”).

And in fact, nothing about the “critical nature” of the 737 MAX’s safety, certification, or sales indicates deceptive intent. Quite the opposite, the critical nature of each of these items strongly suggests that Defendants would not have knowingly kept an unsafe plane in service. See, e.g., DiLeo, 901 F.2d at 629 (“An accountant’s greatest asset is its reputation for honesty, followed closely by its reputation for careful work. Fees for two years’ audits could not approach the losses

[the accountant] would suffer from a perception that it would muffle a client’s fraud.”).

Financial Exposure From Simulator Training: Plaintiffs allege that Defendants were

“highly motivated to conceal and misrepresent the differences between the 737 MAX and older

737 models” because “[d]isclosing those differences threatened heightened scrutiny from regulators, customers, pilots, and the public, and likely would have resulted in demands and requirements for simulator training from the FAA and airlines.” (Compl. ¶ 344) Plaintiffs further allege that

“Boeing faced massive financial exposure if simulator training were required.” (Id. ¶ 345)

As an initial matter, the only alleged misstatement that concerns differences between the

MAX and other 737 models is the allegation that Muilenburg lied in a December 7, 2018 interview by supposedly saying the MAX behaved like its predecessors. Supra at 11-12. But, by that time,

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according to Plaintiffs’ own allegations, Boeing had already met with the FAA and “explained the

details of MCAS.” (Compl. ¶ 212, alleging the meeting occurred “immediately” after the first

accident) Since it is the FAA that determines what training is required, and those discussions had taken place before the alleged misstatement at issue, Plaintiffs’ allegations cannot substantiate that

Boeing had a motive to conceal differences between the 737 models. Moreover, as Plaintiffs

themselves allege, by December 7 the details about MCAS were widely disseminated, including

by Boeing. Supra at 4-7. As a result, Plaintiffs’ own allegations contradict any alleged Boeing

motive to conceal differences between 737 models.12

Defendants’ “Cover Up”: Plaintiffs allege that Defendants “attempt[ed] to cover up seri- ous misconduct and hide key safety information from regulators and the public.” (Compl. ¶ 346)

In support of this allegation, Plaintiffs point to engineering and design decisions involving MCAS

and the AOA sensors, the information and training provided to pilots, and the allegation that Boe-

ing concealed internal documents from government investigators. (Id. ¶¶ 346-47) These allegations of a “cover up” fail both because they are not supported by any allegations of particularized fact and because, even if there were such a cover up (which there was not), Plaintiffs plead no facts suggesting that Muilenburg, Smith, or anyone involved in or responsible for the alleged misstatements were aware of or participated in it. Therefore, the allegation does not support scienter for

Defendants in this case.

Executives’ Terminations: Finally, Plaintiffs allege that “Defendants’ scienter is also evidenced by the sudden resignations and firings of several top executives, including Defendant

12 For the same reason, Plaintiffs’ allegation of a motive to conceal MCAS during development to ensure the 737 MAX’s certification as a derivative design of earlier 737s—rather than a new plane that, according to Plaintiffs, would have taken four additional years—fails. (Compl. ¶ 345) As Plaintiffs themselves plead, the FAA knew the “details” of MCAS from “immediately” after the Lion Air accident. (Id. ¶ 212) Boeing therefore cannot have been motivated by a desire to hide MCAS from the FAA during the Class Period. 43

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Muilenburg, BCA President Kevin McAllister, Counselor and Senior Advisor to the Board (and

former General Counsel) J. Michael Luttig, and senior communications executives Linda Mills

and Anne Toulouse.” (Compl. ¶ 348) But nothing about these executives’ departures supports an

inference of scienter. The obvious and natural inference from the employment decisions “in the wake of the two 737 MAX crashes” (id.) is straightforward: Two 737 MAX airplanes had crashed and the entire 737 MAX fleet was grounded, resulting in a significant business interruption with dire financial consequences for the Company. Plaintiffs allege no facts suggesting the terminations or departures occurred because the Board concluded anyone had engaged in fraud. See Zucco

Partners v. Digimarc, 552 F.3d 981, 1002 (9th Cir. 2009) (finding no inference of scienter where the complaint merely alleged the CFO’s resignation in close proximity to alleged fraud); In re

Ceridian Sec. Litig., 542 F.3d 240, 249 (8th Cir. 2008) (similar).

