Supreme Court to Rule on Securities Exchange Act Split Involving Eleventh Circuit

Earlier this month, the Supreme Court granted certiorari in Emulex Corp. v. Varjabedian, No. 18-459, 2019 WL 98542 (U.S. Jan. 4, 2019), in order to address a circuit split over Section 14(e) of the Securities Exchange Act, 15 U.S.C. § 78n(e), which addresses misstatements and omissions regarding tender offers.  Courts of Appeals disagree over whether the claims under the section require scienter (knowledge that the conduct is wrongful) or may be based on merely negligent misstatements and omissions.

In Emulex, a corporation made an omission in a recommendation to accept a tender offer that was filed with the SEC.  After its merger, private plaintiffs sued under Section 14(e) but did not allege scienter.  The district court dismissed this count, but the Ninth Circuit reversed.  Varjabedian v. Emulex Corp., 888 F.3d 399, 408 (9th Cir. 2018).  This created a split with the Eleventh Circuit and four others, all of which hold that Section 14(e) requires scienter.  See, e.g., SEC v. Ginsburg, 362 F.3d 1292, 1297 (11th Cir. 2004).

When the Supreme Court hears Varjabedian, it is likely either to address the circuit split or to rule on another novel question—whether there is an implied private right of action under Section 14(e) at all.

Posted by Nick Boyd.

Back to top