Schreiber v. Carney

A merger was proposed between Texas International Airlines, Inc. (TIA) and Texas Air. Jet Capital Corporation (Jet) (defendant) owned 35 percent of TIA’s voting shares. Jet opposed the merger, because it would cause an $800,000 tax liability for Jet. Jet threatened to block the merger, unless Jet was able to exercise stock warrants in TIA. Jet did not have the money to exercise the warrants and claimed securing an outside loan was cost-prohibitive. TIA appointed a committee of uninterested directors to consider a loan to Jet. The committee consulted experts and determined the loan was “prudent and reasonable.” TIA loaned Jet $3,335,000 at 5 percent interest, which increased to prime interest on the expiration of Jet’s warrants and had to be repaid immediately on Jet’s exercise of the warrants. The deal had little financial impact on TIA. The board voted unanimously to approve the loan and submitted it to shareholders. Passage was contingent on a majority vote of all outstanding shares and a majority of uninterested shareholders (excluding Jet and its officers and directors). Full disclosure was made beforehand, and shareholders passed the measure by an “overwhelming” majority. TIA shareholder Leonard Schreiber (plaintiff) sued. Schreiber claimed the measure was void, because it was achieved through vote-buying, and that the loan constituted corporate waste.