Corporate practitioners in Pennsylvania have long believed that while a transaction may be susceptible to pre-merger lawsuits for breach of fiduciary duty or equitable claims for injunctive relief, after the merger was completed a plaintiff’s sole remedy was the statutory appraisal proceeding. This belief was consistent with the tenor of Pennsylvania Business Corporation Law (Pa. BCL) generally as an attractive situs in which to incorporate and seemed to be consistent with a plain reading of §1105 of the Pa. BCL relating to limitations on equitable remedies.
However, in its Aug. 31 opinion in Mitchell Partners L.P. v. Irex Corp. , the 3rd U.S. Circuit Court of Appeals, addressing an issue that had not yet been explicitly addressed under Pennsylvania case law, held that Pennsylvania’s appraisal rights statute is not an exclusive remedy, and does not preclude post-mergersuits for damages alleging that majority shareholders breached their fiduciary duties to minority shareholders in the process of consummating a freeze out merger. In so holding, by a 2-1 vote, the 3rd Circuit reversed the decision of the district court that the appraisal statute was an exclusive post-merger remedy barring shareholder suits for breach of fiduciary duty.
Background of the Transaction
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