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

No. 18-459

In The

EMULEX CORPORATION, ET AL.,

v.

Petitioners,

GARY VARJABEDIAN, ET AL.,

Respondents.

On Writ of Certiorari to the

United States Court of Appeals for the Ninth Circuit

BRIEF OF THE NORTH AMERICAN

SECURITIES ADMINISTRATORS

ASSOCIATION, INC. AS AMICUS CURIAE

IN SUPPORT OF RESPONDENTS

A. Valerie Mirko

Ruthanne M. Deutsch

Zachary T. Knepper

Counsel of Record

NORTH AMERICAN

Hyland Hunt

SECURITIES

DEUTSCH HUNT PLLC

ADMINISTRATORS ASSN. 300 New Jersey Ave. NW

750 First St. NE

Suite 900

Washington, DC 20002 Washington, DC 20001

(202) 868-6915

rdeutsch@deutschhunt.com

TABLE OF CONTENTS

TABLE OF AUTHORITIES ...................................... iii

INTEREST OF AMICUS CURIAE ............................. 1

INTRODUCTION

AND

SUMMARY

OF

ARGUMENT ......................................................... 2

ARGUMENT ................................................................ 6

I.

All Tools Of Statutory Construction Confirm

That Section 14(e)’s First Clause Sounds In

Negligence. ............................................................ 6

A. The Ninth Circuit’s Close Reading of Section

14(e)’s First Clause Is Correct. ....................... 7

B. The Legislative History and Purpose of the

Williams Act Support a Negligence Standard

for Section 14(e)’s First Clause. .................... 12

C. A Negligence Standard for Section 14(e)

Maintains

Parity

Between

Standards

Governing

Tender

Offers

and

Proxy

Solicitations. .................................................. 15

II. This Court Should Not Overturn Settled

Precedents Upholding An Implied Private

Right Of Action Under Section 14(e).................. 18

A. This Court Should Decline To Reach a

Question Expressly Disclaimed, and Not

Passed Upon, Below. ..................................... 19

B. Based on this Court’s Precedent, Congress

Reasonably Would Have Expected Its

Enactment of Section 14(e) to Confer a Private

Remedy........................................................... 21

(i)

ii

C. The Existence of an Implied Private Right in

Section 14(e) Is Entrenched and this Court

Should Not Now Overturn It. ....................... 26

D. Allowing a Negligence-Based Private Right

Under Section 14(e) Furthers the Statute’s

Purpose and Is Sound Public Policy. ............ 30

CONCLUSION .......................................................... 34

iii

TABLE OF AUTHORITIES

CASES

Aaron v. SEC,

446 U.S. 680 (1980) ..................................... passim

Adams v. Standard Knitting Mills, Inc.,

623 F.2d 422 (6th Cir. 1980) .......................... 10, 17

Alexander v. Sandoval,

532 U.S. 275 (2001) ........................................ 22, 26

Basic Inc. v. Levinson,

485 U.S. 224 (1988) .............................................. 31

Bateman Eichler, Hill Richards, Inc. v. Berner,

472 U.S. 299 (1985) .............................................. 31

Butler Aviation Int’l v. Comprehensive Designers,

Inc., 425 F.2d 842 (2d Cir. 1970) ......................... 28

Cannon v. Univ. of Chicago,

441 U.S. 677 (1979) .................................. 22, 23, 26

Ceres Partners v. GEL Assocs.,

918 F.2d 349 (2d Cir. 1990).................................. 29

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

480 F.2d 341 (2d Cir. 1973).................................. 11

Cutter v. Wilkinson,

544 U.S. 709 (2005) .............................................. 19

iv

DeKalb Cty. Pension Fund v. Transocean Ltd.,

817 F.3d 393 (2d Cir. 2016).................................. 17

Elec. Specialty Co. v. Int’l Controls Co.,

296 F. Supp. 2d 462 (S.D.N.Y. 1968) ................... 27

Ernst & Ernst v. Hochfelder,

425 U.S. 185 (1976) ..................................... passim

Fed. Hous. Fin. Agency v. Nomura Holding

Am., Inc., 873 F.3d 85 (2d Cir. 2017) ................... 18

Fla. Commercial Banks v. Culverhouse,

772 F.2d 1513 (11th Cir. 1985) ...................... 25, 29

Fla. Dep’t of Revenue v. Piccadilly Cafeterias, Inc.,

554 U.S. 33 (2008) .................................................. 9

Gearhart Indus., Inc. v. Smith Int’l Inc.,

741 F.2d 707 (5th Cir. 1984) ................................ 29

Gerstle v. Gamble-Skogmo, Inc.,

478 F.2d 1281 (2d Cir. 1973)................................ 17

Husky Int’l Elecs. v. Ritz,

136 S. Ct. 1581 (2016) .......................................... 11

In re Digital Island Sec. Litig.,

357 F.3d 322 (3d Cir. 2004).................................. 10

J. I. Case Co. v. Borak,

377 U.S. 426 (1964) ...................................... passim

v

Jackson v. Birmingham Bd. of Educ.,

544 U.S. 167 (2005) .............................................. 27

Kahan v. Rosenstiel,

424 F.2d 161 (3d Cir. 1970).................................. 28

Kardon v. Nat’l Gypsum Co.

69 F. Supp. 512 (E.D. Pa. 1946) ........................... 27

Lampf, Pleva, Lipkind, Prupis & Petigrow v.

Gilbertson, 501 U.S. 350 (1991) ........................... 31

Merrill Lynch, Pierce, Fenner & Smith, Inc. v.

Curran, 456 U.S. 353 (1982) ................................ 21

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit,

547 U.S. 71 (2006) .......................................... 31, 33

Nat’l Ass’n of Mfrs. v. Dep’t of Def.,

138 S. Ct. 617 (2018) .............................................. 7

New Prime Inc. v. Oliveira,

139 S. Ct. 532 (2019) ...................................... 30, 31

Omnicare, Inc. v. Laborers Dist. Council Constr.

