RBC Capital Markets, LLC v. Jervis

Supreme Court of Delaware · Corporations

CorporationsMergers and acquisitionsFiduciary dutiesRevlonAiding and abettingDisclosureDamagesContribution

Facts

Rural/Metro’s board formed a special committee and retained RBC as primary financial advisor and Moelis as secondary advisor while exploring strategic alternatives. The trial court found that RBC pushed an immediate sale process timed to run parallel with the EMS process because RBC wanted financing work from EMS bidders and later sought buy-side financing work from Warburg, but did not fully disclose those interests to the board. RBC also failed to provide the board with timely valuation materials, manipulated aspects of its fairness analysis to make Warburg’s bid look more attractive, and supplied information later repeated in the proxy statement that was false or misleading regarding valuation inputs and RBC’s conflicts. The board approved Warburg’s $17.25 per share merger and stockholders voted on a proxy statement that omitted or misstated material information about RBC’s incentives and analyses.

Issue

Whether the Court of Chancery correctly held that the Rural board breached its fiduciary duties under Revlon and the duty of disclosure, and that RBC aided and abetted those breaches through knowing participation. The appeal also presented whether RBC’s conduct proximately caused stockholder damages, whether DUCATA and Section 102(b)(7) were properly applied, and whether the damages calculation should be upheld.

Rule

Under Revlon, directors in a sale-of-control context must take reasonable steps to secure the best value reasonably available for stockholders, and a court examines whether the board’s overall course of action was reasonable, not perfect. A third party may be liable for aiding and abetting a fiduciary breach if it knowingly participates with scienter, meaning it acts knowingly, intentionally, or with reckless indifference, including by misleading the board or creating an informational vacuum while knowing the conduct assisted constitutes a breach. In merger disclosures, fiduciaries breach their duty by making materially false statements, omitting material reasonably available information, or making partial disclosures that are materially misleading; materiality turns on whether a reasonable stockholder would view the fact as significantly altering the total mix of information.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.

MesaCare, Inc., a Delaware ambulance-services company based in Phoenix, formed a committee to interview advisors about possible strategic options, including remaining independent, buying a rival, or selling the company. Without full-board approval, the committee chair and Pine Harbor Securities immediately launched a bidder outreach process aimed at a sale; two months later, after receiving updates, the full board adopted a resolution ratifying and restating the committee's prior sale-process authority.

Which is the strongest argument that enhanced scrutiny applies to the board's conduct from the earlier launch of the sale process, rather than only from the later final vote?

Explanation. The majority held that, on unusual facts, enhanced scrutiny could apply where a committee and advisor effectively initiated an active sale process without genuine exploration of alternatives, and the full board later ratified and restated those actions as acts of the company. The inquiry is into the board's overall course of action, not just the endpoint. The case rejected the notion that review must wait until the final vote or signed merger agreement, while also making clear that merely being "in play" is not enough. (Derived from RBC Capital Markets, LLC v. Jervis (n.d.).)