In re Rural/Metro Corp. S’holders Litig.
Robbins Geller Obtains Affirmance by the Delaware Supreme Court of near $100 Million Judgment for Shareholders, Resulting in an Overall Recovery of Almost $110 Million
On November 30, 2015, the Delaware Supreme Court affirmed the historic judgment issued on October 10, 2014 by Delaware Vice Chancellor J. Travis Laster in the Delaware Court of Chancery. The affirmed judgment ordered RBC Capital Markets, LLC (“RBC”), an investment banking arm of Royal Bank of Canada, to pay former Rural/Metro shareholders nearly $100 million in an award TheStreet.com described as stunning and “one of the largest in the history of the Court of Chancery.” Indeed, the affirmed judgment constitutes the largest damages award ever obtained against an investment bank for its role as a merger adviser.
The Delaware Supreme Court opinion ended years of litigation, which peaked when Robbins Geller attorneys and their co-counsel at Bouchard Margules & Friedlander (now Friedlander & Gorris P.A.) were victorious in a bench trial. As a result of that trial, Laster found defendant RBC liable for aiding and abetting breaches of fiduciary duty by Rural/Metro’s board of directors in connection with the private equity buyout of Rural/Metro.
Prior to the trial, other defendants had reached agreements to settle and to have plaintiffs’ claims against them severed, leaving RBC as the sole defendant at trial facing the remaining claims. Plaintiffs obtained settlements of $5 million from financial advisor Moelis & Co. and $6.6 million from the individual director defendants.
At trial, Laster found that plaintiffs had successfully established their allegations against RBC with liability claims classified in two types: sale process claims and disclosure claims. The sale process claims included both RBC’s intentional fraud on the Rural/Metro Board and RBC’s self‑interested manipulation of the sale process itself. Where the directors breached their fiduciary duty in approving the proxy content and buyout, “they did so,” Laster held, “because RBC misled them.” The disclosure claims involved affirmative misrepresentations in the proxy statement for the buyout. Citing RBC’s “manipulation” of analyses and “false justifications proffered for certain changes,” Laster found “[i]nformation that RBC provided to the Board . . . was false, and that false information was repeated in the Proxy Statement.” As Laster further noted, “plaintiffs also proved at trial that information RBC provided about [RBC’s] conflicts of interest was false.”
After the liability finding, RBC attempted to claim a judgment reduction in order to reduce the damages it owed to the shareholder class. Laster again largely ruled in plaintiffs’ favor. While Laster reduced RBC’s responsibility for damages by 17%, Laster also held that RBC was barred from further reducing damages on certain claims by the doctrine of “unclean hands,” holding that “by committing fraud against the very directors from whom RBC would seek contribution," RBC "was solely responsible for the Disclosure Claim.” Laster wrote that “[i]f RBC were permitted to seek contribution for these claims from the directors, then RBC would be taking advantage of the targets of its own misconduct.”
Including pre- and post-judgment interest, RBC’s responsibility for damages exists at nearly $98 million. Combined with the $11.6 million recovered earlier in the action, the Rural/Metro litigation resulted in a recovery of almost $110 million – an outstanding result in a case where Robbins Geller and Friedlander & Gorris were appointed as new lead counsel (and their client as new lead plaintiff) after objecting when the previous lead firm had agreed to settle in 2012 for nothing but supplemental disclosures.
In a 105-page landmark decision, the Delaware Supreme Court affirmed Vice Chancellor Laster’s decisions in the Court of Chancery in all material respects. The Delaware Supreme Court’s decision established the temporal contours of Revlon “enhanced scrutiny” analysis, clarified “aiding and abetting” liability standards under Delaware law, and ultimately concluded: “The manifest intentionality of RBC’s conduct – as evidenced by the bankers’ own internal communications – is demonstrative of the advisor’s knowledge of the reality that the Board was proceeding on the basis of fragmentary and misleading information. Propelled by its own improper motives, RBC misled the Rural directors into breaching their duty of care, thereby aiding and abetting the Board’s breach of its fiduciary obligations.”
The trial result compelled The American Lawyer’s AmLaw Litigation Daily to name Robbins Geller’s Randall J. Baron and Friedlander & Gorris’ Joel Friedlander as their “Litigators of the Week,” observing that “[t]he decision was immediately recognized as a tidal event for dealer advisers,” and the near-$100 million end result was “[n]ot bad for a lawsuit that one of the directors’ lawyers pooh-poohed at a hearing last November as ‘a nothing case.’”
Regarding the Delaware Supreme Court’s affirmance, Baron remarked: “This is a phenomenal result for former Rural/Metro shareholders, as well as all shareholders of public corporations going forward. After four years of hard-fought litigation, we’re pleased that the Delaware Supreme Court affirmed the Chancery Court’s decisions and shareholders can finally recoup what they were owed when Rural/Metro was sold in 2011.”