Opposition Brief — Summa Corp. v. Trans World Airlines, Inc.
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OCTOBER TERM, 1988
>.
SUMMA CORPORATION and WILLIAM R. LUMMIS, Delaware
Ancillary Administrator for the Estate of Howard R. Hughes,
Petitioners,
Vv *
TRANS WORLD AIRLINES, INC.
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE SUPREME COURT OF DELAWARE
BRIEF IN OPPOSITION OF RESPONDENT
TRANS WORLD AIRLINES, INC.
WILLIAM E. HEGARTY
Counsel of Record
MARSHALL COx
MICHAEL P. TIERNEY
CAHILL GORDON & REINDEL
(a partnership including
professional corporations)
80 Pine Street
New York, New York 10005
(212) 701-3000
Of Counsel: Attorneys for Respondent
MARK A. BUCKSTEIN Trans World Airlines, Inc.
605 Third Avenue
New York, New York 10158
Louis J. FINGER
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899 August 26, 1988
Sade
i
Questions Presented
Questions 1 and 2 stated by petitioners Summa Corporation,
formerly Hughes Tool Company (‘‘Toolco’’), and the repre-
sentative of the estate of Howard R. Hughes (‘‘Hughes’’) argue
that orders of the Civil Aeronautics Board in 1944 and 1950
that approved Toolco’s acquisition of control of respondent
Trans World Airlines, Inc. (‘‘TWA’’) and its later increase of
that control constitute a bar—‘‘collateral estoppel’’ (Question
1) or ‘‘immunized’’ (Question 2)—to TWA’s Delaware suit in
chancery for an accounting based upon the breach by Hughes
and Toolco of the fiduciary duty owed by them to TWA and its
minority stockholders. The question actually presented is:
1. Did § 414 of the Federal Aviation Act, 49 U.S.C.
§ 1384 (1976) (amended 10 years ago to clarify its intent by
striking the phrase upon which the argument for review
depends and part of a regulatory scheme administered by a
federal agency which went out of existence on January 1,
1985), bar a suit for damages resulting from a breach of
fiduciary duty under Delaware law?
The question actually presented by Question 3 stated by
Hughes and Toolco is:
2. Did the federal judgment that dismissed TWA’s anti-
trust action in 1973 bar TWA from prosecuting its Dela-
ware suit (i) when personal jurisdiction over Hughes could
be obtained only in the 1962 Delaware suit, not in the 1961
federal action, and when Hughes and Toolco explicitly
acquiesced in the continued pendency of the Delaware suit
and (ii) when the Court’s 1966 decision in United Mine
Workers v. Gibbs, 383 U.S. 715 (1966), held only that
there was no error in the district court’s decision there not
to dismiss a state law claim although the court had the dis-
cretion to do so?
il
TABLE OF CONTENTS
(Clashes FE. onicicccvns dv ucensivas tedeeseenes
a fF er rer rary eye
UMOODE a 5 oda 60s xh.69 64S4 4 ee ee
The Delaware summary judgment motions.........
bes er re rer ry Eee
Reasons Why the Writ Should Not Issue .............
ARGUED 00 occes04de seen ye bee eeeaeae eens
I.
Il.
THE 1975 AND 1988 DECISIONS OF THE DELA-
WARE SUPREME COURT CONCERNING SEC-
TION 414 DO NOT PRESENT A QUESTION
WARRANTING REVIEW AND ARE CORRECT .
A. No Question Warranting Review Is Presented...
B. The Decisions Are COnrett. .. i ciccccccccscsces
1. There was no collateral estoppel..........
2. There was no statutory immunity.........
THE DISMISSAL OF TWA’S' ANTITRUST
CLAIM DOES NOT PRECLUDE TWA’S DELA-
WARE CLAIM AGAINST HUGHES AND
FRIAS oc 0ccsa acces vaveseh th aetteasancdedeed>
10
10
10
11
11
13
18
iii
PAGE
A. No Question Warranting Review Is Presented in
EE ea 18
1. Hughes and Toolco acquiesced in the contin-
ued pendency of the Delaware suit from
ei Ois bacnesduienckeces 18
2. If the timing had been different, the result
would be the same, and Hughes and Toolco
would have no argument................. 21
B. The Doctrine of ‘‘Compulsory Pendent Plead-
i ecw etc abebbess cescawee 22
TN Sint kab areas 6 robe ened sees 25
Appendix to Brief in Opposition..................... lb
Transcript of Proceedings at Hearing on July 10,
SE BREE TES aA ee Ib
iv
TABLE OF AUTHORITIES
Cases: PAGE
Brown v. Felsen, 442 U.S. 127 (1979) ............006. 19
|
Burks v. Lasker, 441 U.S. 471 (1979) ................ 17
Calderone Enterprises Corp. v. United Artists Theatre
Circuit, Inc., 454 F.2d 1292 (2d Cir. 1971), cert.
Po RR er eee 24n
CTS Corp. v. Dynamics Corp. of America, 107 S. Ct.
EP ER eta cca Su avers hon naed chi e eaiaRhees 16-17
Georgia Ry. & Power Ce. v. Endsley, 167 Ga. 439, 145
Sf ee Be er rise ree oe eee 20
Hecht v. City of New York, 60 N.Y.2d 57, 454 N.E.2d
oe ££ 5 oe 2 2: . Se ae ee 21n
Hughes v. Trans World Airlines, Inc., Del. Supr., 185
Pe er ee reer err ee ee 3
Juneau Square Corp. v. First Wisconsin National Bank,
122 Wis. 2d 673, 364 N.W.2d 164 (Ct. App. 1985)... 22n
Hurn v. Oursler, 289 U.S. 238 (1933) .............6.. 23n
Kern Oil & Refining Co. v. Tenneco Oil Co., 840 F.2d
Pe ee Rs be be a eek as cea es eb eae ene 20
Louisiana Public Service Commission v. FCC, 476 U.S.
Ente kad ine gh ahd wene nee eek kes eke hie ka 17
McCann v. Whitney, 25 N.Y.S.2d 354 (Sup. Ct. N.Y. Co
Mississippi Power & Light Co. v. Mississippi ex rel.
pS a a | ee 17
=
PAGE
Nader v. Allegheny Airlines, Inc., 426 U.S. 290 (1976) . 17
Nantahala Power & Light Co. v. Thornburg, 476 U.S.
EE SS vind 0s oboe hak dee bh aswestae as ee res 17
Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979)... 2in
Ray v. Atlantic Richfield Co., 435 U.S. 151 (1978) .... 16
Rennie v. Freeway Transport, 294 Or. 319, 656 P.2d 919
AR Se rere erty a ak SEE 20 & n, 22n
Santa Fe Industries, Inc. v. Green, 430 U.S. 462 (1977) 17
Seaboard Air Line R.R. v. Daniel, 333 U.S. 118 (1948) 17
Shaffer v. Heitner, 433 U.S. 186 (1977) .............. 9
Shaw v. Chell, 176 Ohio St. 375, 199 N.E.2d 869 (1964) 20
Silkwood v. Kerr-McGee Corp., 464 U.S. 238 (1984)... 16
Todd v. Central Petroleum Co., 155 Kan. 249, 124 P.2d
Pe EN 58 aww ee Web carck cee ee 20
United Mine Workers v. Gibbs, 383 U.S. 715 (1966). . .i, 2, 9,
18, 21-23
Congressional Reports
H.R. Rep. No. 1211, 95th Cong., 2d Sess. (1978),
reprinted in 1978 U.S. Code Cong. & Admin. News
BERT Sac kncupel bkostemeades Hkh ees eee 15
H.R. Conf. Rep. No. 1779, 95th Cong., 2d Sess. (1978),
reprinted in 1978 U.S. Code Cong. & Admin. News
SITE 60004.00 bake KT RONAN SRE ROSS EN ene aT tews 15
Statutes
Airline Deregulation Act of 1978, Pub. L. No. 95-504, 92
RL oe eee ae Attn ll,
Federal Aviation Act
§ 414, 49 U.S.C. § 1384 (1976)........ i, 2
9, 10-11, 13
414, 49 U.S.C. app. § 1384 (1982) ...
.
§ 1106, 49 U.S.C. app. § 1506 (1982) .... |
International Air Transportation Competition Act of
1979, Pub. L. 96-192, 94 Stat. 35....
Judicial Code, 28 U.S.C. § 1292(b) (1982)
Other Authorities
13B C. Wright, A. Miller & E. Cooper, Federal Practice
and Procedure: Jurisdiction 2d (1984) ...........
Restatement (Second) of Judgments (1982)....... ee
14
§
, 14
14
13
14n
4
ne i.
IN THE
Supreme Court of the United States
OCTOBER TERM, 1988
No. 88-149
-
SUMMA CORPORATION and WILLIAM R. LUMMIS, Delaware
Ancillary Administrator for the Estate of Howard R. Hughes,
Petitioners,
TRANS WORLD AIRLINES, INC.,
Respondent.
ON PETITION FOR A WRIT OF CERTIORARI
TO THE SUPREME COURT OF DELAWARE
on
BRIEF IN OPPOSITION OF RESPONDENT
TRANS WORLD AIRLINES, INC.
TWA respectfully submits that a writ of certiorari to review
the decisions of the Supreme Court of Delaware, reported at
336 A.2d 572 (1975) and 540 A.2d 403 (1988), should not issue
because no question worthy of the exercise of the Court’s cer-
tiorari jurisdiction is presented and because the decisions are
correct.
l Pursuant to Rule 28.1! TWA states that it does not have any parent
company, any subsidiary that is not wholly owned or any affiliate.
Statement
The petition asks the Court to review a judgment of the Dela-
ware Court of Chancery affirmed unanimously by a panel of
the Supreme Court of Delaware for damages of $17,238,366
caused TWA by the breach by Hughes and his instrumentality,
Toolco, of their fiduciary duty as controlling persons under
Delaware law.’ The self-dealing between 1955 and 1960 of
Hughes and Toolco while they controlled TWA prevented
TWA from purchasing an adequate number of jet aircraft on a
timely basis and hindered and delayed the conversion of TWA’s
fleet from piston to jet aircraft.
That Hughes and Toolco were guilty of self-dealing, that they
could not prove the intrinsic fairness of their dealings with
TWA, that they injured TWA and that the resulting damages
found and prejudgment interest awarded are correct are matters
conclusively established. The only arguments left to Hughes
and Toolco are: (i) that the Delaware courts misconstrued a
now repealed federal statutory provision and (ii) that, contrary
to United Mine Workers v. Gibbs, 383 U.S. 715 (1966), the
Court should adopt a new rule, to be applied retroactively, that
it is a plaintiff’s obligation to prosecute its state claim in federal
court in all circumstances and even when the defendants have
acquiesced in the prosecution of the state claim in the state
court.
