Amicus Curiae Brief — Emulex Corporation, et al., Petitioners v. Gary Varjabedian, et al.

No. 18-459

IN THE

EMULEX CORPORATION, ET AL.,

Petitioners,

v.

GARY VARJABEDIAN AND JERRY MUTZA,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF FOR LEGAL SCHOLARS AS

AMICI CURIAE SUPPORTING RESPONDENTS

Edward Labaton

Marc I. Gross

Counsel of Record

INSTITUTE FOR LAW AND

ECONOMIC POLICY

401 East City Avenue

Suite 122

Bala Cynwyd, PA 19004

(215) 988-9546

marc.i.gross51@gmail.com

Additional counsel listed in signature block

TABLE OF CONTENTS

TABLE OF AUTHORITIES ........................................ ii

INTEREST OF AMICI ................................................ 1

SUMMARY OF ARGUMENT ..................................... 2

ARGUMENT ................................................................ 3

I.

This Court’s Precedents Support Maintaining

Well-Established Private Rights of Action ........... 4

II. Private Rights of Action Under the Exchange

Act, Including the Right to Sue Under Section

14(e), Are Well-Established and Should Be

Maintained .......................................................... 11

CONCLUSION .......................................................... 22

ii

TABLE OF AUTHORITIES

Cases

Alexander v. Sandoval,

532 U.S. 275 (2001) ........................................ passim

Astoria Fed. Sav. & Loan Ass’n v. Solimino,

501 U.S. 104 (1991) ................................................ 20

Blue Chip Stamps v. Manor Drug Stores,

421 U.S. 723 (1975) .......................................... 12, 17

Bond Opportunity Fund v. Unilab Corp.,

87 F. App’x 772 (2d Cir. 2004) ............................... 15

Cannon v. Univ. of Chi.,

441 U.S. 677 (1979) ........................................ passim

CBOCS West, Inc. v. Humphries,

553 U.S. 442 (2008) .................................. 8, 9, 17, 20

Cent. Bank of Denver, N.A. v. First Interstate

Bank of Denver, N.A.,

511 U.S. 164 (1994) ................................................ 15

In re Dig. Island Sec. Litig.,

357 F.3d 322 (3d Cir. 2004) ................................... 19

Halliburton Co. v. Erica P. John Fund, Inc.,

573 U.S. 258 (2014) .................................... 12, 13, 14

Herman & MacLean v. Huddleston,

459 U.S. 375 (1983) .................................... 12, 13, 15

J.I. Case Co. v. Borak,

377 U.S. 426 (1964) .................................... 14, 15, 17

Jackson v. Birmingham Bd. of Educ.,

544 U.S. 167 (2005) .................................. 7, 8, 17, 21

Janus Capital Grp., Inc. v. First Derivative Traders,

564 U.S. 135 (2011) ................................................ 12

Kimble v. Marvel Entm’t, LLC,

135 S. Ct. 2401 (2015) ...................................... 10, 11

iii

Lacey v. Maricopa County,

693 F.3d 896 (9th Cir. 2012) .................................. 15

Little Gem Life Scis. LLC v. Orphan Med., Inc.,

537 F.3d 913 (8th Cir. 2008) .................................. 15

Merrill Lynch, Pierce, Fenner & Smith, Inc.

v. Curran,

456 U.S. 353 (1982) ........................................ passim

Mills v. Elec. Auto-Lite Co.,

396 U.S. 375 (1970) ................................................ 15

Musick, Peeler & Garrett v. Emp’rs Ins. of Wausau,

508 U.S. 286 (1993) ................................................ 15

N.Y.C. Emps.’ Ret. Sys. v. Jobs,

593 F.3d 1018 (9th Cir. 2010) ................................ 15

Payne v. Tennessee,

501 U.S. 808 (1991) ................................................ 11

Piper v. Chris-Craft Indus., Inc.,

430 U.S. 1 (1977) ........................................ 15, 18, 19

Rubke v. Capitol Bancorp Ltd.,

551 F.3d 1156 (9th Cir. 2009) ................................ 19

Sargent v. Genesco, Inc.,

492 F.2d 750 (5th Cir. 1974) .................................. 17

Schreiber v. Burlington N., Inc.,

472 U.S. 1 (1985) .............................................. 17, 18

Sec. Inv’r Prot. Corp. v. Barbour,

421 U.S. 412 (1975) ................................................ 15

Smallwood v. Pearl Brewing Co.,

489 F.2d 579 (5th Cir. 1974) .................................. 17

Stoneridge Inv. Partners, LLC v.

