In re Rural Metro Corp. S’holder Litig., C.A. No. 6350-VCL (Del. Ch. Dec. 17, 2013) (Laster, V.C.)


In this memorandum opinion, the Court of Chancery declined to reopen the trial record and granted a plaintiffs’ motion to exclude post-trial evidence proffered by a defendant.  In reaching its conclusion, the Court found that none of the factors for reopening a trial record articulated in Pope Invs. LLC v. Benda Pharm, Inc., 2010 WL 3075296, at *1 (Del. Ch. July 26, 2010) weighed in favor of reopening, and the defendant’s arguments that the Court should take judicial notice of the evidence were unpersuasive.  The opinion clears the way for the Court’s much-anticipated post-trial decision.

Defendant RBC Capital Markets (“RBC”) served as financial advisor when Rural/Metro Corporation (the “Company”) was sold to a private equity firm.  The plaintiff stockholders filed suit against RBC for aiding and abetting the board’s alleged breaches of fiduciary duty.  The underlying suit against the directors settled, leaving the claim against RBC intact.  The suit against RBC proceeded to trial. 

Following post-trial briefing, the Company filed a suggestion of bankruptcy. The bankruptcy filings included a declaration from Stephen Farber (the “Declaration”), who became CFO of the Company following the trial and two years after the closing of the challenged transaction.  In the Declaration, Farber offered opinions for the Company’s insolvency, including that the Company had difficulty integrating acquisitions and forecasting revenue accurately.  RBC asked the Court to take judicial notice of the Declaration and to rely on it for the truth of its contents.

In determining whether to reopen discovery, the Court employed the factors set forth  in Pope, which include the following: (1) whether the party learned of the evidence since the trial; (2) whether the party could have discovered the evidence for use at trial through the exercise of reasonable diligence; (3) whether the evidence is so material and relevant that it will likely change the outcome; (4) whether the party has sought timely consideration of the new evidence; (5) whether the opposing parties would suffer undue prejudice; and (6) considerations of judicial economy.   The Court found, among other things, that RBC could have obtained the information in the Declaration during trial.   The Court also determined that the evidence did not meet the materiality factor because Farber could not offer first-hand knowledge about the issues at trial, and the operative reality of the Company at the time of the Declaration was significantly different from the reality for the Company at the time of the transaction.  In addition, the Court found the request to consider the substance of the Declaration untimely because RBC could have proffered the evidence in the Declaration at trial.  The Court also determined that reopening discovery would inflict undue prejudice on plaintiffs because Farber was not a witness at trial and plaintiffs would not have the opportunity to obtain discovery on the Declaration without initiating a new, potentially lengthy discovery process. 

The Court further rejected RBC’s argument that Delaware Rules of Evidence 201 and 202 required the Court to take judicial notice of the Declaration. While those rules might permit the Court to take judicial notice of the Declaration for certain limited purposes, they do not allow the Court to take notice of the truth of the Declaration’s contents.

The full opinion is available here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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