Gail B. Warden, in her capacity as Trustee of the Trust established under Deed of… v. M. B. McLELLAND, in his capacity as a Director of BERWIND PHARMACEUTICAL SERVICES, INC.

PRECEDENTIAL
Filed April 30, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 00-1364
GAIL B. WARDEN, in her capacity as Trustee of the Trust
established under Deed of Charles Graham Berwind,
dated February 28, 1963, for the benefit of David
McMichael Berwind, et al., and derivatively on behalf of
BERWIND PHARMACEUTICAL SERVICES, INC.; LINDA B.
SHAPPY, in her capacity as Trustee of the Trust
established under Deed of Charles Graham Berwind,
dated February 28, 1963, for the benefit of David
McMichael Berwind, et al., and derivatively on behalf of
BERWIND PHARMACEUTICAL SERVICES, INC.; DAVID
McMICHAEL BERWIND, JR., in his capacity as Trustee of
the Trust established under Deed of Charles Graham
Berwind, dated February 28, 1963, for the benefit of
David McMichael Berwind, et al., and derivatively on
behalf of BERWIND PHARMACEUTICAL SERVICES, INC.;
DAVID McMICHAEL BERWIND, in his capacity as Trustee
of the Trust established under Deed of Charles Graham
Berwind, dated February 28, 1963, for the benefit of
David McMichael Berwind, et al., and derivatively on
behalf of BERWIND PHARMACEUTICAL SERVICES, INC.,
Appellants
v.
M. B. McLELLAND, in his capacity as a Director of
BERWIND PHARMACEUTICAL SERVICES, INC.; C. G.
BERWIND, JR., in his capacity as a Director of BERWIND
PHARMACEUTICAL SERVICES, INC., and as Trustee of
the David Berwind Trust; J. J. BYRNE, JR., in his
capacity as a Director of BERWIND PHARMACEUTICAL
SERVICES, INC.; J. S. DULANEY, in his capacity as a
Director of BERWIND PHARMACEUTICAL SERVICES,
INC.; E. F. KOSNIK, in his capacity as a Director of
BERWIND PHARMACEUTICAL SERVICES, INC.; J. L.
HAMLING, in his capacity as a Director of BERWIND
PHARMACEUTICAL SERVICES, INC.; L. C. KARLSON, in
his capacity as a Director of BERWIND
PHARMACEUTICAL SERVICES, INC.; BRUCE McKENNEY,
in his capacity as Trustee of the Trust established under
Deed of Charles Graham Berwind, dated February 28,
1963, enefit of David McMichael Berwind, et al.; R. M.
COHN, in his capacity as a Director of BERWIND
PHARMACEUTICAL SERVICES, INC.; BERWIND GROUP
PARTNERS; BERWIND CORPORATION
On Appeal from the United States District Court
for the Eastern District of Pennsylvania

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D.C. Civil Action No. 99-cv-05797
(Honorable Herbert J. Hutton)
Argued January 18, 2002
Before: SCIRICA and ROSENN, Circuit Judges,
and KANE, District Judge*
(Filed: April 30, 2002)
STEVEN L. FRIEDMAN, ESQUIRE
(ARGUED)
Dilworth Paxson
3200 The Mellon Bank Center
1735 Market Street
Philadelphia, Pennsylvania 19103
Attorney for Appellants
_________________________________________________________________
*The Honorable Yvette Kane, United States District Judge for the Middle
District of Pennsylvania, sitting by designation.
2
MARC J. SONNENFELD, ESQUIRE
(ARGUED)
Morgan, Lewis & Bockius
1701 Market Street
Philadelphia, Pennsylvania 19103
Attorney for Appellees
OPINION OF THE COURT
SCIRICA, Circuit Judge.
This is a dispute between two brothers over ownership
and control of a pharmaceutical company. The complaint
alleges, inter alia, breach of trust, breach of fiduciary duty
to the corporation, and violations of the Racketeer
Influenced and Corrupt Organizations Act ("RICO"). The
District Court granted defendants’ motion to dismiss the
complaint under Federal Rule of Civil Procedure 12(b)(6).
We will reverse and remand.
I.
Plaintiffs/appellants1 are trustees of a trust established
for the benefit of David Berwind, who himself is one of the
trustees. The David Berwind Trust was established in 1963
by David’s father, Charles Berwind. At the same time,
trusts were created for each of David’s three siblings. The
principal asset of each trust was stock in the Berwind
Corporation, a successful diversified corporation controlled
by Charles Berwind. Each of the trusts was assigned three
trustees: the beneficiary, an attorney, and Graham
Berwind, one of the four children. In addition to being
trustee of each trust, Graham Berwind was most directly

