In Varjabedian v. Emulex, the Ninth Circuit recently held that plaintiffs bringing claims under Section 14(e) of the Securities Exchange Act of 1934 (“Exchange Act”)—which prohibits misstatements, omissions or fraudulent conduct in connection with a tender offer—need only show that defendants acted negligently, rather than with scienter.
This decision marks a conspicuous divergence from the decisions of every other circuit court to consider the issue. Those other courts have uniformly held that Section 14(e) claims require a plaintiff to demonstrate that defendants acted knowingly or with a reckless disregard of the truth, a significantly higher burden. The Ninth Circuit’s ruling, thus, sets up a clear circuit split that may necessitate resolution by the Supreme Court. In the meantime, however, it remains to be seen whether there will be a migration of tender-offer litigation to the Ninth Circuit.
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