UPDATE 2-RBC fails to overturn $76 mln judgment over Rural/Metro sale

(Adds Breakingviews link, law professor comment and background)
By Tom Hals
Nov 30 (Reuters) - The Delaware Supreme Court on Monday
upheld a $76 million damage award against RBC Capital Markets
for its role in the 2011 sale of ambulance company Rural/Metro
but described its closely watched decision as a narrow one.
The opinion's language should temper fears on Wall Street
that affirming a 2014 ruling by the Court of Chancery could
expose financial advisers on merger deals to potential liability
if a board mishandled the sale of a company.
The lower court found RBC was liable for convincing the
board of Scottsdale, Arizona-based Rural/Metro to rush into a
$438 million buyout led by private equity firm Warburg Pincus.
RBC, a unit of Royal Bank of Canada RY.TO , was found by
the lower court to have concealed that it was also trying to win
the more lucrative role of providing financing to Warburg.
"We are disappointed with the court's determination but
respect its decision," said RBC in a statement.
One law professor said while the Delaware Supreme Court
upheld one of the largest judgments of its kind against a
financial adviser, it also made clear Rural/Metro was an
exceptional case.
The ruling "sends a powerful message to disloyal investment
banks, but also provides investment banks with great comfort
provided they act transparently," said Andrew Tuch of the
Washington University School of Law in St. Louis.
The opinion warned against reading the ruling broadly.
"Our holding is a narrow one that should not be read
expansively to suggest that any failure on the part of a
financial adviser to prevent directors from breaching their duty
of care gives rise to a claim for aiding and abetting a breach
of the duty of care," said the 105-page opinion. The opinion was
written by Justice Karen Valihura.
The opinion also said shareholders must prove a financial
adviser acted with intent, which the court said makes the claim
"among the most difficult to prove."
In the wake of Laster's Rural/Metro opinion, numerous class
actions have been filed by shareholders against Wall Street
banks for the advice they gave to boards during mergers. Most of
the cases are in the early stages.
During oral arguments, the Delaware Supreme Court was told
that the Rural/Metro case has already shaped the behavior of
investment bankers by encouraging them to be more transparent
about potential conflicts.
It joins other rulings in recent years that have had an
impact on investment bankers.
In a shareholder class action over the sale of Del Monte,
Laster found in 2011 that Barclays (L:BARC) Capital had a conflict of
interest by advising Del Monte while also providing financing
for the buyers.
Del Monte and Barclays later paid $89.4 million to settle
that case, and many bankers have stopped the practice of working
with potential buyers when they are also advising a publicly
listed company that is being sold.
Investment bankers may be reassured that the Delaware
Supreme Court rejected Laster's characterization of financial
advisers as "gatekeepers" to the board who would be best
motivated if they were exposed to lawsuits by shareholders.
"Adhering to the trial court's amorphous 'gatekeeper'
language would inappropriately expand our narrow holding here by
suggesting that any failure by a financial adviser to prevent
directors from breaching their duty of care gives rise to an
aiding and abetting claim against the adviser."