Sci.-Atlanta, Inc.,

552 U.S. 148 (2008) .............................. 10, 12, 13, 20

iv

Sullivan v. Little Hunting Park, Inc.,

396 U.S. 229 (1969) .................................... 7, 8, 9, 17

Superintendent of Ins. of N.Y. v. Bankers Life &

Cas. Co.,

404 U.S. 6 (1971) .................................................... 12

Touche Ross & Co. v. Redington,

442 U.S. 560 (1979) ................................................ 15

TSC Indus., Inc. v. Northway, Inc.,

426 U.S. 438 (1976) ................................................ 15

Va. Bankshares, Inc. v. Sandberg,

501 U.S. 1083 (1991)............................................... 14

Ziglar v. Abbasi,

137 S. Ct. 1843 (2017) ............................................ 10

Statutes

Civil Rights Act of 1964, Pub. L. No. 88-352,

78 Stat. 241 .............................................................. 4

Title VI ............................................................. 5, 17

Section 601 .......................................................... 5

Section 602 (42 U.S.C. § 2000d-1) .................. 4, 5

Commodity Exchange Act, ch. 369,

42 Stat. 998 (7 U.S.C. § 1 et seq.) ....................... 6, 13

Education Amendments of 1972,

Pub. L. No. 92-318, 86 Stat. 235 .............................. 5

Title IX ....................................................... 5, 7, 17

Private Securities Litigation Reform Act of

1995, Pub. L. No. 104-67, 109 Stat. 737 .... 13, 15, 19

Pub. L. No. 91-567, 84 Stat. 1497 (1970) .................. 19

Securities Acts Amendments of 1975,

Pub. L. No. 94-29, 89 Stat. 97 ................................ 13

v

Securities Exchange Act of 1934, ch. 404,

48 Stat. 881 (15 U.S.C. § 78a et seq.) ............. passim

15 U.S.C. § 78j(b) (Section 10(b)) .............. passim

15 U.S.C. § 78n(a) (Section 14(a)) ............. passim

15 U.S.C. § 78n(e) (Section 14(e)) ............. passim

Williams Act, Pub. L. No. 90-439,

82 Stat. 454 (1968) ........................................... 16, 18

15 U.S.C. § 78n(e) (Supp. IV 1968) ................... 16

42 U.S.C. § 1981 ........................................... 8, 9, 17, 20

42 U.S.C. § 1982 ................................................. passim

Regulations

17 C.F.R. § 240.10b-5 (Rule 10b-5) ................... passim

17 C.F.R. § 240.14a-9 (Rule 14a-9) ................... passim

Other Authorities

S. Rep. No. 104-98 (1995) .......................................... 15

INTEREST OF AMICI1

Amici are scholars in the fields of securities law

and private enforcement of federal law who have

closely followed this Court’s cases about securities

regulation and private rights of action. Amici agree

with respondents that Section 14(e) of the Securities

Exchange Act of 1934 authorizes a private cause of

action for negligence. This brief focuses specifically on

whether Section 14(e) creates a private right of

action—an issue that petitioners and some of their

amici have raised belatedly in this litigation. If the

Court reaches that question, amici argue that it

should affirm.

Amici are:

Stephen B. Burbank, David Berger Professor for

the Administration of Justice at University of

Pennsylvania Law School.

James D. Cox, Brainerd Currie Professor of Law

at Duke University.

Michael J. Kaufman, Dean and Professor of Law

at Loyola University Chicago School of Law.

Donald Langevoort, the Thomas Aquinas

Reynolds Professor of Law at the Georgetown

University Law Center.

1

No counsel for any party authored this brief in whole or in

part, and no person or entity, other than amici curiae, their

members, or their counsel contributed money to fund the brief’s

preparation or submission. The parties have consented to the

filing of this brief.

2

Charles W. Murdock, Professor and Loyola

Faculty Scholar at Loyola University Chicago School

of Law.

Ann M. Olazábal, Professor and Chair of the

Business Law department at Miami Business School.

Frank Partnoy, Adrian A. Kragen Professor of

Law at U.C. Berkeley School of Law.

Joel Seligman, President Emeritus and Professor

of Business and Political Science at the University of

Rochester.

Randall S. Thomas, John Beasley Professor of

Law and Business at Vanderbilt Law School.

Robert Thompson, Peter P. Weidenbruch, Jr.,

Professor of Business Law at Georgetown Law Center.

Urska Velikonja, Professor of Law at Georgetown

University Law Center.

David Webber, Professor of Law at Boston

University School of Law.

SUMMARY OF ARGUMENT

This Court’s recent precedents regarding private

rights of action emphasize respect for the separation

of powers and judicial restraint. Often, these norms

have steered the Court away from recognizing a new

implied private right of action, or extending an

existing one to an entirely new circumstance. The

same considerations, however, dictate a different

result with respect to private rights of action that are

well-established by judicial precedent. Where

Congress contemplated a private right of action in the

first instance, courts have uniformly recognized one

for decades, and Congress has legislated against that

backdrop without abrogating those decisions, this

3

Court has recognized that it would not promote the

separation of powers or judicial restraint to upend the

status quo. Indeed, it would be profoundly disruptive.

