Mitchell Partners, L.P. v. Irex Corp.
53 A.3d 39
Pa.2012Background
- Pennsylvania Business Corporation Law provides dissenter's rights and post-merger valuation remedies for minority shareholders in certain mergers.
- Section 1105 restricts equitable relief; absent fraud or fundamental unfairness, dissenters' remedies are exclusive to the appraisal process under Subchapter D.
- Mitchell Partners, L.P. was a minority shareholder in Irex Corp. that pursued a cash-out merger structured to squeeze out minority holders.
- Mitchell filed a diversity action in federal court alleging breach of fiduciary duties and related tort claims, arguing post-merger remedies exist besides appraisal.
- The district court dismissed, adopting Jones & Laughlin Steel Corp.’s view that post-merger relief is limited to appraisal; Third Circuit later certified the issue to Pennsylvania Supreme Court.
- The Third Circuit held that Section 1105 does not extinguish post-merger damages claims for fraud or fundamental unfairness, and that appraisal and common-law claims can coexist.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does §1105 preclude post-merger remedies other than appraisal? | Mitchell: no; appraisal exclusivity should not bar common law claims. | Irex: yes; Jones forecloses post-merger damages outside appraisal. | §1105 precludes post-merger remedies only absent fraud/fundamental unfairness. |
| May fraud or fundamental unfairness exception apply post-merger? | Mitchell: exception should cover post-merger abuses by insiders. | Irex: exception is narrow and not triggered by mere price inadequacy. | Fraud or fundamental unfairness exception exists but requires showing; not applicable to mere inadequacy in price. |
Key Cases Cited
- Jones & Laughlin Steel Corp., 488 Pa. 524 (Pa. 1980) (exclusive post-merger appraisal jurisdiction question)
- Herskowitz v. Nutri/System, Inc., 857 F.2d 179 (3d Cir. 1988) (pre-merger actionable claims coexist with appraisal)
- Mitchell Partners, L.P. v. Irex Corp., 656 F.3d 201 (3d Cir. 2011) (post-merger damages may coexist with appraisal; discusses §1105 interpretation)
- In re Jones & Laughlin Steel Corp., 328 Pa. Super. 442 (Pa. Super. Ct. 1984) (predecessor context on appraisal vs. merger validity)
- Barter v. Diodoardo, 771 A.2d 835 (Pa. Super. Ct. 2001) (distinguishes financial unfairness from fraud or illegality)