* * * *

In sum, because Plaintiffs do not plead with particularity facts giving rise to a “cogent”

inference that any Defendant acted with deceptive intent with respect to any alleged misstatement, they fail to satisfy the first part of the scienter analysis, and their complaint should be dismissed.

B. The Most Compelling Inference From Plaintiffs’ Allegations Is That Defendants Did Not Act With Scienter.

Plaintiffs’ allegations also fail to establish scienter because they do not satisfy the second part of the analysis: that the inference of scienter is “at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, 551 U.S. at 309. In applying that part of the test, the Court

“must weigh the strength of the plaintiffs’ inferences in comparison to plausible nonculpable explanations for the defendants’ conduct.” Pugh, 521 F.3d at 693.

Plaintiffs ask the Court to infer that Boeing and two officers—whose individual careers might rest on the success of the 737 MAX—knowingly kept a plane they believed was unsafe in

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the air after the first accident, knowingly kept information from pilots that could have prevented a

second accident, and knowingly lied about the potential timing of the 737 MAX’s return to service.

This makes no sense, and is inconsistent with the facts as pled. Boeing’s success depends on its

reputation for building safe products. Plaintiffs offer no explanation why Defendants would have

run the risk of potentially catastrophic human, economic, and reputational consequences. The

theory is especially implausible because all the supposed misstatements occurred after the first

accident, in the midst of the intense post-accident regulatory and media scrutiny on the Company

and the 737 MAX, in an industry that is already one of the most heavily regulated in the world.

Similarly, it would make no sense for Defendants to give estimates of the timetable for the 737

MAX’s return to service they knew to be false, because that would be a short-term fraud certain

to be unmasked as soon as those estimated dates arrived. Plaintiffs allege no plausible benefit

Defendants could have gained by concealing for a few weeks something they knew to be inevita-

ble. See Nguyen, 2020 WL 3069776 at *8. The Seventh Circuit has held that “[p]eople sometimes

act irrationally, but indulging ready inferences of irrationality would too easily allow the inference

that ordinary business reverses are fraud. One who believes that another has behaved irrationally

has to make a strong case.” DiLeo, 901 F.2d at 629. Plaintiffs’ allegations do not do so.

Plaintiffs’ failure is particularly stark because the opposing innocent inference is so com-

pelling. As Plaintiffs allege, “in the hours following” the first accident Boeing convened experts

in an effort to understand what might have caused it and identified a possible scenario involving

MCAS activation. (Compl. ¶ 188) Boeing officials “immediately” met with the FAA and “ex-

plained the details of MCAS.” (Id. ¶ 212) Within a week, Boeing issued a bulletin to operators,

reinforcing the relevant flight procedure for pilots to follow should a circumstance similar to the

Lion Air flight arise, followed the next day by the FAA’s issuance of an airworthiness directive

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reinforcing that guidance. Supra at 4-6. And in the following weeks and months, Boeing engaged

in extensive additional dialogue and information-sharing with the FAA and other regulatory authorities in an effort to understand the causes of the accidents and evaluate possible additional

safety measures. (Compl. ¶¶ 215, 262, 264, 267, 275) These allegations show that Boeing moved

swiftly after the accidents to understand the potential causes and share information with the pilot-

ing community, all in close coordination with regulatory authorities.

Thus, the most compelling inference is that Defendants (1) believed Boeing had manufac-

tured a safe airplane; (2) believed that pilots had the information and training to safely address an

erroneous activation of MCAS, particularly after Boeing issued its November 6 bulletin and the

FAA endorsed it; and (3) in the wake of the grounding, believed Boeing was making progress

toward the plane’s return to service and expected to complete the process on the timetables dis-

closed. Whatever the merits of Plaintiffs’ allegations regarding the pre-Class Period design of the

737 MAX and the actions of other Boeing employees—which may be adjudicated in other pro-

ceedings—those allegations do not support securities fraud claims for statements during the Class

Period. Plaintiffs’ allegations do not support a conclusion that Defendants in this case intentionally issued deceptive statements or acted with such a departure from the standard of ordinary care in making any statement that their actions were reckless.