Indus. Pension Fund, 135 S. Ct. 1318 (2015) .... 10

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

430 U.S. 1 (1977) .......................................... passim

Plaine v. McCabe,

797 F.2d 713 (9th Cir. 1986) ................................ 29

vi

Reiter v. Sonotone Corp.,

442 U.S. 330 (1979) ................................................ 8

Rondeau v. Mosinee Paper Corp.,

422 U.S. 49 (1975) ........................................... 6, 30

Schreiber v. Burlington N., Inc.,

472 U.S. 1 (1985) .......................................... passim

SEC v. Ginsburg,

362 F.3d 1292 (11th Cir. 2004) ............................ 10

SEC v. Nat’l Sec., Inc.,

393 U.S. 453 (1969) .............................................. 34

SEC v. Zandford,

535 U.S. 813 (2002) .............................................. 30

Smallwood v. Pearl Brewing Co.,

489 F.2d 579 (5th Cir. 1974) ................................ 11

Susquehanna Corp. v. Pan Am. Sulphur Co.,

423 F.2d 1075 (5th Cir. 1970) .............................. 28

Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

551 U.S. 308 (2007) ........................................ 5, 31

Touche Ross & Co. v. Redington,

442 U.S. 560 (1979) .............................................. 23

Transamerica Mortg. Advisors, Inc. v. Lewis,

444 U.S. 11 (1979) .................................... 21, 23, 24

vii

United States v. Naftalin,

441 U.S. 768 (1979) .......................................... 9, 34

United States v. O’Hagan,

521 U.S. 642 (1997) ........................................ 11, 30

Virginia Bankshares, Inc. v. Sandberg,

501 U.S. 1083 (1991) ...................................... 10, 26

Youakim v. Miller,

425 U.S. 231 (1976) .............................................. 19

Zuni Pub. Sch. Dist. v. Dep’t of Educ.,

550 U.S. 81 (2007) .................................................. 7

STATUTES

15 U.S.C.

§ 77k...................................................................... 18

§ 78j(b) .................................................................... 9

§ 78m(e)(1) ...................................................... 12, 14

§ 78n(a) ................................................................. 16

§ 78n(e) ........................................................... 2, 7, 8

§ 78q(a) ................................................................. 23

Pub. L. No. 90-439, 82 Stat. 454 (1968) ................ 6, 15

Pub. L. No. 91-567, 84 Stat. 1497 (1970) .............. 8, 14

Pub. L. No. 104-67, 109 Stat. 757 (1995) .................. 33

Pub. L. No. 105-353, 112 Stat. 3227 (1998) .............. 33

viii

REGULATIONS

17 C.F.R. § 240.10b-5 .................................................. 9

OTHER AUTHORITIES

1 LOUIS LOSS ET AL., SECURITIES

REGULATION (5th ed. 2014) .................................... 1

VI LOUIS LOSS, SECURITIES REGULATION

(2d ed. Supp. 1969). .............................................. 28

Additional Consumer Protection in Corp. Takeovers

and Increasing the Sec. Act Exemptions for Small

Businessmen: Hearing on S. 336 and S. 3431

Before the Subcomm. on Sec. of the S. Comm. on

Banking & Currency, 91st Cong. (1970) ....... 15, 25

Victor Brudney, A Note on Chilling

Tender Solicitations, 21 RUTGERS

L. REV. 609 (1967) ................................................ 28

Rick Fleming, Investor Advocate, SEC, Address at

PLI’s The SEC Speaks in 2018: Mandatory

Arbitration: An Illusory Remedy for Public

Company Shareholders (Feb. 24, 2018)......... 32, 33

Full Disclosure of Corporate Equity Ownership and in

Corporate Takeover Bids: Hearings on S. 510

Before the Subcomm. on Sec. of the

S. Comm. on Banking & Currency,

90th Cong. (1967) ..................................... 12, 13, 24

H.R. REP. No. 90-1711 (1968) .................................... 13

ix

Robert J. Jackson Jr., Comm’r, SEC, Address at

CECP CEO Investor Forum: Keeping

Shareholders on the Beat: A Call for a Considered

Conversation About Mandatory Arbitration (Feb.

26, 2018) ............................................................... 32

W. McNeil Kennedy, Defensive Take-Over

Procedures Since the Williams Act,

19 CATH. U. L. REV. 158 (1969) ............................ 29

Harvey L. Pitt, Standing to Sue Under the

Williams Act After Chris-Craft: A Leaky

Ship on Troubled Waters,

34 BUS. LAW. 117 (1978)....................................... 29

Joseph D. Reid, Senate Bill 510 and the

Cash Tender Offer, 14 WAYNE L.

REV. 568 (1968)..................................................... 28

S. REP. No. 90-550 (1967) .......................................... 14

S. REP. No. 104-98 (1995) .......................................... 33

Transcript of Proceedings, S. Comm. on

Banking & Currency (Aug. 1, 1967) .................... 16

Transcript of Proceedings, S. Comm. on

Banking & Currency (Aug. 10, 1967) .................. 16

INTEREST OF AMICUS CURIAE1

The North American Securities Administrators

Association, Inc. (“NASAA”) is the non-profit

association of state, provincial, and territorial

securities regulators in the United States, Canada and

Mexico. NASAA has 67 members, including the

securities regulators in all 50 states, the District of

Columbia, Puerto Rico, and the U.S. Virgin Islands.

Formed in 1919, NASAA is the oldest international

organization devoted to protecting investors from

fraud or other forms of unlawful conduct in the offer

and sale of securities.

NASAA’s U.S. members are responsible for

regulating transactions under state securities laws,

commonly known as “Blue Sky Laws.” See generally 1

LOUIS LOSS ET AL., SECURITIES REGULATION 55–251

(5th ed. 2014). These activities include registering

local securities offerings; licensing and examining

broker-dealers and investment advisers who sell

securities or provide investment advice; and initiating

enforcement actions to combat fraud and other

violations of state securities laws. One of NASAA’s

goals is to foster greater uniformity across state and

federal securities laws, though the overriding mission

of NASAA and its members is to protect investors,

particularly retail investors, from fraud or other

unlawful conduct in the securities markets.

1 Counsel of record for all parties consented to the filing of

the brief. S. Ct. R. 37.3(a). No counsel for any party authored this

brief in whole or in part, and no person or entity other than

amicus curiae or its counsel made a monetary contribution

intended to fund the brief’s preparation or submission.

(1)

2

NASAA supports the work of its members and the

investing public by, among other things, promulgating

model rules, providing training opportunities,

coordinating multi-state enforcement actions and

examinations, and commenting on proposed

legislation and rulemakings. NASAA also offers its

legal analysis and policy perspective to state and

federal courts as amicus curiae in cases involving the

interpretation of state and federal securities laws.

