Mitchell Partners, L.P. v. Irex Corp.

The directors (defendants) of Irex Corporation (defendant) approved Irex’s merger with a subsidiary of North Lime Holdings Corporation (North Lime) (defendant). This squeeze-out deal required minority shareholders such as Mitchell Partners, L.P. (Mitchell) (plaintiff) to cash out their holdings, leaving the shareholders without shares in the merged enterprise. Mitchell objected to the transaction, claiming that it undervalued Mitchell’s shares. Based on that claim, the relevant Pennsylvania statute gave Mitchell the right to demand a judicial appraisal of its shares. The statute generally made judicial valuation a dissenting shareholder’s exclusive remedy, although the statute recognized exceptions in cases involving fraud or fundamental unfairness. Irex and North Lime completed the merger, and Irex commenced judicial-valuation proceedings on Mitchell’s behalf. Not content with that remedy, Mitchell sued Irex, its directors, and North Lime in federal district court, accusing them of fraud and breach of fiduciary duty. The district court acknowledged the Pennsylvania statute’s fraud and fundamental-unfairness exceptions but ruled that those exceptions applied only to cases filed prior to a merger’s consummation. Because Mitchell filed its case after the merger, the district court ruled that judicial valuation provided Mitchell’s only remedy and dismissed the case. After a three-judge appellate panel reversed, the full Third Circuit Court of Appeals agreed to hear the case and submitted a certified question to the Pennsylvania Supreme Court as to the exclusivity of Pennsylvania’s judicial-valuation remedy.