| March 9
March 9 A Delaware judge said Royal Bank of
Canada should be held liable to former shareholders of
Rural/Metro Corp because it failed to disclose conflicts of
interest that tainted the $438 million buyout of the ambulance
Bankers at RBC Capital Markets were so eager to collect
higher fees that they convinced Rural/Metro directors to sell
the company in June 2011 to private equity firm Warburg Pincus
LLC at an unreasonably low $17.25 per share, wrote Vice
Chancellor J. Travis Laster of the Delaware Chancery Court.
Former Rural/Metro Corp shareholders are seeking about $172
million from Toronto-based RBC, representing the difference
between the buyout price and what they believe the company was
worth, according to published reports.
In a 91-page decision dated March 7, Laster, who presided
over a four-day civil trial in the case last May, said RBC
bankers also concealed their efforts to provide financing to
fund the buyout and other transactions, offering the opportunity
for "additional and far greater" fees that they coveted.
"RBC created the unreasonable process and informational gaps
that led to the board's breach of duty," Laster wrote. "Under
the circumstances, RBC's aiding and abetting of the board's
breaches of fiduciary duty harmed Rural's stockholders."
Given how RBC misled Rural/Metro directors, "this is not a
case where a board's independent sense of the value of the
company is sufficient to carry the day," the judge added.
Laster said he would decide later how much RBC should pay
former Rural/Metro shareholders in damages, including possibly
damages for bad faith.
The decision may make it easier for shareholders to pursue
lawsuits claiming they were short-changed in buyouts.
Delaware is the corporate home of more than half of the
largest U.S. companies, in part because its laws are often
considered more friendly to companies than laws of other states.
"We have reviewed the opinion and are considering our
options," RBC spokeswoman Sanam Heidary said. "This process is
not yet over so we can not comment further."
Lawyers for the shareholders did not immediately respond on
Sunday to requests for comment.
Last year, Rural/Metro directors and another adviser to the
company, Moelis & Co, agreed to pay a combined $11.6 million to
settle related litigation, without admitting wrongdoing.
In February 2011, Laster delayed a shareholder vote on the
buyout of Del Monte Foods Co by a consortium led by KKR & Co
after concluding that Barclays Plc's Barclays
Capital unit had a conflict of interest by advising Del Monte
while also providing financing for the buyers.
Del Monte and Barclays agreed the following October to pay
$89.4 million to settle that case.
Founded in 1948, Rural/Metro provides ambulance and fire
protection services in about 700 cities and towns in 21 U.S.
The Scottsdale, Arizona-based company filed for bankruptcy
protection in August 2013 after struggling with accounting and
billing problems, including what it called "an acute deficiency
of cash receipts compared with cash expenditures," as well as
too much debt.
It emerged from Chapter 11 protection in December after
cutting debt in half and winning a $135 million infusion from
The case is In re: Rural Metro Corp Stockholders Litigation,
Delaware Chancery Court, No. CA-6350.