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U.S. judge rules Goldman must defend Tibco sale lawsuit

By Tom Hals

WILMINGTON, Del., Oct 20 (Reuters) - A U.S. judge ruled on Tuesday that Goldman Sachs Group Inc must defend a class action over its role in the 2014 sale of Tibco Software Inc, the latest ruling against a Wall Street bank over a corporate deal.

Goldman had sought an early dismissal of the lawsuit, which was filed in Delaware's Court of Chancery, a premier venue for shareholder disputes.

The bank must now defend itself as the case proceeds to trial over allegations that a miscount of Tibco shares during deal negotiations reduced the total that Vista Equity Partners paid for Tibco.

The error ultimately lowered the sale price to $4.144 billion from the $4.244 billion used in Goldman's opinion on the fairness of the deal, although it did not affect the per-share price of $24.

In the preliminary ruling, Chancellor Andre Bouchard dismissed other claims against Goldman, Vista and the Tibco board.

Goldman declined to comment.

Bouchard said it was "troubling" that the board allegedly did not investigate the share miscount, which the judge said was sufficient to pursue a lawsuit against the board.

However, Tibco has a typical corporate charter that protects directors from shareholder lawsuits unless there is gross negligence, which there was not.

Barred from suing the board, the shareholders used an increasingly popular legal tactic to take aim at Goldman, arguing the bank allegedly "aided and abetted" the board's failures.

"What seems to be pushing the litigation is it is increasingly hard to find gross negligence on the part of the board," said Larry Hamermesh, a professor at Delaware Law School in Wilmington, Delaware.

Shareholder attorneys have used the aiding and abetting strategy in recent class actions. Earlier this month another Court of Chancery judge, Donald Parsons, made a similar preliminary ruling against Merrill Lynch and said it must defend its role in the $690 million sale of the Zale Corp jewelry chain.

Legal experts are closely watching an upcoming ruling from the Delaware Supreme Court on the use of the tactic in a case involving the 2011 sale of Rural/Metro, an ambulance operator.

RBC Capital Markets is appealing a 2014 ruling ordering it to pay $76 million to Rural/Metro shareholders for its role in the sale of the company to Warburg Pincus.

The Rural/Metro case could determine whether Wall Street banks owe a fiduciary duty to shareholders or whether they are largely protected from merger class actions, Hamermesh said.

(Reporting by Tom Hals in Wilmington, Delaware; Editing by Paul Simao)