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

September 29, 2010

MITCHELL PARTNERS, L.P., PLAINTIFF
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; JANE E. PINKERTON; KENNETH G. STOUDT; AND N. THOMPSON WASHBURN, DEFENDANTS



The opinion of the court was delivered by: James Knoll Gardner, United States District Judge

OPINION

This matter is before the court on Defendants' Motion to Dismiss Plaintiff's Complaint or, in the Alternative, to Stay the Action ("Motion to Dismiss") filed September 29, 2009, which motion seeks to dismiss plaintiff's Complaint filed October 8, 2008 in its entirety. Upon consideration of the briefs of the parties and for the reasons expressed below, I grant defendants' Motion to Dismiss and dismiss plaintiff's Complaint.

INTRODUCTION

This case arises out of the merger of defendant Irex Corporation ("Irex") with a special purpose corporation subsidiary of defendant North Lime Holdings Corp. ("North Lime"). Plaintiff Mitchell Partners, L.P. ("Mitchell Partners"), which is a former minority shareholder of Irex, was "squeezed out" in this merger.*fn1 Plaintiff contends that the merger used an unfair process and squeezed plaintiff out of Irex at an unfair price.

Plaintiff's three-count Complaint asserts claims for breach of fiduciary duties, aiding and abetting breach of fiduciary duties, and unjust enrichment against various defendants responsible for the merger.

In Count I, plaintiff claims breach of fiduciary duties by Irex, North Lime, and various directors and officers of Irex.

The individual defendants named in Count I are W. Kirk Liddell, David C. Kleinman, Paul J. Isaac, Joann M. Judge, Michael J. Lardner, John O. Shirk, Thomas W. Wolf, Lori A. Pickell, and James E. Hipolit (collectively "insider defendants").

In Count II, plaintiff claims breach of fiduciary duties and, in the alternative, aiding and abetting breach of fiduciary duties by the members of the special committee formed by Irex to evaluate the fairness of the merger to the squeezed out minority shareholders. The defendants named in Count II are Jane E. Pinkerton, Kenneth G. Stoudt, and N. Thomas Washburn (collectively "special defendants").

In Count III, plaintiff claims unjust enrichment against Irex, North Lime, and the insider defendants.

Defendants argue that this case should be dismissed in its entirety because it is barred by the statute of limitations and because plaintiff's sole remedy is a statutory appraisal proceeding.

Defendants argue that Counts I and II should be dismissed because the defendants do not owe plaintiff fiduciary duties and because Pennsylvania does not recognize a cause of action for aiding and abetting breach of fiduciary duties. Defendants argue that Count III should be dismissed because unjust enrichment is an equitable remedy, which is not available because the statutory appraisal proceeding provides an adequate remedy at law.

In the alternative, defendants argue that this action should be stayed pending resolution of the statutory appraisal proceeding.

JURISDICTION

Jurisdiction in this case is based upon diversity of citizenship pursuant to 28 U.S.C. § 1332.

VENUE

Venue is proper pursuant to 28 U.S.C. § 1391(a)(1) because plaintiff alleges that at least one defendant resides in this judicial district and that all defendants reside in the Commonwealth of Pennsylvania. Venue is also proper pursuant to 28 U.S.C. § 1391(a)(2) because the events giving rise to plaintiff's claims allegedly occurred in this judicial district.

STANDARD OF REVIEW

A claim may be dismissed under Federal Rule of Civil Procedure 12(b)(6) for "failure to state a claim upon which relief can be granted." A 12(b)(6) motion requires the court to examine the sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 102, 2 L.Ed.2d 80, 84 (1957) (abrogated in other respects by Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Generally, in ruling on a motion to dismiss, the court relies on the complaint, attached exhibits, and matters of public record, including other judicial proceedings. Sands v. McCormick, 502 F.3d 263, 268 (3d Cir. 2008).

Except as provided in Federal Rule of Civil Procedure 9, a complaint is sufficient if it complies with Rule 8(a)(2), which requires "a short and plain statement of the claim showing that the pleader is entitled to relief."