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involved in the operation of the family business. His trust
received a somewhat larger share of the Berwind
Corporation stock (53,200 shares to 45,600 for each of his
siblings’ trusts).
_________________________________________________________________
1. Gail Warden, Linda Shappy, David Berwind, and David Berwind, Jr.
are named as plaintiffs.
3
Following the death of Charles Berwind in 1972, Graham
Berwind began to consolidate ownership of the Berwind
Corporation by arranging for the company to purchase all
of the shares held by the two other siblings’ trusts. A few
years later, the David Berwind Trust sold half of its shares
to the corporation. Because Graham Berwind was a trustee
of each trust, he obtained approval for the transactions
from the Orphans’ Court of Montgomery County,
Pennsylvania.
In 1978, Berwind Corporation acquired Colorcon, Inc., a
producer of pharmaceutical coatings. Colorcon was
absorbed into the newly created Berwind Pharmaceutical
Services, Inc. ("BPSI"). Berwind Group Partners, a trust
partnership established for the benefit of Graham Berwind
and his family, held 83.6% of the shares in BPSI. The David
Berwind Trust received the remaining 16.4%. In 1985, the
David Berwind Trust sold its remaining shares in Berwind
Corporation to Berwind Group Partners. But the David
Berwind Trust still owned 16.4% of BPSI, its last holding in
any of the Berwind companies. These shares are at the
center of the current dispute.
In 1993, Graham Berwind made the first of several
attempts to buy his brother’s trust’s stock in BPSI, offering
$29 million. Four years later, he offered $53 million. On
both occasions, David Berwind refused because Graham
Berwind had allegedly provided insufficient financial
information to assess the value of the stock. Shortly
thereafter, Graham Berwind took actions to resign as
trustee of the David Berwind Trust. According to the
complaint, however, he did not comply with all of the
requirements for resigning. Consequently, plaintiffs allege
Graham Berwind remained a trustee, and continues in this
capacity.
In August 1999, according to plaintiffs, Graham
Berwind’s attempt to obtain full control of BPSI intensified.
Berwind Corporation’s president, Edward Kosnik, sent
David Berwind a letter threatening that in the event David
Berwind continued to reject his brother’s offers,"we are
prepared to start a process that will result in our ownership
of 100% of BPSI at a price to be determined by us and our
financial advisor. This will be a costly, time-consuming and
4

