In re Rural/Metro Corporation Stockholders Litigation
102 A.3d 205
Del. Ch.2014Background
- Rural/Metro Corporation was acquired by Warburg Pincus in 2011 for $437.8 million; Rural stockholders received $17.25 per share in cash.
- Plaintiffs allege fiduciary breaches by Rural’s directors during the sale process and in the proxy disclosure, and that RBC Capital Markets aided and abetted those breaches.
- Trial focused on RBC as Rural’s lead banker and Moelis as secondary advisor; Moelis settled early for $5 million, and Rural/Metro Defendants settled for $6.6 million, with releases excluding RBC.
- Settlement terms included reductions of damages against non-settling defendants proportional to the pro rata shares of Moelis and the Rural/Metro Defendants, and barred claims for contribution among settling defendants.
- The court’s Liability Opinion held RBC liable for aiding and abetting breaches of fiduciary duty in both the sale process and the proxy disclosure, but did not fix total damages; inputs were used for a quasi-appraisal of fair value as of the merger date.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RBC may obtain a DUCATA settlement credit | RBC should get credit for settlements with co-defendants. | Plaintiffs’ Mullins/unclean hands theories bar credit for settlements with joint tortfeasors. | RBC is entitled to a settlement credit, but only 17% of total damages. |
| Effect of unclean-hands on the Settlement Credit | Unclean hands does not bar credit for all claims. | Unclean hands bars credit for certain claims tied to misrepresentations and final Merger approval. | Unclean hands bars credit for the Disclosure Claim and the final Merger-approval aspect of the Sale Process Claim; credit allowed for non-misleading sale-process components. |
| Exculpation under DGCL 102(b)(7) and its impact on joint tortfeasor status | Exculpation does not immunize directors from contribution. | Exculpation may preclude joint-tortfeasor status where claims implicate only duty of care. | Exculpation is analyzed per director; Shackelton, DiMino would generally be treated for exculpation purposes, but RBC bears burden to show exceptions; no blanket bar on contribution absent per-director findings. |
| How fault is allocated among RBC, Shackelton, and DiMino | Relative fault should allocate proportional responsibility for the two claims. | Equal pro rata shares should apply absent fault-based distinctions. | 50% of damages allocated to the Disclosure Claim; 50% to the Sale Process Claim; within Sale Process, 25% for final-Merger breaches and 25% for near-term sale initiation, with Shackelton 10%, RBC 8%, DiMino 7% allocated among joint tortfeasors; total RBC liability 83% of damages. |
| Whether Moelis is a joint tortfeasor for purposes of the credit | Moelis participates in the Settlement and should be treated as a joint tortfeasor for credit purposes. | Moelis did not participate in the same fiduciary breaches; no joint-tortfeasor status. | Moelis is not a joint tortfeasor for purposes of the settlement credit; RBC cannot claim credit relating to Moelis’s involvement. |
Key Cases Cited
- Mullins v. Medical Ctr. of Del., Inc., 637 A.2d 6 (Del. 1994) (settlement may not establish joint tortfeasor status without admission of liability; collateral-source credit rules apply)
- Lutz v. Boltz, 100 A.2d 647 (Del. Super. Ct. 1953) (exculpation and guest statute principles inform contribution analysis)
- Emerald P’rs v. Berlin, 726 A.2d 1215 (Del. 1999) (exculpation and duty standards in director liability)
- Emerald P’rs v. Berlin (Emerald II), 787 A.2d 85 (Del. 2001) (exculpation framework and relative fault considerations)
- Ikeda v. Molock, 603 A.2d 785 (Del. 1991) (procedural posture and trial timing for cross-claims among joint tortfeasors)
- McLean v. Alexander (McLean II), 449 F. Supp. 1251 (D. Del. 1978) (DUCATA interpretation permitting contribution among intentional tort feasors in securities cases)
- Trados II, 73 A.3d 17 (Del. Ch. 2013) (valuation and fiduciary duty damages framework)
- AIG II, 976 A.2d 872 (Del. Ch. 2009) (fiduciary duty, contribution, and agency liability under corporate context)
- Hampshire Gp., Ltd. v. Kuttner, 2010 WL 2739995 (Del. Ch. 2010) (DUCATA application to fiduciary claims in chancellery context)