6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON 7 AT SEATTLE
8 SMARTWINGS, A.S., a Czech Republic CASE NO. C21-918 RSM Company, 9 ORDER GRANTING IN PART Plaintiff, DEFENDANT’S MOTION TO DISMISS 10 v. 11 THE BOEING COMPANY, a Delaware 12 Corporation,
13 Defendant.
14 15 I. INTRODUCTION 16 This matter is before the Court on Defendant The Boeing Company’s Motion to Dismiss, 17 Dkt. #15, and its subsequently filed Motion for Protective Order, Dkt. #18. Plaintiff Smartwings, 18 a.s. (“Smartwings”), has sued Defendant The Boeing Company (“Boeing”) for damages related 19 to its purchase of Boeing’s 737-8 aircraft (the “737MAX”). Smartwings purchased or leased 45 20 737MAXs. In October 2018, and while the parties continued performance under their 21 agreements, Lion Air Flight 610, a 737MAX, crashed from the sky. Boeing assured the public 22 that the 737MAX was “as safe as any aircraft in the sky.” But in March 2019, a second 737MAX, 23 Ethiopian Airlines Flight 302, crashed from the sky. After the second crash, the 737MAX was 24 1 grounded by the FAA and Boeing acknowledged defects in the 737MAX. Smartwings, which 2 had structured its business to rely on the 737MAX, experienced extensive losses as a result. 3 Seeking to hold Boeing responsible, Smartwings has sued Boeing for its losses. 4 Smartwings alleges theories of breach of contract (first and second claims), breach of the duty of 5 good faith and fair dealing (third claim), fraud (fourth claim), material misrepresentation (fifth
6 claim), violation of the Washington Consumer Protection Act (sixth claim), and violation of the 7 Washington Products Liability Act (seventh claim). See generally Dkt. #1-2. In its motion to 8 dismiss, Boeing only seeks dismissal of Smartwings’ non-contract claims. Dkt. #15. 9 Accordingly, Smartwings’ first and second claims are not addressed. Additionally, Boeing’s 10 motion for a protective order seeks to limit discovery on Smartwings’ non-contract claims until 11 after the Court has ruled on its motion to dismiss those claims. Having considered the issues, the 12 Court grants the motion to dismiss in part and denies Boeing’s motion for a protective order as 13 moot. 14 II. BACKGROUND
15 The Court adopts and sets forth Smartwings’ statement of the relevant factual 16 allegations:1 17 A. Commercial Pressures Push Boeing to Implement Flawed Flight Software on the MAX to Mimic the Handling of the Materially 18 Different 737NG.
19 In July 2011, Boeing found itself outpaced by the product development and commercial success of its archrival aerospace manufacturer, Airbus. (Compl. 20 ¶¶ 36–39.). To catch up, Boeing scrapped its only-recently-trumpeted plans to design a new narrow-body passenger aircraft and announced it would once again 21 update the almost 50-year-old 737 design with new fuel-efficient engines. Boeing
22 1 In considering a motion pursuant to Rule 12(b)(6), “[a]ll allegations of material fact are taken as true and construed in the light most favorable to the nonmoving party.” Sprewell v. Golden 23 State Warriors, 266 F.3d 979, 988 (9th Cir. 2001) (citations omitted). Smartwings has provided clear citations to the allegations of its complaint and Boeing has not objected to Smartwings’ 24 characterization of the complaint’s allegations. 1 branded it the 737 MAX. (Id. ¶ 40.). To save time and money and to reduce FAA scrutiny, Boeing decided to certify the MAX under the 1967 737 Type Certificate. 2 (Id. ¶¶ 41–42.) Boeing was also determined to avoid any regulatory requirement for significant pilot “differences” training for existing 737 pilots. This required 3 Boeing to convince the FAA that the MAX handled like a 737NG. (Id. ¶¶ 43–47).
4 But MAX’s new engines were too large to fit the airframe unless they were moved forward and up. Boeing’s engineers anticipated that this change would 5 create a new and unacceptable handling issue that could cause the MAX to pitch up, losing airspeed and risking a stall, in some unusual flight regimes. (Id. ¶¶ 48– 6 54.) Boeing could have applied well-understood (but more expensive and time- consuming) aerodynamic engineering principles to fix the problem. Instead, it 7 chose a software fix called MCAS.
8 As originally conceived, MCAS would activate under high-G, near-stall conditions and automatically apply downward stabilizer trim. From the pilot’s 9 perspective, the MAX would handle like the 737NG, with MCAS smoothing out the differences. (Id. ¶¶ 55–57.) But in flight testing the MAX exhibited an 10 unanticipated problem—the aircraft also pitched up during low-speed maneuvers. (Id. ¶ 58.) Again opting for the quicker, cheaper fix, Boeing made critical and 11 dangerous changes to MCAS to patch over the problem.
12 Boeing made MCAS four times more powerful than before so that it pushed the aircraft’s nose down much more aggressively. Boeing also eliminated one of 13 the two inputs required to trigger the system, leaving MCAS’s activation entirely reliant on the output of a single Angle of Attack (“AOA”) sensor. If the AOA 14 sensor showed the nose pitched up and nearing a stall, MCAS would aggressively push the nose down. (Id. ¶ 59.) But AOA sensors are prone to malfunction, and 15 despite the MAX having two sensors, Boeing chose to have MCAS rely on the readings of only one while including no self-diagnostic software to test that the 16 AOA was functioning properly. (Id. ¶ 60–61.) Further, Boeing programmed MCAS to reset itself for five seconds after applying downward trim for ten seconds, 17 never stopping so long as the sensor continued to show the aircraft close to stalling. (Id. ¶ 62.) 18 B. Boeing Misrepresents and Conceals MCAS’s Catastrophic Potential to 19 the FAA.