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legalistic process that we would prefer to avoid, but one
that we are prepared to undertake, if necessary."
In response, David Berwind retained attorneys and
advisors to negotiate the sale of his shares of BPSI. But
their attempts to obtain the information necessary to
proceed with the sale were allegedly rebuffed. Plaintiffs
brought this suit on November 22, 1999. Defendants were
served with the complaint on December 9, 1999.
Six days later, BPSI’s Board of Directors approved a
"squeeze-out" merger. The result of this maneuver was that
BPSI emerged as a corporation wholly owned by Berwind
Group Partners. Having lost its status as shareholder, the
David Berwind Trust was offered a note worth $82,820,000.
The Trust also obtained the right to seek judicial appraisal
of the fair value of its shares, should it view the note as
inadequate. An appraisal hearing was initiated in
Philadelphia Common Pleas Court and is proceeding during
the pendency of this appeal.
Plaintiffs allege that, prior to the BPSI "squeeze-out"
merger, Graham Berwind engaged in several transactions
that caused the unlawful transfer of value from BPSI to
Berwind Group Partners and other Berwind entities. The
result was to deplete the value of the David Berwind Trust’s
holdings while increasing benefits to Graham Berwind.
Five of the thirteen counts in the amended complaint are
brought on behalf of BPSI. The other eight are brought on
behalf of the David Berwind Trust. Plaintiffs primarily
allege: that Graham Berwind breached his duty of loyalty to
the David Berwind Trust; that defendants violated RICO
with schemes to defraud the trust; that the BPSI directors
breached their fiduciary duty of loyalty to the corporation;
and that the directors diverted corporate opportunities.
On April 25, 2000, the District Court granted defendants’
motion to dismiss. In doing so, the Court only provided the
following explanation:
The Court approves and adopts Defendants’ Motion
to Dismiss Plaintiff ’s [sic] Amended Complaint (Docket
No. 12), Defendants’ Reply Memorandum in Support of
Motion to Dismiss (Docket No. 19), and Defendant’s
5
[sic] Supplemental Reply Memorandum in Support of
Defendants’ Motion to Dismiss (Docket No. 20) which
collectively set forth the legal authority which is
dispositive of Plaintiffs’ cause of action.
Warden v. McLelland, No. 99-5797, at 2 (E.D. Pa. Apr. 25,
2000).
Plaintiffs appealed. We vacated the District Court’s
judgment and "remanded to the District Court for it to
provide this Court with an opinion setting forth the legal

-- 4 of 14 --

reasoning as to its decision to grant the motion to dismiss."
Warden v. McLelland, No. 00-1364, at 3-4 (3d Cir. Feb. 23,
2001) (judgment). We did so because we could not"perform
our appellate review responsibly without the District Court
first performing its function in its entirety." Warden v.
McLelland, No. 00-1364, at 7 (3d Cir. Feb. 23, 2001) (slip
op.).
On remand, the District Court issued an opinion that
was a minimally modified version of one of defendants’ legal
memoranda the District Court had previously listed as
setting forth the legal authority for its prior order. Rather
than seeking further clarification, we turn to the merits of
the appeal.2
II.
Because this is an appeal from a dismissal under Rule
12(b)(6), we accept the factual allegations in the complaint.
We may affirm only if it is certain no relief could be granted
under any set of facts that could be proven. Rossman v.
Fleet Bank (R.I.) N.A., 280 F.3d 384, 387 n.1 (3d Cir. 2002).
This standard is especially important here because the
District Court adopted defendants’ version of the facts.
_________________________________________________________________
2. Despite plaintiffs’ request for reassignment to another district judge on
remand, we are confident the able trial judge will give this difficult and
important case the attention it demands.
6
III.
a. Breach of Trust.
Plaintiffs allege Graham Berwind and his associate Bruce
McKenney, who was also named as a trustee of the David
Berwind Trust, breached their duties to the trust owed by
virtue of their positions as trustees.
Defendants contend these claims fail for two reasons.
First, they maintain they were not trustees at the relevant
times, as they had resigned. As noted, plaintiffs allege these
defendants had not effectively resigned as trustees. At this
stage, we must accept the complaint’s allegations as true,
so this proposed basis for dismissal fails. Second,
defendants point to a provision of the Deed of Trust that
provides:
The fact that any trustee may be interested in
Berwind Corporation or any of its subsidiaries as
director, stockholder, manager, agent or employee shall
not constitute an adverse or conflicting interest, and
the acts of such trustee shall be judged as if he had no
interest in the Corporation.
This provision, however, cannot fairly be read to permit
trustees to engage in self-dealing or otherwise to act