The Delaware suit
TWA brought this suit against Hughes and Tooico in the Del-
aware Court of Chancery in April 1962, charging that prior to
2 In the first paragraph of their statement of questions presented
Hughes and Toolco assert that ‘‘the Delaware courts have now
awarded TWA nearly $50,000,000 in damages’’ (Pet. i). In fact, the
judgment was in the principal amount of $17,238,366 with prejudg-
“ment interest of $31,108,234 awarded from January i, 1960 through
entry of judgment in 1987 at an annual rate of 7.32%. Applications for
a stay of execution were denied by the Delaware Supreme Court and by
Justice Brennan, and the judgment has been paid together with
$1,579,525.58 of postjudgment interest on the principal amount of the
judgment only, as is Delaware practice.
3
December 31, 1960, while defendants were in control of TWA,’
they breached the fiduciary duties they owed to TWA and its
minority stockholders by preventing TWA from purchasing jet
aircraft (complaint 44 5, 9, 10, 13, 14, 16-39, 42, 61; 269a ef
seq.).* After the Delaware Supreme Court had upheld seques-
tration of Hughes’s stock in Toolco, Hughes v. Trans World
Airlines, Inc., Del. Supr., 185 A.2d 886 (1962), and the chan-
cery court had denied Hughes’s motion to dismiss for failure to
state a claim, the Delaware action was informally stayed—at
the urging of Hughes and Toolco (20b, 22b)—while the federal
action between TWA and Toolco, described below, went for-
ward.
The federal action
On June 30, 1961 TWA had filed an aciion in the United
States District Court for the Southern District of New York
charging that Toolco, Hughes and Raymond M. Holliday (a
Toolco employee who had been Hughes’s chief representative
on TWA’s board of directors), while in control of TWA, had
violated the federal antitrust laws through a course of conduct
that included the acts and injuries alleged in TWA’s complaint
in its later-filed Delaware suit. Hughes was never a party to the
federal action since TWA was not able to make service upon
him.
In August 1961 Toolco filed a motion to dismiss grounded,
inter alia, on aclaim of immunity from the antitrust laws result-
ing from orders of the Civil Aeronautics Board (‘‘CAB’’)
approving its control of TWA but did not bring its motion on
for decision. Toolco also asserted its immunity claim as an
affirmative defense in its answer filed in February 1962. Not
3 Hughes owned all of the stock of Toolco. By 1942 Toolco owned
more than 40% of TWA’s common stock and had effective working
control. By 1948 and through the 1950s Toolco increased its interest to
near 80%. Toolco’s control ended in early 1961 when a voting trust
became operative, and Toolco sold its TWA stock to the public in 1966
at a profit of near half a billion dollars.
4 References to a are to the Appendix to Petition; references to
b are to the Appendix to Brief in Opposition.
4
until early 1963 when the district court ordered Toolco to pro-
duce Hughes for a deposition did Toolco seek a determination
of its CAB immunity motion. The district court denied the
motion. 214 F. Supp. 106. Toolco then announced it would not
produce Hughes for a deposition, and the district court entered
a default judgment against it and at the same time granted certi-
fication under 28 U.S.C. § 1292(b) permitting Toolco to seek
an interlocutory appeal on its CAB immunity claim. 32 F.R.D.
604.
At a hearing in the Delaware suit on July 10, 1963, after the
default judgment had been entered in the federal action,
Hughes and Toolco told the chancery court that they could
make a motion to dismiss the Delaware suit based on the pen-
dency of the federal action but had decided not to do so. Their
counsel stated:
‘‘But had we taken this step we would have been con-
fronted with a possible inequitable result because while I
believe we are entitled to seek an order dismissing this
entire proceeding in the light of this final judgment which
has been entered in New York, it would be inequitable to
do so while there is a possibility of reversal.
“*It would require the parties, in the event of a reversal,
to start over again. There are statute of limitation ques-
tions.
‘“‘Therefore we believe that the equitable way of pro-
ceeding is to stay all further proceedings here until such
time as the time when the Court of Appeals has acted,
however it will act, and at that time there may or there may
not be some other ques<ions to be litigated, in Delaware or
wherever else these parties may choose to go.’’ (21b-22b)
Whether the statement made on behalf of Hughes and
Toolco was correct or not is immaterial. What is material is that
Hughes and Toolco formaily acquiesced on the record before
the chancery court in the continued pendency of TWA’s Dela-
ware suit.
5
At the July 10, 1963 hearing TWA’s counsel emphasized to
the court that Hughes was a party in the Delaware suit only:
‘*The only party which is in both actions is the Tool Com-
pany. The fact is we couldn’t and can’t get Hughes indi-
vidually in New York. The fact is no judgment has been, is
being, or will be entered against Hughes individually in
New York in any action filed by TWA to date.’’ (23b)
The court of appeals affirmed the district court’s denial of
Toolco’s CAB immunity motion. 332 F.2d 602 (2d Cir. 1964).
After briefing and argument this Court dismissed the writ of
certiorari as improvidently granted. 380 U.S. 248 (1965). After
a two-year damage hearing before a special master, the district
court in 1969 entered a judgment awarding TWA damages of
more than $45 million before statutory trebling, and the court
of appeals again affirmed. 449 F.2d 51 (2d Cir. 1971). The
Court then granted certiorari and reversed, ruling that TWA’s
antitrust claims were barred because the CAB’s orders approv-
ing Toolco’s acquisition and exercise of control of TWA pre-
empted the federal antitrust laws. 409 U.S. 363 (1973).
Defendants’ motion to dismiss
After TWA’s federal antitrust action was dismissed, Hughes
and Toolco moved to dismiss the Delaware suit on grounds of
alleged CAB-conferred immunity (arguing that CAB control
orders, held by this Court to bar TWA’s federal antitrust
claims, also immunized them from suit under Delaware law for
their breaches of fiduciary duty) and res judicata (arguing that
TWA had impermissibly split its claim). The chancery court
denied the motion. 317 A.2d 114 (1974) (28a et seqg.). The Dela-
ware Supreme Court affirmed. 336 A.2d 572 (1975) (13a et
seq.). Hughes and Toolco sought certiorari from the Court on
the ‘‘splitting’’ defense alone, and the writ was denied. 423 U.S.
841 (1975).
Hughes and Toolec then filed amended answers which admit-
ted ‘‘the well pleaded factual allegations of the Complaint
except for allegations of damage to plaintiff and except as the
6
factual allegations of the Complaint are contradicted by admis-
sions of the plaintiff’’ (30la, 304a).
The Delaware summary judgment motions
In July 1976° Toolco filed a motion for summary judgment,
arguing that the CAB had approved the acts of Toolco upon
which TWA’s damage claims were based and that defendants’
admitted conduct did not breach any fiduciary duty they owed
to TWA. TWA moved for partial summary judgment as to lia-
bility against Hughes an@ Toolco, relying on their admissions.
The motions were briefed, argued and decided together.
The chancery court denied Toolco’s motion and granted
TWA’s motion except in two respects. The chancery court
accepted Toolco’s arguments that TWA could not pursue either
(i) damage claims based upon Toolco’s sale or lease of aircraft
to air carriers other than TWA, 374 A.2d at 10 (51a), or (ii)
claims to Toolco’s profits from leasing and selling aircraft to
TWA in transactions specifically approved by the CAB. 374
A.2d at 12 (54a). These exceptions apart, the court held that
under Delaware law the intrinsic fairness rule and not the busi-
ness judgment rule applied to the conduct of Hughes and
Toolco that prevented TWA from acquiring its own adequate
jet fleet and TWA could recover damages for that injury, 374
A.2d at 9-10 (49a-5la), and that their conduct in preventing
TWA from acquiring its own adequate jet fleet on a timely basis
had not been approved or immunized by the CAB. 374 A.2d at
12 (SSa).
The chancery court ruled that under Delaware law Hughes
and Toolco had the burden of proving intrinsic fairness and
that they had not met it except as to the transactions that had
received specific CAB approval. 374 A.2d at 10, 12 (Sla, 54a).
The court entered an order requiring Hughes and Toolco to
account to TWA for any damages it had suffered (61a).
5 Hughes had died on April 5, 1976, and petitioner Lummis, his Dela-
ware Ancillary Administrator, was substituted for him as a party.
Trial and appeal
After extended discovery by Hughes and Toolco the trial of
the accounting of TWA’s damages took place over six weeks in
April and May 1985. On May 15, 1986 the chancery court
handed down its decision awarding TWA $17,238,366 in dam-
ages (67a et seg.}. After further briefing and factual submis-
sions the chancery court on January 21, 1987 awarded TWA
prejudgment interest on its damages at a 7.32% annual raie
from January 1, 1960 (99a, 114a). Judgment was entered
against Hughes and Toolco, jointly and severally, in the princi-
pal amount of $17,238,366 plus prejudgment interest of
$31,108,234 (115a).
Hughes and Toolco appealed, and the Delaware Supreme
Court affirmed the judgment below in ail respects. 540 A.2d
403 (la et seq.). As in their petition to this Court, Hughes and
Toolco on their appeal below laid their main emphasis upon the
argument that orders of the CAB approving Toolco’s acquisi-
tion of control of TWA and certain specific transactions
between Toolco and TWA immunized defendants from any
claim at all based on their conduct toward TWA, even conduct
that was never put before or approved by the CAB. The Dela-
ware Supreme Court rejected that argument:
‘*Because the sales and leases of airplanes between Toolco
and TWA were approved by the CAB, the Supreme Court
of the United States decided in the federal action that
those transactions were exempt from the antitrust laws and
‘all other restraints or prohibitions made by, or imposed
under, authority of law.’ However, as this Court held in
Hughes v. Trans World Airlines, Del. Supr., 336 A.2d
572, 579 (1975), that did not confer a ‘blanket immunity’
upon the actions of Toolco. Although specific transactions
were immunized by CAB authority, Toolco’s conduct
which was not the subject of CAB review or approval,
when taken as a whole, could involve violations of its fidu-
ciary duties to TWA under Delaware law. The Court of
Chancery later found such violations to the rights of the
TWA minority.’’ 540 A.2d at 406 (6a)
8
In 1975 the Delaware Supreme Court had rejected that same
contention:
‘‘We deal here with an intra-corporate conflict. The
claims are large, the events are dated and complex; but in
essence, the contest simply invokes standards of conduct
applicable to corporate fiduciaries and litigated over the
years in Delaware Courts. Nothing has been called to our
attention which persuades us that the Congress intended to
preempt State power to regulate such conduct (as part of
our ‘housekeeping’ function, if nothing more) and vest it
in the CAB. What remedies would the Board provide?
What judgments would it render? What protection would
it accord to minority stockholders, and by what process?”’