Rule 8(a)(2) does not require "heightened fact pleading of specifics, but only enough facts to state a claim to relief that is plausible on its face." Twombly, 550 U.S. at 570, 127 S.Ct. at 1974, 167 L.Ed.2d at 949.*fn2

In determining whether a complaint is sufficient, the court must "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Fowler, 578 F.3d at 210 (quoting Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008)).

Although "conclusory" or "bare-bones" allegations will not survive a motion to dismiss, Fowler, 578 F.3d at 210, "a complaint may not be dismissed merely because it appears unlikely that the plaintiff can prove those facts or will ultimately prevail on the merits." Phillips, 515 F.3d at 231. To survive a 12(b)(6) motion, the complaint must provide "enough facts to raise a reasonable expectation that discovery will reveal evidence of" the necessary elements. Id. at 234 (quoting Twombly, 550 U.S. at 556, 127 S.Ct. at 1965, 167 L.Ed.2d at 940).

The court performs a two-part analysis when considering a Rule 12(b)(6) motion. First, the court separates the facts averred in the complaint from any legal conclusions asserted therein. Fowler, 578 F.3d at 210-211. All facts pled must be taken as true, but any legal conclusions may be disregarded. Id. Second, the court determines whether the facts alleged are sufficient to show that the plaintiff has a "plausible claim for relief." Id. at 211 (quoting Iqbal, ___ U.S. at ___, 129 S.Ct. at 1950, 173 L.Ed.2d at 884).

This two-part analysis is "context-specific" and requires the court "to draw on its judicial experience and common sense" to determine if the facts pled in the complaint have "nudged" plaintiff's claims over the line "from conceivable to plausible." Iqbal, ___ U.S. at ___, 129 S.Ct. at 1950-1951, 173 L.Ed.2d at 884-885. A well-pleaded complaint may not be dismissed simply because "it strikes a savvy judge that actual proof of those facts is improbable, and 'that a recovery is very remote and unlikely.'" Twombly, 550 U.S. at 556, 127 S.Ct. at 1965, 167 L.Ed.2d at 940-941 (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90, 96 (1974)).

FACTS

Based upon the allegations in plaintiff's Complaint, which under the foregoing standard of review I must accept as true for purposes of defendants' Motion to Dismiss, the pertinent facts are as follows.

Plaintiff is a former minority shareholder of Irex. Plaintiff was squeezed out in Irex's merger with a special purpose corporation subsidiary of defendant North Lime.*fn3 This merger was "for the specific purpose of squeezing out" the minority shareholders "so that Irex could be converted to an S-Corporation and deliver significant federal income tax benefits" to the insider defendants.*fn4 The merger used an unfair process and squeezed plaintiff and the other minority shareholders out of Irex at an inadequate and unfair price.*fn5

As early as November 2005, defendant Liddell, Irex's Chairman, President, and CEO, began preliminary discussions regarding the squeeze-out merger.*fn6 At that time, each member of Irex's board of directors had interests in the merger which conflicted with the interests of plaintiff and the other minority shareholders.*fn7

On April 26, 2006, defendant Liddell revealed his plan to squeeze out Irex's minority shareholders to the other insider defendants. Pursuant to this plan, the insider defendants would create a holding company, defendant North Lime, provide their voting proxies to North Lime, and cause North Lime to acquire Irex in a self-dealing transaction.*fn8

On May 15, 2006, defendant Pickell, the chief financial officer, secretary, and treasurer of both Irex and North Lime, wrote to Irex's shareholders and employees to inform them that North Lime was offering $60 cash per share of Irex stock.*fn9 A week later, plaintiff responded to oppose the proposed merger, contending that it would squeeze out Irex's minority shareholders at an unfair price.*fn10

On May 31, 2006, Irex's board of directors held a special meeting to discuss the proposed merger.*fn11 At this meeting, Irex amended its corporate by-laws to add additional directors so that a special committee of disinterested directors could be formed to review the proposed merger and protect it from allegations of conflicts of interest.*fn12

On June 12, 2006, Irex's board of directors named the special defendants to the special committee.*fn13 The special committee was tasked with determining whether North Lime's offer for Irex's stock was fair and adequate to the ...


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