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The Book of the Week is “Just About Everybody vs. Howard Hughes, The Inside Story of The TWA-Howard Hughes Trial” by David B. Tinnin, published in 1973.
In the 1930’s, Howard Hughes inherited his father’s oil-industry-equipment company, Toolco, which sold a unique, patented, lucrative drill. By the early 1950’s, Hughes had become a pilot passionate about acquiring jets (whose engines had technology that was obsolescing pistons) for his airline, TWA. He was an alpha male whose desire for control of his company led to decades of complex litigation involving age-old economic and political issues.
As American society became ever more capitalistic in the Postwar Era, businessmen hired more and more attorneys to wield more and more power and influence. They sought to change the tax laws to make more and more money.
Hughes was a victim of his own success in that he was using highly leveraged, deficit financing to purchase the new jets through his Toolco. Into the 1950’s, individuals (rather than their companies or employers) were the ones responsible for debts if they needed to borrow money for their businesses. This economic condition has come full circle with tech startups.
Hughes borrowed from banks and insurance companies, but by the late 1950’s, his debt was so high, they refused to give him special treatment. He used dirty tricks (which arguably weren’t illegal but were unethical, at best) to order jets from a few different suppliers.
Hughes’ incestuous business transactions generated an escalation of commitment among various parties, who were averse to losing even more money if they withdrew from their ongoing deals with him. Need it be said, there is nothing new under the son (or sun– either one). In the early 1960’s, his creditors terminated his borrowing privileges and created a voting trust that took control of TWA. Neither side wanted to see TWA go bankrupt. There were, of course, other wrenches in the works, which are too numerous to mention here.
The orgy of litigation resulting from Hughes’ business activities triggered a very controversial legal and economic issue. Hughes owned 78.23% of the voting stock of TWA, which was financially affiliated with his Toolco. At that time, TWA shares were not owned by the general public. His side argued that he should be allowed to control his companies as he saw fit, because he had a controlling interest in them. On the other hand, he really didn’t own them– his creditors did!
Besides that, if TWA went belly-up, there would be far-reaching economic consequences for many stakeholders. All employees of TWA would lose their jobs, competing airlines would benefit financially, contractors supplying jets and their parts to TWA would lose a customer, Hughes’ lenders would lose megabucks, etc., etc., etc.
According to the book (which appeared to be credible although it lacked Notes, Sources, References, and Bibliography), in June 1961, the big lawsuit initially launched in federal court in the Southern District of New York against Hughes was named TWA v. Howard Hughes. TWA charged Hughes with making special deals with third parties that led to financial harm for TWA. He tried to keep competing airlines from buying jets he wanted for TWA, through monopolistic practices.
BUT, due to disastrous losses (from a downturn in air travel that prompted proposals of various airline mergers, and his tax-evasion tricks), Hughes chose to cancel a portion of jet orders for TWA. Under his crushing debt load, he couldn’t afford to pay for all of his purchases. So the airline couldn’t stay competitive in the commercial airline industry. Other airlines were purchasing jets sooner at lower cost. Hughes’ series of attorneys through the years, of course used all manner of shenanigans (through: filing a blizzard of documents with creative legal arguments, counter-suing and appealing rulings) to delay the case.
One last-minute development that aided Hughes’ attorney before Hughes would be charged with contempt of court yet again, was a curious January 1963 Supreme Court ruling regarding jurisdiction in connection with a monopolistic entity. There was a little federal agency called the Civil Aeronautics Board (CAB), that had been regulating the airlines. The attorney repeatedly tried to get the case against Hughes dismissed– by arguing that CAB, rather than a federal court, should have been trying Hughes’ case.
Read the book to learn every last detail of this suspenseful story that spawned reams of tabloid fodder, but also greatly impacted the legal, economic and tax cultures of corporate America.