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fraudulently or in bad faith with respect to a beneficiary of
the Trust. We need not determine the precise extent of the
protections afforded by this provision to conclude that it is
consistent with plaintiffs’ allegations that the trustees acted
outside the provision and may have breached a duty owed
to the trust and its beneficiaries. Therefore, we will reverse
with respect to plaintiffs’ breach of trust claims and leave
the precise effect of the exculpatory provision for the
District Court to consider on remand.
b. Derivative Claims.
Five of plaintiffs’ thirteen counts are brought derivatively
on behalf of BPSI. Two are RICO claims; the other three
arise under Pennsylvania corporate law and include
diversion of corporate opportunity and breach of fiduciary
duty of loyalty to the corporation. Defendants contend
plaintiffs have not complied with the procedural
requirements for bringing shareholder-derivative lawsuits.
7
Under Pennsylvania law,3 a shareholder cannot ordinarily
bring an action on behalf of the corporation without first
making demand on the board of directors to pursue the
action. Cuker v. Mikalauskas, 692 A.2d 1042, 1049-50 (Pa.
1997). In Cuker, the Pennsylvania Supreme Court expressly
adopted several sections of the American Law Institute’s
Principles of Corporate Governance, including the section
setting forth the demand requirement. Section 7.03(b)
provides, "Demand on the board should be excused only if
the plaintiff makes a specific showing that irreparable
injury to the corporation would otherwise result, and in
such instances demand should be made promptly after
commencement of the action." Id. at 1050. Prior to Cuker,
"[s]ufficient averments of fraud excused a demand based
upon its futility." Drain v. Covenant Life Ins. Co., 712 A.2d
273, 278 (Pa. 1998). But "Cuker, which established that a
demand is excused only if irreparable harm to the
corporation is shown, changed the law on demand
requirements in derivative actions." Id.
It is undisputed that plaintiffs did not make demand on
the board of directors of BPSI either before filing suit or
thereafter. But they contend they should be excused from
the demand requirement because of the catch-22 they
allegedly faced.
To have standing to bring a derivative action, one must
be a shareholder, both at the time of the alleged
wrongdoing and continuing to judgment. Cuker, 692 A.2d
at 1050 (adopting S 7.02 of the ALI Principles). This
requirement may be excused, however, where "the failure to
do so is the result of corporate action in which the holder
did not acquiesce, and . . . the derivative action was
commenced prior to the corporate action terminating the
holder’s status . . . ." Id.
Plaintiffs brought suit on November 22, 1999. Making a

-- 6 of 14 --

prior demand, they contend, would have foreclosed their
opportunity to bring this action. Defendants would have
responded, plaintiffs maintain, by immediately squeezing
_________________________________________________________________
3. In determining the scope of the demand requirement and its
exceptions, we apply the law of the state of incorporation. Garber v. Lego,
11 F.3d 1197, 1201 (3d Cir. 1993). BPSI is a Pennsylvania corporation.
8
out the David Berwind Trust, depriving it of standing to
bring derivative claims. As noted, BPSI’s board of directors
effected the "squeeze-out" merger only one week after being
served with the complaint.
Although plaintiffs may have properly pled futility in
making a prior demand, Pennsylvania law no longer
recognizes a futility exception. But Pennsylvania law
permits a plaintiff to bring derivative claims if irreparable
harm to the corporation would result. Plaintiffs contend
they fall within this exception.
In their complaint, plaintiffs allege, "Demand on the
board of directors of BPSI to bring the derivative claims
asserted herein is excused because the David Berwind
Trust and BPSI would suffer irreparable injury if demand
were required to be made upon the board of directors."
Although the complaint lacks specificity, we think it
sufficiently supports an inference of irreparable harm to the
corporation. Any harm to the corporation suffered as a
result of the merger would be effectively irreparable for
these purposes. Because only those responsible for the
corporation’s alleged losses remained as shareholders
following the elimination of the David Berwind Trust as
shareholder, the "squeeze out" would have effectively
defeated the action, depriving the corporation of any
possibility of recovering the losses. The immediate
elimination of the David Berwind Trust’s interest in BPSI,
in other words, may have irreparably damaged BPSI just as
it would have irreparably harmed the trust. For purposes of
a Rule 12(b)(6) motion, these allegations are sufficient.
Even where demand is excused for threat of irreparable
harm to the corporation, the ALI Principles state "demand
should be made promptly after commencement of the
action." S 7.03(b); adopted by Cuker , 692 A.2d at 1050. As
noted, BPSI’s board of directors squeezed out the David
Berwind Trust within weeks of filing the lawsuit. No longer
a shareholder, the David Berwind Trust was no longer in a
position to make demand on the board--by no fault of its
own. Although there appeared to have been a brief window
of time in which plaintiffs could have made a demand
(which would have been the preferable course), their failure
9
to do so, demand having been made impossible by action of