336 A.2d at 579 (24a).
Reasons Why the Writ Should Not Issue
The petition should be denied for the following reasons:
1.A. The Supreme Court of Delaware did not err in its con-
struction of § 414 of the Federal Aviation Act, 49 U.S.C.
§ 1384 (1976) (the ‘‘Act’’).
1. The Court’s 1973 opinion ruled that the CAB’s orders
approving Toolco’s control of TWA and the CAB’s power to
oversee Toolco’s exercise of that control preempted the federal
antitrust laws under which TWA had made its federal claim.
The arguments of Hughes and Toolco that the Court in 1973
also decided that Hughes and Toolco were immune from suit
under the standards of conduct that Delaware applies to corpo-
rate fiduciaries and that collateral estoppel binds TWA to that
alleged decision have no basis in the Court’s 1973 opinion.
2. Then as now the Act emphatically stated in § 1106, 49
U.S.C. app. § 1506 (1982): ‘‘Nothing contained in this chapter
shall in any way abridge or alter the remedies now existing at
common law or by statute, but the provisions of this chapter are
in addition to such remedies.’’ In 1978, the phrase upon which
the petition relies was eliminated from § 414 by the enact-
‘4
3
9
ment of a bill that ‘‘clarifies that Section 414 immunity is lim-
ited to the antitrust laws.’’ The amendment echoed the Dela-
ware Supreme Court’s statement quoted above that Congress
did not intend to preempt ‘‘state power to regulate’’ what was
‘*intra-corporate conflict.”’
B. If the Supreme Court of Delaware erred in its construc-
tion of § 414, it did not do so in conscious defiance of the
Supremacy Clause. This Court does not sit to correct error
alone, particularly when the statute allegedly misconstrued has
been repealed and the construction given it accords with a clari-
fying amendment.
II].A. The particular circumstances present here make the
question based upon the effect of United Mine Workers v.
Gibbs and the principles of ves judicata not worthy of consider-
ation by the Court.
1. Hughes avoided service of process in the federal antitrust
action, and TWA was able to obtain his appearance only in the
Delaware suit. For this reason, TWA could prosecute its claim
of breach of fiduciary duty against Hughes only in the Dela-
ware chancery court, while TWA could prosecute its claim of
violation of the antitrust laws only in the federal court and only
against Toolco. A Delaware judgment of joint and several lia-
bility could be executed against the property of Hughes. After
the Court’s decision in Shaffer v. Heitner, 433 U.S. 186 (1977),
which set aside the Delawzie sequestration process—the only
method by which Hughes could be brought to book-—it is
improbable that the situation will arise again.
2. Hughes and Toolco explicitly acquiesced in the continued
pendency of the Delaware suit on the record before the Dela-
ware chancery court. They may not now claim that the dis-
missal of the federal action is a bar to the Delaware suit.
B. The Court’s 1966 ruling in Gibbs that a federal court has
the discretionary power to adjudicate a state law claim does not
support the argument that TWA’s 1961 federal antitrust action
and TWA’s 1962 Delaware suit constitute impermissible
“‘claim-splitting.’’ The state court and court of appeals deci-
10
sions relied on in the petition did not involve situations where,
as here, it was impossible to obtain personal jurisdiction over a
defendant in the federal action.
ARGUMENT
THE 1975 AND 1988 DECISIONS OF THE DELAWARE
SUPREME COURT CONCERNING SECTION 414 DO NOT
PRESENT A QUESTION WARRANTING REVIEW AND
ARE CORRECT.
Hughes and Toolco argue under both point I and point II of
their petition that Hughes and Toolco cannot be held account-
able in damages for any injury they inflicted upon TWA and its
minority stockholders after the CAB approved Toolco’s control
of TWA, although the CAB neither approved nor was aware of
the fact that Hughes and Toolco were violating Delaware law
regulating the conduct of corporate fiduciaries.° In a revealing
phrase Hughes and Toolco assert that they were ‘‘immunized
from suit’’ (Pet. 3). Although they make their argument twice
under purportedly distinct headings of ‘‘colJateral estoppel’’
and ‘‘CAB immunity,” it is one and the same.
The global immunity argument does not presemt a question
warranting review. There is no basis for the global immunity
argument in the Court’s 1973 opinion holding that the CAB’s
orders preempted the federal antitrust laws.
A. No Question Warranting Review Is Presented.
Hughes and Toolco argue that the Delaware Supreme Court
in its 1975 and 1988 decisions misconstrued the phrase ‘‘all
6 Throughout the petition, the arguments of Hughes are made sub
silentio since the opening three words of the petition under ‘‘Question
Presented’’—‘‘Petitioners (collectively ‘Toolco’)’’ (Pet. i)—ignore the
fact that the judgment below is joint and several and attempt to define
Hughes out of the Court’s consciousness. Hughes was a party in the
Delaware action only, never in the federal action.
11
other restraints or prohibitions made by, or imposed under,
authority of law’’ in § 414 of the Act. The argument is wrong
but, if it were right, the purported error does not warrant
review.
The phrase, never adverted to in the text of the Court’s 1973
opinion that addressed only preemption of the antitrust laws,
was stricken from the Act in 1978. The regu'atory scheme of the
Act changed substantially with enactment of the Airline Dereg-
ulation Act of 1978, Pub. L. No. 95-504, 92 Stat. 1705, and the
agency that administered the former scheme came to an end on
January 1, 1985.
The correctness vel non of the Delaware Supreme Court’s
decisions is of interest only to Hughes and Toolco and to
TWA —to the outcome of one litigation only. The exercise of
the Court’s certiorari jurisdiction would be inappropriate.
B. The Decisions Are Correct.
Hughes and Toolco were not globally ‘‘immunized from
suit’’ either by the Court’s 1973 decision or by § 414 itself.
1. There was no collateral estoppel.
The collateral estoppel argument is rhetoric intended to bol-
ster the ‘“‘immunity from suit’? contention by iteration. The
argument assumes an interpretation as to the reach of § 414 of
the Act that this Court did not make and had no occasion to
make in its 1973 opinion.
Section 414 formerly provided:
**Any person affected by any order made under [§ 408
of the Act]. . . shall be, and is hereby, relieved from the
operations of the ‘antitrust laws,’ as designated in [15
U.S.C. § 12], and of all other restraints or prohibitions
made by, or imposed under, authority of law, insofar as
may be necessary to enable such person to do anything
authorized, approved, or required by such order.’’
The Court’s 1973 opinion ruled that the CAB’s orders
approving Toolco’s control of TWA and the CAB’s power to
12
oversee Toolco’s exercise of that control preempted the federal
antitrust laws.
*‘Competition and monopoly—two ingredients of the
antitrust laws—are thus standards governing the CAB’s
exercise of authority in granting, allowing, or expanding
or contracting the control which Toolco had over TWA by
reason of the various orders issued by the CAB under
§ 408. In this context, the authority of the Board to grant
the power to ‘control’ and to investigate and alter the man-
ner in which that ‘control’ is exercised leads us to conclude
that this phase of CAB jurisdiction, like the one in the Pan
American [World Airways v. United States, 371 U.S. 296
(1963)] case, pre-empts the antitrust field.’’ 409 U.S. at
385 (footnotes omitted).
The truncated quotations from the Court’s 1973 opinion that
Hughes and Toolco set out (e.g., Pet. 15-16) excise the words
that limited the Court’s holding to preemption of the federal
antitrust laws.’
In its 1975 decision construing the Court’s 1973 opinion the
Delaware Supreme Court correctly concluded that ‘‘the Court
considered the controversy only and entirely in the context of
the Federal anti-trust statutes’’ and ‘‘the Court disposed of the
litigation entirely on the basis of anti-trust principles, statutory
and decisional.’’ 336 A.2d at 574, 575 (16a).
The Court’s 1973 opinion did not speak to any variety of pre-
emption except preemption of the federal antitrust laws. The
7 ~~ The sentence that precedes the quotation at p. 15 of the petition
states:
**We think the Court of Appeals erred also in construing § 414,
which immunizes from antitrust liability any conduct approved,
authorized, or required by any Board order issued under § 408.”’
409 U.S. at 386.
Missing from the fragmentary quotations at p. 16 of the petition are
references to ‘‘a derivative antitrust suit’? and to ‘‘TWA’s suit in
1961’’ which was ordered dismissed precisely because it was an anti-
trust suit. 409 U.S. at 388. Other references in the opinion emphasizing
that it dealt with preemption of the antitrust laws only can be found in
409 U.S. at 364, 366, 369, 384, 385, 387, 389.
snitch capil
ee ep oe eee ee AI EA.
13
Court did not consider what Congress intended by the provision
in § 414 which refers to ‘‘all other restraints or prohibitions
made by, or imposed under, authority of law.’’ Certainly the
opinion did not construe that language against the equally
emphatic language of § 1106 of the Act, which provided then
and still provides:
‘‘Nothing contained in this chapter shall in any way
abridge or alter the remedies now existing at common law
or by statute, but the provisions of this chapter are in addi-
tion to such remedies.”’
Hughes and Toolco attempt to suggest that there were spe-
cific rulings on damage claims in the Court’s 1973 opinion that
would preclude TWA’s damage judgment below (Pet. 16-18).
The attempt is mistaken. When the Court decided that TWA’s
antitrust claims were wholly preempted by the CAB’s ‘‘author-
ity . . . to grant the power to ‘control’ and to investigate and
alter the manner in which that ‘control’ is exercised,’’ 409 U.S.
at 385, it reversed TWA’s judgment for damages and directed
that its complaint be dismissed. Nothing in the 1973 opinion
suggests a determination that particular damage claims had
been rejected for any reason but that TWA’s entire antitrust
action was preempted.
2. There was no statutory immunity.
The Delaware courts have awarded TWA damages for the
injuries it suffered when Hughes and Toolco engaged in self-
dealing while they controlled it. Those damages were awarded
after Hughes and Toolco failed to prove, as Delaware law says
they must, that their self-dealing transactions were ‘‘intrinsi-
cally fair’? to TWA and its minority stockholders.
Hughes and Toolco argue that Delaware has impermissibly
**sought through a fiduciary action to exercise ‘divided author-
ity’ over the Toolco-TWA control relationship by substituting
Delaware determinations for determinations by the CAB that
Toolco’s control of TWA was in the public interest and on just
and reasonable terms’’ (Pet. 19-20). Their argument ignores the
14
facts of this case. Hughes and Toolco were controlling persons
and have been found to have cheated the corporation they con-
trolled and its minority stockholders. TWA is a Delaware cor-
poration, as is Toolco. TWA went to the Court of Chancery of
Delaware to obtain restitution of what it had been deprived by
Hughes and Toolco.
