Mitchell Partners, L.P. v. Irex Corp. , 497 F. App'x 259 ( 2012 )

NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_________
No. 10-4040
_________
MITCHELL PARTNERS, L.P.
Appellant
v.
IREX CORPORATION; NORTH LIME HOLDINGS CORP.;
W. KIRK LIDDELL; DAVID C. KLEINMAN; PAUL J. ISAAC;
JOANN M. JUDGE; MICHAEL J. LARDNER; JOHN O. SHIRK;
THOMAS W. WOLF; LORI A. PICKELL; JAMES E. HIPOLIT;
JANEE. PINKERTON; KENNETH G. STOUDT;
N. THOMPSON WASHBURN
________
No. 10-4091
________
MITCHELL PARTNERS, L.P.
v.
IREX CORPORATION; NORTH LIME HOLDINGS CORP.;
W. KIRK LIDDELL; DAVID C. KLEINMAMN; PAUL J. ISAAC;
JOANN M. JUDGE; MICHAEL J. LARDNER; JOHN O. SHIRK;
THOMAS W. WOLF; LORI A. PICKELL; JAMES E. HIPOLIT;
JANE E. PINKERTON; KENNETH G.STOUDT;
N. THOMPSON WASHBURN,
Appellants
________
On Petition for Review of an Order of the United
States District Court for the Eastern District of Pennsylvania
(D.C. No. 5-08-cv-4814)
District Judge: Honorable James K. Gardner
Argued July 12, 2011
Before: SLOVITER, FUENTES and GARTH, Circuit Judges.
____________
JUDGMENT ORDER
____________
It appearing that:
On October 8, 2008, the plaintiff-appellant Mitchell Partners, L.P., a minority
shareholder of Irex Corp., brought an action in the Eastern District of Pennsylvania
alleging, among other things, breach of fiduciary duty and unjust enrichment against the
defendants-appellees Irex Corp., North Lime Holdings Corp., and a number of
individuals. The Mitchell Partners complaint described a disputed acquisition of Irex
Corp. by North Lime, which Mitchell Partners claimed “squeezed them out.” Mitchell
Partners sought, inter alia, compensatory damages arising from its breach of fiduciary
duty claims as well as disgorgement of any amount by which the defendants had been
unjustly enriched. Mitchell Partners pursued these remedies in the United States District
Court for the Eastern District of Pennsylvania in addition to pursuing, in state court, any
compensation to which it might be entitled through a statutory appraisal proceeding.
The District Court dismissed Mitchell Partners’ claim as not stating a cause of
action, holding that, pursuant to 15 Pa. Cons. Stat. § 1105, a statutory appraisal provided
the only available remedy. Section 1105 provides:
A shareholder of a business corporation shall not have any right to obtain,
in the absence of fraud or fundamental unfairness, an injunction against any
proposed plan or amendment of articles authorized under any provision of
this subpart, nor any right to claim the right to valuation and payment of the
fair value of his shares because of the plan or amendment, except that he
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may dissent and claim such payment if and to the extent provided in
Subchapter D of Chapter 15 (relating to dissenters rights) where this
subpart expressly provides that dissenting shareholders shall have the rights
and remedies provided in that subchapter. Absent fraud or fundamental
unfairness, the rights and remedies so provided shall be exclusive.
Structuring a plan or transaction for the purpose or with the effect of
eliminating or avoiding the application of dissenters rights is not fraud or
fundamental unfairness within the meaning of this section.
(Footnote omitted.) The District Court further noted that in In re Jones & Laughlin
Steel Corp., 488 Pa. 524, 533, 412 A.2d 1099, 1104 (1980), “the Supreme Court of
Pennsylvania clearly stated that post-merger remedies are limited to the appraisal
of the fair market value of their stock.” Mitchell Partners, L.P. v. Irex Corp., No.
08-CV-04814, 2010 WL 3825719, at *5 (E.D. Pa. Sept. 29, 2010).
We reversed that decision by a divided opinion. A Petition for panel rehearing was
thereafter filed and granted. That Petition led to the certification 1 of the following
question to the Pennsylvania Supreme Court:
Does [§ 1105], providing for appraisal of the value of the shares of minority
shareholders who are “squeezed out” in a cash-out merger preclude all
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Our Court’s Local Rule 110.1, “Certification of Questions of State Law,” provides:
When the procedures of the highest court of a state provide for certification
to that court by a federal court of questions arising under the laws of that
state which will control the outcome of a case pending in the federal court,
this court, sua sponte or on motion of a party, may certify such a question
to the state court in accordance with the procedures of that court, and will
stay the case in this court to await the state court’s decision whether to
accept the question certified. The certification will be made after the briefs
are filed in this court. A motion for certification shall be included in the
moving party’s brief.
3d Cir. L.A.R. 110.1 (2011). See also 210 Pa. Code § 63.10 (2007) for certification of a
question arising under the laws of Pennsylvania.
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other post-merger remedies including claims of fraud, breach of fiduciary
duty, and other common law claims.
(Emphasis added.)
The Pennsylvania Supreme Court accepted this court’s Petition and, on July 24,
2012, answered the certified question by holding that Jones is not controlling in the
context of the present action; Mitchell Partners, L.P. v. Irex Corp., No. 13 EAP 2012,
2012 WL 3007224, at *6 (Pa. July 24, 2012); and that § 1105 permits post-merger
damage actions sounding in fraud or fundamental unfairness. Id. at *8.
The holding of the Pennsylvania Supreme Court, representing the substantive law
of Pennsylvania, mandates that we reverse the District Court and remand this proceeding
to the District Court for the Eastern District of Pennsylvania for further proceedings,
including discovery and adjudication on the merits, consistent with the Pennsylvania
Supreme Court’s answer to our certified question.
It is therefore ORDERED and ADJUDGED that that the judgment of the District
Court entered September 29, 2010, dismissing Mitchell Partners’ complaint be and the
same is hereby reversed and remanded for further proceedings consistent with the
Pennsylvania Supreme Court’s opinion and answer to our certified question dated July
24, 2012. No costs to be taxed.
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BY THE COURT:
/s/ Leonard I. Garth
United States Circuit Judge
ATTEST:
/s/Marcia M. Waldron,
Clerk
DATED: September 19, 2012
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