Yesterday, the Delaware Supreme Court handed down this decision on the Rural/Metro appeal, affirming the Chancery Court decision. Here’s an excerpt from this Reuters article (we’ll be posting memos in our “Financial Advisors” Practice Area):
The Delaware Supreme Court on Monday upheld a $76 million damage award against RBC Capital Markets for its role in the 2011 sale of ambulance company Rural/Metro but described its closely watched decision as a narrow one. The opinion’s language should temper fears on Wall Street that affirming a 2014 ruling by the Court of Chancery could expose financial advisers on merger deals to potential liability if a board mishandled the sale of a company. The lower court found RBC was liable for convincing the board of Scottsdale, Arizona-based Rural/Metro to rush into a $438 million buyout led by private equity firm Warburg Pincus. RBC, a unit of Royal Bank of Canada, was found by the lower court to have concealed that it was also trying to win the more lucrative role of providing financing to Warburg. “We are disappointed with the court’s determination but respect its decision,” said RBC in a statement.
One law professor said while the Delaware Supreme Court upheld one of the largest judgments of its kind against a financial adviser, it also made clear Rural/Metro was an exceptional case. The ruling “sends a powerful message to disloyal investment banks, but also provides investment banks with great comfort provided they act transparently,” said Andrew Tuch of the Washington University School of Law in St. Louis.
The opinion warned against reading the ruling broadly. “Our holding is a narrow one that should not be read expansively to suggest that any failure on the part of a financial adviser to prevent directors from breaching their duty of care gives rise to a claim for aiding and abetting a breach of the duty of care,” said the 105-page opinion. The opinion was written by Justice Karen Valihura. The opinion also said shareholders must prove a financial adviser acted with intent, which the court said makes the claim “among the most difficult to prove.”