NASAA and its members have a strong interest

in this case, which raises important questions of

investor protection and the ability of shareholders to

initiate remedial actions—a crucial component of the

securities enforcement framework—and thereby deter

and recover for harm caused by false or misleading

statements that influenced their decisions about

tendering shares. Eliminating the long-established

private enforcement mechanism would reopen the

significant regulatory gap Congress sought to close

between takeovers-by-proxy and takeovers-by-tenderoffer, to the detriment of the investing public.

INTRODUCTION

AND SUMMARY OF ARGUMENT

For more than five decades, it has been settled in

the lower courts, acknowledged by scholars, implicitly

accepted by this Court, and condoned by Congress that

Section 14(e) of the Williams Act, 15 U.S.C. § 78n(e),

confers a private remedy on shareholders injured by

those who violate its prohibitions. Affirming this

private right of action under Section 14(e) also accords

with the private right of action permitting similarlywronged investors to recover money damages for false

3

or misleading statements made in the context of proxy

solicitations under Section 14(a), a right that was

recognized by this Court in J. I. Case Co. v. Borak, 377

U.S. 426 (1964), four years before the Williams Act’s

passage. Section 14(e) reflects Congress’s intent that

the regulation of tender offers be in parity with that

governing proxies. And the text of Section 14(e)’s first

clause unambiguously imposes the same culpability

standard as under Section 14(a): negligence. The

Ninth Circuit’s close reading of the plain meaning of

the statute’s first clause did not create or extend a

private right of action; it just recognized the

unambiguous scope of the private right that Congress

intended more than 50 years ago.

I. Addressing what was effectively a question of

first impression in the courts of appeals, the Ninth

Circuit correctly ruled that the first operative clause

of Section 14(e)—echoing language that this Court has

interpreted to require only negligence in other

securities law statutes—was devoid of any language

requiring knowing misconduct. Standing in contrast to

the second clause, which uses the phrase “fraudulent,

deceptive, or manipulative acts or practices,” the first

clause prohibits “any untrue statement of a material

fact” or material omission, terms that sound in

negligence only. No other court of appeals has staked

out a considered opposing position. Rather, previous

appellate rulings interpreted Section 14(e) to require

scienter before guiding precedents from this Court

read identical language elsewhere to cover negligence;

addressed second-clause cases based on allegations of

only knowing misconduct; did not carefully unpack the

4

disjunctive operative clauses in Section 14(e); or all of

the above.

When Section 14(e)’s grammatical structure is

parsed, the first clause facially prohibits negligent

untruthful statements or material omissions. The

plain text of Section 14(e) imposes no “uniform

culpability requirement” for its disparate clauses. See

Aaron v. SEC, 446 U.S. 680, 697 (1980). And the

negligence standard not only conforms to the dictates

of Congress’s word choice and grammar, it mirrors the

negligence standard that courts have been applying

for decades under Section 14(a) in the proxy context.

There is no obvious reason for adopting a different

liability standard under Section 14(e), and every

reason not to.

II. As to the already-settled question whether a

private right exists, this Court should decline to

address a question that was expressly disclaimed in

the courts below. Raising an issue for the first time on

one page of a rehearing petition is too little too late to

preserve a question for this Court’s review. But if the

Court does strain to reach the issue, now is the time to

affirm explicitly what has long been accepted without

need for elaboration: Congress intended there to be a

remedy under Section 14(e) for target-company

shareholders deprived of the full disclosures and

accurate information for tender offers promised by the

Williams Act. Affirming a negligence standard for the

statute’s first clause, as the text demands, does

nothing to alter this private right analysis and honors

Congress’s demonstrated intent in the Williams Act.

5

The will of the enacting Congress is what matters

when discerning legislative intent. And Congress

would have expected the text that it enacted in 1968,

a mere four years after this Court’s decision in Borak,

to confer a private right of action. Legislative history

for the Williams Act’s 1970 amendments confirms as

much, showing that Congress was favorably aware

that courts were already permitting private rights of

action under Section 14(e). The Williams Act’s history

also confirms that Congress intended proxy contests

and tender battles to proceed under similar regimes.

In the proxy sphere, private enforcement of

Section 14(a)—where failure to provide mandatory

disclosures is protected by a negligence standard—

provides a necessary and welcome complement to

public enforcement. The same holds true of

Section 14(e) in the tender context. Both are narrowlytailored prohibitions on disclosure failures in

particularized contexts where Congress intended

shareholders to have complete and accurate

information so markets could function properly and

investors would be adequately protected.

Far from being a disruptive force, private

securities actions instead further Congress’s statutory

purpose to foster regulatory compliance and wellfunctioning markets. As this Court, federal regulators,

and NASAA’s state regulator members all agree, such

private actions are “crucial to the integrity of the

domestic capital markets.” Tellabs, Inc. v. Makor

Issues & Rights, Ltd., 551 U.S. 308, 321 n.4 (2007).

6

ARGUMENT

I.

All Tools Of Statutory Construction

Confirm That Section 14(e)’s First Clause

Sounds In Negligence.

The Williams Act, Pub. L. No. 90-439, 82 Stat.

454 (1968), aimed to “insure that public shareholders

who are confronted by a cash tender offer for their

stock will not be required to respond without adequate

information.” Schreiber v. Burlington N., Inc., 472 U.S.

1, 8–11 (1985) (quoting Rondeau v. Mosinee Paper

Corp., 422 U.S. 49, 58 (1975)). By doing so it closed “a

rather large gap in the securities statutes,” Piper v.

Chris-Craft Indus., Inc., 430 U.S. 1, 27 (1977) (citation

omitted), mandating full disclosure of all material

facts when takeovers were attempted by tender offer,

as was already required for takeovers attempted by

proxy solicitation.

The Ninth Circuit’s holding that Section 14(e)’s

first clause can be satisfied through a negligence

standard—the first of any court of appeals to carefully

parse the statute—is dictated by Section 14(e)’s text.

This Court has recognized as much in similar contexts,

and the Solicitor General agrees. See SG Br. 13–26.

The plain meaning of Section 14(e) thus resolves the

matter.

But there is more. The Williams Act’s legislative

history shows Congress intended to prohibit negligent

failures to fully disclose material information during

tender offers, in service of the Act’s promise that

complete and accurate information be provided to

investors. And the settled history of the parallel

7

standards in the proxy solicitation context confirm as

much.

A.

The Ninth Circuit’s Close Reading of

Section 14(e)’s First Clause Is

Correct.