20 Boeing knew MCAS could make the MAX dangerously difficult for pilots to control. In November 2016—seven months before the first MAX delivery—a 21 Boeing test pilot reported MCAS was “running rampant” with the aircraft “trimming itself like cra[z]y” in simulations. (Id. ¶ 67.) In 2015, a Boeing engineer 22 raised concerns about MCAS’s reliance on a single sensor but was ignored. (Id. ¶ 68.) And Boeing’s formal Safety System Analysis of MCAS was deeply flawed. 23 Portions of the analysis evaluated the early MCAS design before Boeing increased its power by a factor of four. It also failed to account for the effect of the cascade 24 of alarms that would follow a false AOA reading. It did not disclose that an MCAS 1 malfunction at normal climb or cruise speeds would be substantially more dangerous than at low speeds or that the aircraft’s 15-second nose down cycle could 2 put the aircraft into an unrecoverable dive. (Id. ¶¶ 69–77.) Relying on this deeply flawed analysis, Boeing falsely told the FAA that an MCAS malfunction would be 3 a “major” failure (defined by regulation as a failure that could cause “physical distress to occupants of aircraft” but not a “catastrophic” failure that could result in 4 multiple fatalities or loss of the aircraft. (Id. ¶¶ 79–80.) Boeing ultimately obtained certification of the MAX by misrepresenting, omitting, and concealing the nature 5 of MCAS from the FAA. At the same time Boeing successfully lobbied the FAA to waive requirements for other cockpit alert and indicator updates because they 6 were too “costly” and “impractical” to implement on the aged 737. (Id. ¶ 81.)
7 Boeing also needed to convince the FAA that existing 737NG pilots should be allowed to fly the MAX with minimal, computer-based training that Boeing 8 knew would not be allowed if pilots were to be properly trained on MCAS. (Id. ¶¶ 81–84.) Boeing’s solution was simply to pretend that MCAS did not exist. 9 Thus, Boeing falsely told the FAA that MCAS failures would be rare and would mimic a condition called “runaway trim” that pilots were already trained to 10 diagnose and address. (Id. ¶¶ 85–87.) That was false—MCAS failures act very differently than runaway trim. (Id. ¶¶ 88–89.) By withholding critical information, 11 Boeing convinced the FAA to approve its scheme to conceal MCAS from purchasers and pilots entirely. (Id. ¶¶ 90–91.) 12 In 2017, Boeing’s MAX Chief Pilot told the public the MAX would be 13 configured such that 737NG pilots could fly the aircraft with two-and-a-half hours of computer training, without disclosing the plane’s altered flight dynamics or 14 MCAS. (Id. ¶ 93.) Meanwhile, Boeing was carefully scrubbing any mention of MCAS from materials provided to purchasers. ((Id. ¶¶ 95–98.) The operators and 15 pilots responsible for the lives of MAX passengers would have no idea MCAS existed. 16 C. Boeing Conceals the MAX’s Flaws From Smartwings While Pushing 17 Smartwings to Take Delivery of Fatally Defective Aircraft.
18 When Boeing began marketing the MAX, it repeatedly assured Smartwings that the updated aircraft would retain the design and “unparalleled” safety record 19 of the 737NG and told Smartwings that “Cockpit commonality [from NG to MAX] results in no requirement for a new MAX simulator.” (Id. ¶¶ 110–112.) Convinced 20 by Boeing’s repeated representations of the MAX’s superior quality, product support, safety, reliability, and the ease of certification for pilots, Smartwings 21 decided to buy or lease 45 MAX’s and transition to an all-MAX fleet. (Id. ¶¶ 113– 119, 123.) On June 13, 2016, Boeing told Smartwings that transition training from 22 the 737NG to MAX would take one day and require no simulator time, providing the “most cost effective transition solution with minimal training investment.” (Id. 23 ¶¶ 120–121.) In December 2017, it continued its marketing to Smartwings, touting the MAX’s advantages and asserting that “737 flight crews will feel at home in the 24 MAX.” (Id. ¶ 122.) 1 Each aircraft Smartwings received from Boeing before the grounding was 2 accompanied by a Detail Specification, which was supposed to be a thorough and accurate description of the aircraft and its systems. MCAS was not mentioned in 3 the Detail Specifications even though other similar systems were. (Id. ¶¶ 99–102.) Any mention of MCAS was also carefully scrubbed from the purchase documents, 4 operations documents, and normal or emergency procedures manuals for the MAX. Moreover, the aircraft was represented to be equipped with an “AOA disagree” 5 warning light that would alert pilots to AOA sensor malfunctions. Boeing knew the AOA disagree warning did not work on new MAX’s, but opted not to fix the 6 problem until a future software update. Thus, Boeing delivered MAX aircraft to Smartwings knowing the Detail Specification was incomplete and that the planes 7 did not even conform to the Detail Specification that was provided. (Id. ¶¶ 103– 105.) 8 On October 28, 2018, Lion Air Flight 610 crashed outside Jakarta, killing 9 all 189 souls on board. (Id. ¶ 134.) Unbeknownst to the crew, the aircraft’s pilot- side AOA sensor (which controlled MCAS) erroneously reported the aircraft in a 10 stall even though the copilot-side sensor unused by MCAS worked properly. As a result, MCAS pushed the aircraft’s nose sharply down 26 times. The crew 11 successfully counteracted MCAS through electrical and manual application of nose-up trim 22 times before the system overpowered the pilots and pushed the 12 aircraft into a fatal dive into the sea. (Id. ¶¶ 134–138.)
