In an important development that may ultimately provide relief from some frivolous deal-related shareholder litigation in federal courts, the Supreme Court agreed to decide a case that could bring an end to private actions under Section 14(e) of the Securities Exchange Act of 1934, the general anti-fraud provision that governs tender offers. Emulex Corp. v. Varjabedian, No. 18–459 (U.S.).
As we explained in a memo last April, the case arose from the acquisition of a public company, Emulex, by a tender offer. The plaintiffs sued to enjoin the deal and for damages. After the district court denied a preliminary injunction and dismissed the complaint, the Ninth Circuit reversed the dismissal. And in doing so, the court of appeals created a square circuit conflict—it held that only negligence was required to state a Section 14(e) claim, in contrast to six other circuits, which require scienter, an actual intent to defraud.