The starting point in any dispute about the

proper interpretation of a statute is the text itself. If

the words and logic yield an interpretation that is

unambiguous, the Court’s inquiry ends. Nat’l Ass’n of

Mfrs. v. Dep’t of Def., 138 S. Ct. 617, 631 (2018).

Legislative history and public policy considerations

can also be relevant if a statute has more than one

valid interpretation. Zuni Pub. Sch. Dist. v. Dep’t of

Educ., 550 U.S. 81, 93 (2007). Here, as the United

States agrees, all statutory construction tools point to

one answer: the first clause of Section 14(e) sounds in

negligence.

Section 14(e)’s first sentence contains two

separate operative prohibitions, divided by the

disjunctive “or.” Its first substantive clause makes it

“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.” 15 U.S.C.

§ 78n(e). The second clause, in turn, “makes it

unlawful for any person . . . to engage in any

fraudulent, deceptive, or manipulative acts or

practices.” Id. Both govern conduct “in connection with

any tender offer . . . .” Id.

8

Section 14(e)’s second sentence, added in 1970,

provides the Securities and Exchange Commission

(“SEC”) with explicit rulemaking authority to define

the fraudulent, deceptive or manipulative practices

described in Section 14(e)’s second clause. See Pub. L.

No. 91-567, § 5, 84 Stat. 1497 (1970). This additional

rulemaking authority, applicable only to the second

clause, is further confirmation of Congress’s intent to

treat the two types of prohibitions separately. See SG

Br. 20–21; Resp. Br. 16–17.

By its terms, the first clause does not suggest

scienter is required. And the words “fraudulent,

deceptive, or manipulative” appear only in the second

clause. 15 U.S.C. § 78n(e). If the second clause had not

been included, there would be no reason to infer

scienter from Section 14(e)’s prohibitive commands.

Basic rules of grammar thus dictate that the inclusion

of the second clause, separated by a disjunctive, does

not change the meaning of the first clause. Reiter v.

Sonotone Corp., 442 U.S. 330, 339 (1979) (“Canons of

construction ordinarily suggest that terms connected

by a disjunctive be given separate meanings, unless

the context dictates otherwise; here it does not.”).

What is more, Section 14(e) is “nearly identical”

to Section 17(a)(2) of the Securities Act of 1933, which

this Court has interpreted as not requiring scienter.

Pet. App. 12a–13a; see Aaron, 446 U.S. at 696–97. As

in Section 17(a), the powerful disjunctive “or” removes

any “uniform culpability requirement” for the

provision. Id. at 697. And contrary to Petitioners’

hyper-formalistic insistence, Pet. Br. 37, the plain

meaning of the text controls, not the presence or

absence of numbers to separate grammatically

9

distinct clauses. It is the statute’s “operative text” that

shows Congress’s intent, not its packaging. See Fla.

Dep’t of Revenue v. Piccadilly Cafeterias, Inc., 554 U.S.

33, 47 (2008) (subchapter headings cannot “substitute

for the operative text of the statute”). The separate

numbering of Section 17(a) thus merely “reaffirm[ed]

conclusions drawn from the words themselves,”

United States v. Naftalin, 441 U.S. 768, 774 & n.5

(1979), and the absence of numbering in Section 14(e)

cannot defeat the meaning of the words Congress

chose. See also Resp. Br. 15.

The plain meaning of Section 14(e) is also

corroborated by a comparison to Section 10(b) of the

Exchange Act, 15 U.S.C. § 78j(b), and SEC Rule 10b-5,

17 C.F.R. § 240.10b-5, as interpreted by this Court in

Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976). The

texts of the relevant subpart of Rule 10b-5 and of

Section 14(e) are substantially similar, and—as this

Court recognized in Hochfelder, 425 U.S. at 212—

sound in negligence. To be sure, Rule 10b-5’s otherwise

natural negligence reading is displaced by the scienter

constraint imposed by its authorizing statute, which

governs only manipulative or deceptive devices. Id. at

213–14. But “[n]o such constraint applies to the

interpretation of Section 14(e).” SG Br. 19 (citing

Aaron, 446 U.S. at 696).2

2

Petitioners argue that Hochfelder also turned on

procedural limits available for express private rights sounding in

negligence that were not obviously available for implied private

actions. Pet. Br. 31-34. But Hochfelder’s discussion on this point

was brief and provided only additional support for a conclusion

the Court acknowledged was “compelled by” text. See Hochfelder,

10

Seemingly opposing results reached by previous

appellate courts, see Pet. Br. 2–3, do not dispel the

force of the Ninth Circuit’s careful reading of the

statute. To the extent other courts have analyzed the

actual text of Section 14(e) at all, their focus was on

the language in its second clause, i.e., “fraudulent,

deceptive, or manipulative acts or practices.” Until the

ruling below, no appellate court separately interpreted

the meaning of Section 14(e)’s first clause; they either

ignored it entirely (because the facts alleged only

second-clause misconduct) or disregarded the

disjunctive “or” in Section 14(e) and subsumed the first

clause within the second. See SEC v. Ginsburg, 362

F.3d 1292, 1297 (11th Cir. 2004) (concluding Section

14(e) requires scienter without analyzing the

statutory text when scienter was alleged); In re Digital

Island Sec. Litig., 357 F.3d 322, 328 (3d Cir. 2004)

(same); Adams v. Standard Knitting Mills, Inc., 623

F.2d 422, 431 (6th Cir. 1980) (holding Section 14(e)

requires scienter because “Congress used the words

‘fraudulent,’ ‘deceptive,’ and ‘manipulative’” in the

statute but without parsing the first clause);

425 U.S. at 214. And the text of the Williams Act requires a

different result. Moreover, the sky has not fallen under 14(a),

another private right sounding in negligence which Congress

intended 14(e) to parallel, see Part I.C. This Court’s decisions in

Omnicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension

Fund, 135 S. Ct. 1318 (2015), and Virginia Bankshares, Inc. v.

Sandberg, 501 U.S. 1083 (1991), recognize that negligence is a

workable liability standard for mandatory disclosure violations,

while other substantive and procedural limits exist to curtail

abuse. See also Resp. Br. 17–18. Finally, Congress retains the

power to eliminate or procedurally curtail the private right if it

so chooses.

11

Smallwood v. Pearl Brewing Co., 489 F.2d 579, 605–

06 (5th Cir. 1974) (holding Section 14(e) requires

scienter because the statute uses similar language to

SEC Rule 10b-5 with no further textual analysis);

Chris-Craft Indus., Inc. v. Piper Aircraft Corp., 480

F.2d 341, 362 (2d Cir. 1973) (same).