III. Plaintiffs Do Not Plead Loss Causation.

The case should also be dismissed for a third independent reason: Plaintiffs do not adequately plead loss causation. “To plead loss causation, the plaintiff must allege that it was the very facts about which the defendant lied which caused its injuries.” Tricontinental v. PwC, 475 F.3d

824, 842 (7th Cir. 2007); see also Bastian v. Petren, 892 F.2d 680, 685 (7th Cir. 1990) (affirming

dismissal where allegations failed to plausibly allege “that, but for the defendant’s wrongdoing,

the plaintiff would not have incurred the harm of which he complains”). A plaintiff can generally

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establish this element by pleading that when the “truth” regarding an alleged misstatement

emerged—referred to as a “corrective disclosure”—the price of the company’s shares declined as

a result. Dura Pharm., 544 U.S. at 346-47. Here, Plaintiffs allege eight instances in which a

“corrective disclosure” supposedly caused them injury. (Compl. ¶ 462) But none of the allega-

tions is sufficient because none alleges any disclosure that corrected an alleged misstatement and

thereby caused a loss associated with the statement’s supposed inflation of Boeing’s stock price.

March 11, 2019: Plaintiffs first allege Boeing’s stock price declined the day after the sec-

ond accident. (Compl. ¶ 234) However, Plaintiffs do not allege—even in a conclusory way—that

any alleged misstatement was revealed to have been false on that day. Thus, Plaintiffs fail to plead

the required “causal connection.”

March 17, 2019: Plaintiffs next allege Boeing’s stock price declined when the market learned “the extent to which Boeing had control over the certification process,” “the possibility that Boeing had mischaracterized certain information submitted to the FAA,” and that Boeing’s

safety analysis presented to the FAA was flawed. (Compl. ¶¶ 244-45) But Plaintiffs do not allege

these issues had previously been misstated. None of the alleged misstatements concerned the pro-

cess by which the 737 MAX was certified or the information Boeing submitted to the FAA during

certification. Thus, Plaintiffs do not plead that the information disclosed on March 17 corrected

earlier misstatements.

March 21, 2019: On March 21, Plaintiffs allege, a news article stated that the two planes

that crashed “lacked two notable safety features in their cockpits [because] Boeing charged extra

for them,” and that these features would have provided the pilots information regarding the data

from the AOA sensors. (Compl. ¶ 252) Plaintiffs also allege the article quoted one non-Boeing engineer’s characterization of the alerts as “vital for safety.” (Id.) But, again, none of the alleged

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misstatements made before that disclosure concerned whether the 737 MAX had these cockpit features. Nor does the engineer’s opinion on whether the features were vital for safety constitute a corrective disclosure, as none of Boeing’s alleged misstatements concerned that individual’s views on the subject, and he was obviously not speaking for Boeing. Thus, Plaintiffs do not plead facts plausibly connecting the information disclosed on March 21 to the alleged misstatements.

April 5, 2019: Plaintiffs allege that on April 5 Boeing “partially revealed the toll the pro- tracted groundings of the 737 MAX was having on the Company and suggested that the Com- pany’s fix to the plane’s software systems would not be available as soon as Defendants had represented.” (Compl. ¶ 258) But Plaintiffs do not allege Defendants had previously misrepresented the effect of the groundings on the Company. And the first allegedly fraudulent estimate for the

737 MAX’s return to service did not occur until June 26, 2019—months afterwards. (Id. ¶ 443)

As a result, Plaintiffs do not plead that any alleged misstatement was corrected on this day.

June 26, 2019: Plaintiffs allege Boeing’s stock price declined “in response to the revelation that the FAA had asked Boeing to address another software fix after discovering the flaw during

MCAS testing and the further delay this would cause for the plane’s return to service.” (Compl.

¶ 267) Again, Plaintiffs plead no connection between this news and any alleged misstatement.

Plaintiffs do not allege that Defendants made any estimate of the 737 MAX’s potential return to service before June 26, or any representation about this particular software functionality at all.

Thus, there is no alleged misstatement that could have been corrected by this disclosure.