Hughes and Toolco argue that ‘‘[i]n section 414, Congress
expressly addressed the preemptive effects of CAB control
orders, providing that mo ‘restraints or prohibitions’ were to
impede effectuation of what the CAB had approved’’ (Pet. 19).
The preemption of the antitrust laws that doomed TWA’s anti-
trust action flowed from the CAB’s approval of Toolco’s con-
trol of TWA, not from its approval of any specific transaction
between Toolco and TWA. The Court’s decision does not refer
to CAB approval of the particular transactions upon which
TWA’s antitrust damage claims depended.
The attempt by Hughes and Toolco to argue what Congress
must have intended by § 414 (Pet. 20) is particularly inappro-
priate. Congress amended § 414 in 1978 to eliminate the refer-
ence to ‘“‘all other restraints or prohibitions made by, or
imposed under, authority of law’’ on which Hughes and Toolco
rely. Airline Deregulation Act of 1978, Pub. L. No. 95-504,
§ 30(a), 92 Stat. 1705, 1731. After that amendment § 414 pro-
vided:
**In any order made under [§ 408 of the Act]. . . the
Board may, as part of such order, exempt any person
affected by such order from the operations of the ‘anti-
trust laws’ set forth in [15 U.S.C. § 12(a)] to the extent
necessary to enable such person to proceed with the trans-
action specifically approved by the Board in such order
and those transactions necessarily contemplated by such
order, except that the Board may not exempt such person
unless it determines that such exemption is required in the
public interest.’’ 49 U.S.C. app. § 1384 (1982).°
8 Additional language, not pertinent here, was added to § 414 by the
International Air Transportation Competition Act of 1979, Pub. L.
96-192, § 27, 94 Stat. 35, 47.
1 nce Tite
15
H.R. Rep. No. 1211, 95th Cong., 2d Sess. 18 (1978), reprinted
in 1978 U.S. Code Cong. & Admin. News 3737, 3754, explained
the purpose of the amendment as follows:
**Section 414 of the Federal Aviation Act grants immu-
nity from the antitrust laws and other laws for transactions
or relationships that have received Board approval pursu-
ant to other provisions of the act.
“Section 414 has been interpreted to give antitrust
immunity far beyond the scope intended by the Board. For
example, in Hughes Tool Company v. Trans World Air-
lines, 409 U.S. 363, 1973), the Supreme Court held,
despite CAB disclaimers, that a broad course of conduct
allegedly violating the antitrust laws had been immunized
as a result of CAB orders approving certain limited trans-
actions.
**H.R. 12611 limits section 414 immunity in several
respects. First, the bill clarifies that section 414 immunity
is limited to the antitrust laws. Second, the bill provides
that immunity shall be granted only insofar as is necessary
to permit completion of transactions specifically approved
by the Board, or transactions necessarily contemplated by
a Board order. Third, the bill provides that the grant of
antitrust immunity is discretionary with the Board and
that the Board in granting immunity must find the grant to
be in the public interest.’ (Emphasis added)
The House-Senate Conference Committee adopted the lan-
guage of the House bill and the explanation in the House
Report. H.R. Conf. Rep. No. 1779, 95th Cong., 2d Sess. 78
(1978), reprinted in 1978 U.S. Code Cong. & Admin. News
3773, 3792.
Neither here nor below have Hughes and Toolco ever
explained why the extraordinary result they are seeking makes
sense. Why should the fact that a federal regulatory agency had
oversight over the Toolco/TWA control relationship preempt
Delaware law and immunize self-dealing by Hughes and Toolco
16
when the CAB never approved or considered the particular acts
of self-dealing? As the Delaware Supreme Court said in 1975:
‘*‘What remedies would the Board provide? What judg-
ments would it render? What protection would it accord to
minority stockholders, and by what process?’’ 336 A.2d at
579 (24a).
As the Court observed in Silkwood v. Kerr-McGee Corp.,
464 U.S. 238, 251 (1984), when it refused to preempt state law
remedies for injuries resulting from safety violations even
where safety regulation was exclusively a federal concern:
“*(T]here is no indication that Congress even seriously con-
sidered precluding the use of such remedies either when it
enacted the Atomic Energy Act in 1954 or when it
amended it in 1959. This silence takes on added signifi-
cance in light of Congress’ failure to provide any federal
remedy for persons injured by such conduct. It is difficult
to believe that Congress would, without comment, remove
all means of judicial recourse for those injured by illegal
conduct.”’
The Court has emphasized that a federal statutory scheme
will be held to preempt state regulation—and especially state
regulation of the governance of corporations which are crea-
tures of state law—only
eee
where compliance with both federal and state regula-
tions is a physical impossibility . . . ,’ Florida Lime &
Avocado Growers, Inc. v. Paul, 373 U.S. 132, 142-143
(1963), or where the state ‘law stands as an obstacle to the
accomplishment and execution of the full purposes and
objectives of Congress.’ Hines v. Davidowitz, 312 U.S. 52,
67 (1941). . . .”’ Ray v. Atlantic Richfield Co., 435 U.S.
151, 158 (1978).
The Court repeated this language in CTS Corp. v. Dynamics
Corp. of America, 107 S. Ct. 1637, 1644, 1648 (1987) (‘‘The
longstanding prevalence of state regulation in this area suggests
that, if Congress had intended to pre-empt all state laws that
17
delay the acquisition of voting control following a tender offer,
it would have said so explicitly’’); accord Santa Fe Industries,
Inc. v. Green, 430 U.S. 462, 479 (1977) (‘‘Absent a clear indica-
tion of congressional intent, we are reluctant to federalize the
substantial portion of the law of corporations that deals with
transactions in securities, particularly where established state
policies of corporate regulation would be overridden’’). See
also Louisiana Public Service Commission v. FCC, 476 U.S.
355, 368-70 (1986); Burks v. Lasker, 441 U.S. 471, 478-80
(1979). In Nader v. Allegheny Airlines, Inc., 426 U.S. 290, 299,
300 (1976), the Court concluded that ‘‘we are not faced with an
irreconcilable conflict between the statutory scheme and the
persistence of common-law remedies’’ and ruled that a state
tort claim for fraudulent misrepresentation in connection with
the ‘‘bumping”’ of an airline passenger who held a valid reser-
vation could proceed because ‘‘the common-law action and the
Statute are not ‘absolutely inconsistent’ and may coexist, as
contemplated by § 1106 [of the Act].’’
Like the situations that were the subjects of these decisions
TWA’s Delaware suit did not present any irreconcilable conflict
between state and federal regulatory schemes. The reliance
placed by Hughes and Toolco upon Mississippi Power & Light
Co. v. Mississippi ex rel. Moore, 108 S. Ct. 2428 (1988), and
Nantahala Power & Light Co. v. Thornburg, 476 U.S. 953
(1986), is inexplicable. In each of those cases the petitioners
were faced with an order of the Federal Energy Reguiatory
Commission resulting in one rate while a state public utility
commission was permitted to make determinations that would
result in another and conflicting rate. Seaboard Air Line R.R.
v. Daniel, 333 U.S. 118 (1948), is no more apposite, for it
involved an express order of the Interstate Commerce Commis-
sion that South Carolina sought to countermand.
There is no hint of any such conflict between the federal regu-
latory scheme and Delaware law governing the relationship
between corporate fiduciaries and their cestui que trust. Immu-
nizing the misconduct of Hughes and Toolco would allow these
admitted wrongdoers to avoid responsibility for what they have
done—nothing more.
18
THE DISMISSAL OF TWA’S ANTITRUST CLAIM DOES
NOT PRECLUDE TWA’S DELAWARE CLAIM AGAINST
HUGHES AND TOOLCO.
Hughes and Toolco contend that TWA impermissibly split its
claim against both of them because it did not assert in its federal
action against Toolco in 1961 the Delaware state law claim that
it brought in Delaware chancery court against both Hughes and
Toolco in 1962. Their contention assumes that TWA was bound
to anticipate the Court’s 1966 decision in United Mine Workers
v. Gibbs and the later rulings, principally of state courts (Pet.
24n.36 and 25n.37), that would turn Gibbs’s ‘‘doctrine of dis-
cretion’’ under which ‘‘[nJeedless decisions of state law should
be avoided,’’ 383 U.S. at 726, into what amounts to compul-
sory pendeni pleading—an inescapable obligation that plaintiff
must plead the state law claim, whatever its nature and what-
ever the other pertinent circumstances, in the federal court
along with the federal claim. The Court denied certiorari in
1975 when Hughes and Toolco made the same contention. 423
U.S. 841.
A. No Question Warranting Review Is Presented
in the Circumstances.
Whether or not to consider the ‘‘compulsory pendent plead-
ing’’ concept that defendants urge may be left by the Court to
an appropriate case. The facts here preclude the argument that
TWA split a single claim (i) because the Delaware state law
claim of breach of fiduciary duty could only be and was liti-
gated against Hughes in the Delaware chancery court and
(ii) because Hughes and Toolco acquiesced in any splitting that
occurred.
1. Hughes and Toolco acquiesced in the continued
pendency of the Delaware suit from 1963 until 1973.
In arguing the general principles of res judicata or claim split-
ting, it is not helpful to rely upon statements of general princi-
19
ples taken from the opening words of opinions that turn on
particular facts. For example, the words Hughes and Toolco
quote from Brown v. Felsen, 442 U.S. 127 (1979) (Pet. 22),
hardly forecast the Court’s unanimous holding that, because
**res judicata shields the fraud and the cheat as well as the hon-
est person’’ and ‘‘is to be invoked only after careful inquiry
[,]. . . neither the interests served by res judicata, the process
of orderly adjudication in state courts, nor the policies of the
Bankruptcy Act would be well served by foreclosing petitioner
from submitting additional evidence to prove his case.’’ 442
U.S. at 132.
The Restatement (Second) of Judgments (1982) states an apt
exception to the rule for which Hughes and Toolco contend:
**§ 26. Exceptions to the General Rule Concerning
Splitting
**(1) When any of the following circumstances exists, the
general rule of § 24 does not apply to extinguish the claim,
and part or all of the claim subsists as a possible basis for a
second action by the plaintiff against the defendant:
**(a) The parties have agreed in terms or in effect that
the plaintiff may split his claim, or the defendant has
acquiesced therein. .. .”’
TWA filed an antitrust complaint against Toolco in federal
court in 1961, and Toolco answered in February 1962, asserting
its CAB immunity defense; TWA could not effect service upon
Hughes in the federal action. TWA filed its Delaware action
against Toolco and Hughes in April 1962, obtaining personal
jurisdiction over both. Toolco answered but did not assert an
affirmative defense of prior pending action or take any other
steps to keep the two actions from proceeding concurrently. In
February 1963 Toolco defaulted in the federal action but
obtained an interlocutory appeal of the district court’s decision
rejecting its CAB immunity defense.
