The opinion of the court was delivered by: Allen
The pending motion to compel the production of documents raises the question whether a corporate defendant may, in the circumstances presented, legitimately withhold from discovery documents that disclose its corporate plans to deal with a possible future strike of its work force. The pertinent circumstances may be set forth briefly.
Plaintiffs are holders of certain preferred stock of Eastern Airlines, Inc., a Delaware corporation. Defendants are Eastern, Texas Air Corporation, its parent corporation, Jet Capital Corporation, which controls Texas Air and the individual members of Eastern's board of directors, including Francisco A. Lorenzo, who owns a majority stock interest in Jet Capital and, thus, allegedly controls each of the corporate defendants. Texas Air owns all or substantially all of the issued and outstanding common stock of Eastern.
The class of preferred stock owned by plaintiffs *fn1 was issued in 1985 exclusively to Eastern employees. Mr. Gioia is a member, and Mr. Copeland an officer of the Airline Pilots Association ("ALPA"), a labor union that represents the interests of Eastern's pilots in labor-management negotiations. Eastern has, in recent years at any rate, not had placid relations with all of the unions representing its unionized employees. It has for some time been unable to reach an agreement with the machinists' union whose members have apparently been working without a contract for some time. Moreover, ALPA has brought suit against Eastern in the federal district court in the District of Columbia, which suit, while involving labor law, not corporation law questions, arises out of some of the same factual matters giving rise to this lawsuit. It is apparently admitted that ALPA is bearing the considerable expenses involved in this litigation.
The complaint purports to allege several corporation law claims, some of which are said to be derivative in nature and some individual. In summary, it is alleged that "ince acquiring control of Eastern, Texas Air and the individual defendants have embarked upon a scheme to transfer valuable assets of Eastern to Texas Air and its subsidiaries, including Continental , solely for the benefit of Texas Air and without regard to the devastating effect these transfers have had and will have upon Eastern and plaintiffs." Cplt. para. 21. More specifically, it is alleged that defendants have caused a large number of routes previously flown by Eastern to be usurped by Continental for the sole benefit of Texas Air, and that "efendants have determined to shrink Eastern in favor of Continental, a non-union airline favored by defendants." Cplt. para. 25. The transfer of Eastern's computer reservation system from Eastern subsidiaries to a Texas Air subsidiary is claimed to be for "consideration so inadequate as to amount to a waste of assets." Cplt. para. 28. The transfer by Eastern of aircraft and flight gates to Continental at "grossly inadequate prices" (para. 32), the forthcoming sale of Eastern's east coast shuttle operation (para. 31) and the purchase by Eastern of $30 million of 10 % Senior Unsecured Notes of People Express, another Texas Air affiliate, are alleged as further specific examples of a plan to shrink Eastern to the injury of the preferred shareholders.
Finally (I bring it up last only because it is the particular allegation most pointedly involved in the determination of this motion), it is alleged that, as part of this plan to shrink Eastern, Texas Air plans to cause Eastern to transfer to Continental its "extremely valuable" Latin American routes.
These facts are said to constitute actionable wrongs in a number of respects. First, they are said to be self-dealing transactions at an unfair price and thus to constitute a breach of the duty of loyalty that the defendants owe to the corporation and to the preferred shareholders. Second, they are said to constitute waste of Eastern assets. Third, they are, when taken together, said to constitute a sale of all or substantially all of Eastern's assets. Eastern's certificate of incorporation is alleged to give to holders of its preferred stock the right to vote on any proposed sale of all or substantially all of its assets. Thus, the alleged scheme to transfer substantially all of Eastern's assets, piece by piece, so to speak, is said to violate rights of plaintiffs conferred by Eastern's charter. Finally, it is alleged that defendants have "taken the position that plaintiffs may not be able to convert their shares as provided in the Certificate of Incorporation" and that such a denial is a wrong.
The remedy sought is a preliminary and a permanent injunction rescinding the sale of the computer reservation system, ordering that the "Transfer Scheme" be subjected to a vote that includes plaintiffs (it not being suggested in the complaint that a class vote is contemplated by the charter), and requiring Eastern to recognize the exercise by plaintiffs of the right to convert their preferred stock to common.
A hearing on plaintiffs' application for a preliminary injunction has been scheduled and discovery is now in progress on an expedited basis. The current dispute arises from the production of documents by defendants in anticipation of depositions. More specifically, it arises from Eastern's refusal to produce certain documents that it characterizes as "strike planning documents." As to those documents, Eastern claims an interest in confidentiality that cannot in the circumstances, be adequately protected by a confidentiality order and claims in all of the circumstances -- including the other information produced, the nature of the threat to it and the significance of the point to which the documents arguably relate -- that Justice requires (see Ch. Ct. R. 26(c)) that no discovery of documents disclosing its strike plans be ordered. This situation is said to be analogous to those several cases in this jurisdiction, as well as elsewhere, in which courts have recognized a qualified immunity from discovery for so-called "white knight" documents. See, e.g., Computervision Corp. v. Prime Computer, Inc., Del. Ch., C.A. No. 9513, Allen, C. (January 26, 1988).
Plaintiffs assert first that this is a stockholder action claiming a breach of fiduciary duty and there ought to be small room for a claim of confidentiality in such a case, citing Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970) and Valente v. Pepsico, Inc., 68 F.R.D. 361 (D. Del. 1975). The policy of enforcing fiduciary duties is said to be more compelling than the policies protecting business confidences. While this court has a long tradition of sensitive protection of legitimate shareholder interests, it is surely a gross mistake to believe that shareholder interests would uniformly, or even perhaps regularly, be advanced by a rule of discovery that automatically required disclosure of confidential business information or plans ...