July 24, 2019: Plaintiffs allege Boeing’s stock price declined when Boeing disclosed during an earnings call that it might suspend production of new 737 MAX planes if the grounding continued. (Compl. ¶ 269) Plaintiffs allege this disclosure “partially revealed to the market that, contrary to Defendants’ repeated assertions that the 737 MAX would soon return to service, the

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grounding may be extended further, and that Boeing was considering suspending MAX produc-

tion.” (Id. ¶ 270) However, Plaintiffs do not allege any misstatements before this disclosure about

whether Boeing would continue producing the 737 MAX during its grounding or indicating the

737 MAX “would soon return to service.” Plaintiffs simply mischaracterize their own allegations.

Moreover, this was not a new disclosure: Boeing had previously delivered this same warn-

ing to investors in its first quarter SEC Form 10-Q, filed on April 24, 2019, disclosing that delays

in returning the 737 MAX to service “could result in additional disruption to the 737 production

system, including further reductions in the production rate and/or a temporary cease of produc-

tion.” (Ex. 6 at 50, emphasis added) “Corrective disclosures must present facts to the market that

are new, that is, publicly revealed for the first time.” Katyle v. Penn Nat. Gaming, 637 F.3d 462,

473 (4th Cir. 2011); see also In re Omnicom Sec. Litig., 597 F.3d 501, 513 (2d Cir. 2010) (holding

an alleged corrective disclosure insufficient where “appellant failed to demonstrate any new infor-

mation in the [supposed corrective disclosure] … regarding [the] alleged fraud”).

October 18, 2019: On October 18, 2019, the 2016 “text messages” sent by Boeing tech-

nical pilot Mark Forkner were publicly released. (Compl. ¶ 277) Plaintiffs allege that over the

next two trading days Boeing’s stock price declined as a result of the publication. (Id. ¶ 290)

However, as explained above, Forkner’s messages did not reveal that the 737 MAX was unsafe or

otherwise show that any of Boeing’s previous public statements had been false; rather, they re-

vealed that Forkner had encountered an issue in 2016 in a simulator, not the aircraft itself. Supra

at 34. Further, while the messages suggest that Forkner believed he had unknowingly provided

inaccurate information to the FAA, none of Defendants’ alleged misstatements relate to the testing of MCAS during certification or the information Boeing submitted to the FAA. As a result, the disclosure of the Forkner messages is not a plausible “correction” of any alleged misstatement.

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December 16, 2019: On December 16, Boeing announced it would temporarily suspend

production of the 737 MAX. (Compl. ¶ 302) Plaintiffs do not allege this disclosure corrected any alleged misstatement. They do not allege Defendants had previously made any misstatements about whether Boeing would or would not suspend production of the 737 MAX; indeed, as discussed above, Plaintiffs affirmatively allege Boeing had previously announced it would consider suspending production if the grounding continued longer than expected. Supra at 49. As a result,

Plaintiffs have not plausibly alleged this as a corrective disclosure.

* * *

To be clear, Defendants’ argument is not that the decline in Boeing’s stock price is unrelated to problems with the 737 MAX, but there are obvious explanations for why the stock price would have declined as a result of the 737 MAX issues that have nothing to do with fraud. As

Plaintiffs’ own complaint and the facts subject to judicial notice demonstrate, the Class Period was defined by the occurrence of two tragic airplane crashes and a series of unanticipated delays in the

737 MAX’s return to service. See In re Maximus Sec. Litig., 2018 WL 4076359, *17 (E.D. Va.

Aug. 27, 2018) (“The 21.9% stock drop associated with the November 2015 earnings call is ade-

quately explained by the poor performance of the HAAS contract disclosed in the call, rather than

the perceived disclosure of some previous fraud.”). To adequately plead loss causation, Plaintiffs

must allege the disclosure of information that can be plausibly construed to reveal previously mis-

represented facts. Because they do not, their allegations are insufficient.

Conclusion

For the foregoing reasons, the Court should dismiss this action with prejudice.

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Dated: June 30, 2020 Respectfully submitted,

/s/ Joshua Z. Rabinovitz John F. Hartmann, P.C. Joshua Z. Rabinovitz KIRKLAND & ELLIS LLP 300 N. LaSalle Chicago, IL 60654 (312) 862-2000

Craig S. Primis Matt Owen KIRKLAND & ELLIS LLP 1301 Pennsylvania Ave., N.W. Washington D.C. 20004

Counsel for Defendants