In July 1963 when Toolco’s CAB immunity defense was
scheduled to go before the court of appeals, Hughes and Toolco
told the Delaware chancery court that, although they believed
20
they could move to dismiss the Delaware suit based on the pen-
dency of the federal action, they had decided not to do so (see
p. 4, supra). Not until the Court decided almost a decade later
that Toolco’s motion asserting its CAB immunity defense to
TWA’s antitrust claims should have been granted in the first
instance did Hughes and Toolco argue that TWA had split its
claim.
As the Delaware Supreme Court recognized in 1975, 336
A.2d at 578 (22a), Toolco’s choice not to assert ‘‘splitting’’ for
more than a decade while each case continued pending in a dif-
ferent court is plainly acquiescence within the meaning of
§ 26(1)(a) of the Restatement (Second) of Judgments. Kern Oil
& Refining Co. v. Tenneco Oil Co., 840 F.2d 730, 735 (9th Cir.
1988) (‘‘Tenneco, by never objecting to separate trials of the
price and supply cases, cannot now object to their being split’’)
(footnote omitted); Shaw v. Chell, 176 Ohio St. 375, 199
N.E.2d 869, 874 (1964) (defendant consents to splitting cause of
action when he withholds objection until judgment is entered in
one of two pending actions); Todd v. Central Petroleum Co.,
155 Kan. 249, 124 P.2d 704, 707 (1942) (one who seeks the ben-
efit of the splitting rule ‘‘must claim its benefit on the institu-
tion of a second or unnecessary action at an early stage of the
proceedings, otherwise he will waive his right to its benefit’’);
Georgia Ry. & Power Co. v. Endsley, 167 Ga. 439, 145 S.E.
851, 855 (1928) (‘‘It was too late for the defendant to object to
the splitting of the action into two suits after judgment had
been rendered against it in one of them’’). See also Rennie v.
Freeway Transport, 294 Or. 319, 656 P.2d 919, 924 (1982) (‘‘a
defendant is free to waive the right to a combined action and
the parties are competent to agree mutually to the splitting and
separate litigation of the various aspects of a plaintiff’s claim’’)
(cited at Pet. 24, 25, 27).”
9 In the Rennie case the court ruled that defendants had not acqui-
esced in plaintiff’s claim-splitting because they had moved to dismiss
or abate the prior-pending federal case immediately after the complaint
in the state action was filed. 656 P.2d at 924-25.
AED Catch Raa RE anak ORS alga eRe Si ind ect heh nate a IR wR A SD:
AMATI A Roe ied’ Ani oles
—s
21
2. If the timing had been different, the result would be the
same, and Hughes and Toolco would have no argu-
ment.
If in 1961 TWA had foreseen Gibbs and the subsequent mis-
reading of Gibbs discussed below, TWA might have appended
its Delaware claim against Toolco to its antitrust claim against
Toolco. We say ‘‘might’’ because TWA was able to obtain
Hughes’s appearance only in the Delaware chancery court.'°
The district court’s denial of Toolco’s motion to dismiss
based on its claim of immunity by reason of the CAB orders
was affirmed by the court of appeals in 1964. The Court in 1965
(at TWA’s suggestion) dismissed the writ of certiorari to review
that decision as improvidently granted. If instead the Court had
made then the ruling it made in 1973, TWA’s federal claim
would have been dismissed before any trial and the appended
Delaware claim would have been dismissed as well. Gibbs, 383
U.S. at 726. TWA would have instituted (or revived) the Dela-
ware suit and by hypothesis the judgment that Hughes and
Toolco wish the Court to review would have been reached with-
out, however, any possible basis for a claim of res judicata as to
the Delaware claim by reason of the dismissal of the federal
claim.
10 The arguments that led the Court to abandon the requirement of
mutuality of parties for collateral estoppel (or issue preclusion), see
Parklane Hosiery Co. v. Shore, 439 U.S. 322 (1979), do not apply to
claim preclusion—especially when the party seeking to assert claim pre-
clusion was not subject to personal jurisdiction in the prior action on
which the asserted preclusion is based. The rules against splitting a
claim apply only between parties. Hecht v. City of New York, 60
N.Y.2d 57, 62, 454 N.E.2d 527, 530, 467 N.Y.S.2d 187, 190 (1983) (‘‘a
judgment for or against one tort-feasor does not operate as a merger or
bar of a claim against other tort-feasors’’); Restatement (Second) of
Judgments § 49 (1982) (‘‘A judgment against one person liable for a
loss does not terminate a claim that the injured party may have against
another person who may be liable therefor’’).
22
B. The Doctrine of ‘‘Compulsory Pendent Pleading’’ Cannot
Apply.
Perhaps the plainest statement of the theory of compulsory
pendent pleading appears at Restatement (Second) of Judg-
ments, § 25, Comment e:
“*e. State and federal theories or grounds. A given
claim may find support in theories or grounds arising from
both state and federal law. When the plaintiff brings an
action on the claim in a court, either state or federal, in
which there is no jurisdictional obstacle to his advancing :
both theories or grounds, but he presents only one of
them, and judgment is entered with respect to it, he may
not maintain a second action in which he tenders the other
theory or ground. If however, the court in the first action
would clearly not have had jurisdiction to entertain the
omitted theory or ground (or, having jurisdiction, would
clearly have declined to exercise it as a matter of discre-
tion), then a second action in a competent court presenting
the omitted theory or ground should be held not pre-
cluded.”’
. adie
This Comment, like all but one of the cases on which Hughes
and Toolco rely in contending for compulsory pendent pleading
(Pet. 24n.36 and 25n.37),"' depends upon United Mine Workers
11 Most of the post-Gibbs cases that Hughes and Toolco depend upon
involve a second lawsuit against the same defendant or defendants
after judgment was entered against plaintiff in his first lawsuit. The
defendants in the two cases involving concurrent, not consecutive, law-
suits did not acquiesce in the pendency of the second suit. Rennie v.
Freeway Transport, supra, 656 P.2d at 924-25; Juneau Square Corp. v.
First Wisconsin National Bank, 122 Wis. 2d 673, 364 N.W.2d 164, 171
(Ct. App. 1985) (prior pending action pleaded as a defense).
The one pre-Gibbs case, McCann v. Whitney, 25 N.Y.S.2d 354, 354-
55 (Sup. Ct. N.Y. Co. 1941), is a trial court decision granting summary
judgment dismissing a state antitrust law claim ‘‘based upon the same
allegedly wrongful and unlawful acts, in which final judgments have
been entered in favor of the defendants’’ in two prior federal antitrust
actions brought successively against the same defendants in federal dis-
trict court.
— ee n
23
v. Gibbs and is not fairly applicable to a pre-Gibbs case like
this.'*
The fundamental difficulty with the Restatement’s Comment
and the decisions upon which Hughes and Toolco rely is that
they extend the Gibbs ruling as to the scope of federal ‘‘judicial
power,’’ 383 U.S. at 725, into a rule of preclusion of a state
claim that is materially different from the federal claim. The
Gibbs opinion stressed that the exercise of pendent jurisdiction
is discretionary.
‘‘That power need not be exercised in every case in
which it is found to exist. It has consistently been recog-
nized that pendent jurisdiction is a doctrine of discretion,
not of plaintiff’s right. Its justification lies in consider-
ations of judicial economy, convenience and fairness to
litigants; if these are not present a federal court should
hesitate to exercise jurisdiction over state claims, even
though bound to apply state law to them, Erie R. Co. v.
Tompkins, 304 U.S. 64. Needless decisions of state law
should be avoided both as a matter of comity and to pro-
mote justice between the parties, by procuring for them a
surer-footed reading of applicable law.’’ 383 U.S. at 726
(footnotes omitted).
12
According to 13B C. Wright, A. Miller & E. Cooper, Federal Prec-
tice and Procedure: Jurisdiction 2d § 3567, at 112 (1984), Gibbs
‘*changed the law in this area so significantly that pre-1966 cases are
now of historical interest only’’ (footnote omitted). Before 1966 the
scope of pendent jurisdiction was defined by Hurn v. Oursler, 289
U.S. 238 (1933). Under that case the basic criterion for a federal
court’s exercising pendent jurisdiction over a common law claim was
not commonality or identity of facts with the federal claim but whether
plaintiff was suing for violation of a singie right and was thus asserting
a single ‘‘cause of action.’’ If separate rights were invoived—even
though the conduct complained of was the same—there were separate
causes of action, and the non-federal claim had to be dismissed. 289
U.S. at 248. Applying the Hurn test, the conduct of Hughes and
Toolco invaded two separate rights of TWA—the right to be free from
unfaithful dealing by a fiduciary and the right to be free from an
unlawful restraint of trade.
24
In any event, the test set out in the Comment is whether the
federal court would have declined to entertain TWA’s Delaware
state law claims. The district court’s May 23, 1973 opinion
when it entered the judgment dismissing TWA’s antitrust com-
plaint stated that, while the dismissal was on the merits with
respect to the federal claims, ‘‘it does not follow that such a dis-
missal would be a bar to the nonfederal claims,’’ citing a case in
which pendent non-federal claims were dismissed before trial
along with the antitrust claims that made it a federal case. 359
F. Supp. 783, 785 (119a).'° If speculation were required, the
only appropriate conclusion is that the district court would not
have entertained the Delaware claims on which TWA’s judg-
ment is grounded.
13. Calderone Enterprises Corp. v. United Artists Theatre Circuit, Inc.,
454 F.2d 1292, 1297 (2d Cir. 1971), cert. denied, 406 U.S. 930 (1972)
(‘Since the federally-based claims were properly dismissed prior to
trial, however, the pendent state claims must also be dismissed and the
plaintiff relegated to the state courts for relief’’).
25
CONCLUSION
For the foregoing reasons the writ of certiorari should not
issue.
Respectfully submitted,
WILLIAM E. HEGARTY
Counsel of Record
MARSHALL COX
MICHAEL P. TIERNEY
CAHILL GORDON & REINDEL
(a partnership including
professional corporations)
80 Pine Street
New York, New York 10005
(212) 701-3000
Of Counsel:
MARK A. BUCKSTEIN
605 Third Avenue
New York, New York 10158
LOUIS J. FINGER
RICHARDS, LAYTON & FINGER
One Rodney Square
P.O. Box 551
Wilmington, Delaware 19899
August 26, 1988
en War
yin” Ne
ree
Ges
Ib
Transcript of Proceedings at Hearing on July 10, 1963
IN THE
COURT OF CHANCERY OF THE
STATE OF DELAWARE
In anv F'or New Castiz County
Civil Action No. 1607
Trans Woritp Aruines, Inc.,
Plaintiff,
Vs.
