After fifteen years of publishing The 10b-5 Daily, it was good to take a short sabbatical! But with the new year, this blog is back up and running. So let’s get to it.
On Friday, the U.S. Supreme Court granted certiorari in Emulex Corp. v. Varjabedian, setting up a battle over actions brought under Section 14 of the Securities Exchange Act.
In its petition, Emulex presented the following question:
Whether the Ninth Circuit correctly held, in express disagreement with five other courts of appeals, that 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.
The direct question presented is a narrow dispute over the Section 14(e) state of mind requirement – i.e., does a private plaintiff need to show that the defendant acted with negligence or scienter (i.e., fraudulent intent)? That said, there are a few ways the case could have a broader impact.
First, although the question presented refers to a “private right of action,” any determination as to the required state of mind also would apply to actions brought by the government.
Second, there is a related statutory provision – Section 14(a) – that addresses misstatements or omissions made in connection with proxy solicitations. The state of mind requirement for actions brought under Section 14(a) also is the subject of a circuit split and may be impacted by the Court’s decision.
Finally, there is some question as to whether there should be an inferred private right of action under Section 14(e) at all (despite the fact that a number of lower courts have found that one exists). In its amicus brief filed in support of the cert petition, the U.S. Chamber of Commerce argued that the Court should address this threshold issue and find that only the government can bring an action to enforce Section 14(e).