March 10, 2014

In re Rural Metro: Delaware Finds Aiding & Abetting Liability for Financial Advisor

Here’s news from Richards Layton (note we’ll be holding a webcast on this case on April 2nd):

In a 91-page post-trial opinion in In re Rural Metro Corporation Stockholders Litigation, C.A. No. 6350-VCL (Del. Ch. Mar. 7, 2014), the Delaware Court of Chancery held RBC Capital Markets, LLC liable for aiding and abetting breaches of fiduciary duty by the board of directors of Rural/Metro Corporation in connection with Rural’s acquisition by Warburg Pincus LLC. The case proceeded against RBC even though Rural’s directors, as well as Moelis & Company LLC, which had served as financial advisor in a secondary role, had settled before trial.

The Court found that RBC, in negotiating the transaction on behalf of Rural, had succumbed to multiple conflicts of interest. According to the Court, RBC, motivated by its contingent fee and its undisclosed desire and efforts to secure the lucrative buy-side financing work, prepared valuation materials for Rural’s board that made Warburg’s offer appear more favorable than it was. Because those valuation materials were included in Rural’s proxy statement, the Court found that RBC was also liable for aiding and abetting the board’s breach of its duty of disclosure.

Despite its finding of liability, the Court stated that it is not yet in a position to determine an appropriate remedy. The Court also deferred ruling on plaintiffs’ request for fee-shifting, but it noted that, “given the magnitude of the conflict between RBC’s claims and the evidence, it seems possible that the facts could support a bad faith fee award.”