U.S. judge says RBC liable in Rural/Metro buyout case

Sun Mar 9, 2014 4:03pm EDT
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By Jonathan Stempel

March 9 (Reuters) - 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 operator.

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.   Continued...