These considerations apply with full force to

established private rights of action under the

Securities Exchange Act of 1934, ch. 404, 48 Stat. 881

(15 U.S.C. § 78a et seq.)—including the rights to

enforce Sections 10(b), 14(a), 14(e), and their

implementing rules. In this case, to the extent the

Court is inclined to reach the issue of the implied

private right of action, the Court should recognize that

such well-established causes of action continue to play

an important role in securities regulation, and uphold

the private right of action to enforce Section 14(e).

ARGUMENT

Everybody agrees that on a prospective basis it

would be better for Congress to speak expressly if it

wishes to create a new cause of action.

Simultaneously, however, nobody can deny that it

would be extremely disruptive for federal courts—

having recognized implied rights of action for decades,

and having induced Congress to expect that such

remedies would be available to injured Americans—to

begin overruling all of those decisions in an effort to

clean the doctrinal slate. In the short term, grave

violations of federal law would occur without any

remedy, and it is doubtful whether Congress would

ever be able to undo all of the damage.

These concerns about fairness, justice, and

stability in the law have correctly prompted this Court

to take a cautious and balanced approach to private

rights of action. This Court’s decisions reflect real

reluctance to create new private rights of action, or to

4

extend existing ones—but also a firm commitment to

maintain existing, well-established private rights of

action against unfounded challenges. This Court

should follow that approach, and in fact nobody

seriously argues otherwise.

Taking that as the starting point, the only

question in this case is whether the private right of

action under Section 14(e) of the Exchange Act, 15

U.S.C. § 78n(e)—which was obviously contemplated

by the Congress that enacted the statute, has been

uniformly recognized by federal courts since the late

1960s, and has never been modified by Congress

since—is the sort of newfangled action that this Court

has declined to embrace, or instead the sort of wellestablished remedy that the Court has consistently

maintained. It is clearly the latter, and the Court

should therefore affirm.

I.

This Court’s Precedents Support

Maintaining Well-Established Private

Rights of Action.

1. There is no doubt that this Court has become

less willing to imply new private rights of action. The

Court explained why in Alexander v. Sandoval, 532

U.S. 275 (2001), which held that there was no private

right of action to enforce disparate-impact regulations

enacted pursuant to Section 602 of the Civil Rights Act

of 1964, Pub. L. No. 88-352, 78 Stat. 241. As the Court

recognized, “private rights of action to enforce federal

law must be created by Congress,” and the “judicial

task is to interpret the statute” to determine whether

it created a private remedy. 532 U.S. at 286.

In Sandoval, the relevant statute (Section 602)

authorized federal agencies to issue “rules, regulations,

5

or orders of general applicability” to enforce Section

601 of the statute, which by its terms prohibited only

intentional discrimination. See 532 U.S. at 288

(quoting 42 U.S.C. § 2000d-1). The Court determined

that this language did not create rights or even

regulate conduct; in fact, the language suggested that

public enforcement was the proper way to enforce the

statute. Id. at 289-90. Section 602 was therefore

insufficient to authorize a new private right of action

for disparate impact claims.

The Court acknowledged, however, that courts

should recognize implied private rights of action in at

least two contexts. First, the Court indicated that

existing implied private rights of action should not be

revisited. For example, the Court held that the implied

private right of action to enforce Section 601 was

“beyond dispute.” Sandoval, 532 U.S. at 280. As

support, the Court noted that it had acknowledged this

right of action in Cannon v. University of Chicago, 441

U.S. 677 (1979), and that subsequent legislation—

which effectively “ratified” the private right of action,

even though it did not codify it—had been enacted

against that backdrop. 532 U.S. at 279-80.

Second, the Court recognized that when Congress

enacts or reenacts statutory text “that courts had

previously interpreted to create a private right of

action,” courts can consult that context when

interpreting the text, and infer that Congress intended

the statute to create a private right of action.

Sandoval, 532 U.S. at 288. The Court cited two

relevant examples. First, in Cannon, the Court

observed that Title IX of the Education Amendments

of 1972, Pub. L. No. 92-318, 86 Stat. 235, “was

patterned after Title VI of the Civil Rights Act of

6

1964,” which “had already been construed” by the

lower courts “as creating a private remedy.” 441 U.S.

at 694, 696. The Court reasoned that it was “always

appropriate

to

assume

that

our

elected

representatives, like other citizens, know the law”—

and to conclude that Congress would have “expected

its enactment to be interpreted in conformity” with

judicial precedents that formed the “contemporary

legal context” around the 1972 statute. Id. at 696-97,

699. This was so even under “the strict approach

followed in our recent cases” regarding implied rights

of action. Id. at 698.

