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03/03/88 MATTHEW J. GIOIA AND CHARLES H. COPELAND

March 3, 1988

MATTHEW J. GIOIA AND CHARLES H. COPELAND, PLAINTIFFS,
v.
TEXAS AIR CORPORATION, A DELAWARE CORPORATION, JET CAPITAL CORPORATION, A DELAWARE CORPORATION, PHILLIP J. BAKES, JR., ROBERT D. SNEDEKER, CARL R. POHLAD, JAMES W. WILSON, JOSEPH B. LEONARD, FRANCISCO A. LORENZO, THOMAS H. BOGGS, JR., LINDSAY E. FOX, WILLIE C. ROBINSON, ARTHUR R. TAYLOR AND THOMAS R. WILLIAMS, DEFENDANTS, AND EASTERN AIR LINES, INC., A DELAWARE CORPORATION, NOMINAL DEFENDANT



Allen, Chancellor;

The opinion of the court was delivered by: Allen

MEMORANDUM OPINION

ALLEN, Chancellor

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.

I.

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 ...


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