13 In response to the crash, on November 6, 2018, Boeing issued a bulletin to MAX pilots and operators that maintained the fiction that MCAS did not exist but 14 provided guidance on how to address an “uncommanded nose down stabilizer trim.” It also issued statements blaming Lion Air’s pilots for not mis-diagnosing 15 the MCAS failure as a trim runaway. (Id. ¶¶ 139–141.) On November 8, 2018, the FAA issued an Emergency Airworthiness Directive ordering Boeing to modify 16 MAX manuals to include specific warnings and procedures to respond to an erroneous MCAS activation. Boeing never did so. Instead, two days later, Boeing 17 emailed its customers and for the first time provided minimal information about MCAS’s existence together with imprecise instructions on how pilots could disable 18 it. (Id. ¶¶ 145–147.)
19 Smartwings raised concerns about the safety of the MAX directly with Boeing after the Lion Air crash. On November 27, 2018, its CFO wrote Boeing 20 expressing doubt that the Lion Air crash was purely due to pilot error, and emphasized that Smartwings’ passengers and pilots were concerned about the 21 aircraft’s safety. (Id. ¶¶ 148–149.) Boeing brushed off Smartwings’ inquiry, but in January 2019 it issued a press release with no mention of MCAS and implying 22 Lion Air’s pilots and maintenance personnel were responsible. It asserted that “our customers and their passengers . . . have our assurance that the 737 MAX is as safe 23 as any airplane that has ever flown the skies.” (Id. ¶¶ 150–151.) In February 2019, Smartwings CFO again contacted Boeing reiterating its safety concerns and 24 asserting it would not accept delivery of the aircraft scheduled for March 2019 1 without a substantive response. Boeing never addressed Smartwings’ concerns but instead asserted it “expected” Smartwings to take delivery because it was required 2 to do so by contract. (Id. ¶¶ 152–153.)
3 Ethiopian Air Flight 302 crashed on March 10, 2019, killing all 159 on board. Its AOA sensor was reporting a physically-impossible 75-degree angle of 4 attack, which activated MCAS and drove the plane into an unrecoverable dive. (Id. ¶¶ 154–159.) A few hours after the crash Smartwings notified Boeing it would not 5 accept delivery of further MAX aircraft without certification of their safety. After regulators around the world grounded MAX, Boeing agreed that it was not safe to 6 fly. (Id. ¶¶ 160–163.)
7 Smartwings planned to operate 16 MAX aircraft during its 2019 peak season and had sold almost all of that capacity by March 2019. Smartwings 8 accepted delivery of seven aircraft before the Ethiopian crash. (Id. ¶¶ 130–132, 203.) Smartwings was left with seven aircraft it was obligated to continue paying 9 for but could not fly, and scrambling to replace MAX capacity with alternative, more expensive aircraft and to compensate passengers for flight disruptions. 10 Boeing refused to take any MAXs back, so today Smartwings possesses MAX aircraft with severely diminished value (Id. ¶¶ 207–09). Smartwings has suffered 11 hundreds of millions of dollars in damages as a result of Boeing’s malfeasance.
12 D. Investigations and Litigation Reveal Some of Boeing’s Deceptions.
13 On April 4, 2019, Boeing’s CEO admitted MCAS was the likely cause of the Lion Air and Ethiopian crashes due to erroneous AOA readings, and that it was 14 Boeing’s responsibility to “eliminate the risk” of erroneous MCAS activation. To recertify the MAX for the FAA and European Union, Boeing has to make numerous 15 significant changes, including:
16 • New flight control software to prevent erroneous MCAS activations;
17 • Updated cockpit display software to generate an AOA disagree alert to notify pilots of potential sensor failures; 18 • Adding and revising operating procedures and flight manuals that 19 actually mention MCAS, and requiring proper pilot training on MCAS and MCAS failures; and 20 • Changing how MAX’s horizontal stabilizer trim wires route in the 21 aircraft to comply with the FAA’s wire-separation standards.
22 (Id. ¶¶ 165–174.)
23 Meanwhile, Boeing’s conduct has or is being investigated by Congress and the Department of Justice and other executive agencies and Boeing is subject to 24 private litigation by crash victims, its shareholders, its customers, and pilots. 1 Although many relevant documents have remained sequestered from the public, the documents that are public confirm Boeing’s misconduct and are likely only the tip 2 of the iceberg. (Id. ¶¶ 175–177.) They show Boeing pushing Lion Air not to require simulator training for transitioning pilots, asserting that “[o]nce the engines 3 are started, there is only one difference between NG and MAX procedurally, and that is that there is no OFF position to the gear handle.” (Id. ¶¶ 178–181.) Partially 4 redacted documents show Boeing employees mocked federal rules and talked about deceiving the FAA, with one employee stating “still haven’t been forgiven by God 5 for the covering up I did last year” in reference to MCAS. (Id. ¶¶ 182–185.) Documents also show Boeing placed intense pressure on its teams to avoid any 6 simulator training for pilots, that by 2013 it was executing a strategy to deceive its customers about MCAS, and that Boeing concealed internal analyses and data 7 showing the potential for “catastrophic” MCAS failures. (Id. ¶¶ 186–192.) The House Committee on Transportation and Infrastructure issued a report on the MAX 8 in September 2020, finding a “disturbing pattern of technical miscalculations and troubling management misjudgments” that “gambled with the public’s safety.” (Id. 9 ¶ 193.) In January 2021, Boeing entered into a deferred prosecution agreement with the United States, admitting that it had identified faults in MCAS but illegally 10 concealed that information from the FAA. (Id. ¶ 194.) And, in February 2021, the FAA’s Inspector General found that Boeing had repeatedly failed to fully inform 11 the FAA about “significant changes to MCAS” including “assumptions relating to how pilots would react to erroneous MCAS activation and the impact of not 12 reacting in a timely manner.” (Id. ¶ 195.)
