Fourth Circuit severs class of Boeing investors

RICHMOND, Va. (CN) — The Fourth Circuit sided with Boeing Monday, ruling that a group comprising thousands of investors failed to provide an effective way to shell out damages for purported securities fraud.

A class of institutional investors, represented by the Rhode Island Office of the General Treasurer on behalf of the state’s employee retirement system, claimed the company defrauded investors in the wake of two plane crashes in 2018 and 2019 that left 346 passengers dead. Investigators blamed the company’s flight control system for the tragedies, which occurred just five months apart.

Boeing entered into a deferred prosecution agreement with the Justice Department to improve safety and quality control practices. But the DOJ concluded the company violated the agreement in 2024 when a door plug blew out mid-flight on an Alaska Airlines flight.

The proposed class includes thousands of investors who purchased stock between Sept. 30, 2019, and May 14, 2024. The investors are all pursuing a common civil action focused on whether Boeing defrauded them regarding the safety of the company’s aircraft. U.S. Circuit Judge Marvin Quattlebaum ruled that the lower court improperly granted class certification.

The Donald Trump appointee said the proposed means of resolving the dispute failed to comport with the Supreme Court’s ruling in Comcast Corp. v. Behrend. Under Comcast, plaintiffs must provide a nonspeculative classwide damages methodology consistent with their theory of liability.

“The plaintiffs did not provide a damages methodology consistent with Comcast’s commands,” Quattlebaum said. “And the district court did not conduct the rigorous analysis Comcast requires.”

The investors say they suffered damages when they purchased Boeing stock at inflated prices due to the company’s fraud. The class is relying on an out-of-pocket methodology for calculating damages that economist Chad Coffman proposed, in which damages equal the artificial inflation per share at the time of purchase minus the artificial inflation per share at the time of sale.

“The out-of-pocket description broadly tells us what securities fraud damages are — the difference between the price paid or received and the price that would have existed absent the fraud,” Quattlebaum said. “But it doesn’t tell us how to determine the artificial inflation embedded in Boeing’s stock price on any day of the class period. Comcast demands that missing step.”

The class members claimed they aren’t required to present detailed damage modeling at the class certification stage and that Coffman’s rebuttal report is sufficient, regardless. In Comcast, the high court instructed lower courts to undergo rigorous analysis, which may involve considering the merits of the claims at the class certification stage.

“Methodologies require more than a legal description of what damages are generically — they must explain how damages will be measured in a specific case,” Quattlebaum said. “A menu of options that the party will decide on later is not a damages methodology. It is, therefore, insufficient for plaintiffs to give examples of what they might, or could, do to measure damages — they have to tell the district court what their actual methodology is and how it resolves the predominance inquiry.”

The three-judge panel agreed with Boeing that Coffman failed to provide any detail about how he would account for the complexity of the case, which involves varying degrees of misleading statements over the course of years. Quattlebaum said the proposed class failed to clearly state a theory of liability for the lower court to compare to damages methodology.

“We understand that litigants sometimes don’t want to tip their hand,” Quattlebaum said. “But at the class certification stage, the plaintiffs had to.”

Quattlebaum criticized Bill Clinton-appointed U.S. District Judge Leonie Brinkema’s finding on the class members’ proposed theory of liability.

“According to the district court, the plaintiffs’ theory was ’that investors were damaged by purchasing Boeing stock at inflated prices due to defendants’ fraud.’” Quattlebaum said. “But that isn’t a liability theory. It simply restates the generic securities fraud principles that misstatements inflate and the truth deflates. That describes every Section 10(b) case, which is precisely the problem.”

Fellow Trump-appointed U.S. Circuit Judges Allison Rushing and Julius Richardson joined in the ruling. Attorneys representing Boeing and the class members did not respond to a request for comment.