-- 7 of 14 --

the board, is not fatal to their derivative claims.
Plaintiffs also contend they should not have been
required to make demand by virtue of an exception
contained in section 7.01(d) of the ALI Principles. Section
7.01 was not among those adopted by the Pennsylvania
Supreme Court in Cuker. In that case, however, the
Supreme Court invited Pennsylvania courts to adopt other
provisions of the ALI Principles:
Our adoption of these sections is not a rejection of
other sections not cited. We have identified and studied
the sections which apply to this case and have adopted
those which appear most relevant.
The entire publication, all seven parts, is a
comprehensive, cohesive work more than a decade in
preparation. Additional sections of the publication,
particularly procedural ones due to their interlocking
character, may be adopted in the future. Issues in
future cases or, perhaps, further proceedings in this
case might implicate additional sections of the ALI
Principles. Courts of the Commonwealth are free to
consider other parts of the work and utilize them if
they are helpful and appear to be consistent with
Pennsylvania law.
692 A.2d at 1049 n.5.
Plaintiffs contend the Pennsylvania Supreme Court would
adopt section 7.01 because it interlocks with the adopted
sections, it is helpful, and it is consistent with Pennsylvania
law. Section 7.01(d) provides:
In the case of a closely held corporation, the court in
its discretion may treat an action raising derivative
claims as a direct action, exempt it from those
restrictions and defenses applicable only to derivative
actions, and order an individual recovery, if it finds
that to do so will not (i) unfairly expose the corporation
or the defendants to a multiplicity of actions, (ii)
materially prejudice the interests of creditors of the
corporation, or (iii) interfere with a fair distribution of
the recovery among all interested persons.
10
BPSI is a closely held corporation.4 Were Pennsylvania to
adopt section 7.01(d), the District Court here would have
discretion to treat this case as an individual action, exempt
from the procedural requirements for derivative actions.
Because the David Berwind Trust was the only minority
shareholder, there is no apparent reason that doing so
would invite multiple actions, materially prejudice the
interests of creditors or the corporation, or interfere with a
just recovery. Therefore, this case would seem to be a good
candidate for such treatment, were section 7.01(d) to apply.
There are only three Pennsylvania cases addressing