The Court’s second example was Merrill Lynch,

Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353,

379 (1982), which upheld an implied private right of

action to enforce the Commodity Exchange Act (CEA),

ch. 369, 42 Stat. 998 (7 U.S.C. § 1 et seq.). In Merrill

Lynch, the Court explained that “[i]n determining

whether a private cause of action is implicit in a

federal statutory scheme when the statute by its terms

is silent on that issue . . . we must examine Congress’

perception of the law that it was shaping or

reshaping.” 456 U.S. at 378. When Congress

overhauled the CEA in 1974, an implied private right

of action was already “part of the ‘contemporary legal

context’” because it had been recognized by many

lower courts, and this Court had “assumed that the

remedy was available” Id. at 380, 381. Congress did

not codify this private right of action, but it did not

eliminate the relevant statutory language either. The

Court held that “[i]n that context, the fact that a

comprehensive

reexamination

and

significant

amendment of the CEA left intact the statutory

provisions under which the federal courts had implied

7

a cause of action is itself evidence that Congress

affirmatively intended to preserve that remedy.” Id. at

381-82.

In these situations, the Court held that it was

proper for courts to presume that Congress understood

the text it was enacting to create a private right of

action, and that it would therefore thwart Congress’s

intent for a court to interpret the statute to reach the

opposite result.

2. In the years since Sandoval, the Court has

generally been reluctant to infer implied private rights

of action. There have, however, been notable

exceptions that prove the doctrine of implied private

rights of action remains an important feature of

federal law.

In Jackson v. Birmingham Board of Education,

544 U.S. 167, 171 (2005), the Court held that the

implied private right of action to redress

discrimination on the basis of sex under Title IX

(recognized in Cannon) extended to retaliation claims.

The Court reasoned that “Congress enacted Title IX

just three years after” Sullivan v. Little Hunting Park,

Inc., 396 U.S. 229 (1969), which held that the

prohibition of racial discrimination in 42 U.S.C. § 1982

included a prohibition against retaliation. 544 U.S. at

176. The Court thus concluded that Sullivan “provides

a valuable context for understanding” Title IX, and

that Congress would have “expected its enactment of

Title IX to be interpreted in conformity with” that

decision. Ibid. (quotation marks and alterations

omitted). Because Sullivan had interpreted

discrimination to encompass retaliation, the Court in

Jackson held that Title IX’s prohibition of

discrimination did, too. The Court rejected the

8

argument that its decision was inconsistent with

Sandoval, reasoning that its conclusion followed from

the “statute’s text” and Congress’s intent—not

freewheeling judicial policymaking. Id. at 178.

In CBOCS West, Inc. v. Humphries, 553 U.S. 442

(2008), the Court, in a 7-2 decision, reached the same

result with respect to 42 U.S.C. § 1981. The Court

explained that even though Section 1981 did not

mention retaliation, the statute had historically been

interpreted to be consistent with Section 1982—which

the Court in Sullivan had found to prohibit retaliation.

The Court also noted that “since 1991, the lower courts

have uniformly interpreted § 1981 as encompassing

retaliation actions.” 553 U.S. at 451. The Court thus

reasoned that considerations of statutory stare decisis

supported finding a cause of action for retaliation in

Section 1981 as well:

Sullivan, as interpreted and relied upon by

Jackson, as well as the long line of related

cases where we construe §§ 1981 and 1982

similarly, lead us to conclude that the view

that § 1981 encompasses retaliation claims is

indeed well embedded in the law. That being

so, considerations of stare decisis strongly

support our adherence to that view. And those

considerations impose a considerable burden

upon those who would seek a different

interpretation that would necessarily unsettle

many Court precedents.

Id. at 451-52. The Court also rejected the argument

that in the years since Sullivan, the Court’s approach

to statutory interpretation had veered toward

textualism and away from the sort of purposive

9

analysis utilized in Sullivan itself. The Court

explained that even if this was true, it did not matter:

[E]ven were we to posit for argument’s sake

that changes in interpretive approach take

place from time to time, we could not agree

that the existence of such a change would

justify reexamination of well-established

prior law. Principles of stare decisis, after all,

demand respect for precedent whether

judicial methods of interpretation change or

stay the same. Were that not so, those

principles would fail to achieve the legal

stability that they seek and upon which the

rule of law depends.

Id. at 457. Importantly, the Court reached these

conclusions even though it had never previously

recognized a private right of action for retaliation

under Section 1981. It was enough that the lower

courts had done so, and that this Court’s other

decisions interpreted Section 1981 consistently with

Section 1982.

These recent cases stand for the proposition that,

even after Sandoval, the Court should not hesitate to

imply a private right of action when judicial precedent

interpreting analogous statutes supports that result.

In these situations, it is apparent that Congress would

have understood the text it was enacting to create a

private right of action.

3. In addition to these cases, which have actually

extended private rights of action, the Court has also

maintained well-established private rights of action.

The best examples are private rights of action under

the Exchange Act, such as the right under Section

10

10(b) (15 U.S.C. § 78j(b)) and Rule 10b-5 (17 C.F.R.

