Financial Advisers Not at Risk in Delaware, Judge Says

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By Michael Greene

March 17 — Despite recent decisions, Delaware Supreme Court Chief Justice Leo E. Strine Jr. reassured banks that the state's courts aren't about to issue a wave of rulings finding them liable over their roles in advising boards on mergers and acquisitions.

Strine observed that to be found liable for aiding and abetting, Delaware applies the second highest “mens rea”—or required mental state—under the model penal code for aiding and abetting liability. The judge said that to lower the standard any further would result in bankers having no responsibility for the advice they render.

Under Delaware law, a financial adviser cannot be liable for aiding and abetting breaches of fiduciary duty unless it “knowingly participated” in the breach.

Being a financial adviser to a public company is the “safest profession in the world,” Strine added, speaking March 17 at a corporate law conference hosted by Tulane University in New Orleans. The reality is that many other occupations that give professional advice are subject to liability on an ordinary negligence standard, he said.

Royal Bank of Canada

In November, the Delaware Supreme Court affirmed that Royal Bank of Canada was liable for $75.8 million in damages for aiding and abetting Rural/Metro Corp. directors’ breaches of fiduciary duties in connection with a buyout .

In addition to the Rura/Metro decision, there are several ongoing lawsuits in Delaware over merger-related aiding and abetting, such as the one involving Merrill Lynch in connection with Zale Corp.'s $1.4 billion merger with Signet Jewelers Ltd. .

In the wake of such cases, some observers have suggested that financial advisers may be under stricter scrutiny by Delaware courts.


Strine said there may have been an overreaction to the rulings. “Bad cases didn’t make any bad law here,” he said. The instances where financial advisers were found to be liable were “absurd cases” in which certain individuals “behaved badly.”

Strine added that most banks “do it the right way.” However, some shareholder plaintiffs may seize on the decisions to bring lawsuits. Most of those claims will be “tossed immediately,” he said.

Nonetheless, Rural/Metro should still serve as a warning to financial advisers, the judge continued.

Professions in which individuals misbehave should be cleaned up, he said. “If you materially mislead those you advise, you get in trouble.”

Banks play a role in many situations to resolve potential conflicts of interests in M&A transactions, he added. They shouldn’t be allowed to undermine the integrity of the deal process.

To contact the reporter on this story: Michael Greene in Washington at

To contact the editor responsible for this story: Yin Wilczek at

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