Emulex v. Varjabedian

Whether Section 14(e) of the Securities Exchange Act of 1934 supports an inferred private right of action based on a negligent misstatement or omission made in connection with a tender offer.

Petitioner Emulex Corporation merged with Avago Technologies Wireless Manufacturing Inc. in 2015 by way of a tender offer. Under the tender offer, a subsidiary of Avago offered to pay $8.00 for every share of outstanding Emulex stock. Emulex filed a Recommendation Statement finding that the price was fair to shareholders. The day after Emulex filed the Recommendation Statement with the SEC, an Emulex shareholder, Respondent Gary Varjabedian, filed a putative federal securities class action in district court on behalf of himself and other shareholders seeking to enjoin the merger. Petitioner provided documents which contained a chart listing the premiums received in 17 transactions involving semiconductor companies. Respondent then amended his complaint and alleged that by failing to include the chart in the Recommendation statement, Petitioner Emulex violated section 14(e) of the Exchange Act. Respondent argued that omitting the chart was materially misleading in that it suggested the premium the shareholders received was significant or at least in line with premiums received in similar transactions. The district court dismissed the complaint with prejudice holding that Section 14(e) requires a strong showing of scienter; a showing that misleading statements were made either intentionally or with deliberate recklessness. The district court noted that no federal court has held that only a showing of negligence is required for purposes of Section 14(e). The Ninth Circuit parted ways with the substantial case law of five other circuits who have considered this question and reversed the decision positing that Section 14(e) requires a showing of only negligence. Petitioner asks the Supreme Court to resolve this substantial circuit split. Petitioner argues that the decision of the Ninth Circuit is incorrect, that it should have followed the case law laid out in the five other circuits, and that a negligence standard does not fit with the text, history and structure of Section 14(e).