Justia Pennsylvania Supreme Court Opinion Summaries

Articles Posted in Corporate Compliance

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This case involved questions of how the attorney-client privilege should apply in the context of derivative litigation. The nonprofit corporations involved in this matter were the Pittsburgh History and Landmarks Foundation (“the Foundation”) and its subsidiary, the Landmarks Financial Corporation (“the Corporation”), which managed the Foundation’s endowment. Plaintiffs were five former members of the Boards of Trustees of the Foundation and the Corporation who alleged they were improperly and ineffectively removed from the Boards in an attempt to thwart their oversight of the Foundation’s president, whom they believed was engaging in actions that were improper and not in accord with the Foundation’s mission. The Foundation’s Board created a Governance Task Force to review various practices of the Foundation; the Task Force recommended that both Boards be reduced substantially in number. The Foundation Board approved this recommendation and removed all trustees then serving from both Boards; significantly smaller boards were elected and as a result of these consolidations, and Derivative Plaintiffs lost their seats on the Boards. In accord with standard procedures for bringing a derivative action adopted by the Pennsylvania Supreme Court in Cuker v. Mikalauskas, 692 A.2d 1042 (Pa. 1997). The Supreme Court rejected the Commonwealth Court’s adoption of a qualified attorney-client privilege as set forth in Garner v. Wolfinbarger, 430 F.2d 1093 (5th Cir. 1970), which the Supreme Court viewed as inconsistent with prior Pennsylvania caselaw emphasizing predictability in the application of the attorney-client privilege. However, the Commonwealth Court’s decision not to apply the fiduciary or co-client exceptions to the attorney-client privilege under the facts of this case was affirmed. The matter was remanded for further al court and the Commonwealth Court and remanded the matter to the trial court for further proceedings. View "Pgh History v. Ziegler" on Justia Law

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In 1998, in order to pursue a real estate investment and development project, Lynn and Connie Hanaway, T.R. White, Inc. (“T.R. White”), and several others formed a limited partnership, Sadsbury Associates, L.P. (“Sadsbury”). The Hanaways were among several limited partners of Sadsbury, while T.R. White served as the general partner. In 2002, acting independently from Sadsbury, T.R. White contracted for options to purchase two separate tracts of land. In 2005, prompted by the success of Sadsbury, the partners of Sadsbury formed The Parkesburg Group, LP (“Parkesburg”) in order to implement a new residential development project involving two tracts of land. T.R. White served as Parkesburg’s general partner, and the Hanaways were among several limited partners. Parkesburg’s limited partnership agreement gave T.R. White broad discretion to carry out its duties. Pursuant to the express terms of the agreement, T.R. White, as the general partner, controlled “the business and affairs of the Partnership.” The crux of this dispute concerned Parkesburg’s sale of the land to a newly formed limited partnership, Parke Mansion Partners (“PMP”). The Hanaways filed a six-count complaint against T.R. White, PMP, Parkesburg, and Sadsbury, alleging T.R. White, as general partner, breached Parkesburg’s limited partnership agreement. They viewed the sale of the Parkesburg tracts to PMP as a sham, executed to freeze them out of Parkesburg. The issue presented for the Pennsylvania Supreme Court’s review centered on the applicability of the implied covenant of good faith and fair dealing to a limited partnership agreement formed pursuant to Pennsylvania’s Revised Uniform Limited Partnership Act (“PRULPA”). The Superior Court reversed the trial court’s order, which had granted partial summary judgment in favor of Parkesburg’s general partner and against two of its limited partners. The Supreme Court reversed the Superior Court’s order in relevant part, holding that the implied covenant of good faith and fair dealing was inapplicable to the Pennsylvania limited partnership agreement at issue, which was formed well before the enactment of amendments that codified such a covenant. View "Hanaway v. Parkesburg Group" on Justia Law

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The Pennsylvania Supreme Court accepted certification from the United States Court of Appeals for the Third Circuit to address the exclusiveness of a statutory appraisal remedy provided to minority shareholders in certain merger scenarios under Pennsylvania corporate law. Where there is a fair value dispute, the BCL provides for post-merger judicial valuation or appraisal of the shares. Mitchell Partners, L.P., was a minority shareholder of Irex Corporation. In 2006, Irex participated in a merger structured so that some minority shareholders would be "cashed out" and would not receive an equity interest in the surviving corporation, a wholly owned subsidiary of North Lime Holdings Corporation. Mitchell objected to the acquisition. The merger proceeded nonetheless, and Irex commenced valuation proceedings in state court to address the dispute with Mitchell. Meanwhile, Mitchell pursued common law remedies in a diversity action in federal court, naming as defendants Irex, its directors, most of its officers, and North Lime. The defendants sought dismissal on the ground that, under Section 1105 of the BCL, judicial valuation was the sole remedy available to dissenting shareholders in the post-merger timeframe. A divided three-judge panel of the Third Circuit reversed the superior court in favor of Mitchell. Defendants sought rehearing, and the Governor of Pennsylvania and several business groups moved for leave to file supportive amicus briefs. The Governor expressed particular concern that the Third Circuit had interpreted the BCL's provisions relating to dissenting shareholders' rights in a manner inconsistent with Commonwealth case law. Accordingly, he urged the Third Circuit to grant rehearing and certify a question of law to the Supreme Court. Upon review, the Supreme Court, in response to the certified question, Section 1105 (of the BCL) "precludes postmerger remedies other than appraisal only in the absence of fraud or fundamental unfairness." View "Mitchell Partners, L.P., Aplt v. IREX Corporation" on Justia Law