Prettner v. Aston, Civ. A. No. 4142.

CourtUnited States District Courts. 3th Circuit. United States District Court (Delaware)
Citation339 F. Supp. 273
Docket NumberCiv. A. No. 4142.
PartiesFrederick L. PRETTNER et al., Plaintiffs, v. James W. ASTON et al., Defendants.
Decision Date28 February 1972

339 F. Supp. 273

Frederick L. PRETTNER et al., Plaintiffs,
James W. ASTON et al., Defendants.

Civ. A. No. 4142.

United States District Court, D. Delaware.

February 28, 1972.

339 F. Supp. 274
339 F. Supp. 275
339 F. Supp. 276
Bruce M. Stargatt, and Edward B. Maxwell, 2nd, of Young, Conaway, Stargatt & Taylor, Wilmington, Del., Herbert A. Levy, Washington, D. C., and Richard F. Watt, of Cotton, Watt, Jones, King & Bowlus, Chicago, Ill., for plaintiffs
339 F. Supp. 277

Edmund N. Carpenter, 2nd, of Richards, Layton & Finger, Wilmington, Del., Donald Keith Hall, of Darling, Hall, Rae & Gute, Los Angeles, Cal., and Joseph Barbash, of Debevoise, Plimpton, Lyons & Gates, New York City, for defendants American Airlines, Inc. and Western Air Lines, Inc.

Richard F. Corroon, of Potter, Anderson & Corroon, Wilmington, Del., for certain individual defendants.


STAPLETON, District Judge.

Plaintiffs Prettner and Weidemueller, shareholders of American Airlines, Inc., a Delaware corporation, ("American") and DePrey and Bailey, shareholders of Western Air Lines, Inc., a Delaware corporation, ("Western") brought this action against American, Western and the members of their respective boards of directors. The complaint alleges that proxy statements of American and Western issued in connection with a proposed merger of the two companies violated Sections 10(b) and 14(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j, 78n and Rules 10b-5, 14a-3 and 14a-9 of the regulations promulgated under that Act.

Defendants have filed a motion to dismiss the complaint for failure to state a claim upon which relief can be granted. Both sides have filed extensive affidavits in connection with that motion and the court, accordingly, will treat the motion as one for summary judgment pursuant to Rule 12(b). The individual defendants who comprise the board of directors of Western have also filed a motion to dismiss on the grounds of lack of jurisdiction over them, improper venue, insufficiency of process and insufficiency of service of process.

American is one of the nation's largest airlines. Western ranks tenth in size out of eleven United States trunk airlines. It serves fourteen of the western states, including Alaska and Hawaii. It also serves points in western Canada and the Republic of Mexico. American and Western have entered into an Agreement of Merger, dated as of January 14, 1971, calling for the merger of Western into American. In February of 1971 the companies mailed proxy statements to their respective stockholders in connection with special meetings to be held on March 19, 1971 to vote upon the merger. At the American meeting, held in Wilmington, Delaware, the merger agreement was approved by a vote of 15,782,533 votes in favor to 226,733 votes against. The Western stockholders, convened in Los Angeles, approved the merger agreement by a vote of 3,915,220 votes in favor to 81,707 votes against.

The merger requires the approval of the Civil Aeronautics Board ("CAB") and the President of the United States. The merger agreement was filed with the CAB in January, 1971 and hearings thereon were completed in July of that year. American and Western are currently awaiting a decision of the CAB.

Plaintiffs Prettner and Weidemueller, in addition to being stockholders of American, are employees of Western and members of the Air Line Pilots Association, International ("ALPA"). ALPA is the exclusive collective bargaining representative of the pilots and stewardesses employed by Western. Plaintiffs DePrey and Bailey, in addition to being stockholders of Western, are employees of Western and members of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America, ("Teamsters") and Teamster Local 2707. The Teamsters are the exclusive bargaining representative of the airline mechanics, utility/fleet service employees, and stock clerks employed by Western.