§ 240.10b-5), and also under Section 14(a) (15 U.S.C.

§ 78n(a)) and Rule 14a-9 (17 C.F.R. § 240.14a-9).

These are discussed in greater detail in Part II, infra.

But those are not the only examples. In fact, the Court

has generally refrained from overruling the holdings

of any of its old private-right-of-action cases, even

though it has stepped away from their reasoning.

For present purposes, the key point is that the

Court’s maintenance of existing private rights of

action is fully consistent with its recent precedents.

The Court has explained that its approach to private

rights of action is rooted in the separation of powers

and judicial restraint. See, e.g., Ziglar v. Abbasi, 137

S. Ct. 1843, 1857 (2017); Stoneridge Inv. Partners,

LLC v. Sci.-Atlanta, Inc., 552 U.S. 148, 165 (2008).

These are laudable goals, and maintaining existing

private rights of action advances them by preserving

the predictable status quo and allowing Congress to

modify it if necessary. An aggressive effort to

eliminate existing private rights of action, by contrast,

would frustrate Congress’s settled expectations and

either result in gaps in Congress’s laws, or force a

flurry of unnecessary legislative activity.

Maintaining existing private rights of action also

makes sense for all of the reasons that stare decisis—

and especially statutory stare decisis—requires the

Court to stay the course even if it might decide a case

differently on a blank slate. It “promotes the

evenhanded, predictable, and consistent development

of legal principles, fosters reliance on judicial

decisions, and contributes to the actual and perceived

integrity of the judicial process.” Kimble v. Marvel

Entm’t, LLC, 135 S. Ct. 2401, 2409 (2015) (quoting

11

Payne v. Tennessee, 501 U.S. 808, 827 (1991)). And it

leaves the right to act where it belongs—with

Congress—which “can correct any mistake it sees.”

Ibid. Importantly, “[t]hat is true . . . whether [the

Court’s prior] decision focused only on statutory text

or also relied . . . on the policies and purposes

animating the law” and indeed, “even when a decision

has announced a ‘judicially created doctrine’ designed

to implement a federal statute.” Ibid. (citation

omitted).

II.

Private Rights of Action Under the

Exchange Act, Including the Right to

Sue Under Section 14(e), Are WellEstablished and Should Be Maintained.

This Court’s approach strongly supports leaving

existing private rights of action under the Exchange

Act—including the private right of action under

Section 14(e)—intact. Implied private rights of action

under the Exchange Act have been recognized for

decades. Even as this Court’s precedents have shifted

away from implying new private rights of action, the

Court has never questioned that these rights continue

to play a critically important role in the regulation of

securities transactions.2

1. Start with the easiest example: nobody disputes

that the implied right of action to enforce Section 10(b)

and Rule 10b-5—which prohibit fraud in connection

2

In addition to Section 14(e), this section discusses Sections

10(b) and 14(a), and their implementing rules. We do this because

these sections are closely related, and therefore the most

pertinent sections for present purposes. The argument in this

brief applies, however, to any well-established private right of

action, whether under the securities law or otherwise.

12

with the purchase and sale of securities—is wellestablished, and its maintenance is therefore fully

consistent with this Court’s decision in Sandoval and

its progeny. Petitioners admit (at 51) that statutory

stare decisis protects this cause of action, the United

States acknowledges (at 30-31) that “such actions

serve as an important adjunct to government

enforcement suits,” and the Chamber of Commerce

likewise concedes (at 4) that Rule 10b-5 actions should

remain available.

Those admissions are necessary because, for

decades, this Court has acknowledged this private

right of action. See Halliburton Co. v. Erica P. John

Fund, Inc., 573 U.S. 258, 267 (2014) (“Although section

10(b) does not create an express private cause of

action, we have long recognized an implied private

cause of action to enforce the provision and its

implementing regulation.”); Janus Capital Grp., Inc.

v. First Derivative Traders, 564 U.S. 135, 142 (2011);

Stoneridge, 552 U.S. at 165 (describing the “implied

right of action” as “a prominent feature of federal

securities regulation”); Herman & MacLean v.

Huddleston, 459 U.S. 375, 380 (1983) (stating that

because “a private right of action under § 10(b) of the

1934 Act and Rule 10b-5 has been consistently

recognized for more than 35 years,” the “existence of

this implied remedy is simply beyond peradventure”);

Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723,

730 (1975) (noting that the Court had followed the

“overwhelming consensus of the District Courts and

Courts of Appeals that such a cause of action did

exist”); Superintendent of Ins. of N.Y. v. Bankers Life

& Cas. Co., 404 U.S. 6, 13 n.9 (1971) (“It is now

13

established that a private right of action is implied

under §10(b)”).

