Mitchell Partners, L.P. v. Irex Corp.
656 F.3d 201
3rd Cir.2011Background
- Mitchell Partners, L.P. held >11,000 Irex shares as a substantial minority.
- North Lime proposed a cash-out merger forming a new holding company to take Irex private.
- Special Committee was created but allegedly consisted of insiders or those with ties to North Lime.
- Alleged fiduciary breaches: asbestos discount manipulation, information control, and misstatement/omission in proxy materials.
- Merger completed Oct 20, 2006; Mitchell Partners pursued state-court appraisal and then filed a federal damages action in 2008.
- District Court dismissed all Counts as precluded by appraisal remedy; Third Circuit reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is the appraisal remedy exclusive post-merger for dissenters under PA law? | Appraisal is not the sole post-merger remedy. | Appraisal is the exclusive post-merger remedy for dissenters. | No, post-merger damages may proceed. |
| Does Section 1105 fraud/fundamental unfairness carve-out permit post-merger fiduciary claims? | Fraud/unfairness exceptions allow non-appraisal claims. | Exclusivity remains unless fraud/unfairness occurs pre-merger. | Yes, fraud or fundamental unfairness carve-out permits post-merger claims. |
| Would PA Supreme Court likely permit post-merger fiduciary-duty damages claims? | PA would recognize coexistence of appraisal and common-law claims. | PA would restrict to appraisal post-merger. | Court predicts PA would permit post-merger damages claims. |
Key Cases Cited
- In re Jones & Laughlin Steel Corp. (Jones II), 488 Pa. 524, 412 A.2d 1099 (Pa. 1980) (exclusive post-merger appraisal remedy, but not pre-merger injunctive relief or fraud claims)
- In re Jones & Laughlin Steel Corp. (Jones I), 263 Pa. Super. 378, 398 A.2d 186 (Pa. Super. Ct. 1979) (appraisal court lacks jurisdiction over merger validity; pre-merger injunctive relief discussed)
- Herskowitz v. Nutri/System, Inc., 857 F.2d 179 (3d Cir. 1988) (appraisal coexistence with common-law claims; pre-merger context in Herskowitz)
- Cede & Co. v. Technicolor, Inc., 542 A.2d 1182 (Del. 1988) (appraisal and fiduciary-breach claims serve different remedies)
- Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983) (expanded fair value concept under appraisal)
- Warden v. McLelland, 288 F.3d 105 (3d Cir. 2002) (pre-merger injunctive relief distinguished from post-merger analyses)