13 Dkt. #21 at 8–14.2 14 III. DISCUSSION 15 A. Legal Standard 16 Dismissal under Federal Rule of Civil Procedure 12(b)(6) “can be based on the lack of a 17 cognizable legal theory or the absence of sufficient facts alleged under a cognizable legal theory.” 18 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990); see also FED. R. CIV. P. 19 8(a)(2). While considering a Rule 12(b)(6) motion, the court accepts all facts alleged in the 20 complaint as true and makes all inferences in the light most favorable to the non-moving party. 21 Baker v. Riverside Cnty. Office of Educ., 584 F.3d 821, 824 (9th Cir. 2009) (citations omitted). 22 The court is not required, however, to accept as true a “legal conclusion couched as a factual 23
2 Throughout, the Court cites to the document and page numbers assigned by the Court’s 24 CM/ECF system, unless otherwise indicated by paragraph number or page and line numbers. 1 allegation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 2 550 U.S. 544, 555 (2007)). “Determining whether a complaint states a plausible claim for relief 3 will . . . be a context-specific task that requires the reviewing court to draw on its judicial 4 experience and common sense.” Id. at 679 (citations omitted). 5 “To survive a motion to dismiss, a complaint must contain sufficient factual matter,
6 accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id. at 678 (quoting 7 Twombly, 550 U.S. at 570). This requirement is met when the plaintiff “pleads factual content 8 that allows the court to draw the reasonable inference that the defendant is liable for the 9 misconduct alleged.” Id. (quoting Twombly, 550 U.S. at 556). The complaint need not include 10 detailed allegations, but it must have “more than labels and conclusions, and a formulaic 11 recitation of the elements of a cause of action will not do.” Twombly, 550 U.S. at 555. “The 12 plausibility standard is not akin to a probability requirement, but it asks for more than a sheer 13 possibility that a defendant has acted unlawfully. . . . Where a complaint pleads facts that are 14 merely consistent with a defendant’s liability, it stops short of the line between possibility and
15 plausibility of entitlement to relief.” Iqbal, 556 U.S. at 678 (citing Twombly, 550 U.S. at 556, 16 557). Absent facial plausibility, a plaintiff’s claims must be dismissed. 17 B. Breach of the Duty of Good Faith and Fair Dealing Claim 18 Under Washington law, a “duty of good faith and fair dealing” is implied in every 19 contract. Badgett v. Security State Bank, 116 Wash. 2d 563, 569, 807 P.2d 356, 360 (1991). 20 Here, Smartwings asserts, as its third claim for relief, that Boeing’s conduct has violated its duty 21 of good faith and fair dealing under the parties’ contracts. Dkt. #1-2 at ¶¶ 265–270. Boeing 22 counters that Smartwings has failed to adequately invoke such a claim because it has “not 23 identif[ed] any contract term over which Boeing [had] discretionary authority, as required under 24 1 settled Washington law.” Dkt. #15 at 10. At this stage, the Court does not find Boeing’s 2 argument persuasive or dismissal appropriate. 3 Boeing, as the defendant, has the burden of “showing that no claim has been presented.” 4 Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005) (citing Kehr Packages, Inc. v. 5 Fidelcor, Inc., 926 F.2d 1406, 1409 (3d Cir. 1991)). Here, Boeing devotes two paragraphs
6 totaling less than a page to its argument that the Court should dismiss Smartwings’ duty of good 7 faith and fair dealing claim. Dkt. #15 at 31; Dkt. #23 at 17. Smartwings likewise devotes only 8 a single paragraph to supporting its good faith and fair dealing claim. Dkt. #21 at 29–30. While 9 some issues are adequately addressed in such limited briefing, the Court does not find resolution 10 of the issue appropriate on this scant record. 11 “The implied duty of good faith and fair dealing arises out of the obligations created by 12 a contract and only exists in relation to the performance of specific contract terms.” Microsoft 13 Corp. v. Motorola, Inc., 963 F. Supp. 2d 1176, 1184 (W.D. Wash. 2013) (citing Keystone Land 14 & Dev. Co. v. Xerox Corp., 152 Wash. 2d 171, 94 P.3d 945, 949 (2004)). “Thus, a party’s
15 obligation is only to perform the obligations imposed by the contract in good faith.” Id. (citing 16 Barrett v. Weyerhaeuser Co. Severance Pay Plan, 40 Wash. App. 630, 700 P.2d 338, 342 n. 6 17 (1985)). But “there is no one-size-fits-all definition of good faith and fair dealing.” Id. While 18 not an exhaustive list, “[i]t may violate the duty of good faith and fair dealing to, for example, 19 (1) evade the spirit of a bargain; (2) willfully render imperfect performance; (3) interfere with or 20 fail to cooperate in the other party’s performance; (4) abuse discretion granted under the contract; 21 or (5) perform the contract without diligence.” Id. (citing RESTATEMENT (SECOND) OF CONTACTS 22 § 205 cmt. d). Importantly, a violation of the duty of good faith and fair dealing does not require 23 a breach of the underlying contract. Rekhter v. State, Dep’t of Soc. & Health Servs., 180 Wash. 24 2d 102, 111–12, 323 P.3d 1036, 1041 (2014). 1 Ignoring all nuance, Boeing represents that “‘the duty of good faith and fair dealing’ 2 applies only ‘when one party has discretionary authority to determine a future contract term.’” 3 Dkt. #15 at 31 (quoting Rekhter, 180 Wash.2d at 112, 323 P.3d at 1041) (emphasis added). But 4 Rekhter does not support the clearly erroneous contention that the duty of good faith and fair 5 dealing requires identification of a contract term granting a party “discretionary authority.” As
6 Microsoft Corp.3 makes clear, abuse of discretion granted under the contract is only one way in 7 which the duty of good faith and fair dealing may be implicated. And Rekhter does not imply 8 otherwise. Similarly, Boeing’s reply indicates that “the duty of good faith and fair dealing ‘exists 9 only in relation to performance of a specific contract term.’” Dkt. #23 at 17 (quoting Keystone, 10 152 Wash. 2d at 177, 94 P.3d at 949). But this quotation, read in context, indicates only that 11 there is not a duty of good faith and fair dealing in the absence of a “substantive contract.” 12 Keystone, 152 Wash. 2d at 177, 94 P.3d at 949. 13 Notably, Boeing has not sought dismissal of Smartwings’ contractual claims. Yet 14 Smartwings has not pled the specific contractual terms it alleges that Boeing has breached. See
15 Dkt. #1-2 ¶¶ 244–264. Boeing accepts that those allegations adequately set forth the conduct 16 that allegedly constituted a breach and no clear distinction exists between the conduct 17 constituting breach of the contracts and the conduct constituting a breach of the duty of good 18 faith and fair dealing.4 See Rekhter, 180 Wash. 2d at 111–12, 323 P.3d at 1041 (a party may 19
20 3 Boeing itself cited to Microsoft Corp. Dkt. #15 at 31.
