Delaware Supreme Court Upholds Judgment Against Financial Advisor for Aiding and Abetting Breach of Fiduciary Duty

In RBC Capital Markets, LLC v. Joanna Jervis, No. 140, 2015 (Del. Nov. 30, 2015), the Delaware Supreme Court affirmed a $75.8 million judgment against RBC Capital Markets, LLC (RBC) for aiding and abetting a board of directors’ breach of fiduciary duty in connection with the sale of Rural Metro Corporation (Rural Metro). In the transaction at issue, a special committee of the board of directors of Rural Metro retained RBC to analyze a potential sale of the company. RBC recommended a sale of the company, but failed to disclose that it intended to capitalize on the sale by also representing companies providing financing on the buy side of the deal. Following trial, the Court of Chancery found that RBC’s conflicts were material information not adequately disclosed to the board, and that the board did not appropriately oversee its financial advisor. In subsequent proceedings, the Court of Chancery attributed $75.8 million in damages to RBC’s actions. While affirming the Court of Chancery ruling, the Delaware Supreme Court rejected the holding that "'[d]irectors are not expected to have the expertise to determine a corporation’s value for themselves, or to have the time or ability to design and carryout a sale process. Financial advisors provide these expert services. In doing so, they function as gatekeepers."