Most of these decisions predated this Court’s

rulings in Aaron (1980) and Hochfelder (1976)

instructing that “nearly identical” language to Section

14(e) sounded in negligence. Pet. App. 12a. And to the

extent these prior decisions elided over the disjunctive

“or” in Section 14(e), they erred. See, e.g., Husky Int’l

Elecs. v. Ritz, 136 S. Ct. 1581 (2016) (reversing an

appellate court decision that had failed to give effect

to a disjunctive “or” when interpreting a statute).

As for this Court, none of its previous encounters

with Section 14(e) grappled with or even commented

on the meaning of the statute’s first clause. See United

States v. O’Hagan, 521 U.S. 642, 666–78 (1997)

(interpreting the scope of SEC authority to define

fraudulent acts under Section 14(e)’s second clause);

Schreiber, 472 U.S. at 12 (interpreting the meaning of

“manipulative” within Section 14(e)); Piper, 430 U.S.

at 22–37 (interpreting and applying Section 14(e)

holistically without distinguishing between its first or

second clauses and ultimately declining to reach the

culpability question). The Ninth Circuit was thus the

first appellate court to squarely confront, and carefully

read, Section 14(e)’s first clause, and its analysis is the

only reading that comports with the statute’s plain

text.

12

B.

The Legislative History and Purpose

of the Williams Act Support a

Negligence Standard for Section

14(e)’s First Clause.

Legislative history and the undisputed purpose

animating the Williams Act support what the text of

Section 14(e)’s first clause makes plain: negligent acts

or omissions suffice.

First, the history of amendments to the Williams

Act demonstrates that Congress intended the

disjunctive in Section 14(e) to separate two distinct

prohibitions. Where Congress did not want to convey

that meaning, it removed the word “or.” Specifically,

the path to passage of a neighboring provision,

Securities Exchange Act Section 13(e)(1), 15 U.S.C.

§ 78m(e)(1) (regarding issuers’ ability to buy-up their

own shares), shows that Congress was well-aware of

the force of the disjunctive “or.” That provision’s initial

draft read as follows (emphasis added):

It shall be unlawful for an issuer, in

contravention of such rules and regulations

as the Commission may prescribe as

necessary or appropriate in the public

interest or for the protection of investors or

in order to prevent such acts and practices as

are fraudulent, deceptive or manipulative, to

purchase any equity security which it has

issued . . . .

See Full Disclosure of Corporate Equity Ownership

and in Corporate Takeover Bids: Hearings on S. 510

Before the Subcomm. on Sec. of the S. Comm. on

Banking & Currency, 90th Cong. 8–9 (1967) (emphasis

13

added) (hereinafter “S. 510 Hearings”). During

hearings on the Williams Act and in a written

statement, the Chairman of the SEC noted that he

interpreted this language as providing SEC

rulemaking authority to reach conduct other than

potentially fraudulent, deceptive or manipulative

practices. See id. at 27, 38 (statements of SEC

Chairman Manuel F. Cohen). That interpretation

necessarily read the disjunctive “or” to mean that each

rulemaking clause had separate operative force.

After this was pointed out, though, Congress

removed the disjunctive that would have expanded the

scope of Section 13(e)(1). The legislative history does

not show precisely when this provision was changed.3

But the upshot was that the SEC’s rulemaking

authority under Section 13(e)(1) was limited to

potential issuer fraud. The final text of Section 13(e)(1)

was unambiguous on this point, limiting the

Commission’s rulemaking authority to prevention of

fraudulent acts:

It shall be unlawful for an issuer . . . to

purchase any equity security issued by it if

such purchase is in contravention of such

rules and regulations as the Commission, in

the public interest or for the protection of

investors, may adopt (A) to define acts and

practices which are fraudulent, deceptive, or

manipulative, and (B) to prescribe means

3 This change first appears in a draft of the Williams Act

from July 1968. See H.R. REP. No. 90-1711, at 5–6 (1968).

14

reasonably designed to prevent such acts

and practices. . . . .

15 U.S.C. § 78m(e)(1). Had Congress wanted to limit

Section 14(e) to fraud, it could have at the very least

deleted the disjunctive in Section 14(e), if not

rewritten the provision entirely as it did with Section

13(e)(1).

Second, a Senate Report on the Williams Act

described Section 14(e) as prohibiting two types of

misconduct: “subsection (e) would prohibit any

misstatement or omission of a material fact, or any

fraudulent or manipulative acts or practices, in

connection with any tender offer . . . .” S. REP. No. 90550, at 10 (1967) (emphasis added). The Senate

Report, like the underlying text, thus clearly

differentiated bare misrepresentations from knowing

fraudulent conduct.

Third, congressional amendments two years after

enactment of the Williams Act confirm that Congress

meant what it said when it included two distinct

prohibitions in Section 14(e), one addressed to fraud

(clause two) and the other not (clause one). In 1970,

Congress added a second sentence to Section 14(e):

“The Commission shall, for the purposes of this

subsection, by rules and regulations define, and

prescribe means reasonably designed to prevent, such

acts and practices as are fraudulent, deceptive, or

manipulative.” See Pub. L. No. 91-567, § 5, 84 Stat.

1497–98 (1970).

Congress thus granted the SEC explicit

rulemaking authority for the second clause in Section

14(e) but not for the first clause. The SEC did not even

15

ask for rulemaking authority as to Section 14(e)’s first

clause. See Additional Consumer Protection in Corp.

Takeovers and Increasing the Sec. Act Exemptions for

Small Businessmen: Hearing on S. 336 and S. 3431

Before the Subcomm. on Sec. of the S. Comm. on

Banking & Currency, 91st Cong. 10–12 (1970)

(statements of SEC Chairman Hamer H. Budge)

(hereinafter “S. 3431 Hearings”). There was no reason

to do so, because the SEC’s broad authority to regulate

disclosures under the Williams Act was clear, having

been expressed no fewer than twelve times in the Act.

See generally Pub. L. No. 90-439, 82 Stat. 454 (1968);

see also Resp. Br. 16–17. In contrast, the Williams Act

was silent as to the SEC’s rulemaking authority to

implement the specific antifraud language in the

second clause of Section 14(e). This omission evidently

concerned the Commission, and so the SEC went back

to Congress with a request to close this potential gap.

See S. 3431 Hearings, at 10–12. For the first clause,

however, no additional rulemaking authorization was

required to define its scope or make it actionable. See

SG Br. 20–21. Congress’s disparate treatment of the

rulemaking provisions for each clause confirms that

each clause operates distinctly.