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section 7.01(d), each from trial courts. All have adopted the
provision.5 Liss v. Liss, No. 2063, 2002 WL 576510 (Pa. Ct.
C.P. Phila. Mar. 22, 2002); Baron v. Pritzker , 52 Pa. D. &
C.4th 14, 26-27 (Pa. Ct. C.P. Phila. 2001) (excusing
demand by treating corporate waste claim as individual
one); Levin v. Schiffman, 54 Pa. D. & C.4th 152, 167 (Pa.
Ct. C.P. Phila. 2000) (adopting section 7.01(d) and
"exercis[ing] its discretion and treat[ing] all of [plaintiff ’s]
‘derivative’ claims . . . as direct claims for which demand is
not required"). Accord Audio Visual Xperts, Inc. v. Walker,
No. 17261-NC, 2000 WL 222152, at *2 (Del. Ch. Feb. 18,
2000) (predicting Pennsylvania Supreme Court would adopt
section 7.01(d)).
There are good reasons to believe the Pennsylvania
Supreme Court would concur and adopt section 7.01(d). As
noted, it invited lower courts to adopt other sections,
especially those, like section 7.01(d), that "interlock[ed]"
with the sections adopted in Cuker, all of which govern the
prosecution of derivative claims. Section 7.01 addresses the
classification of a case as a derivative or individual action.
_________________________________________________________________
4. It appears that the David Berwind Trust and the Berwind Group
Partners were the only shareholders prior to the merger.
5. Recently, a Pennsylvania trial court again discussed the possibility of
applying section 7.01. The court declined to treat that case as a direct
action, but apparently accepted its authority to do so. Mogilyansky v.
Sych, 2002 WL 372950, at *1 n.2 (Pa. Ct. C.P. Phila., Feb. 4, 2002)
("[T]here is no indication that the conditions for allowing a direct action
have been met and the circumstances surrounding this case do not
convince the Court to exercise its discretionary authority to allow
[plaintiff] to proceed as an individual in a direct action.").
11
The adoption of section 7.03 made the demand requirement
substantially stricter by narrowing the available exceptions.
But the ALI adopted that provision in light of section 7.01,
which allows certain cases to avoid that requirement. Thus,
the close corporation exception closely interlocks with
section 7.03. Consequently, the Pennsylvania Supreme
Court’s invitation to adopt other sections seems particularly
appropriate here.
Defendants argue 7.01(d) contravenes Pennsylvania law.
In particular, they cite section 1717 of the Pennsylvania
Business Corporations Law ("B.C.L."), 15 Pa. Cons. Stat.
S 1717, entitled "Limitation on Standing." It provides, in
part:
The duty of the board of directors, committees of the
board and individual directors under section 1712
(relating to standard of care and justifiable reliance) is
solely to the business corporation and may be enforced
directly by the corporation or may be enforced by a
shareholder, as such, by an action in the right of the
corporation, and may not be enforced directly by a

-- 9 of 14 --

shareholder or by any other person or group.
Because suits brought alleging directors’ failure to meet the
standard of care owed to the corporation cannot"be
enforced directly by a shareholder," defendants contend
application of section 7.01(d) would directly contradict this
provision. For this reason, they contend, section 7.01(d) is
inconsistent with Pennsylvania law, and would not likely be
adopted by the Pennsylvania Supreme Court.
While this argument has force, we do not see defendants’
conclusion as inevitable. It is not obvious that a court’s
"treating" a case as an individual one represents such a
fundamental change in the underlying character of the
lawsuit such that it is barred by section 1717 of the B.C.L.
And even if so, the Pennsylvania Supreme Court might
decide to adopt section 7.01(d) only to the extent it creates
exceptions to the procedural requirements of derivative
actions. Cf. Baron, 52 Pa. D. & C.4th at 26 ("Section 7.01(d)
sets forth the basis for a second exception to the demand
requirement.").
12
Furthermore, the most recent Pennsylvania case
discussing section 7.01(d) expressly rejected the argument
asserted by defendants on the effect of section 1717 of the
B.C.L. in a case also involving a dispute between brothers
over ownership and control of a closely held corporation.
Liss, 2002 WL 576510, at *3-10. The court held certain
kinds of claims that would otherwise be derivative can be
treated as direct claims under certain circumstances
notwithstanding the limitation on standing provided by
section 1717.
Because there may be some lingering uncertainty over
the adoption of section 7.01(d) and the appropriateness of
applying it in this case, we think this issue is best left
unresolved at this point. The District Court, on remand,
should consider this issue if it proves to be necessary. This
matter was not briefed extensively and this will provide the
parties with a chance to do so in light of the recent
statements of Pennsylvania courts.
c. RICO claims.
Plaintiffs have stated three counts for violation of the
Racketeer Influenced and Corrupt Organizations Act, 18
U.S.C. S 1961 et seq. The complaint describes a scheme to
defraud the David Berwind Trust and its trustees over
several years.
To establish a RICO claim, a plaintiff must show"(1)
conduct (2) of an enterprise (3) through a pattern (4) of
racketeering activity." Sedima, S.P.R.L v. Imrex Co., 473
U.S. 479, 496 (1985). The statute defines racketeering by a
list of criminal activities that constitute predicate acts for
purposes of RICO. Among these predicate acts are mail
fraud and wire fraud, the predicate acts plaintiffs have

