On April 23, 2019, just one week after argument, the Supreme Court decided Emulex Corp. v. Varjabedian, a case involving a circuit split regarding Section 14(e) of the Securities Exchange Act of 1934 and whether it supports an inferred private right of action based on negligence or scienter.
Emulex Corp. is a computer component seller that entered into a merger agreement with Avago Technologies Wireless Manufacturing. In the merger agreement, Avago offered to pay $8 per share, which reflected a premium of 26.4% on the price of Emulex stock the day before the merger was announced. Emulex filed with the Commission a public recommendation statement supporting the tender offer, recommending that Emulex shareholders tender their shares and noting that that Emulex shareholders would receive a premium on their stock. The statement also included a summary of a “fairness opinion” generated by Goldman Sachs, indicating its view that the tender offer was fair to shareholders. Omitted from the recommendation statement, however, was a one-page premium analysis by Goldman indicating that the takeover premium offered by Avago was actually below average, though within the normal range for mergers involving similar companies. The merger went forward, but thereafter Gary Varjabedian and other Emulex shareholders collectively brought suit against Emulex under Section 14(e) of the Securities Exchange Act, alleging that omission of the premium analysis page rendered the recommendation statement materially misleading. Emulex moved to dismiss, arguing that the facts alleged by plaintiffs did not sufficiently support the scienter required under Section 14(e). The district court agreed and ruled for Emulex but the U.S. Court of Appeals for the Ninth Circuit reversed. Although five other federal circuit courts of appeals had interpreted Section 14(e) to require scienter, the Ninth Circuit reasoned that the better reading of the provision in light of its legislative history required merely a showing negligence and not scienter.
The Supreme Court granted certiorari to address whether Section 14(e) of the Securities Exchange Act of 1934 supports an inferred private right of action based on the negligent misstatement or omission made in connection with a tender offer. During oral argument, however, the Justices questioned whether certiorari had properly been granted, as the courts below had not thoroughly considered whether Section 14(e) authorizes a private right of action at all. Indeed, just over one week after oral argument, the Supreme Court issued a per curiam opinion dismissing the writ of certiorari as improvidently granted.
To discuss the case, we have Cory Andrews, Senior Litigation Counsel at the Washington Legal Foundation.