C.

A Negligence Standard for Section

14(e) Maintains Parity Between

Standards Governing Tender Offers

and Proxy Solicitations.

It was important to Congress that proxy contests

and tender offer battles—two different ways of

achieving takeovers—be governed by similar rules, or,

as the Solicitor General puts it, to “harmonize” these

16

two areas. SG Br. 11–12. A negligence standard for

Section 14(e)’s first clause is consistent with the

standard for mandatory proxy disclosures under

Section 14(a), 15 U.S.C. § 78n(a).

The Williams Act was not created in a vacuum.

Congress patterned it off the preexisting proxy

standards developed by the SEC under Section 14(a),

including Rule 14a-9, because Congress sought a level

playing field between proxy contests and tender offer

battles. See Transcript of Proceedings, S. Comm. on

Banking & Currency at 3 (Aug. 10, 1967) (Senator

Williams describing his eponymous bill as a

“disclosure bill” that will make “equivalent” the

standards between proxy contests and tender offer

fights); Transcript of Proceedings, S. Comm. on

Banking & Currency at 10 (Aug. 1, 1967) (Senator

Williams explaining that the bill will “conform the

tender offer to the 1964 act amendments as to proxy

statements”). Congress did not want to favor either

tender offers or proxy battles as vehicles for corporate

takeover fights; rather, Congress wanted to maintain

a regulatory equivalence between the two regimes.

Negligent failures to comply with mandatory

disclosure requirements have long been subject to

private enforcement in the proxy context. On the way

to holding that Section 14(a) conferred a private right

of action, this Court explained that the “purpose of

§ 14(a) is to prevent management or others from

obtaining authorization for corporate action by means

of deceptive or inadequate disclosure in proxy

solicitation.” Borak, 377 U.S. at 431. Borak did not

address the state of mind required for a Section 14(a)

violation, but courts easily concluded that negligence

17

was the proper standard for a provision that, like the

first clause of Section 14(e), does not reference scienter

requirements. A decision by Judge Friendly, Gerstle v.

Gamble-Skogmo, Inc., 478 F.2d 1281 (2d Cir. 1973),

was the first appellate court to rule negligence was the

appropriate standard under Section 14(a). A majority

of appellate courts have come to agree. See DeKalb

Cty. Pension Fund v. Transocean Ltd., 817 F.3d 393,

409 & n.95 (2d Cir. 2016) (collecting cases).4

A negligence standard under Section 14(e)

maintains Congress’s intended equivalence between

takeovers-by-proxy and takeovers-by-tender. In both

contexts, a negligence standard “reinforce[s] the high

duty of care owed by a controlling corporation” to

provide complete and accurate information to

shareholders, empowering them to make critical

decisions in deciding between competing offers for

control. Gerstle, 478 F.2d at 1300.5 To read the first

4 The Sixth Circuit acknowledged the need for parity in the

proxy and tender contexts, in a decades-old case involving thirdparty liability for accountants (not proxy bidders or tender

offerors or controlling corporate officers) that announced a

scienter requirement. See Standard Knitting Mills, 623 F.2d at

422. In ruling that scienter was required, the Sixth Circuit relied

on Hochfelder. But the court failed to recognize that Hochfelder’s

holding was “compelled by” statutory constraints not present in

either Section 14(a) or Section 14(e), and also did not separately

examine Section 14(e)’s first clause. Id. at 428–30.

5 Upholding a negligence standard under the first clause of

Section 14(e) would also be consistent with the standards this

Court applies not only to claims by the SEC under Sections

17(a)(2) and 17(a)(3) of the Securities Act, Aaron, 446 U.S. at 702,

but also to private claims under Section 11 of that Act, 15 U.S.C.

18

clause of Section 14(e)—countertextually—to require

scienter would be to reopen a regulatory gap that

Congress thought it definitively closed when it put

tender offers on par with proxy solicitations fifty years

ago.

II.

This Court Should Not Overturn Settled

Precedents Upholding An Implied Private

Right Of Action Under Section 14(e).

This Court should decline to reach the separate

question of whether a private right of action should be

implied under Section 14(e) at all. It was not seriously

litigated below and mere mention in a rehearing

petition is not enough to preserve an issue for this

Court’s review.

Agreeing to reach an issue expressly conceded

below (and therefore never tested by the adversarial

process) would encourage future litigants to game the

system. But if this Court does choose to engage, it

should answer that unnecessary question with the

obvious “yes” it deserves. Even today’s profound

distaste for implying private rights does not justify

jettisoning existing ones. And there is more to defend

the private right here than consistent judicial practice

and congressional acquiescence. Because even if

examined anew, the text, structure, history, and

§ 77k. Section 11 provides a make-whole remedy for shareholders

who purchase securities pursuant to a materially false or

misleading registration statement and liability can be satisfied

through negligence. Fed. Hous. Fin. Agency v. Nomura Holding

Am., Inc., 873 F.3d 85, 130 (2d Cir. 2017).

19

purpose of the Williams Act also support finding that

a private right should lie for Section 14(e).

A.

This Court Should Decline To Reach

a Question Expressly Disclaimed,

and Not Passed Upon, Below.

The Ninth Circuit never reached the question of

the existence of an implied right of action under

Section 14(e), likely because it was considered settled

law, and even more likely because Petitioners

conceded the question when pressing their case. See

BIO 28; Resp. Br. 26–27.

A glancing reference on one page of a rehearing

petition, see Pet. Br. 43 n.12, does not undo a party’s

prior concession, and should not suffice to satisfy this

Court’s “pressed or passed upon” rule. Youakim v.

Miller, 425 U.S. 231, 235 (1976). Engaging with this

late-arriving question would create perverse

incentives for parties to save their best for last,

allowing them to raise new arguments only after their

appeal of right has concluded.

If unsuccessful litigants can disclaim an issue

during the course of litigation, yet resurrect it by

simply tossing a paragraph into a rehearing petition,

then neither the opposing party nor the appellate

courts have the opportunity promised by the rules for

the full and fair airing of issues before this Court’s

“review, not . . . first view.” Cutter v. Wilkinson, 544

U.S. 709, 718 n.7 (2005). Spending this Court’s scarce

resources to decide an issue that was not passed on

because it was so barely “pressed” below condones

gamesmanship.

