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Leasing Co.’s $115M Suit Aims To Ax Boeing 737 Max Order

By Linda Chiem

Law360 (August 27, 2019, 4:37 PM EDT) — Boeing has been hit with a $115 million lawsuit alleging it misrepresented the safety of its 737 Max jets to aircraft leasing companies that were duped into inking multimillion-dollar contracts with the American aerospace giant, according to an Illinois state court lawsuit filed Monday.

Avia Capital Services LLC, a Russian aircraft leasing company, sued Boeing to cancel the rest of its contract for 35 of the now-grounded 737 Max 8 jets, which were to be delivered to Avia from March 2022 through December 2024.

According to the complaint, Boeing induced Avia to sign a purchase agreement for a sizable order of 737 Max jets by misrepresenting the new planes as safe, airworthy and designed in compliance with aviation regulations, when they, in fact, were  not.

“Due to Boeing’s own actions and negligence, the 737 Max 8 is defective in design and is unreasonably dangerous,” Avia says in the suit, adding that because of Boeing’s repeated misrepresentations, it “was unable to make an informed decision regarding its business dealings and transactions with Boeing.”

The 737 Max jets have been grounded since mid-March following two fatal crashes that have sparked scrutiny of Boeing’s design and engineering, and the Federal Aviation Administration’s aircraft certification process.

A Lion Air 737 Max 8 jet crashed in the Java Sea in October, killing 189 people, and an Ethiopian Airlines 737 Max 8 jet crashed on March 10, killing 157. Global aviation regulators grounded the 737 Max after the second crash, but the FAA was the last to issue a grounding order.

Boeing has already been hit with scores of lawsuits from victims’ families and consumers. Avia’s suit echoes claims in those suits that Boeing redesigned its 737 jets with larger heavier fuel-efficient jets that were set differently on the aircraft wings — more forward — affecting the balance and weight of the plane. The engine placement on the 737 Max jets created a nose-heavy problem that Boeing corrected by adding a special automated flight-control feature known as the Maneuvering Characteristics Augmentation System for better handling and to prevent stalling.

The problem was that failure-prone sensors in the 737 Max could inadvertently trigger MCAS, which pushes the aircraft’s nose down if the jet’s angle-of-attack sensors indicate it has drifted too high. MCAS has been widely cited as a possible cause of both the Lion Air and Ethiopian Air crashes in preliminary findings from accident investigators. Boeing has said it’s working on finalizing a software fix for the MCAS problems, which likely won’t come until 2020. The FAA has maintained that the jets will only be cleared to fly again when they’re deemed safe.

Avia’s suit asserts claims for fraudulent inducement, breach of contract and breach of the duty of good faith and fair dealing and lists at least $115 million in losses and damages.

Avia’s lawyer Steven C. Marks of Podhurst Orseck PA told Law360 on Tuesday that they’re seeking compensatory damages greater than $120 million, plus much more in punitive damages.

Marks told Law360 that Avia had signed a contract for 85 Boeing jets, some of which Avia then leases to airlines including Aeroflot. Fifty of those jets were for other Boeing aircraft models that have already been delivered, but the remaining 35 jets were to be 737 Max jets, according to Marks.

“It’s now become clear from the outset that Boeing misrepresented and fraudulently induced Avia into entering into contract by falsely stating that this aircraft would be properly certificated and airworthy,” Marks said.

Instead of seeking a new type certificate for the 737 Max like it should have, Boeing “tried to short circuit” the FAA aircraft certification process, leading to two fatal crashes that have destroyed public confidence in the planes’ safety, Marks said.

“Had they known the truth about what Boeing did to circumvent proper regulatory procedures, they would never have entered into this contract,” Marks said.

A representative for Boeing declined to comment on the suit Tuesday.

Avia Capital Services is represented by Steve C. Marks and Kristina M. Infante of Podhurst Orseck PA and Brian Kent of Laffey Bucci & Kent LLP.

Counsel information for Boeing was not immediately available.

The case is Avia Capital Services LLC v. The Boeing Co., case number 2019-L-009427, in the Circuit Court of Cook County, Illinois County Department, Law Division.

–Editing by Peter Rozovsky.