The surprise rejection of Boeing Co.’s proposed guilty plea to fraud charges stemming from two fatal 737 Max crashes has inserted a fiery culture issue into the proceedings after a judge opposed the consideration of race in the selection of a compliance monitor.

In a decision opposing the proposed deal between Boeing and the Justice Department, U.S. District Judge Reed O’Connor focused on the terms for appointing an independent monitor — particularly a requirement that the hiring follow the department’s diversity and inclusion criteria to ensure that members of minority groups get fair consideration.

The Fort Worth, Texas, judge said he couldn’t accept the proposed settlement because it would improperly require race to be factored into in the hiring of an independent monitor and that his role in making sure Boeing abides by the deal would be minimized. He asked both sides to confer and decide on the next steps, which could include revising the plea agreement.

“These provisions are inappropriate and against the public interest,” O’Connor said in his ruling December 5. A representative for Boeing didn’t comment on the ruling.

Diversity, equity and inclusion considerations continue to face increased legal and political headwinds inspired by a U.S. Supreme Court decision in June 2023, which outlawed the use of race as a factor in college admissions. Critics of DEI efforts maintained that such policies promote divisiveness and undermine merit-based decision-making.

Boeing itself recently dismantled its global DEI department, making it the latest high-profile corporation to make changes to the policy. While Boeing’s workforce has traditionally skewed White and male, the company has stepped up its efforts to recruit more Black employees and people from other minority groups.

O’Connor has issued rulings that take a conservative stance on a range of issues. He recently blocked a Texas nonprofit’s entrepreneurship coaching and grant program that supports minority business owners on the basis that it’s racially discriminatory.

Diversity and inclusion have already factored into cases related to Boeing prior to the plea agreement. The Texas attorney general launched a probe into whether a Boeing supplier’s diversity commitments caused aircraft safety and manufacturing issues.

O’Connor echoed concerns raised by attorneys representing family members of some of the 346 people killed by the two crashes, who’d urged him to reject the agreement. They’ve contended that the proposed penalties are too lenient and pushed for company officials to face a criminal trial.

The surprise rejection of the plea agreement means Boeing chief executive officer Kelly Ortberg, who joined Boeing in August 2024, now faces the task of overcoming the long-running legal plights and scandals that he inherited from his predecessors, Dave Calhoun and Dennis Muilenburg. The new CEO already faces a whole range of other challenges, from persistent production shortfalls to breaking a string of annual losses stretching back to 2019.

Still, it’s likely the court would accept a revised plea that addresses O’Connor’s specific concerns, Holly Froum, a litigation analyst with Bloomberg Intelligence, said in a report December 5. She described the rejection as “more headline risk than monetary” for Boeing, saying the company is unlikely to face the $25 billion “maximum possible fine” that crash victims’ family members have demanded.

‘Kid-Glove Treatment’

Investors’ reaction to the rejection also suggest optimism that the company can overcome the impasse, with the shares falling 1% on December 5. The stock has dropped about 40% this year, the biggest decline in the Dow Jones Industrial Average.

Erin Applebaum, a partner at Kreindler & Kreindler LLP, who represents some relatives of the crash victims, said the families now hope that the judge’s rejection of the plea deal will put 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 on December 5.

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.

Boeing had been within days of completing a deferred prosecution agreement announced during the waning days of the Trump Administration when a door-sized panel blew off an airborne 737 Max in early January 2024. 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.

In May, the government said the company violated that agreement and recommended criminal charges, citing Boeing’s failure to live up to its promises. The company eventually 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.

The case is U.S. v. Boeing, 21-cr-005, U.S. District Court, Northern District of Texas (Fort Worth).