(Bloomberg) -- A federal judge rejected Boeing Co.’s plea deal that sought to let the planemaker avoid criminal prosecution over two fatal 737 Max crashes, in a surprise twist that threatens to prolong the company’s recovery from past scandals.
US District Judge Reed O’Connor sided with family members of people killed during the crashes, who urged him to reject the agreement. O’Connor said he opposed the proposed settlement because it would improperly require race to be considered in the hiring of an independent monitor and that his role in making sure Boeing abides by the deal would be minimized.
“These provisions are inappropriate and against the public interest,” O’Connor said in his ruling Thursday.
The Fort Worth, Texas, judge asked both sides to confer and decide on the next steps, which could include revising the plea agreement to address the concerns raised.
A representative for Boeing didn’t comment on the ruling.
The decision marks a fresh setback for Boeing’s push to get back on track after a year of crisis that began when a door-sized panel blew off an airborne 737 Max in early January. The near-catastrophe led to revelations of poor quality controls inside Boeing’s factories, increased scrutiny from regulators and customers and a management shakeup that included the ouster of the company’s chief executive officer.
Boeing shares fell 1% on Thursday. The stock has dropped about 40% this year, the biggest decline in the Dow Jones Industrial Average.
Family members of crash victims have fought for years to get harsher penalties following the crashes of Lion Air Flight 610 in October 2018 and Ethiopian Airlines Flight 302 in March 2019. Both fatal accidents were linked to a flawed flight control system.
In 2021, Boeing reached an agreement with the US Justice Department to defer prosecution on charges that it deceived regulators about the system. In May, the government said the company violated that agreement and recommended criminal charges, citing Boeing’s failure to live up to its promises.
Boeing then agreed to plead guilty to criminal conspiracy, pay a fine and install an independent corporate monitor. The new deal also required the company to spend at least $455 million to bolster its compliance and safety programs.
In rejecting the proposed settlement, O’Connor cited provisions related to the selection of the independent monitor, including language directing prosecutors to consider diversity, equity and inclusion policies. He also took issue with requirements that the monitor answer to the government, rather than to the court.
“It is fair to say the Government’s attempt to ensure compliance has failed,” O’Connor said. “At this point, the public interest requires the Court to step in. Marginalizing the Court in the selection and monitoring of the independent monitor as the plea agreement does undermines public confidence in Boeing’s probation, fails to promote respect for the law, and is therefore not in the public interest.”
Victims’ Families
Erin Applebaum, a partner at Kreindler & Kreindler LLP who represents some relatives of the crash victims, said the families hope the judge’s rejection of the plea deal puts an end to the “kid-glove treatment of Boeing” by the government.
“We look forward to a dramatic renegotiation of the plea deal and the inclusion of new terms that adequately reflect the magnitude of Boeing’s crimes,” she said in a statement.
The judge’s rejection of the proposed deal comes months after he made an unusual request for both parties to explain language in the deal directing the DOJ to consider diversity and inclusion when selecting an independent monitor. The government defended it as a reflection of longstanding practice at the agency.
O’Connor said the response from the government only heightened his concerns that race would likely be a key factor for the government in selecting a monitor, going so far as to suggest that he is not convinced the government “will not act in a non-discriminatory manner” in making such a decision.
He also questioned how Boeing might apply the diversity and inclusion requirement. Under the plea agreement, the company would have had the ability to reject one of six monitor candidates selected by the government. O’Connor said he was concerned the company could use the diversity clause to eliminate a candidate “in a discriminatory manner and with racial considerations.“
Paul Cassell, one of the lawyers representing family members, said O’Connor’s decision is an important victory in their efforts to hold the company accountable.
“This order should lead to a significant renegotiation of the plea deal to reflect the deaths Boeing caused and put in place proper remedies for the future,” Cassell said in a statement.
The case is US v. Boeing, 21-cr-005, US District Court, Northern District of Texas (Fort Worth).
--With assistance from Julie Johnsson and Allyson Versprille.
(Updates with details from ruling, closing share price.)
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