Plaintiffs here assert that the proxy statements, by reason of a material mis-statement and numerous material omissions, were false and misleading. Defendants deny these allegations. In order to understand the positions of the parties it is necessary to review the facts giving rise to a dispute currently pending between the ALPA and the

339 F. Supp. 278
Teamsters on the one hand and Western and American on the other


Western employs approximately 1,332 airline mechanics, 439 utility/fleet service employees and 120 stock clerks. American employs approximately, 5,411 airline mechanics, 5,448 utility/fleet service employees and 670 stock clerks, all of whom are represented by the Transport Workers Union of America ("TWU"), which is the exclusive collective bargaining representative of these employees. There are approximately 1,033 pilots and 1,122 stewards and stewardesses employed by Western and approximately 3,400 pilots and 4,700 stewards and stewardesses employed by American. American's pilots are represented by the Allied Pilots Association ("APA") and its stewards and stewardesses are represented by the Air Line Stewards and Stewardesses Association, Local 550, TWU, each of which is the exclusive collective bargaining representative of these respective groups of employees. Thus, the above-described employee groups of each carrier are represented by different unions and their employment is governed by different collective bargaining agreements.

Western's collective bargaining agreements with the Teamsters and the ALPA contain provisions which those unions claim make the agreements binding upon any successor to Western and, accordingly, binding upon American in the event the merger is consummated. American took the position before the CAB and takes the position here that Western's collective bargaining agreements will not be binding upon it following the merger. It contends that the agreements, fairly construed, do not call for survival of the agreements in the event of a merger. Second, American asserts that Western's collective bargaining agreements will terminate upon the consummation of a merger by virtue of federal law since survival of the agreements would result in American's having to treat with a minority union in violation of national labor policy.

By letter dated February 5, 1971, approximately two weeks before the mailing of the proxy statements, the Teamsters filed a grievance with Western alleging that Western had violated the Western-Teamsters agreements "by consummating an agreement of merger with American ... which fails to provide that these agreements shall be binding upon American, as successor or assign of the company Western, for their duration." By letters dated May 14 and May 19, 1971, subsequent to the mailing of the proxy statements, the Western pilots' Master Executive Counsel and stewardesses' Master Executive Counsel respectively filed grievances with Western, each alleging that Western had violated the pilots' and stewardesses' collective bargaining agreements "by failing to provide and assure that the Association-Western collective bargaining agreements shall be binding upon American Airlines in the proposed merger." Western's obligation to arbitrate these grievances was the subject of a separate declaratory judgment action brought by Western in the Federal District Court for the Central District of California. That court has recently ordered that arbitration proceed.


The merger agreement, which was attached to and incorporated in the proxy statements, contains the standard clause required by Section 259 of the Delaware Corporation Law, 8 Del.C. § 259:

"On the effective date of the merger, all the rights, privileges, power and franchises ... of each of the Constituent Corporations shall be possessed by ... American, subject to all the restrictions, disabilities and duties of each of the Constituent Corporations ... and all debts, liabilities and duties of the respective Constituent Corporations shall upon
339 F. Supp. 279
the effective date of the merger attach to American, and may be enforced against it to the same extent as if such debts, liabilities and duties had been incurred or contracted by it."

Both proxy statements, in the context of a summary of the terms of the merger agreement, also contain a statement to the effect that American will assume the debts, liabilities and other obligations of Western.

The proxy statements, in customary fashion, included a description of the business and property of each of the two companies. Each description included a subsection entitled "Employees" which disclosed the number of employees in the company; the number of employees represented by unions; the fact that, with one exception, the employees of the company were represented by unions different from those representing the employees of the other company; the existence of collective bargaining agreements with various employee groups and the dates upon which they would become "open for amendment"; and the fact that the company was currently negotiating the terms of one or more "open" agreements.

The merger agreement itself contained the following provisions:

"All the employees of the Constituent Corporations on the effective date of the merger will become employees of the Surviving Corporation. Thereafter, in case of a reduction in the number of employees, equal opportunity for employment in the available positions will be afforded to qualified employees of both of the Constituent Corporations, giving consideration to experience, length of service and ability, as determined by the Surviving Corporation. The Surviving Corporation will also accept reasonable labor protective provisions prescribed by the Civil Aeronautics Board, which may provide, among other things, for allowances for certain employees who may be displaced or dismissed as a result of

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