21 4 For instance, Smartwings alleges that the parties’ contracts obligated Boeing “to provide an aircraft that conformed to the Detail Specification” and that “Smartwings believed that Boeing 22 accurately represented the build of the aircraft in the Detail Specification” but that “Boeing did not include any mention of MCAS in the Detail Specification.” Dkt. #1-2 at ¶¶ 248, 251–52. 23 The sources provided by Boeing do not establish, at this stage of the proceedings, that the omission of MCAS from the Detail Specification and Boeing’s active concealment of MCAS’s 24 presence and function did not breach its duty of good faith and fair dealing. 1 breach the duty of good faith and fair dealing without going so far as to breach the contract). 2 Smartwings has plausibly alleged a claim for breach of the duty of good faith and fair dealing, 3 which is clearly a cognizable claim under Washington law, and Boeing’s legal arguments, to the 4 extent they have merit, are better left for another day. 5 C. Fraud and Misrepresentation Claims
6 Smartwings’ fourth and fifth claims assert that Boeing acted fraudulently or negligently 7 in omitting and/or misrepresenting material facts related to the 737MAX’s similarity to recent 8 iterations of Boeing’s 737 aircraft, the need for substantial pilot training on the 737MAX, and 9 the existence and operation of the MCAS system and the dangers posed by the system. Dkt. #1- 10 2 at ¶¶ 271–309. This Court has previously considered the propriety of such claims in the context 11 of Boeing’s actions as they relate to the 737MAX and MCAS. See Wilmington Tr. Co. v. The 12 Boeing Co., Case No. 20-cv-402-RSM, 2021 WL 754030 (W.D. Wash. Feb. 26, 2021). In 13 Wilmington, this Court determined that the similarities between the claims5 meant that they could 14 be considered together, that both claims should be subjected to Rule 9(b)’s heightened pleading
15 standard, and that both claims could proceed on the basis that Boeing had omitted, either 16
5 As summarized by Boeing: 17
Stating a claim for fraud under Washington law involves nine essential elements: 18 “(1) a representation of existing fact, (2) its materiality, (3) its falsity, (4) the speaker’s knowledge of its falsity, (5) the speaker’s intent that it be acted upon by 19 the person to whom it is made, (6) ignorance of its falsity on the part of the person to whom the representation is addressed, (7) the latter’s reliance on the truth of 20 the representation, (8) the right to rely upon it, and (9) consequent damage.” Elcon Constr., Inc. v. E. Wash. Univ., 273 P.3d 965, 970 (Wash. 2012). Stating a 21 claim for negligent misrepresentation involves establishing six similar elements, the major difference being that negligence regarding the false statement—as 22 opposed to knowledge of its falsity and intent to induce reliance—is sufficient to establish a claim. Ross v. Kirner, 172 P.3d 701, 704 (Wash. 2007) (outlining six 23 elements).
24 Dkt. #15 at 21 n.9. 1 fraudulently or negligently, material facts. Id. at *4–6. Boeing maintains that the same result is 2 not appropriate here because (1) Smartwings cannot point to any misrepresentations or omissions 3 prior to the date it entered its contracts with Boeing, (2) that the Washington Products Liability 4 Act precludes such claims, and (3) that, even if the claims are not precluded, Smartwings cannot 5 pursue them here. Dkt. #15 at 14–23. The Court addresses the arguments accordingly.
