COLUMN-High court affirms Rural/Metro: Should financial advisers worry? Frankel

Tue Dec 1, 2015 7:58pm EST
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(The opinions expressed here are those of the author, a columnist for Reuters.)

By Alison Frankel

Dec 1 (Reuters) - There was good news and bad news for investment banks in Monday's hotly anticipated Rural/Metro opinion from the Delaware Supreme Court.

The bad: The state justices affirmed a $76 million judgment against RBC Capital Markets, finding that the bank manipulated Rural/Metro's 2011 sale process in an attempt to win a lucrative financing deal from the ambulance company's private equity acquirer.

The decision marks the first time the Delaware justices have held a financial adviser liable to shareholders for aiding and abetting a corporate board's breach of duty - certainly a scary prospect for banks.

On the other hand, the justices specifically repudiated language in the lower court's decision that called on banks to act as "gatekeepers" of corporate conduct in M&A deals.

"Adhering to the trial court's amorphous 'gatekeeper' language would inappropriately expand our narrow holding here by suggesting that any failure by a financial adviser to prevent directors from breaching their duty of care gives rise to an aiding and abetting claim against the adviser," the decision said. That should allay bankers' fears about their exposure to shareholders.

The big question, of course, is whether the Rural/Metro ruling will change the behavior of financial advisers.

As my Reuters colleague Tom Hals noted in his story Monday about the decision, corporations and their bankers have already become more transparent about bankers' potential conflicts, after a 2011 Chancery Court ruling suggested that Del Monte's financial adviser, Barclays, gave the board tainted advice to secure buy-side financing fees. Many banks now avoid such financing deals involving public corporation clients they're advising on M&A transactions.   Continued...