Latest Thinking | Securities Litigation

Ninth Circuit Holds Section 14(e) of the Exchange Act Does Not Require Scienter

The Ninth Circuit recently held that Section 14(e) of the Securities Exchange Act of 1934—which proscribes material misstatements or omissions in connection with tender offers—requires a showing of negligence and not scienter (i.e., fraudulent intent). Varjabedian v. Emulex, No. 16-55088 (9th Cir. Apr. 20, 2018). The Ninth Circuit’s decision parts ways with the opposite finding by five other circuits (the Second, Third, Fifth, Sixth, and Eleventh). Indeed, all other circuit courts to address the issue had previously held that Section 14(e) claims require scienter, analogizing such claims to claims under Section 10(b) of the Exchange Act, which prohibits false and misleading statements in connection with the purchase or sale of securities.

It remains to be seen what the impact of the Ninth Circuit’s decision will be: (i) whether more Section 14(e) claims will be brought in the Ninth Circuit to take advantage of the more lenient standard, (ii) whether other circuits will follow suit, or (iii) whether the U.S. Supreme Court will resolve the circuit split.

If you have any questions about this alert, please contact the authors: Stacy Nettleton and Ellen Shapiro. And as always, please feel free to contact Joseph Allerhand and John Neuwirth, the Co-Heads of Weil’s Securities Litigation practice, for more information.