Hvucues Toot Company, et al.,
Defendants,
and
Tue Equirasute Lire Assurance Society or THE UNITED
States, Merropourtan Lire Insurance Company, Irvine
Trust Company, Damion, Reap & Co., Inc., James F.
Oates, Jz., Harry C. Hacerty, Ben-Fteminc Sessex,
Ernest R. Breecu, and CHarues C. Trmircnast, JR.,
Additional Defendants
on Counterclaims.
County Court House
Wilmington, Delaware
July 10, 1963
2:30 P.M., E.D.S.T.
Before:
HonoraBLe Wituiam Marvet,
Vice Chancellor.
[Appearances ]
2b
Transcript of Proceedings at Hearing on July 10, 1963
[2] * ee
The Court: * * *
Mr. Finger, I think you arranged this hearing.
Mr. Finger: This hearing is upon the order to be entered
upon your Honor’s opinion of June 7, 1963. On a prior
occasion we appeared before your Honor and submitted a
draft of order, and by agreement the matter was put off
until today.
We desire to renew our request for an order on that
opinion, and the form of the order that we present is the
one which during the informal conference in Chambers we
presented, and copies of which were handed to other counsel.
I now present the same form of order. The only change
is that the earlier draft spoke of June; this speaks of July.
The only other change is in the date near the end of the
order, about five lines from the bottom, where we have
substituted July for June.
{3] This form of order in paragraph 4 contains provi-
sions with respect to the taking of depositions. Since that
time there has been served upon us a motion to stay with
respect to the taking of depositions, and I presume that
both matters should be considered together. The decision
on the motion to stay presumably will govern the form of
the order.
That is to say, if the stay is granted, then there will be
a substanial change in the last paragraph of our form of
order. If the stay is not granted, then we presume that the
order in the form that we present it would still be in order.
It would be my suggestion, subject to your Honor’s ap-
proval, that since the matter of the stay enters into the
matter of the form of order, that perhaps we should hear
from the attorney for Hughes and Hughes Tool Company
3b
Transcript of Proceedings at Hearing on July 10, 1963
on their motion for stay and the position of the respective
parties with respect to that application.
The Court: Mr. Tunnell.
Mr. Tunnell: May it please the court, from the very in-
stitution of the action in this court it has been affirmed by
the plaintiff and acknowledged by the defendants that all
of the acts complained of in the complaint as filed in this
court are included within the sweep and scope of the [4]
complaint that has been filed in New York.
We have at various times discussed the reason why the
Delaware action was filed, but whatever the reason may
have been initially it must be clear to all of us that the
time is bound to come when it will be impossible for the
plaintiff to get judgment in both of these cases.
The relief cannot be thus duplicated, or quadrupled in
this case, because, as your Honor will recall, there is a
prayer for treble damages in connection with the New York
suit.
It seems perfectly apparent to us that at some stage, one
case or the other will have to come to a standstill.
Since we were before your Honor on the last occasion,
Judge Metzner has taken actions which we talked about as
a possibility and a likelihood at the time of our previous
argument, But what we only thought about as a future
action at that time has now become a reality. Judge Metz-
ner has dismissed with prejudice five counterciaims, given
summary judgment with respect to one, and has given judg-
ment with respect to the complaint, and has asked that the
damage hearing be commenced.
Following his decision of the merits and setting down
the matter of damages for hearing, appeal has been [5]
noticed and the appeal has been received and will be enter-
tained by the Cincuit Court of Appeals.
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Transcript of Proceedings at Hearing on July 10, 1963
I don’t know just how far this court means to permit
counsel to travel in parallel roads, but we want your Honor
on this occasion very seriously to think, as we represent
to the court, that this is probably the time in which to sus-
pend proceedings in this case pending the determination
by the Circuit Court of Appeals for the Second Circuit of
the validity of the judgments which Judge Metzner has
entered.
There are many things that could be said to elaborate
upon this application. I could not say them under any cir-
cumstances any better than they are said in the affidavit
of Mr. Davis which is attached to the motion which I am
now speaking to, your Honor. I don’t know if the court
has had an opportunity to study the facts set forth in that
affidavit but they are the facts which I have just, with a
broad brush, now outlined.
So we say to the court that it seems to us that it would
be an unnecessary duplication of the effort of all concerned
to go forward now when apparently the case is in the form
of final judgment, and there it will remain unless of course
the judgments of the trial court are reversed, or amended
in some substantial fashion.
{6] Therefore, we respectfully ask your Honor to enter
an order at this time staying any further proceedings in
this case.
We find ourselves at this moment in agreement with
what I took to be a feeling on the part of Mr. Finger when
he waved us to the lectern. It seems to us that for the court
now to enter an order would perhaps defeat, to some extent,
the purpose of this application for stay because your Honor
would, by entering an order in the form that either of us
hes suggested, start the time running for an appeal, which
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again seems to us to fall upon all the parties and counsel
for all the parties, and some court, to do a lot of work
which is really unnecessary.
So we respectfully ask your Honor to consider the sub-
stance of the affidavit and the prayer of the motion.
The Court: Mr. Tunnell, is there any kind of order that
should be entered? You say no order is required.
Mr. Tunnell: I’m sorry, your Honor, that was too broad
a statement. There is certainly an order to be entered. It
seems to me that an appropriate order would be that the
motion for a general stay, which is here presented, should
be granted, and in the meantime no further orders will be
undertaken in this court.
Now, your Honor’s opinion is on file and the force [7]
of it will not be lost or deteriorate. It will only be put
in a posture where work must be done with respect to it
if it is implemented in the form of an order as the court
thought appropriate under the facts as they stood at the
time the memorandum opinion came down.
But we think, and respectfully submit to your Honor,
that the facts which were then before your Honor have now
been amplified in a significant way. So we think there
should be just a simple general order of stay pending the
outcome of these appellate proceedings.
The Court: In other words, any other kind of order
dealing with the matters sought to be decided in the opinion
would set time running as to responsive pleadings, deposi-
tions, and so on?
Mr. Tunnell: Yes, and that we would ask your Honor
not to do. But all counsel and the court will remember the
posture of the matter, and if the case should take the turn
that made it wise, and to your Honor apparently just, for
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these proceedings to resume, I suppose that is precisely at
the point where they would resume.
[8] * * *@
The Court: Yes. Your thought is that not to have a
stay now might lead to duplication of work?
Mr. Tunnell: Yes, your Honor, it would. For instance,
these depositions are very frankly mentioned. There needs
to be a reply to counterclaims here, counterclaims similar
to those that have been dismissed with prejudice in New
York. There would have to be a reply.
They want to take depositions with respect to the coun-
terclaims. That is illustrative of the type of thing that is
going to have to be undertaken unless the case is stayed.
The Court: I gather that the appeal is being accelerated
in some way—I don’t know how successful you have been
on that—but if you and your associates are successful, <
reversal might mean that this whole very bitterly contested
litigation might go before the Civil Aeronautics Board in
the first instance.
Mr. Tunnell: That is one possibility, your Honor.
The Court : Well, that is what you would hope for, I
gather.
Mr. Tunnell: Yes, sir.
The Court: Very well, Mr. Sonnett.
[9] I might say, perhaps in fairness to myself, that I
came in here expecting to have an order presented. I was
not aware of the fact that a motion for stay was in the file.
Mr. Sonnett: Nor were we, your Honor, until it was
belatedly received just a few days ago.
The Court: It was filed July 8. It was served starting
on the 5th, I guess,
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Transcript of Proceedings at Hearing on July 10, 1963
Mr. Sonnétt: However, I don’t press the point, your
Honor, about the late service because I think this is the
time to make a disposition of the matter which has been
before you several times before.
[10] * 0. @
In respect of the motion for a stay, your Honor, I think
a short and simple answer to it is that Mr. Hughes, who is
by all accounts the principal actor in all of these events,
is not a defendant in the New York case. Although we
spent many thousands of dollars trying to bring about that
happy result, we never could find him and serve him with
process, and he has not seen fit to appear in the New York
litigation.
So that we have in New York, Toolco on the one hand,
which as your Honor knows is 100% owned by Hughes, but
we don’t have Mr. Hughes.
We also have in the New York case Mr. Holliday, who
is the chief executive officer under Mr. Hughes controlling
the activities of the Tool Company. We do not have Mr.
Holliday as a defendant in the Delaware case.
In the Delaware case we now, after strenuous °fforts
and by reason of decisions of this court, have Mr. Hughes
before this court as an individual defendant. This is the
only court in which he is a defendant, and it [11] is to
the orders of this court, and this court alone, that he will
respond if he responds to the orders of any court.
The prayer for relief in this case, as your Honor will
recall, seeks a very sign.ficant—indeed, essentially equi-
table—relief against Hughes and the Tool Company, in
addition to damages. We cannot get that equitable relief
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Transcript of Proceedings at Hearing on July 10, 1963
against Howard R. Hughes individually any place in the
world except from your Honor, and we think in due course
that we are going to prove to your satisfaction that we
are entitled to it, we need it, and that we should have r.
So that what the motion for a stay comes down to, I
respectfully submit, is another effort—and there have been
many, many efforts before—to keep Hughes beyond the
reach of any court. It’s that simple.
I think, therefore, your Honor should, in the exercise
of your sound discretion and judgment, deny the motion
for a stay on that ground alone.
As to the form of an order to be entered on your
Honor’s last decision, we think the form of order which we
have submitted is for the reasons set forth in my affidavit
served and submitted today, the appropriate form. Our
form of order, your Honor, is identical with the form of
order submitted by the Tool Company with the exception
that we, in our form of order, have contained the provi-
sions [12] in paragraph 1 for the service of an answer
by Hughes.
May we hand up the affidavit, your Honor, to which I
referred, and serve copies.
We have in paragraph 3 provision for the service of a
reply by TWA to the counterclaims of Toolco, and we have
in paragraph 4 a provision which we think suitable, sub-
ject to your Honor’s selection of a date, with respect to
the depositions which have been noticed to be taken by the
additional defendants, and.in which TWA will participate
when, as and if the deposition of Hughes is taken pursuant
to those notices.
In summary, your Honor, therefore, I see nothing be-
fore your Honor which would warrant indefinitely delay-
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Transcript of Proceedings at Hearing on July 10, 1963
ing this case because of the New York case, on the one
ground alone that Hughes is not in the New York case and
that he is an essential defendant in this case, and on the
further ground that your Honor has pointed out, that the
well settled policy of this court is against staying the
hand of this court in matters over which it has jurisdiction
because there may be some other, somewhat related, litiga-
tion elsewhere.
We don’t know when the New York case will be disposed
of. It may be November, it may be December, it may be
next year. We just don’t know. Were your Honor [13]
therefore to grant the stay they seek, it would mean that
this court would be paralyzed in this case, I would suggest,
for at least six months.
