In the Rural/Metro Decision, Delaware Court Emphasizes Conflicts of Interest in Finding Breaches of Fiduciary Duties

Citing various conflicts of interests involving management, board members and financial advisors, Vice Chancellor Laster of the Delaware Court of Chancery found that the Board of Directors of Rural/Metro Corporation (“Rural”) breached its fiduciary duties to its stockholders in connection with its 2011 acquisition by an affiliate of Warburg Pincus LLC (“Warburg”). The Court further found Rural’s lead financial advisor liable for aiding and abetting such breaches. Following the Del Monte and El Paso decisions, the opinion again highlights the importance of identifying and addressing potential conflicts of interest early in a transaction.

Background -

In March 2011, after a three-month sale process, Rural agreed to be acquired by an affiliate of Warburg. After public announcement of the transaction, certain Ruralstockholders commenced litigation. A Memorandum of Understanding was entered into to settle the litigation in exchange for additional disclosure and an agreement not to oppose the plaintiffs’ fee application. After this settlement, the Rural stockholders approved the merger, with 72 percent voting in favor.

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