-- 10 of 14 --

alleged here. See 18 U.S.C. S 1961(a). A RICO claimant
must establish a "pattern" of such predicate acts, and
demonstrate the scheme caused injury.
Defendants contend plaintiffs have failed to plead proper
RICO claims. In particular, defendants argue plaintiffs
failed to properly allege a causal relationship between the
alleged RICO violations and their injuries, sufficient
continuity to constitute a "pattern," reliance on fraudulent
acts, and fraud with the particularity required by Federal
13
Rule of Civil Procedure 9(b). Where acts of mail and wire
fraud constitute the alleged predicate racketeering acts,
those acts are subject to the heightened pleading
requirement of Rule 9(b).6 Rolo v. City Investing Co.
Liquidating Trust, 155 F.3d 644, 657-58 (3d Cir. 1998).
The complaint lists several particular communications
allegedly constituting acts of wire fraud. But the complaint
does not state clearly how these or any other
communications were false or misleading, or how they
contributed to the alleged fraudulent scheme. On the other
hand, the complaint does provide a reasonably clear overall
picture of what has been alleged.
We believe this issue, along with the other RICO pleading
issues, is best resolved by reexamination of the sufficiency
of the complaint by the District Court. We are confident the
District Court will permit plaintiffs to amend their
complaint if appropriate. See Fed. R. Civ. P. 15(a) (leave to
amend "shall be freely given"); Eddy v. V.I. Water & Power
Auth., 256 F.3d 204, 209 (3d Cir. 2001) ("Unless the
opposing party will be prejudiced, leave to amend should
generally be allowed.") (quoting Charpentier v. Godsil, 937
F.2d 859, 864 (3d Cir. 1991). The District Court will be able
to consider these issues in light of any amendments it
permits, something we are in no position to do.
d. Statute of Limitations.
Defendants contend the state law claims for breach of
fiduciary duty are wholly or partially barred by
Pennsylvania’s applicable two-year statute of limitations.
_________________________________________________________________
6. Of course, with limited exceptions, pleading is subject to the notice
pleading rules of the Federal Rules of Civil Procedure, which require
"only a short and plain statement of the claim showing that the pleader
is entitled to relief." Fed. R. Civ. P. 8(a)(2)."Such a statement must
simply ‘give the defendant fair notice of what the plaintiff ’s claim is and
the grounds upon which it rests.’ " Swierkiewicz v. Sorema N. A., 122 S.
Ct. 992, 995 (2002) (quoting Conley v. Gibson , 355 U.S. 41, 47 (1957)).
By contrast, the Federal Rules subject fraud claims to a heightened
pleading standard: "In all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with
particularity. Malice, intent, knowledge, and other condition of mind of
a person may be averred generally." Fed. R. Civ. P. 9(b).

