Trans World Airlines, Inc. v. Hughes

• Decision Date: 19 February 1974
• Parties: TRANS WORLD AIRLINES, INC., Plaintiff, v. Howard R. HUGHES and Hughes Tool Company, Defendants, and The Equitable Life Assurance Society of the United States et al., Additional Defendants on Counterclaims.
• Court: Court of Chancery of Delaware

Page 114

317 A.2d 114

TRANS WORLD AIRLINES, INC., Plaintiff, v. Howard R. HUGHES and Hughes Tool Company, Defendants, and The Equitable Life Assurance Society of the United States et

al., Additional Defendants on Counterclaims.

Court of Chancery of Delaware, New Castle County.

Feb. 19, 1974.

Louis J. Finger, Richards, Layton & Finger, Wilmington, and Dudley B. Tenney, Paul W. Williams, and Marshall Cox, Cahill, Gordon & Reindel, New York City, for plaintiff.

George Tyler Coulson, Morris, Nichols, Arsht & Tunnell, Wilmington, and Chester C. Davis and Maxwell E. Cox, Davis & Cox, New York City, for defendants.

William Prickett, Prickett, Ward, Burt & Sanders, Wilmington, and Cravath, Swaine & Moore, New York City, for the additional defendants the Equitable Life Assurance Society of the United States and Metropolitan Life Ins. Co. and Harry C. Hagerty.

William S. Potter, Potter, Anderson & Corroon, Wilmington, appearing specially for the additional defendant Irving Trust Co.

Leroy A. Brill, Bayard, Brill & Handelman, Wilmington, and Sullivan & Cromwell, New York City, for the additional defendant Ernest R. Breech.

Carl Schnee, Tybout, Redfearn & Schnee, Wilmington, for the additional defendant Charles C. Tillinghast, Jr.

MARVEL, Vice Chancellor:

On June 30, 1961, Trans World Airlines, Inc., the plaintiff in this later filed action, instituted an anti-trust suit for treble damages in the District Court of the United States for the Southern District of New York against Howard R. Hughes, Hughes Tool Company, and Raymond M. Holliday, an official of the corporate defendant and a director of plaintiff, which complained of injuries allegedly suffered by plaintiff as a result of the improperly administered control exercised over the affairs of such corporation by the defendants Howard R. Hughes and Hughes Tool Company, which latter corporation (all of the stock of which was owned by Mr. Hughes) had prior to the inception of such federal action held an unfettered controlling 78% Interest in the voting shares of the plaintiff.

The gist of the charges levelled against Hughes Tool Company and others in such action was that as a condition precedent to the furnishing of financial aid to plaintiff, Hughes Tool Company and others associated with it, had required that plaintiff acquire its needed aircraft solely through such defendant corporation and was thus caused to boycott all other suppliers of aircraft. Further complaint was made that plaintiff had been improperly forced by Hughes Tool Company and others associated with it to acquire needed aircraft through borrowings rather than through equity financing.

The complaint in question consisted of two federal claims alleging violations of federal anti-trust laws together with a third pendent state claim which alleged tortious interference by defendants with the business of TWA, which claim was based on the same facts pleaded in the first and second claims.

The complaint in this suit, which was filed on April 18, 1962, alleges substantially the same facts as those set forth in the federal complaint, the relief sought herein, however, being based on equitable principles governing the conduct required of corporate officers and majority stockholders in their dealings with their corporation, such action claiming breaches by the named defendants of their fiduciary duty to plaintiff and its minority stockholders.

This is the decision of the Court on the motion of the defendants to dismiss the pending complaint on the grounds of res judicata and collateral estoppel as well as under the provisions of Rule 41(b), Del.C.Ann., and, in the alternative, on the ground that approval by the Civil Aeronautics Board of business dealings between TWA and its controlling stockholder, Hughes Tool Company, here in issue, has resulted in the granting of immunity to defendants from this suit on the basis of the provisions of section 414 of the Federal Aviation Act, 49 U.S.C. § 1384, ¹ defendants contending that the operative facts on which plaintiff relies in this case are substantially the same as those relied on in the federal litigation and that plaintiff may not be permitted to retry the consequences implicit in a prior ruling based on such facts merely because a different legal theory is now being pursued. Also ready for decision is the motion of the additional defendants for dismissal of the counterclaims asserted against them by the corporate defendant on the ground that such claims are also barred by the principle of res judicata.