20

Nor is it necessary to resolve the private action

question in order to determine the scope of Section

14(e)’s prohibition on false statements. The two issues

are analytically distinct. Whether or not Congress

intended the prohibition to be privately enforceable

(and it did), the prohibition’s scope necessarily

remains the same. And the meaning of Section 14(e)’s

first clause cannot be held hostage to the separate

private right question on the theory that the Ninth

Circuit’s culpability ruling somehow “extended” a

long-established private right. A court does not

“extend” anything when it re-states what is already

express in the statute, even when that court, like the

Ninth Circuit here, is the first to closely read the

specific text at issue.

Contrary to Petitioners’ arguments, Pet. Br. 43–

45, there are not distinct analyses for private rights of

action that remedy negligence and those that remedy

fraud; there is only one question—did Congress intend

to confer a remedy, the answer to which does not

depend upon the substantive scope of the prohibition.

And the inverse is true—one can determine whether

Section 14(e) covers negligently untrue statements

without regard to the manner of enforcement. See

Resp. Br. 11. The proof is in the Court’s prior decisions,

which saw no reason to intermingle the two questions.

The Court never questioned the existence of a private

right in Schreiber, 472 U.S. 1, when determining the

scope of “manipulative” for Section 14(e)’s second

clause. And there is equally no reason to question its

21

existence here in deciding the negligence standard for

the first clause.6

B.

Based on this Court’s Precedent,

Congress Reasonably Would Have

Expected Its Enactment of Section

14(e) to Confer a Private Remedy.

If this Court nonetheless reaches out to catch the

question neglected below, it should conclude that

shareholders of companies targeted by a tender offer

do have a private right of action under Section 14(e).

The text, structure, history and purpose of the

Williams Act prove as much, especially when the

“circumstances of its enactment,” Transamerica

Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11, 18 (1979),

are duly considered.

1. When deciding whether to imply a private right

in a federal statute, this Court’s mission is to infer

what Congress intended when it enacted the statute.

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran,

456 U.S. 353, 378 (1982). So the “initial focus must be

on the state of the law at the time the legislation was

enacted.” Id.

When the Williams Act was passed, the default

rule was that provisions benefiting particular classes

6 If the Court determines, however, that the culpability

standard of Section 14(e)’s first clause is inextricably intertwined

with the existence of a private right, it should dismiss the petition

as improvidently granted given Petitioners’ express concession

that a private right of action exists under Section 14(e) and the

resulting absence of any judicial ruling on this point to inform

this Court’s review.

22

of private actors would be enforceable by implied

private actions absent express congressional

foreclosure. Id. at 374–77. And the Court had made it

clear—just four years earlier—that proxy fights under

Section 14(a) were proper fodder for private litigation.

Specifically, in Borak the Court held that Section

14(a)’s investor-protection purpose “implies the

availability of judicial relief where necessary,” and

private enforcement “provides a necessary supplement

to Commission action.” 377 U.S. at 432. The proxy

solicitation regime—complete with private right of

action—was the very context that Congress was

seeking to mirror with respect to tender offers in the

Williams Act. Congress thus reasonably expected that

its enactment of Section 14(e) conferred a similar

private remedy in the tender-offer context when it

used words in Section 14(e) that were virtually

indistinguishable from those of Rule 14a-9, which

Borak had just declared privately enforceable. See

Resp. Br. 30 n.14.

Evolution in judicial (un)willingness to infer

private rights cannot displace the enacting Congress’s

manifest intent. Where, as here, the statute is

intended to parallel a preexisting implied right that

this Court had already recognized, “it is not only

appropriate but also realistic to presume that

Congress was thoroughly familiar with these

unusually important precedents . . . and that it

expected its enactment to be interpreted in conformity

with them.” Cannon v. Univ. of Chicago, 441 U.S. 677,

699 (1979).

2. To be sure, such historical “context shorn of

text” is not dispositive. Alexander v. Sandoval, 532

23

U.S. 275, 288 (2001). But here the textual prohibition

of specified conduct in a circumscribed realm, directed

to protect a defined class, combined with the fact that

the period of the 1960s and early 1970s was one in

which “this Court had consistently found implied

remedies,” suffices to carry the day. Cannon, 441 U.S.

at 698.

The broad language of Section 14(e) contains the

affirmative textual support needed to create a private

right of action. A comparison with Touche Ross & Co.

v. Redington, 442 U.S. 560 (1979), is illuminative.

There, the Court held that Section 17(a) of the

Securities Exchange Act of 1934, 15 U.S.C. § 78q(a),

did not create a private right because it “proscribes no

conduct as unlawful,” 442 U.S. at 576, and “[b]y its

terms,” was “forward-looking, not retrospective,”

seeking to promote good conduct and “forestall

insolvency, not to provide recompense after it has

occurred.” Id. at 570–71. In contrast, Section 14(e)’s

text—like that of Section 14(a) and Rule 14a-9, which

provide the private right for the proxy context—

plainly proscribes conduct as unlawful and looks

backward in doing so (assessing violations after the

fact) indicating an intention to compensate for injury.

Nor does Section 14(e)—or anything else in the

Williams Act—evince any congressional intent to limit

the rights-creating language to a specific equitable

remedy. That happened in Transamerica, where the

Court read two provisions in pari materia to limit the

implied right under the Investment Advisers Act of

1940 to the “specific and limited relief” of equitable

rescission of the contracts involved. 444 U.S. at 18. But

Section 14(e), like the private right in Section 14(a)

24

confirmed in Borak, and in contrast to the provision

construed in Transamerica, has no neighboring

provisions that circumscribe its scope of relief.

3. Beyond Section 14(e)’s conduct-proscribing text

that aims to protect a targeted class of actors, and the

absence of any indicia that Congress intended to

circumscribe a private remedy in the wider statutory

structure, the Williams Act’s legislative history shows

that Congress was aware, and welcomed, judicial

enforcement of a private right to protect the statute’s

full-disclosure promise. Borak and its implications for

implied private rights were mentioned twice in

written statements to Congress. See S. 510 Hearings,

at 67 (written statement of Professor Carlos L. Israels)

(“Presumably we may assume that the Commission

will be able to enforce the provisions of this Bill, if it is

enacted, and of its rules thereunder by proceedings for

injunction in the Federal courts; and that under J. I.