-- 11 of 14 --

14
Plaintiffs acknowledge that some of the events occurred
more than two years before they brought suit. But they
contend the statute of limitations should be tolled because
defendants fraudulently concealed information necessary
for recognizing these claims.
This is a factual issue that cannot be resolved at this
time. Nevertheless, defendants contend plaintiffs have failed
to meet specific requirements for pleading such tolling.
These matters are better addressed by the District Court in
light of any amendments to the pleadings.
e. Equitable Relief.
Even were plaintiffs to prevail, defendants contend they
would not be entitled to equitable relief, because the only
post-merger remedy is an appraisal of the value of the
shareholder’s prior stake in the company. Defendants cite
In re Jones & Laughlin Steel Corp., 412 A.2d 1099 (Pa.
1980), as support for this proposition. But in Jones &
Laughlin, equitable relief was sought after the merger had
occurred. Here the merger occurred after plaintiffs had
initiated this action, a critical distinction. See id. at 1104
("[O]ur cases recognize[ ] the right of shareholders to enjoin
proposed unfair or fraudulent corporate actions. In each
case where this power was exercised it was in an action in
equity instituted prior to the consummation of the proposed
transactions.") (citations omitted). The District Court’s
reliance on Jones & Laughlin to dismiss these counts,
therefore, was erroneous.
Defendants also contend plaintiffs have alleged no
irreparable harm and have an adequate remedy at law. But
the Pennsylvania Supreme Court has permitted equitable
claims along with appraisal remedies where a merger is
"fraught with fraud or fundamental unfairness." Id. at
1103. To the extent defendants contend that plaintiffs have
insufficiently pled fraud or fundamental unfairness, we
leave this matter to the District Court in the first instance.
Defendants further argue that even if appraisal is not
always the only remedy available following mergers, it is the
only remedy available--absent extraordinary circumstances
--in the context of a short-form merger. The Pennsylvania
B.C.L. permits corporations to eliminate minority
15
shareholders without formal shareholder approval when the
controlling shareholder controls at least eighty percent of
the company’s shares. 15 Pa. Cons. Stat. S 1924(b)(1)(ii).
Defendants note the Delaware Supreme Court has
eliminated the "entire fairness" requirement applicable to
long-form mergers. Glassman v. Unocal Exploration Corp.,
777 A.2d 242, 248 (Del. 2001). One effect of this holding is

-- 12 of 14 --

that appraisal is the only remedy available to minority
shareholders eliminated by short-form mergers "absent
fraud or illegality." Id. Defendants insist that because the
Pennsylvania B.C.L. was modeled on Delaware law, we
should interpret Pennsylvania law in the same way.
We express no opinion whether Pennsylvania would
follow Delaware law on this point. Nor do we think it
prudent to assess whether plaintiffs have sufficiently
alleged "fraud or illegality" to survive summary judgment
under the Delaware standard, should it apply. The District
Court did not specifically address this matter. We leave it to
the District Court to consider, if necessary.
Nevertheless, we note this case has special features that
may require that it be treated differently from standard
short-form merger cases. This is not simply a dispute
between a majority and a minority shareholder in a
corporation. Here the majority shareholder was allegedly
controlled by Graham Berwind, who was also an alleged
trustee of the David Berwind Trust. And Berwind company7
stock was the central holding of the Trust as set up by
Charles Berwind. Thus, Graham Berwind’s duty to the
trust was not simply that owed by a majority shareholder
to a minority shareholder, but also a duty owed directly to
a trust designed to hold equity in the family business. In
these circumstances, the argument in favor of equitable
remedies would appear to take on a different character from
that of a case focused only on a short-form merger. The
_________________________________________________________________
7. Defendants contend the minority shareholder’s status as a trust is
irrelevant to the analysis, because BPSI derived from Colorcon, Inc.,
which was acquired fifteen years after the formation of the trust. We find
this argument unconvincing. BPSI was a Berwind family corporation and
the David Berwind Trust’s ownership of shares in BPSI arose from its
ownership of the Berwind Corporation stock originally held by the trust.
16
resolution of these matters is best reserved for the District
Court at this juncture.
f. Remaining Claims.
There are other arguments made by parties. But many
seem to have been abandoned; others are clearly ancillary
to other arguments or other claims. These remaining issues
are best resolved by the District Court in the context of its
reexamination of the central issues in the case.
Accordingly, we will vacate the remainder of the District
Court’s opinion.
IV.
For the forgoing reasons, we will reverse the dismissal
under Federal Rule of Civil Procedure 12(b)(6) and remand
the case to the District Court for proceedings consistent
with this opinion.

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A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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