This private right of action has also been ratified

by Congress. In Stoneridge, this Court acknowledged

that by enacting the Private Securities Litigation

Reform Act of 1995 (PSLRA), Pub. L. No. 104-67, 109

Stat. 737, Congress “ratified the implied right of action

after the Court moved away from a broad willingness

to imply private rights of action.” 552 U.S. at 165. In

Herman & MacLean, it applied a similar analysis to

the Securities Acts Amendments of 1975, Pub. L. No.

94-29, 89 Stat. 97. See 459 U.S. at 385-86 (“In light of

this well-established judicial interpretation [permitting

Section 10(b) actions even when express remedies

were available under other provisions], Congress’

decision to leave § 10(b) intact suggests that Congress

ratified the cumulative nature of the § 10(b) action.”).

That analysis echoes the reasoning of Sandoval, which

recognized that Congress ratified Cannon by legislating

without overturning it, and of Merrill Lynch, which

held that Congress’s decision to overhaul the CEA

without repealing legislation that had been construed

to create a private right of action constituted strong

evidence of an intent to preserve that right of action.

Indeed, in its recent decision in Halliburton, the

Court not only reaffirmed the existence of the Section

10(b) and Rule 10b-5 private right of action, it held

that principles of statutory stare decisis compelled

upholding the existing scope of that cause of action—

specifically the presumption of reliance. See 573 U.S.

at 274-75. The Court thus distinguished between

expansions of the private right of action—which are

disfavored under current doctrine—and the

maintenance of such a cause of action, which is

14

strongly favored under this Court’s precedents. Id. at

275-77.

2. Similarly, the private right of action to enforce

Section 14(a) and Rule 14a-9, recognized by this Court

in J.I. Case Co. v. Borak, 377 U.S. 426 (1964), is wellestablished and remains vital today. Section 14(a)

makes it unlawful for any person to solicit or permit

the use of his or her name to solicit a proxy, consent,

or authorization in respect of any security in violation

of SEC rules. Rule 14a-9 implements Section 14(a) by

providing that:

No solicitation subject to this regulation shall

be made by means of any proxy statement,

form of proxy, notice of meeting or other

communication, written or oral, containing

any statement which, at the time and in the

light of the circumstances under which it is

made, is false or misleading with respect to

any material fact, or which omits to state any

material fact necessary in order to make the

statements therein not false or misleading or

necessary to correct any statement in any

earlier communication with respect to the

solicitation of a proxy for the same meeting or

subject matter which has become false or

misleading.

17 C.F.R. § 240.14a-9(a).

Although much of Borak’s reasoning has been

rejected, this Court has never overruled its holding—

and has in fact repeatedly reaffirmed the existence of

this private right of action. See Va. Bankshares, Inc. v.

Sandberg, 501 U.S. 1083, 1095 (1991) (discussing

elements of a private Section 14(a) cause of action);

15

TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 441

(1976) (same); Mills v. Elec. Auto-Lite Co., 396 U.S.

375, 377 (1970) (same); see also Cent. Bank of Denver,

N.A. v. First Interstate Bank of Denver, N.A., 511 U.S.

164, 171 (1994) (acknowledging private right of action

to enforce Section 14(a)); Musick, Peeler & Garrett v.

Emp’rs Ins. of Wausau, 508 U.S. 286, 299 n.3 (1993)

(Thomas, J., dissenting) (same); Herman & MacLean,

459 U.S. at 380 n.9 (same); Touche Ross & Co. v.

Redington, 442 U.S. 560, 577 (1979) (same); Piper v.

Chris-Craft Indus., Inc., 430 U.S. 1, 25 (1977) (same);

Sec. Inv’r Prot. Corp. v. Barbour, 421 U.S. 412, 423

(1975) (same).

Congress similarly has not sought to abrogate

Borak. On the contrary, it has repeatedly amended the

statutory scheme without doing so. For example, the

PSLRA—which “ratified” the implied private right of

action under Section 10(b)—applies to actions under

Section 14(a) and Rule 14a-9 as well. See, e.g., N.Y.C.

Emps.’ Ret. Sys. v. Jobs, 593 F.3d 1018, 1022 (9th Cir.

2010), overruled on other grounds by Lacey v. Maricopa

County, 693 F.3d 896 (9th Cir. 2012) (en banc); Little

Gem Life Scis. LLC v. Orphan Med., Inc., 537 F.3d 913,

916 (8th Cir. 2008); Bond Opportunity Fund v. Unilab

Corp., 87 F. App’x 772, 773 (2d Cir. 2004). The

legislative history of the PSLRA likewise noted that,

like actions under Section 10(b), private causes of

action under Section 14(a) “have long been recognized

as a necessary supplement to actions brought by the

Commission and as an essential tool in the

enforcement of federal securities laws.” S. Rep. No.

104-98, at 37 (1995) (additional views of Sens.

Sarbanes, Bryan, and Boxer) (quoting former SEC

16

Chair Richard Breeden) (internal quotation marks

omitted).