6 1. Smartwings’ Does Not Adequately Allege Pre-contract Misrepresentations or 7 Omissions Fraudulently Inducing It to Enter the Purchase Agreements
8 Boeing and Smartwings entered into their relevant agreements in 2013, early in the 9 737MAX’s development and, as Boeing represents, well before significant issues with MCAS 10 arose. Id. at 15–16. In response, Smartwings argues that it entered the agreements in reliance 11 on Boeing’s early representations that the 737MAX would “maintain ‘the basic design and 12 “unparalleled” safety record of the 737 NG’” and that minimal pilot training would be required. 13 Dkt. #17 at 21 (citing Dkt. #1-2 at ¶¶ 110–15). But the Court agrees with Boeing that these 14 statements are too general to support Smartwings’ fraudulent inducement or omission claims. 15 Rather, the statements are akin to “general praise of goods sold known as sales talk or puffing.” 16 Dkt. #15 at 16 n.7 (citing Baughn v. Honda Motor Co., 107 Wash. 2d 127, 150, 727 P.2d 655, 17 668 (1986)) (quotation marks omitted). 18 Further, and as Boeing also argues, these generalized statements came too early in the 19 737MAX’s development to reasonably support an argument that Boeing knew, or should have 20 known, them to be false. See Dkt. #15 at 16–17. Smartwings argues that “Boeing already knew 21 in 2012 that the [737]MAX had material aerodynamic differences from the 737NG and by June 22 2013 was executing a strategy to downplay MCAS to regulators.” Dkt. #21 at 15. But 23 Smartwings’ only support is a 2020 news article detailing an internal email between unidentified 24 Boeing employees from “June 2013” which indicates that MCAS should be characterized as an 1 “addition to Speed Trim” to lessen the potential that MCAS could impact the FAA’s certification 2 process or result in a requirement for pilot simulator training. See Dkt. #1-2 at ¶¶ 189 (quoting 3 Jamie Freed and Tracy Rucinski, Factbox: In Boeing internal messages, employees distrust the 4 737 MAX and mock regulators, REUTERS, Jan. 9, 2020 (available at 5 https://www.reuters.com/article/us-boeing-737max-factbox/factbox-in-boeing-internal-
6 messages-employees-distrust-the-737-max-and-mock-regulators-idUSKBN1Z90NP) (last 7 accessed Feb. 10, 2022)). But the email demonstrates only that Boeing was having internal 8 discussions on how best to address MCAS through the FAA certification process. The email 9 cannot, on its own, move Smartwings’ allegations for fraudulent inducement—that Boeing was 10 “executing a strategy to downplay MCAS to regulators” and the public while knowing that the 11 yet to be implemented MCAS system was faulty and dangerous—from possible to plausible. 12 2. Smartwings’ Adequately Alleges Fraudulent Inducement Based on Post- 13 Contract Misrepresentations and Omissions
14 Boeing next argues that Smartwings’ misrepresentation and omission claims, to the extent 15 they are premised on representations or omissions occurring after the parties entered into their 16 agreements cannot form the basis for a fraudulent inducement claim. Dkt. #23 at 9–11. Boeing 17 argues that after the contract was formed, all that remained was performance and that Smartwings 18 cannot be improperly induced to perform its own contractual obligations. Dkt. #23 at 9. But 19 Boeing does not adequately establish that fraudulent inducement must occur at contract 20 formation. Boeing relies largely on Short v. Hyundai Motor Co., 444 F. Supp. 3d 1267, 1280 21 (W.D. Wash. 2020), and its statement that “[t]he duty to disclose, however, depends on 22 Defendants’ knowledge of the alleged defects at the time Plaintiffs purchased their Class 23 Vehicles.” Dkt. #15 at 16. The common purchase of a production vehicle, however, is quite 24 1 different from Smartwings’ purchase of yet to be manufactured aircraft that would satisfy 2 contractual specifications and obtain FAA certification. 3 The Court similarly finds its prior Wilmington order to be instructive in this regard. 4 Central to that decision was the fact that the Wilmington plaintiffs did “not limit their deficiency 5 allegations to the aerodynamic deficiencies created by the addition and placement of larger
6 engines” but also “pointed to ‘the use of MCAS in lieu of making aerodynamic changes; the 7 impact of MCAS, such as how it could cause the [737]MAX to enter into a dive with a fault or 8 malfunction in one of the aircrafts two AOA sensors; and the absence of any education or training 9 on MCAS or emergency procedures for its malfunction.”6 See Wilmington, 2021 WL 754030 at 10 *5. That is, even after Boeing and Smartwings executed their agreements, events relevant to 11 Boeing’s performance and Smartwings’ ultimate acceptance continued to occur. Admittedly, 12 such a claim strays precariously close to Smartwings’ duty of good faith and fair dealing claims. 13 But the Court leaves those questions for a later date and a fuller record. 14 3. WPLA Does Not Preempt Smartwings’ Fraud and Misrepresentation Claims
15 Next, Boeing argues that Smartwings’ fraud and misrepresentation claims are precluded 16 by Washington’s Product Liability Act. Dkt. #15 at 18–21. Boeing characterizes these claims 17 as mere complaints that Boeing did not disclose “alleged ‘[product] defects’” and argues that the 18
19 6 The Court notes, of course, that Smartwings did not make the exact same allegations here. The Court includes the allegations only to illustrate that the events giving rise to Smartwings’ fraud 20 claims occurred during Boeing’s lengthy development, manufacturing, and certification process. While events occurring after contract execution could not have induced Smartwings to enter into 21 the agreements themselves, the events appear to have impacted performance of the parties’ contractual obligations. See Dkt. #21 at 16 (Smartwings noting Boeing’s allegedly fraudulent 22 actions to obtain FAA certification, Smartwings’ acceptance of the aircraft, and payment under the agreements). While the relevant contracts are not before the Court, the Court presumes that 23 they are sophisticated agreements with numerous contingencies that could alter that parties’ obligations under the agreements. The Court finds it sufficient to note the plausibility of the 24 claims. 1 WPLA “establishes ‘a single cause of action for product-related harms’ that ‘supplants 2 previously existing common law remedies.’” Id. at 18 (citing Wash. State Physicians Ins. Exch. 3 & Ass’n v. Fisons Corp., 122 Wash. 2d 299, 322–23, 858 P.2d 1054, 1066 (1993)). 4 The Court finds Boeing’s preemption argument incongruent with its other arguments. 5 Boeing argues that Smartwings’ common-law misrepresentation and fraud claims are barred by
6 the WPLA’s statutory cause of action while at the same time arguing that Smartwings cannot 7 state a claim under the WPLA. Smartwings, as well, notes the incongruence of the positions. 8 Dkt. #21 at 7 (noting that Boeing asserts that Smartwings’ fraud claims are preempted by 9 Washington’s Product Liability Act (“WPLA”)” while also “paradoxically argu[ing] Smartwings 10 has no remedy under the WPLA either because Smartwings’ catastrophic losses do not constitute 11 ‘harm’ under the statute”). The positions cannot be rectified, and the Court finds that the WPLA 12 does not preempt Boeing’s common-law fraud claims. 13 The WPLA “created a single cause of action for product-related harms.” Washington 14 State Physicians, 122 Wash. 2d at 322, 858 P.2d at 1066. The cause of action—“a product
15 liability claim”—is broad and 16 includes, but is not limited to, any claim or action previously based on: Strict liability in tort; negligence; breach of express or implied warranty; breach of, or 17 failure to, discharge a duty to warn or instruct, whether negligent or innocent; misrepresentation, concealment, or nondisclosure, whether negligent or innocent; 18 or other claim or action previously based on any other substantive legal theory except fraud, intentionally caused harm or a claim or action under [the 19 Washington Consumer Protection Act].
