## Facts

- Texas International Airlines, Inc. (TIA) proposed a share-for-share reorganization through a merger into a newly formed holding company, Texas Air Corporation (Texas Air), approved at a June 11, 1980 annual meeting.
- Jet Capital Corporation (Jet) owned about 35% of TIA’s shares and could block the reorganization by voting against it.
- The merger would have created a substantial tax cost for Jet unless Jet could exercise TIA warrants before the merger; Jet threatened to oppose the merger absent a financing solution.
- TIA’s board considered and approved a $3,335,000 loan to Jet to fund early warrant exercise; a committee of disinterested directors, with outside advice, evaluated the loan and found it prudent and reasonable.
- The loan carried 5% interest initially, increased to prime after the warrants expired, and was to be repaid immediately upon Jet’s exercise of the warrants.
- The loan was submitted to shareholders for ratification with (i) a majority-of-outstanding-shares requirement and (ii) a separate majority of disinterested shares (excluding Jet and its affiliates), following full disclosure; shareholders approved by an overwhelming margin.
- A TIA shareholder brought a derivative action challenging the loan as (i) corporate waste and (ii) impermissible vote-buying that should invalidate the shareholder vote on the reorganization.
- The case came before the Court of Chancery on cross-motions for summary judgment.

## Issues

1. Whether a derivative plaintiff loses standing after a reorganization merger when the plaintiff’s shares are converted into an equivalent equity interest in a successor holding company.
2. Whether an arrangement that confers a benefit on a stockholder in exchange for support of a corporate transaction is illegal vote-buying that is void, or instead voidable and capable of stockholder ratification if fully disclosed and not disenfranchising.
3. Whether the loan constituted corporate waste as a matter of law, or whether material factual disputes precluded summary judgment.

## Decision

- The court held the plaintiff retained standing because the merger did not materially change the plaintiff’s underlying equity interest in the enterprise.
- The court held the alleged vote-buying did not render the transaction void ab initio; such arrangements are voidable and may be permissible where fully disclosed and not fraudulent or disenfranchising.
- The court denied the plaintiff’s summary-judgment motion because the vote-buying theory did not establish invalidity as a matter of law in light of disclosure and disinterested-stockholder approval.
- The court denied the defendants’ summary-judgment motion because material fact questions remained on whether the loan’s terms could constitute waste under Delaware’s stringent standard.

## Legal Principles

- Post-merger derivative standing may persist where a reorganization changes the form of ownership but does not substantially alter the stockholder’s equitable interest, applying a substance-over-form approach to continuous ownership.
- Vote-buying is not per se unlawful; the validity of a voting arrangement depends on whether it involves fraud, coercion, or stockholder disenfranchisement.
- A vote-buying arrangement is generally voidable rather than void, and an informed vote of disinterested stockholders can ratify the transaction.
- Corporate waste requires a showing that the exchange is so one-sided that no person of ordinary, sound business judgment could conclude the corporation received adequate consideration; whether that standard is met may require fact development.

## Conclusion

The Court of Chancery ruled that the derivative plaintiff kept standing after the holding-company reorganization, treated the challenged voting arrangement as potentially ratifiable vote-buying rather than automatically void conduct, and denied both sides’ summary-judgment motions because the waste claim turned on unresolved factual questions about the loan’s fairness and value to the corporation.


Schreiber v. Carney, 447 A.2d 17 (Del. Ch. 1982)