This private right of action thus exhibits the same

qualities as the Section 10(b) and Rule 10b-5 action: it

has long been recognized by the courts, and Congress

has not abrogated it despite repeatedly amending the

legislative scheme.

3. These arguments apply fully to the private right

of action to enforce Section 14(e). As explained by

respondents, the point of Section 14(e) was to

complement Section 14(a)’s regulation of proxy

solicitations by implementing similar rules regulating

cash tender offers.

Section 14(e)’s text resembles Rule 10b-5 and Rule

14a-9, modified to apply to tender offers. At the time

of its enactment, as part of the Williams Act, Pub. L.

No. 90-439, 82 Stat. 454 (1968), it provided:

It shall be unlawful for any person to make

any untrue statement of a material fact or

omit to state any material fact necessary in

order to make the statements made, in the

light of the circumstances under which they

are made, not misleading, or to engage in any

fraudulent, deceptive, or manipulative acts or

practices, in connection with any tender offer

or request or invitation for tenders, or any

solicitation of security holders in opposition to

or in favor of any such offer, request, or

invitation.

15 U.S.C. § 78n(e) (Supp. IV 1968).

In 1968, Congress would have intended this

language to create a private right of action. Section

14(e) was “modeled on the antifraud provisions of

17

§ 10(b) of the Act and Rule 10b-5,” Schreiber v.

Burlington N., Inc., 472 U.S. 1, 10 (1985), and by 1968,

the private right of action under Section 10(b) and

Rule 10b-5 was already clearly established. See Blue

Chip Stamps, 421 U.S. at 730 (explaining that the

cause of action to enforce Section 10(b) and Rule 10b-5

was first recognized in 1946, and consistently

thereafter). Section 14(e) was also supposed to

complement Section 14(a)—and it was enacted four

years after this Court decided Borak, recognizing the

private right of action for Section 14(a) and Rule 14a-9.

Cf. Jackson, 544 U.S. at 176-77 (finding it important

that Title IX was enacted three years after Sullivan).

Thus, Congress would have believed that Section 14(e)

gave rise to a private cause of action, too. See

Sandoval, 532 U.S. at 288 (noting that an inference of

intent is available when Congress enacts or reenacts

the same “statutory text that courts had previously

interpreted to create a private right of action”);

Cannon, 441 U.S. at 694 (finding it significant that

Title IX was “patterned after” Title VI, which had a

private right of action); see also CBOCS West, 553 U.S.

at 451-52 (maintaining conformity between Section

1981 and Section 1982).

Courts agreed. As with Sections 10(b) and 14(a),

lower courts quickly and uniformly recognized a

private cause of action to enforce Section 14(e). See,

e.g., Sargent v. Genesco, Inc., 492 F.2d 750, 769 (5th

Cir. 1974) (“Although section 14(e) does not expressly

provide for a private right of action, courts have

uniformly implied one.”); Smallwood v. Pearl Brewing

Co., 489 F.2d 579, 596 n.20 (5th Cir. 1974) (following

the “overwhelming weight of authority” holding that

“a private right of action may be inferred from Section

18

14(e)”). While courts debated the precise contours of

the cause of action, none found that it did not exist.

While this Court has not yet formally recognized

a cause of action under Section 14(e), it has strongly

suggested that an implied private right of action for

harmed investors does exist. In Piper, the Court

considered whether a company making a tender offer

had standing to bring claims under Section 14(e). 430

U.S. at 42. The Court explained that “where

congressional purposes are likely to be undermined

absent private enforcement, private remedies may be

implied in favor of the particular class intended to be

protected by the statute.” Id. at 25. And while the

Court found that unsuccessful tender offerors were not

part of the particular class intended to be protected by

Section 14(e), following a lengthy review of the

legislative history of Section 14(e), as well as the

Court’s related jurisprudence holding that Section

14(a) supported an implied private right of action for

injured investors, the Court concluded that the

“legislative history thus shows that the sole purpose of

the Williams Act was the protection of investors who

are confronted with a tender offer.” Id. at 35; see also

Schreiber, 472 U.S. at 8, 10 (analogizing Section 14(e)

to Section 10(b), and holding that private cause of

action therefore did not apply absent a

misrepresentation or omission). The Court’s analysis

in Piper therefore directly indicates that an implied

right of action under Section 14(e) was intended to be

available to injured investors.

Thus while the Court nominally reserved any

opinion about whether the private right of action

extends to shareholders, 430 U.S. at 42 n.28, viewed

in context, this statement is a clear suggestion that the

19

private right of action exists: the Court included it to

clarify that its holding did not extend to shareholderofferees, and thereby blunt the force of the dissent. See

ibid. The dissent, in turn, had observed that “[n]o one

seriously questions the premise that Congress

implicitly created a private right of action when it

enacted § 14(e) in 1968,” nor “that the members of the

class which Congress was especially interested in

protecting may invoke that private remedy and,

further, that the shareholders of a target corporation

are members of that class.” Id. at 55 (Stevens, J.,

dissenting). The majority never quarreled with any of

that—in fact, it sought to assuage the concern with its

footnote.

