Delaware Supreme Court Decision In Rural/Metro Affirms $76 Million Judgment Against Third-Party Advisor For Aiding And Abetting Breaches Of Fiduciary Duty By Board, But Rejects Suggestion Of ‘Gatekeeper' Duties

On November 30, 2015, the Delaware Supreme Court affirmed post-trial decisions by the Delaware Court of Chancery (i) holding RBC Capital Markets, LLC liable to Rural/Metro Corp. shareholders for nearly $76 million based upon a finding that RBC had aided and abetted the Rural/Metro board of directors' breach of fiduciary duty by manipulating Rural/Metro's 2011 sale process, and (ii) limiting the parties from whom RBC could claim settlement contribution to those who had been adjudicated joint tortfeasors based on the record at trial - a group that was held to exclude director defendants who would have qualified for exculpation from money liability under the corporation's certificate of incorporation. RBC Capital Markets, LLC v. Jervis ("Rural/Metro"), No. 140, 2015, 2015 WL 7721882 (Del. Nov. 30, 2015). This ruling represents the first time Delaware's highest court has held a financial advisor liable to shareholders for aiding and abetting a corporate board's breach of the duty of care, continuing its recent string of rulings applying closer scrutiny to investment banker conflicts. It also confirms that the protections afforded to director defendants under § 102(b)(7) can in some circumstances operate to increase the damages imposed against other defendants who do not qualify for exculpation. The Court's decision also expressly disavowed the lower court's suggestion that financial advisors were "gatekeepers" with an obligation to affirmatively prevent fiduciaries from breaching their duties of care to constituents.

1. Background Facts

   Rural/Metro Corp. ("Rural") is a leading national provider of ambulance and private fire protection services. On March 28, 2011, Rural announced it had agreed to sell itself to an affiliate of private equity fund Warburg Pincus LLC ("Warburg"). Shareholder class action litigation followed, with the plaintiff class pursuing breach of fiduciary duty claims against six Rural directors who had approved the transaction, as well as aiding and abetting claims against Rural's financial advisors, RBC Capital Markets, LLC ("RBC") and Moelis & Company, LLC ("Moelis"). Following submission of pre-trial opening briefs by all parties, the director defendants and Moelis reached settlements with the plaintiff class. The case proceeded to trial solely against RBC.

   On March 7, 2014, Vice Chancellor Travis Laster of the Delaware Court of Chancery issued an opinion finding that Rural's board of directors (the "Board") had breached its duty of care, and that RBC had aided and abetted those breaches. In re Rural Metro Corp...