20 WASH. REV. CODE § 7.72.010(4) (emphasis added). At the same time, the WPLA’s 21 comprehensive definition of harm extends to “any damages recognized by the courts of this state” 22 except for “direct or consequential economic loss under” the Uniform Commercial Code. WASH. 23 REV. CODE § 7.72.010(6). Accordingly, the Court finds Boeing’s preemption argument better 24 1 considered with its arguments that Smartwings cannot state a cause of action under the WPLA, 2 addressed below. 3 D. Washington Consumer Protection Act Claim 4 Washington’s Consumer Protection Act (“WCPA”) prohibits “unfair or deceptive acts or 5 practices in the conduct of any trade or commerce.” WASH. REV. CODE § 19.86.020. To establish
6 a WCPA claim, a plaintiff must establish that (1) defendant engaged in an unfair or deceptive act 7 or practice, (2) the act occurred in trade or commerce, (3) the act affects the public interest, (4) 8 plaintiff suffered injury to its business or property, and (5) the injury was causally related to the 9 act. Trujillo v. Nw. Tr. Servs., Inc., 183 Wash. 2d 820, 834–35, 355 P.3d 1100 (2015); Hangman 10 Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wash. 2d 778, 780, 719 P.2d 531 (1986). 11 Here, Boeing argues that Smartwings’ claim under the WCPA fails primarily because 12 Smartwings has not plausibly alleged that Boeing’s allegedly deceptive practices affected the 13 public interest. Dkt. #15 at 24 (further noting that “[t]he purpose of the public interest impact 14 element is to prevent plaintiffs from transforming a ‘private contract’ dispute into a WCPA
15 claim”) (citing Hangman Ridge, 719 P.2d at 538). This was the conclusion drawn by United 16 States Magistrate Judge Mary Alice Theiler in Wilmington, a conclusion that this Court 17 previously adopted. See Wilmington, 2021 WL 754030. Notably, the Court concluded that the 18 corporate purchase of 737MAX aircraft for private use was not a typical transaction in which the 19 public was likely to engage. As a result, the Court found the public interest element missing. 20 Smartwings attempts to avoid Wilmington’s result7 by focusing on Smartwings’ 21 passengers—themselves the public—and distinguishing them from the sophisticated businesses 22
7 Smartwings cites a single case in true support of its position, indicating that it was a “private 23 trade infringement dispute [that] fell under CPA because public had potential for deception.” Dkt. #21 at 20 (citing Nordstrom, Inc. v. Tampourlos, 107 Wash. 2d 735, 733 P.2d 208 (1987)). 24 But that case is distinguishable as it involved a finding by the trial court “that the appropriation 1 purchasing private aircraft in Wilmington. Dkt. #21 at 20. But the Court finds distinctions 2 between the passengers using 737MAX aircraft to be immaterial. Rather, the focus of the WCPA 3 is on specific transactions and the deceptive or unfair practices that may exist in those 4 transactions. See Trujillo, 183 Wash. 2d at 835, 355 P.3d at 1107–08 (noting that “a plaintiff can 5 establish that the lawsuit would serve the public interested by showing a likelihood that other
6 plaintiffs have been or will be injured in the same fashion”) (citing Michael v. Mosquera–Lacy, 7 165 Wash. 2d 595, 604–05, 200 P.3d 695 (2009)). 8 Even if Boeing deceived Smartwings’ customers as to the safety of the 737MAX, 9 Smartwings and its customers had entirely different objectives, concerns, and results in their 10 dealings with Boeing. Indeed, Smartwings’ customers themselves had no direct dealings with 11 Boeing8 and, while some were no doubt aware of the makeup of Smartwings’ fleet, most were 12 no doubt unaware of the conduct that Smartwings alleges was deceptive or unfair. An actionable 13 unfair or deceptive practice must at least have the “capacity to deceive a substantial portion of 14 the public.” Trujillo, 183 Wash. 2d at 835, 355 P.3d at 1107–08. In short, Smartwings’
15 transactions with Boeing were distinct from its transactions with its passengers and Smartwings 16 does not plausibly allege an impact on the public interest or a claim under the WCPA. 17 // 18 // 19
20 of Nordstrom’s name ‘tends to and does deceive or mislead persons of ordinary caution into the belief that they are dealing with one concern when in fact they are dealing with the other.’” 21 Nordstrom, Inc., 107 Wash. 2d at 740, 733 P.2d at 210.