This is the kind of result Hughes has sought individually
to achieve by evading process in the New York case and
by delaying, until he was dragged in by the heels, his ap-
pearance in this case.
Thank you.
Mr. Tunnell: If the court please, may we have five
minutes or so to read this paper? We haven’t seen it
before, and while we have had five minutes we did have
to listen to Mr. Sonnett.
The Court: I will take a recess for five or ten minutes
and read it myself.
(Brief recess.)
& 2 *
[25] Mr. Tunnell: May it please your Honor, I want
to speak briefly, and then I would like to ask your Honor
to hear Mr. Davis on behalf of our clients.
Our friends, with laudable unanimity, concur in every-
thing they ask. They concur that nothing has happened
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Transcript of Proceedings at Hearing on July 10, 1963
that wasn’t predicted the last time we were before your
Honor, and indicate that therefore there isn’t really much
significance to it. It simply means we are repeating every-
thing that we said before and your Honor ruled upon
before.
There is perhaps no better way for us to emphasize
the importance of what has happened since, and that we
are not repeating what we said before but are relying upon
what happened since, then to talk a little bit about this
ease of Chadwick against Parkhill, which illustrates the
significant point as we see it.
Incidentally, that case is reported as Chadwick against
Gill in 141 Atlantic page 618, but that is the Parkhill case.
The Court: It is also in 16 Delaware Chancery 127.
There are several opinions. That is the one on the motion
to stay?
Mr. Tunnell: Yes, your Honor, and that is the one that
I cited to the court in 141 Atlantic, the stay order.
£26] Your Honor may have just read the ease, in which
ease T will try to be very quick indeed, but I did have
to say a little something in fairness to any of our adver-
saries who may not have the book in front of them at the
moment.
Chadwick filed suit in the King’s Bench Division in the
High Court of Justice in England, and then subsequently
filed a similar action in the Court of Chancery of this
State, in this court, as a matter of fact. Gill moved to
stay the proceedings in the Court of Chancery of the State
of Delaware on the ground that the action in England had
been filed before the one in Delaware was, but, as Chan-
cellor Wolcott pointed out, he did not rely upon or point
out to the court any particular equity, I suppose, of op-
11b
Transcript of Proceedings at Hearing on July 10, 1963
pressiveness or any of the things that the Chancellor
specifically cited. He merely said there is a prior action
pending over in England, so I want this one stayed.
Chancellor Wolcott then decided, incidentally, not that
he couldn’t have stayed it but that he needn’t stay it, and
in the absence of equity would not stay it on that ground.
He then concluded his comments, after having written
a brief opinion on the fact that he wasn’t compelled to
stay it in those circumstances, by this dictum, which is
the last thing he said in the opinion:
[27] “Of course, if the prior suit had proceeded to
judgment, the court rendering it having jurisdiction,
the later suit must end.”
Your Honor will recall that this suit was the second
one filed. The prior suit—take the counterclaims which
I cited to your Honor a while ago, the counterclaims in
New York. They have proceeded to judgment and for
whatever meaning and effect it has, they have proceeded
to judgment with prejudice.
Now our friends stand before your Honor today and
say, “Oh, there is ndthing changed.” Well, first of all a
judgment was entered, which Chancellor Wolcott thought
would have dramatic consequences. That was not the fact
when we stood before your Honor before. True enough,
it was anticipated, but the juridical effect of that antici-
pation is certainly different from the juridical effect of
a judgment.
It appears to us that had Chancellor Wolcott had this
matter before him and been in the same mood that he
was when he wrote this opinion, the mood being induced
by the equities that he heard in this case—I don’t mean
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Transcript of Proceedings at Hearing on July 10, 1963
anything else there—he would have felt that the entry of
a judgment as an interposed factor here would have an
[28] electric effect upon a motion to stay pending before
The Court: He seems to have gone beyond that. He
says the later suit must end. This is more than just a
stay.
Mr. Tunnell: Oh, yes. That’s a good point. Here our
friends say, your Honer, with appeal in their voices, they
have had no chance to take any depositions. They haven’t
had any chance to take a part in these proceedings; they
haven’t been afforded an opportunity to take what they
eall normal procedures.
Well, so what? They got a judgment. Is a person equi-
tably entitled, after having: obtained a judgment, to the
exercise of discovery which he would have had had he
not been successful in the meantime in some other court?
It seems to us not.
Your Honor made the point which I want to cover just
for a second that Chancellor Wolcott said that the case
must end. That’s right; we agree with that. But we don’t
say to your Honor you ought to end this case and say
it has, by a final order, become moct, it has abated, or any-
thing of the kind, because frankly we have appealed from
these judgments in New York and it is possible, your
Honor would quickly point out to us, “Well, suppose you
succeed in getting these judgments reversed in New York
that you now [29] point to as justifying the stay? If in
the meantime you had caused an abatement of these pro-
ceedings, or maybe the statute of limitations had run, or
something of the kind, you would be obtaining an inequi-
table advantage.”
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Transcript of Proceedings at Hearing on July 10, 1963
So what we are asking is not that your Honor end the
case in the language of Chancellor Wolcott until and unless
it appears that the Court of Appeals in New York, and
maybe even the Supreme Court, if it goes there—I don’t
know whether it will go there—but until it has been finally
decided that these judgments are final judgments, either
valid and therefore with prejudice, or invalid, or valid
for some purpose but not with prejudice to action else-
where.
I am not sure what the ramifications might be of the
“with prejudice” argument, but it seems to us that Chad-
wick against Parkhill is a good authority for our position
today.
Now I would like, if your Honor will, to have Mr. Davis
address the court on other aspects of this matter.
Mr. Davis: If your Honor please, I don’t know that I
am justified in taking up any more of the court’s time in
view of the way in which Judge Tunnell has presented the
question, because it seems to me that this talk about dupli-
eation and discovery proceeding, or rights to discovery,
[30] are completely meaningless to me in view of what
has happened in the New York action.
It is true that once before, in anticipation that at some
time, to us then unknown, although I must admit well pre-
dicted by Judge Bromley, as to when Judge Metzner was
going to act and enter a judgment, we did argue before
your Honor that in the light of the probability that a judg-
ment was likely to be entered in the New York action
fairly soon, we ought not to take up any more of the court’s
time here, or waste any more time or money in litigating
here in Delaware.
What has happened—it happened the next day, I be-
lieve—was that what Judge Bromley anticipated, which
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Transcript of Proceedings at Hearing on July 10, 1963
we knew was going to happen sooner or later but we can’t
actually predict when the court will act, Judge Metzner
did enter a number of judgments following the decisions
which he announced. I submit that those judgments are
controlling on all the parties here involved until such
time as the Court of Appeals reverses or modifies them.
Your Honor will recall that the last time we were here
we pointed out the history of this litigation, that all this
litigation started with TWA suing Mr. Hughes and the
Hughes Tool Company, starting in New York, and then
subsequently brought a similar action in Delaware.
[31] It has always been admitted, up until today, that
the Delaware action was encompassed by the New York
action. In fact, when we, on behalf of the Tool Company,
sought to begin discovery proceedings in the Delaware ac-
tion, and we were at that time before Vice Chancellor
Short, counsel for TWA effectively convinced Vice Chan-
cellor Short that since the New York action was proceed-
ing apace, and merely on the ground that the New York
action was proceeding there and was the first action there
commenced, that the Delaware action should, insofar as
our efforts to take depositions were concerned, not be per-
mitted to continue, and the relief that Vice Chancellor
Short at that time granted, if your Honor will reeall, was
to vacate or set-aside our notices for the taking of the
depositions in the Delaware action on the ground that the
Delaware action was encompassed in the New York action.
To be sure, because of jurisdictional questions which are
raised in the New York action, it could happen, depending
upon what the Court of Appeals does, that there could be
left some issues to be tried in the Delaware action. But
until such time as the Court of Appeals acts in New York
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Transcript of Proceedings at Hearing on July 10, 1963
there is no question whatever in my mind, and | don’t
believe that these gentlemen are claiming, or I don’t believe
that they could be claiming, that the New York action
is not [32] finally dispositive of the rights between
the parties. And what is that? With respect to the claim
by TWA against the Tool Company and Mr. Hughes, the
100% owner of the Tool Company, it is to recover treble
the damages which they claim TWA has suffered.
Obviously if they recover that in the New York action
they can’t recover anything here. It has been admitted
that the Tool Company, 100% owned by Mr. Flughes, has
assets well in excess even of the huge judgment which
they are seeking. I believe it was referred to in this pro-
ceeding that the assets of the Tool Company, and they’ve
got the balance sheets, are well in excess of $250,000,000,
substantially in excess of that figure.
That disposes of the rights of TWA, the plaintiff.
These additional defendants are persons who are in con-
trol of TWA, the lending institutions which control TWA
and who started this action against the Tool Company.
Now, the Tool Company, both in the New York action
and when TWA brought the similar action in Delaware,
responded with affirmative defenses and counterclaims.
In essence, stripped of all the matters in which the plead-
ings are couched, the Tool Company has said if TWA has
been damaged as you claim it is not the result of the con-
duct of the Tool Company but it is the result of the con-
duct of these [33] additional defendants. That is what
the counterclaims in effect say, and set it up in the Del-
aware action as affirmative defenses and counterclaims.
Now, if TWA recovers what it claims it is entitled to
recover as a result of what has taken place in the New
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Transcript of Proceedings at Hearing on July 10, 1963
York action, and if the Court of Appeals affirms, that is
the end; they can’t recover anywhere else, not with re-
spect to the counterclaims.
On the counterclaims, the Tool Company, as I said,
claims that the injury, if any, or the extent to which TWA
was injured by reason of these delays in financing, or
acquisition of aircraft, was not by reason of the conduct
of the Tool Company but was a result of the conduct of
these additional defendants, these lending institutions.
But that counterclaim has been dismissed with preju-
dice. We opposed the dismissal of those counterclaims in
the New York action. They prevailed. We opposed it
being dismissed with prejudice. They prevailed on that
point.
Now I don’t understand what Mr. Barr or anybody else
here today means when they say to your Honor, we want
an opportunity to examine Mr. Hughes, unless it is indeed
what seems to be somewhat apparent, to try to take ad-
vantage of a well-known factual situation with respect
to the [34] availability of Mr. Hughes.
I respectfully submit to your Honor that the purpose
and function of the courts of this country is not to enable
any litigant to annoy and harass anyone else. They’ve
got their judgment; they’ve got the dismissai of the coun-
terclaim as they sought, with prejudice, and I respectfully
submit that until such time as the New York Court of
Appeals, or the Supreme Court of the United States, acts
in the New York action, that matter is at an end, and
there is no discovery proceeding, there is nothing else for
us to do here in the Delaware action, unless your Honor
wants to undertake to make some kind of a decision as to
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Transcript of Proceedings at Hearing on July 10, 1963
the meaning and effect of the New York action, because
if we were to proceed tomorrow what would we proceed
about?