Litigation between TWA and defendants, concerned with the control exercised over TWA by Hughes Tool Company by reason of the eventual ownership by Hughes Tool Company of 78% Of TWA's voting stock, began, as noted above, in 1961, following the deposit of Hughes Tool Company's TWA stock in a voting trust, by the filing of an anti-trust action by TWA in the Federal District Court of the United States for the Southern District of New York. Thereafter, following almost a year of parrying over respective rights to discovery, this holding action was filed on April 18, 1962, Howard R. Hughes and again Hughes Tool Company being named as defendants. The motion of the defendant Howard R. Hughes to quash an order of sequestration, which had seized designated property of Mr. Hughes situate in Delaware for the purpose of compelling his appearance, as well as a motion to dismiss the complaint, having been denied, this Delaware action was thereafter held in abeyance without the entrance of a formal stay pending the outcome of the New York litigation.

In its answer to the New York complaint Hughes Tool Company pleaded as a defense that the transactions complained of in such action, having been conducted between two entities engaged in the aeronautics business, fell within the jurisdiction of the Civil Aeronautics Board and that by virtue of the Federal Aviation Act, 49 U.S.C. § 1301 et seq., such transactions, which had been found by the Board to have been essential to the public interest, were accordingly immune from prosecution under the provisions of the anti-trust laws. One the basis of such defense, Hughes Tool Company moved to dismiss the complaint which motion was denied (S.D.N.Y.), 214 F.Supp. 106, a decision which was affirmed on appeal. (C.A.2), 332 F.2d 602. Thereafter, on the failure of the defendants in such action to contest the allegations of the complaint, a default judgment was entered against Hughes Tool Company, which judgment was thereafter affirmed. The Supreme Court of the United States then granted certiorari, but later dismissed such writ as improvidently granted.

Such federal action was then remanded to the trial court which ordered the introduction of evidence on the issue of damages before a special master, a proceeding which the trial judge characterized as an inquest. The result of such proceeding was an initial award to plaintiff of $137,611,435.95. The judgment of the trial court was then affirmed.

Thereafter, the Supreme Court of the United States again granted certiorari, and reversed the judgment of the Court of Appeals on the ground that the trial court had erred in denying the corporate defendant's motion to dismiss the complaint on the ground of its immunity from prosecution under the anti-trust laws because of the above cited provisions of the Civil Aeronautics Act, Hughes Tool Company v. TWA, 409 U.S. 363, 93 S.Ct. 647, 34 L.Ed.2d 577. TWA's petition for rehearing was thereafter denied, and, upon remand, the New York complaint was then dismissed.

The present action, which has lain dormant since 1963 but as to which defendants have not sought dismissal for inaction, is now sought to be brought to trial by plaintiff, which seeks to have the named defendants held liable for breaches on their part of their fiduciary duty to plaintiff and its minority stockholders. The defendants, as noted above, have again moved to dismiss the complaint on the basis of the defenses above noted.

In support of their present motion to dismiss, defendants cite the case of Chadwick v. Gill, 16 Del.Ch. 127, 141 A. 618, for the proposition that this Court will not interfere with the prosecution of a companion case in another jurisdiction until final judgment, the Court holding in the cited case that until the entry of final judgment in one court or the other, each court should be open to the prosecution of the companion case. Thus, defendants argue, plaintiff, having rested on its rights in this present equity case since 1963, by not only failing to prosecute this action but by also permitting the New York case to go to final judgment in a case in which a pendent common law claim of breach of fiduciary duty was pleaded, such state cause of action may not be relitigated in this Court. In other words, it is contended that plaintiff should not now be permitted in this long pending litigation to assert a right to split federal statutory claims from a common law claim, and seek to proceed to trial on a common law claim after losing the federal statutory claims.

Res judicata is a principle which '* * * embodies a rule of public policy, that courts as well as litigants should have rest and repose from the vexatious renewal of the same law suit.', Epstein v. Chatham Park, Inc., 2 Storey 56, 63, 153 A.2d 180. Thus, generally speaking '* * * a valid and final personal judgment rendered in favor of the defendant bars another action by the plaintiff on the same claim.', Restatement Judgments Second § 48, and constitutes an absolute bar to a subsequent action on the same claim as to the parties and their privies on all theories which were litigated or which could have been litigated in the earlier proceeding, Cromwell v. County of Sac, 94 U.S. 351, 24 L.Ed. 195. See also Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898. The bar of res judicata also operates as a defense to any other admissible evidence which might have...