By Mike Spector, Allison Lampert and David Shepardson
(Reuters) -A U.S. judge on Thursday rejected Boeing (NYSE:BA)'s agreement to plead guilty to fraud in the wake of two fatal 737 MAX crashes, faulting a diversity and inclusion provision in the deal.
Boeing did not immediately comment. The U.S. Department of Justice, which brokered the plea bargain with Boeing, is reviewing the opinion, a spokesperson said. Boeing and the DOJ's options could include appealing the judge's rejection of the plea deal or presenting a renegotiated agreement for court approval.
U.S. District Judge Reed O'Connor in Fort Worth, Texas, who has a record of ruling in favor of conservative causes, seized on a single sentence in the plea agreement mentioning the DOJ's diversity policy regarding the selection of an independent monitor to audit the planemaker's compliance practices. He had asked both Boeing and prosecutors to further brief him on it in October.
Boeing and the DOJ now have 30 days to update the court on how they plan to proceed in the case, O'Connor ruled.
Judges weighing plea deals typically do not upend them over issues that the parties to the agreement have not disputed. In the rare cases that they do, it is usually because the judge wants to impose a different punishment than prosecutors have agreed to.
The plea bargain also "marginalizes" the judge in the selection and oversight of the independent monitor, and forbids imposing a probation condition requiring Boeing to comply with the monitor's anti-fraud recommendations, O'Connor said in his decision. He said the agreement was "not in the public interest."
Relatives of the victims of the two 737 MAX crashes, which occurred in 2018 and 2019 and killed 346 people, have called the plea agreement a "sweetheart" deal that failed to adequately hold Boeing accountable for the deaths of their loved ones.
The two plane crashes occurred in Indonesia and Ethiopia over a five-month period. The families had briefly referenced the DOJ diversity and inclusion policy in court filings opposing the plea agreement, but did not detail concerns about it.
"Judge O’Connor’s emphatic rejection of the plea deal is an important victory" for the victims' families, said Paul Cassell, a lawyer representing them.
"Judge O’Connor has recognized that this was a cozy deal between" the government and Boeing "that failed to focus on the overriding concerns: holding Boeing accountable for its deadly crime and ensuring that nothing like this happens again in the future," Cassell said.
Cassell said he hoped the decision would result in the agreement being renegotiated to specifically address the passengers and crew who perished in the plane crashes.
An accepted plea deal would have branded Boeing a convicted felon for conspiring to defraud the U.S. Federal Aviation Administration about problematic software affecting the flight control systems in the planes that crashed.
Boeing had agreed to pay a fine of up to $487.2 million and spend $455 million to improve safety and compliance practices over three years of court-supervised probation as part of the deal.
Victims' relatives want Boeing and its executives charged with crimes holding them responsible for the deaths of their loved ones and any evidence of wrongdoing presented in a public trial. They have also argued Boeing should have to pay up to $24.78 billion in connection with the crashes.
In May, the DOJ found Boeing had violated the terms of a 2021 agreement that had shielded it from prosecution over the crashes. Prosecutors then decided to criminally charge Boeing and negotiate the current plea deal.
The decision followed a Jan. 5 in-flight blowout of a door panel on an Alaska Airlines jet that exposed ongoing safety and quality issues at Boeing.
The judge's objections largely centered on the government's diversity and inclusion policy covering the selection of the independent monitor to oversee Boeing for three years.
Such policies are commonly known as diversity, equity and inclusion, or DEI. DEI policies have become a flashpoint in America's culture wars, which refer to conflicts between liberal and conservative values.
Supporters contend the policies combat unconscious bias, inequity and discrimination in hiring while opponents argue they focus on characteristics such as race and gender at the expense of core job qualifications.
"The plea agreement requires the parties to consider race when hiring the independent monitor," O'Connor wrote in his decision. "In a case of this magnitude, it is in the utmost interest of justice that the public is confident this monitor selection is done based solely on competency."
O'Connor, appointed in 2007 by Republican then-President George W. Bush, gained prominence for rulings favoring conservative litigants, including finding Obamacare unconstitutional in a decision the U.S. Supreme Court later reversed.
He also previously invalidated a Biden administration attempt to deter schools from discriminating against students based on gender identity or sexual orientation.
Shirley Emehelu, former New Jersey executive assistant attorney general, said she expected the DOJ and the company would try to renegotiate the deal quickly, though it was unclear if that would be done before President-elect Donald Trump takes office on Jan. 20.
"The monitor that ultimately will be chosen will face the challenge of a remarkable level of scrutiny by the court over their undoubtedly highly complex work," she said.