Featured Expert Contributor, White Collar Crime and Corporate Compliance
Gregory A. Brower is a Shareholder with Brownstein Hyatt Farber Schreck, LLP. He also serves on WLF’s Legal Policy Advisory Board. William E. Moschella is a Shareholder with Brownstein Hyatt Farber Schreck, LLP where he serves as co-chair of the Government Relations Department. Jason R. Dunn is a Shareholder in the Denver, CO office of Brownstein Hyatt Farber Schreck LLP where he co-chairs the State Attorneys General practice group and the Government Investigations & White Collar Defense practice group.
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In a surprising move, U.S. District Court Judge Reed O’Connor of the Northern District of Texas declined to approve a plea agreement between the U.S. Department of Justice (DOJ) and Boeing in the long-running criminal investigation into two tragic crashes involving the Boeing’s 737 Max aircraft that killed 346 passengers and crew. The proposed agreement called for Boeing to plead guilty to a single count of conspiracy to commit fraud, be sentenced to a three-year term of probation, and agree to certain other terms including the imposition of an independent compliance monitor. In its criticism and rejection of the parties’ agreement, the court stepped directly into a larger debate about the propriety of so-called diversity, equality, and inclusion (DEI) initiatives and policies that have become commonplace in both government and corporate America.
Case Background
The court’s refusal to accept the parties’ proposed plea agreement is only the latest in a series of unusual developments in one of the biggest corporate criminal cases of all time. Readers will recall that in 2021, as a result of DOJ’s investigation into Boeing’s conduct relating to the crashes, the two sides entered into a Deferred Prosecution Agreement (DPA) which required Boeing to comply with certain terms over a three-year period in order to avoid criminal prosecution. Then, on May 14, 2024, as the DPA period was about to end, DOJ informed the court that it had notified Boeing that it was in breach of certain terms of the DPA. Boeing apparently disputed DOJ’s contention, although the details of the alleged breach have not been publicly disclosed. In any event, the DPA was eventually voided and replaced with a new agreement under which Boeing would plead guilty to a single count of conspiracy to commit fraud, pay an additional fine, agree to certain compliance enhancements, and also agree to be subject to a monitor to oversee its compliance with all of the agreement’s terms during a three-year period of probation. As noted above, just last week, the court rejected the proposed agreement, finding that the monitor provisions were “inappropriate and against the public interest.”
The Plea Agreement’s Monitor Provisions and Criticism from the Victims’ Families
The plea agreement presented to the court was fairly standard, if that term can be used to describe anything about a case as unusual as this one. One of the agreement’s fairly standard terms for a corporate case was the imposition of a compliance monitor to oversee Boeing’s implementation of a new program designed to prevent and detect violations of U.S. fraud laws during the term of its probation. However, the announcement of the agreement was immediately met with criticism by families of the victims of the tragic crashes that led to the case. This criticism has generally centered on the victims’ belief that the proposed plea agreement is, in effect, a “sweetheart deal” for Boeing for many reasons, including the amount of the monetary penalty to be imposed. But the victims’ criticism also focused on at least two aspects of the monitor provisions. First, they argued that because DOJ itself failed to ensure Boeing’s compliance with the DPA, the monitor should be selected by and report to the court, not DOJ. Second, the victims expressed concerns about the monitor being selected without any input by the victims about the fact that the selection would be based, at least in part, on diversity and inclusion considerations.
DOJ’s Monitor-Selection Policy and DEI
According to the proposed agreement, the selection of the monitor would be accomplished in accordance with DOJ’s longstanding policy on the selection of monitors in criminal cases. The current policy was last updated in March of 2023 with the issuance of the so-called “Polite Memo,” which largely adopted DOJ’s then-existing policy, but included a few updates, including a mention of DOJ’s commitment to diversity and inclusion when evaluating monitor candidates, something that was not included in DOJ’s previous pronouncement on the topic a few years earlier. The so-called “Benczkowski Memo” issued in 2018 simply provided that a monitor must be selected based on “the unique facts and circumstances of each matter and the merits of the individual candidate.” The issuance of the 2023 Polite Memo changed this and coincided with a formal update to DOJ’s “Justice Manual” to require that monitor selections “be made in keeping with the Department’s commitment to diversity and inclusion, and prosecutors should consider monitors from a diverse set of backgrounds.”
The Court’s Reaction to the Monitor Provisions of the Proposed Agreement
In light of the victims’ families’ objections to the agreement’s monitor provisions, as well as the court’s own apparent concerns, the Court concluded that the provisions were “inappropriate and against the public interest.” Specifically, the Court zeroed in on two issues. First, the Court found that the proposed arrangement would “improperly marginalize” the court as a monitor of the monitor. The court observed that it is “not clear what all Boeing has done to breach the DPA” and that it “is fair to say the Government’s attempt to ensure compliance has failed” and “the public interest requires the court to step in.”
But the victims’ second objection and the court’s reaction to it are far more interesting. The court first pointed out that in its briefing, DOJ maintained that its monitor-selection process “will be open to all qualified candidates” and will “based entirely on merit.” But the court found that DOJ’s current monitor-selection policy expressly mentions diversity and inclusion as factors to be considered in the selection of a monitor. Expressing concern DOJ would improperly consider race in the selection of the monitor, the court concluded that it was not convinced that, given its stated policy, DOJ would not choose a monitor without race-based considerations and thus would not act in a non-discriminatory manner.
The court also took issue with Boeing’s own policies which, although not specific to corporate monitors, clearly promoted DEI goals. Specifically, the court found that Boeing’s DEI “aspirations” as described on its corporate website, had, at all relevant times, included racial quotas and also linked executive compensation to achieving DEI goals and observed that such policies have been considered evidence of discrimination in Title VII cases. Accordingly, the court concluded that, given Boeing’s role in the monitor selection process, it was concerned Boeing would contribute to the selection of a monitor in a way that would include racial considerations and would therefore be discriminatory. The court concluded by stating that “it is in the utmost interest of justice that the public is confident this monitor selection is done based solely on competency.”
Conclusion
The court concluded that the parties’ DEI efforts only serve to undermine confidence in their overall ethics and anti-fraud efforts. In effect, Judge O’Connor said, very loudly, what others have been discussing quietly for a long time: government and corporate policies that require race to be considered in making important decisions are arguably antithetical to the interests of justice and can undermine public confidence. This idea, expressed this time in an actual court order by a respected federal judge in the context of a major case, seems to reflect a growing concern in organizations of all types that the recent DEI trend, and especially policies that include quotas, may have gone too far and policies are likely to result in not only potential backlash by customers and other constituencies but legal challenges as well.