22 8 Smartwings itself draws a clear distinction between an airline passenger’s purchase of a ticket for travel and an airline’s purchase of aircraft from Boeing. Dkt. #21 at 20 (Smartwings noting 23 that “[m]illions of passengers unknowingly endangered their lives relying on Smartwings and other carriers to provide safe and airworthy aircraft while Boeing concealed critical information 24 Smartwings and regulators needed to identify and address” safety risks). 1 E. Washington Product Liability Act Claim 2 The WPLA provides a cause of action to remedy harm caused by defective products— 3 products that are “not reasonably safe as designed.” WASH. REV. CODE § 7.72.030). The WPLA 4 defines harm broadly, to include “any damages recognized by the courts of this state” but 5 specifically excludes “direct or consequential economic loss.” Id. § 7.72.010(6). In this manner,
6 the WPLA differentiates between a defective product’s injury of persons or other property— 7 compensable under the “safety-insurance policy of tort law” and the WPLA—and injuries 8 inflicted only on the defective product itself—better addressed under “the expectation-bargain 9 protection policy of contract law.” Touchet Valley Grain Growers, Inc. v. Opp & Seibold Gen. 10 Const., Inc., 119 Wash. 2d 334, 351–52, 831 P.2d 724, 733 (1992) (citing Pennsylvania Glass 11 Sand Corp. v. Caterpillar Tractor Co., 652 F.2d 1165, 1173 (3d Cir. 1981)). 12 However, and recognizing that such a rigid rule would at times be inequitable, the 13 Washington Supreme Court has determined that economic harms may be pursued under the 14 WPLA where the product’s failure was “sudden or dangerous” or implicates the safety-insurance
15 policy of tort law under an “evaluative approach.” Id. The sudden and dangerous test focuses 16 on the manner in which the product failed, while the evaluative approach looks to “the nature of 17 the defect, the type of risk, and the manner in which the injury arose.” Id. at 733. 18 Here, Boeing first seeks dismissal of Smartwings’ WPLA claim on the basis that 19 Smartwings has not alleged that MCAS ever activated on its 737MAX aircraft. Dkt. #23 at 14– 20 16. Thus, Boeing argues, even if MCAS’s inclusion made the 737MAX “defective” under the 21 WPLA, Smartwings and its 737MAX aircraft did not experience failure and accordingly 22 Smartwings was not harmed by the presence of MCAS. Absent physical harm, Boeing argues, 23 a WPLA claim is not available. Id. at 14 (“actual ‘physical harm’ is required for a WPLA claim”) 24 (citing Touchet Valley, 119 Wash. 2d at 351, 831 P.2d at 733). 1 The Court agrees.9 As Boeing notes, Smartwings does not point to any WPLA case that 2 was permitted to proceed despite a lack of physical harm to the product itself at a minimum. Dkt. 3 #23 at 15. Further, and as Boeing also notes, permitting WPLA claims to proceed upon the mere 4 exposure to a risk of harm would substantially expand the scope of the WPLA and does not find 5 support in the statutory text. Dkt. #23 at 16.
6 Boeing also seeks dismissal of Smartwings’ WPLA claim on the basis that Smartwings 7 suffered only economic harms compensable under contract law and not “tort-like” harms that 8 may be remedied under the WPLA. Dkt. #23 at 17. Again, the Court agrees. Smartwings does 9 not allege that any of its 737MAX aircraft were themselves damaged or that they damaged other 10 persons or property. Rather, Smartwings’ alleged damages arise from the decreased value of the 11 aircraft it bought, costs incurred during their grounding, and lost revenue associated with the 12 grounding. But these risks and damages are foreseeable and are properly allocated by contract. 13 F. Leave to Amend 14 Where a complaint is dismissed for failure to state a claim, “leave to amend should be
15 granted unless the court determines that the allegation of other facts consistent with the 16 challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-Well 17 Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986). Several times, throughout its opposition to 18 Boeing’s motion to dismiss, Smartwings has sought leave to amend any claims that the Court 19 dismissed. Boeing does not appear to oppose Smartwings’ request for leave to amend. 20 Accordingly, the Court grants Smartwings’ request for leave to file an amended complaint re- 21 pleading the claims dismissed in this Order. 22 23
24 9 The Court notes that its conclusion is slightly different than its earlier conclusion in Wilmington. 1 G. Boeing’s Motion for Protective Order 2 Boeing, while its motion to dismiss was pending, filed a motion seeking to limit 3 permissible discovery to Smartwings’ contract claims until a decision on the motion to dismiss 4 was issued. Dkt. #18. Because the Court has ruled on the motion to dismiss, the motion for a 5 protective order is denied as moot.
6 IV. CONCLUSION 7 Having reviewed the motions, the relevant briefing, and the remainder of the record, the 8 Court hereby finds and ORDERS: 9 1. Defendant The Boeing Company’s Motion to Dismiss (Dkt. #15) is GRANTED in part 10 and DENIED in part as set forth in this Order. Plaintiff Smartwings, a.s.’s claims, as set 11 forth in its Complaint (Dkt. #1), are DISMISSED as set forth in this Order. 12 2. The Boeing Company’s Motion for Protective Order (Dkt. #18) is DENIED as moot. 13 3. Plaintiff Smartwings, a.s. is granted leave to file an amended complaint within fourteen 14 (14) days of this Order.
15 16 DATED this 25th day of February, 2022. 17 18 A 19 RICARDO S. MARTINEZ 20 CHIEF UNITED STATES DISTRICT JUDGE
23 24