Against the backdrop of these decisions, Congress

repeatedly amended the Exchange Act—but left the

pertinent language in Section 14(e) untouched. In

1970, after the lower courts had already recognized a

private right of action, Congress added explicit

rulemaking authority to Section 14(e). See Pub. L. No.

91-567, § 5, 84 Stat. 1497, 1497-98 (1970). That

amendment substantially strengthened the statute—

and it did not modify the preexisting text, which

Congress understood to create a private right of action.

This is “evidence that Congress affirmatively intended

to preserve that remedy.” Merrill Lynch, 456 U.S. at

381-82. Congress also did not modify the private right

of action when it made substantial amendments to the

Exchange Act in 1975. See supra p.13. The PSLRA also

applies to actions under Section 14(e). See, e.g., Rubke

v. Capitol Bancorp Ltd., 551 F.3d 1156, 1167 (9th Cir.

2009); In re Dig. Island Sec. Litig., 357 F.3d 322, 328

(3d Cir. 2004). Thus, in the same way that Congress

ratified the private right of action under Section 10(b),

20

it ratified the private right of action under Section

14(e). See Stoneridge, 552 U.S. at 165.

Petitioners and their amici argue that Section

14(e) is not entitled to the same treatment as causes of

action under Sections 10(b) and 14(a) because this

Court has never recognized a cause of action under

Section 14(e). But that is not the standard this Court

has laid out and adhered to. The lower courts have

uniformly recognized this right of action for decades.

Just as Congress is presumed to understand the

common law and legislate against that backdrop, see,

e.g., Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501

U.S. 104, 108 (1991), it is presumed to comprehend a

consensus among the lower federal courts. Indeed, the

Court said precisely that in Cannon, 441 U.S. at 69698, and in Merrill Lynch, 456 U.S. at 380—both cited

in Sandoval as examples where context mattered, 532

U.S. at 288. In CBOCS West, too, this Court placed

weight on the lower courts’ consensus. 553 U.S. at 451.

In each of these cases, even though this Court had not

previously recognized a private right of action, it held

that lower court decisions informed Congress’s

understanding of the text it was enacting.

To the extent this Court’s precedents are

instructive, all of the relevant precedents support

maintaining the Section 14(e) cause of action. This

Court has recognized implied causes of action under

closely analogous provisions: Sections 10(b) and 14(a),

and their implementing rules. In CBOCS West, the

Court extended the cause of action under Section 1981

to encompass retaliation claims because of 1960s-era

precedent finding a similar cause of action under

Section 1982, determining that the result was

compelled by statutory stare decisis. See 553 U.S. at

21

451-52. The analogy between Section 14(e) and other

well-established causes of action under the Exchange

Act are at least as strong, and so this Court’s cases

finding private causes of action under Sections 10(b)

and 14(a) should have the same force here.

Finally, it does not matter, for present purposes,

that lower courts initially interpreted Section 14(e) to

require scienter, as opposed to negligence. As

respondents explained in the brief in opposition, these

courts did not analyze Section 14(e)’s first clause, and

so there was no consensus that this clause required

scienter. BIO 7. In any event, as this Court has

recognized, the scope of an existing private right of

action is a matter of statutory interpretation that

turns on the meaning of the text Congress enacted. See

Jackson, 544 U.S. at 178. That text encompasses

negligent misrepresentations, Resp. Br. 9-25, and the

Court should construe the statute accordingly.

4. In sum, the maintenance of private causes of

action under the Exchange Act is fully consistent with

this Court’s precedents. When, as here, a private right

of action has been in place for 50 years, it would upset

settled expectations and frustrate congressional intent

to eliminate it. Of course, as with any statutory

question, Congress remains free to modify the scope or

availability of any private right of action as it sees fit.

This Court should leave the job of altering the status

quo to Congress.

22

CONCLUSION

For the foregoing reasons, the judgment of the

court of appeals should be affirmed.

Respectfully submitted,

Salvatore J. Graziano

BERNSTEIN LITOWITZ

BERGER & GROSSMANN

LLP

1251 6th Avenue

New York, NY 10020

Darren J. Robbins

ROBBINS GELLER RUDMAN

& DOWD LLP

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Suite 1500

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Gregg S. Levin

MOTLEY RICE LLC

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Larry Rosen

THE ROSEN LAW FIRM, P.A.

275 Madison Avenue

34th Floor

New York, NY 10016

March 28, 2019

Edward Labaton

Marc I. Gross

Counsel of Record

INSTITUTE FOR LAW AND

ECONOMIC POLICY

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