Unless this court is prepared now, and I think the answer
is so simple I don’t think it deserves any extended argu-
ment, but unless this court is prepared to try to make
some decision as to the meaning and effect of these New
York judgments, I don’t know what there is left to try
in the Delaware action.
But as Judge Tunnell pointed out, rather than seeking
at this time a dismissal of the complaints and of all pro-
ceedings in the Delaware action, because we do not know
what the Court of Appeals will do, and there is no [35]
question of the position of the Tool Company that the
decision of the District Court in New York is wrong and
should be reversed, that upon such reversal we would be
restored to the position of the factual situation which
exists many times, namely, when a plaintiff deliberately
elects to bring the same cause of action in several juris-
dictions, the law, as I understand it, is that to the extent
to which the courts in these various jurisdictions in their
discretion will permit this multiplicity of actions to be
commenced by a plaintiff—in this case TWA—the one
which proceeds to judgment first is the one which controls
all other actions. Here we have the situation where they
started in New York, they subsequertly started in Del-
aware, we defended ourselves in New York, we tried to
defend ourselves in Delaware, and the New York action
has proceeded to judgment.
I respectfully submit that at this point there is no need
for any further action by this court other than to stay all
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Transcript of Proceedings at Hearing on July 10, 1963
further proceedings until such time as the Court of Ap-
peals, or any other appellate court, has acted, and then,
depending upon the circumstances then present, entry of
a further order of this court I believe to be just and equi-
table under the circumstances.
We recognize that the decision that the court has [36]
made to the effect that the counterclaims are not to be
dismissed and that the parties are entitled to examine Mr.
Hughes as the managing agent, are very important ques-
tions to us, certainly. We have filed some notices to take
the depositions of TWA, to which Mr. Sonnett today filed
an affidavit indicating that he does not think that we
should proceed in those depositions until some other ques-
tions are passed upon.
I respectfully submit that all those questions ought to
be laid aside and reconsidered should, as we expect, the
Circuit Court of Appeals dispose of the New York judg-
ments in such a way as to leave something else to be tried.
That is a possibility.
But until the Court of Appeals has acted to that effect,
I respectfully submit that we do not have any issue which
has not been adjudicated between the parties that are
present here today; I should say with the possible excep-
tion of Mr. Breech. But I should say in that connection
they have filed an application—it was done informally by
way of a letter to Judge Metzner pointing out to Judge
Metzner that in view of the basis upon which the counter-
claims against the other additional defendants were dis-
missed with prejudice, they requested Judge Metzner to
enter a similar order dismissing the counterclaims being
asserted against Mr. Breech also [37] with prejudice.
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Transcript of Proceedings at Hearing on July 10, 1963
Judge Metzner. as of this moment has not yet acted
upon that, but I think we will all admit quite frankly that
Mr. Breech’s position in that regard is one on which he
will stand or fall. As a result, the other additional defen-
dants who allegedly acted in concert with him, whatever
relief they get will obviously become applicable to him.
I respectfully submit that we ought to give Judge Metz-
ner an opportunity to act on this application that is now
being made by Mr. Breech.
Now, Mr. Barr has made references to the history of the
litigation in New York. He made a reference to the
Panagra case. I don’t know to what extent Mr. Barr in-
advertently confused the decision of the District Court
in the Panagra case, which was reversed by the Supreme
Court of the United States.
However that may be, I don’t think it would be partic-
ularly illuminating to this court for me to go into the
reasons why in the New York action, based upon the de-
cision of the United States Supreme Court in the Panagra
case, which has been even more recently reaffirmed in the
Bank case, we concluded that the issues, insofar as they
involved a violation of the Federal Aviation Act by these
additional defendants, were issues to be determined [38]
preliminarily, if not exclusively, by the Civil Aeronautics
Board.
I might add that today I was told, and Mr. Barr before
the start of the day permitted me to read a copy of the
order entered by the CAB today requiring all the parties
to file briefs with the CAB with respect to the complaint
that was filed before the CAB involving the issues involved
in these pleadings with respect to our contentions that
these additional defendants and lending institutions have
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Transcript of Proceedings at Hearing on July 10, 1963
in fact violated the Federal Aviation Act by the manner in
which they acquired control of this airline.
I respectfully submit that even though it would be ap-
propriate to enter an order following the memorandum
decision that this court has entered, that the mere entry
of an order would start running the appellate time that we
would have in which to act.
I respectfully submit to your Honor that in view of the
judgments that have been obtained by these parties in
New York, that there is no conceivable harm or injustice
that could take place to freeze as of this moment all further
proceedings in this litigation until such time as the New
York Court of Appeals has acted and the time for further
appeal or review has gone, so that we know definitively what
the status is of these final judgments which were entered
[39] in New York.
May I answer any questions that your Honor may have?
The Court: You say that moves the time of appeal,
and that is usually the point of litigation, to keep the thing
moving, the judge being impartial and as judicial as
possible but interested in the progress of the litigation.
While what you say is convincing, I just don’t like to see
a case on dead center where there has not been a judgment
in the sense that there was in the Chadwick case. That
judgment is not an effective one because you have taken
an appeal and are quite confident that it will be reversed.
Mr. Davis: May I submit, your Honor, that I believe the
law is clear that the judgment adjudicates the rights as
between the parties even though there is an appeal pending.
The effect of the judgment of the New York action is that
it effectively adjudicates the rights as between the parties
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Transcript of Proceedings at Hearing on July 10, 1963
until such time as the Court of Appeals modifies it or
changes it.
I respectfully submit that there is at this moment in ex-
istence a judgment by a Federal District Court [40] which
adjudicates the rights of the parties, which I believe this
court must recognize as an effective judgment. To be sure,
that judgment may be modified or reversed, but until it is,
it is the judgment which is binding upon the parties here
present before you.
Therefore, I don’t know what we have to litigate here.
There is no need from my point of view, to the extent to
which we might feel aggrieved by the conclusions reached
by your Honor in connection with the other matters before
you, there is no earthly reason why we should be required
to take procedural steps or do any work, or burden the
Supreme Court of this State, to review anything which has
taken place here while this judgment in New York is ef-.
fective and binding upon us.
So all we really have is a procedural problem that we
would be confronted with if this court should at this time
take any further action in the Delaware action.
The alternative would be for us to have made an applica-
tion to dismiss all the proceedings in Delaware. But had we
taken this step we would have been confronted with a
possible inequitable result because while I believe we are
entitled to seek an order dismissing tlis entire proceeding
in the light of this final judgment which has been entered
in New York, it would be inequitable to do so [41] while
there is a possibility of reversal.
It would require the parties, in the event of a reversal,
to start over again. There are statute of limitation ques-
tions.
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Transcript of Proceedings at Hearing on July 10, 1963
Therefore we believe that the equitable way of proceed-
ing is to stay all further proceedings here until such time
as the time when the Court of Appeals has acted, however
it will act, and at that time there may or there may not be
some other questions to be litigated, in Delaware or wher-
ever else these parties may choose to go.
[44] * 2¢ 8
Mr. Sonnett: Your Honor, may I have 30 seconds?
The Court: Yes.
Mr. Sonnett: I think it is necessary for me, since it is
my first appearance before your Honor, to state something
which has been said before. But as a matter of [45] per-
sonal and professional privilege, and as a matter of re-
sponsibility to the 20,000-odd minority stockholders of
TWA, I would like to correct the record.
A misstatement was made to you by Mr. Davis. He knows
that to be a misstatement by now, or should.
This case was filed by Trans World Airlines after its new
board of directors appointed a committee to select inde-
pendent counsel to investigate whether TWA had any
claims or not arising out of its past history, and if so, to
make recommendations.
We investigated. I did it with my assistants. We recom-
mended the suit in New York at that time, and we gave
further consideration to a suit in Delaware in due course.
The new management saw fit to approve that recom-
mendation. The case was filed. i
No additional defendant has exercised any measure of
control whatsoever over my firm or me. We are acting as
independent counsel for this airline. This airline has had
23b
Transcript of Proceedings at Hearing on July 10, 1963
very, very real troubles, as your Honor noted in your
opinion. It is very difficult for the airline and its 20,000
minority stockholders to disentangle themselves from the
controversy between Hughes, on the one hand, and the
lending institutions on the other.
[46] But the fact of the matter is that the New York
ease which we filed is a very different case from this case
as to the violations of law charged. The only thing which
might be said to be similar as a matter of law in any re-
spect is the third cause of action in the New York case,
which charges a breach of common law in the period 1961
and 1962, a non-Federal cause of action. The first two are
Federal.
The second point is that the parties.in the two litigations
are different. The only party which is in both litigations is
the Tool Company. The fact is we couldn’t and can’t get
Hughes individually in New York. The fact is no judgment
has been, is being, or will be entered against Hughes in-
dividually in New York in any action filed by TWA to date.
So this is merely a red herring. The parties are different,
the causes of action are different, the relief sought is dif-
ferent.
Now, they urge to you that if TWA recovers substantial
damages against the Tool Company in New York, that is
an end to their damage claim in this case. That is simply
not so. The theories of damages involved are radically
different and the items of damage which will be recovered
in New York remain to be seen and remain to be [47]
adjudicated,
There are items of damage, your Honor, which we will
be pressing in this court which are not involved in the
New York case whatsoever.
24b
Transcript of Proceedings at Hearing on July 10, 1963
But beyond and above the damage question entirely, it
is this court and this court alone which is the only court
in the world in which TWA has a case pending that can
give TWA equitable relief against Howard R. Hughes in-
dividually, and that relief is sorely needed.
We have said from the outset of this case here, your
Honor, that when Hughes was in this case as a party in-
dividually, and when his answer was in so that we knew
what issues were admitted and what issues were disputed,
and we knew the scope of the deposition tuat we would
have to take of Hughes, we would then wish to examine
Hughes as an individual defendant on those issues.
That has been our position from the outset. It is still
our position. We do want to examine him on those matters
which his answer, when filed, will establish to be in dispute.
We have no wish to examine him a day longer than we
have to, but we would like to get the issues defined and
narrowed down before we start.
So from TWA’s standpoint we urge that there be no stay
and that the matter progress in the form of order which
[48] we have submitted to your Honor.
[56] ** 8
The Court: Anyway, I won’t do anything. I will have
to read these affidavits with more care and examine the
order of the New York judge to see exactly what he did
in dismissing the counterclaims. If there is to be any agree-
ment on further procedure I will expect to hear from coun-
sel tomorrow. I will take no action until then.
Court is adjourned.
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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.