Case Co. v. Borak, 377 U.S. 426 (1964) a private

litigant could seek similar relief before or after the

significant fact such as the acceptance of his tender of

securities.”); id. at 140 (written statement of Professor

William H. Painter) (discussing the Williams Act’s use

of the term “unlawful” and stating, “such language is

being judicially construed to allow not only injunctive

relief by the Commission and criminal penalties for

willful violations but also private remedies to injured

investors (J. I. Case Co. v. Borak, 377 U.S. 426

(1964))”).

Congress’s subsequent amendments to the

Williams Act, moreover, reflected acquiescence in

judicial interpretations of the Act as conferring a

private right of action. When Congress amended the

25

Williams Act in 1970, it was aware that private

lawsuits had already been brought under the Act— yet

did not seek to foreclose them. See infra Part II.C. The

Act’s sponsor, Senator Williams, described how the Act

had “worked well in lifting the veil of secrecy that had

previously surrounded tender offers.” S. 3431

Hearings, at 1.7

4. This Court has also recognized Congress’s

purpose to protect shareholders. In Piper, 430 U.S. at

31–33, the Court declined to extend the private right

of action under Section 14(e) to tender offerors. But the

Court did not cast doubt on the accepted notion that a

private remedy was available for shareholders, the

class Congress plainly intended to protect. After a

thorough discussion of the legislative history and

purpose of the Williams Act, the majority concluded

that the Williams Act’s “sole purpose . . . was the

protection of investors.” Id. at 35. The plaintiff-offeror

there had no implied right of action for damages under

14(e), not because there was no such action, but

because the plaintiff “did not sue in the capacity of an

injured Piper shareholder, but as a defeated tender

offeror.” Id. at 39, 42. The dissent made explicit what

was implicit within the majority’s reasoning, “Section

14(e) was patterned after § 14(a), which regulates

proxy contests. It is clear that a shareholder may

recover in a suit under § 14(a) even though he was not

7 Congress amended the Williams Act a second time in

1977, and again did not tamp down on the implied private rights.

See Fla. Commercial Banks v. Culverhouse, 772 F.2d 1513, 1517–

18 (11th Cir. 1985).

26

himself deceived by the misrepresentations.” Id. at 57–58 (footnotes omitted).

So, while Piper concluded that tender offerors

lacked standing, it has been subsequently interpreted

to stand for the general proposition that shareholders

and tender offer targets do have an implied private

right. If this settled precedent is to be disturbed, it is

for Congress, not this Court to do so, especially given

the thin ice on which this unnecessary question

presented currently stands. See Resp. Br. 27–28.

C.

The Existence of an Implied Private

Right in Section 14(e) Is Entrenched

and this Court Should Not Now

Overturn It.

Even Sandoval itself, although declining to infer

a private right from a regulation that surpassed the

scope of the authorizing statute, confirmed the

existence of a private right for Section 601 of Title VI

of the Civil Rights Act of 1964. The Court accepted

that private right as “given” because it had “already

been construed as creating a private remedy,” and

courts and Congress had long acquiesced. 532 U.S. at

280 (discussing and quoting Cannon, 441 U.S. at 696).

The same holds true here.

Where an implied private right of action has

previously been recognized and become established

precedent, the Court has been unwilling to lightly set

it aside. See Virginia Bankshares, Inc., 501 U.S. at

1114 (Kennedy, J., concurring in part and dissenting

in part). Although this Court may refuse to expand the

scope of implied private rights, it has proved loath to

27

scrap an implied private right once it has been

judicially accepted. See Jackson v. Birmingham Bd. of

Educ., 544 U.S. 167, 192–93 (2005).8 This is especially

true in the securities context where courts, Congress,

and regulators have viewed private remedies as an

essential component of the menu of enforcement

options since the 1940s. E.g., Kardon v. Nat’l Gypsum

Co., 69 F. Supp. 512 (E.D. Pa. 1946) (recognizing

implied action under Section 10(b) of the Securities

Exchange Act of 1934).

The first Section 14(e) case, filed a few weeks

after the Williams Act was signed into law, never even

discussed whether Section 14(e) conferred a private

right. This issue was simply assumed to be true—by

everyone. The district court and appellate court

decisions focused instead on the secondary issue of

whether the plaintiffs—nontendering shareholders

and the targeted company—had standing. See Elec.

Specialty Co. v. Int’l Controls Corp., 296 F. Supp. 462

(S.D.N.Y. 1968), aff’d in part 409 F.2d 937 (2d Cir.

1969).

The understanding that an implied private right

of action exists under Section 14(e) quickly became

8 Giving the text of Section 14(e) its plain meaning to reach

negligent material misstatements as well as fraud would not be,

as Petitioners argue, “expanding” the long-recognized private

right of action under Section 14(e). See Pet. Br. 22–42. To the

contrary, to engraft a scienter standard throughout Section 14(e)

would curtail an existing private right of action, limiting the

statute to its second clause. In all events there is no reason to

throw the baby out with the bath water and eliminate the private

right of action that has long existed for scienter-based frauds and

deception under the second clause of Section 14(e).

28

entrenched in the Second Circuit, see Butler Aviation

Int’l v. Comprehensive Designers, Inc., 425 F.2d 842

(2d Cir. 1970), and accepted in other circuits as well.

See Kahan v. Rosenstiel, 424 F.2d 161 (3d Cir. 1970);

Susquehanna Corp. v. Pan Am. Sulphur Co., 423 F.2d

1075 (5th Cir. 1970). In none of these early Section

14(e) cases was the existence of a private right of

action ever questioned.

This understanding of Section 14(e) was widely

shared by law professors and practitioners. Review of

legal scholarship in the late 1960s and early 1970s

indicates unanimous recognition of the right. For

example, Professor Loss’s securities law treatise,

updated in 1969, devoted a dozen pages to the

Williams Act. The treatise discussed potential

remedies for private litigants under the Williams Act

but never evinced any doubt that implied private

rights existed thereunder. See generally VI LOUIS

LOSS, SECURITIES REGULATION 3658–69 (2d ed. Supp.

1969).

Law journal articles also did not question the

point. When the Williams Act was pending in

Congress, several articles were published about it.

None expressed doubt that the Williams Act would

create private rights of action, including in Section

14(e). E.g., Victor Brudney, A Note on Chilling Tender

Solicitations, 21 RUTGERS L. REV. 609, 624 (1967)

(stating the Williams Act “will create a happy hunting

ground for plaintiffs”); Joseph D. Reid, Senate Bill 510

and the Cash Tender Offer, 14 WAYNE L. REV. 568, 587

(1968) (stating acquirers will “hold themselves open to

the possibility of litigation from disapproving minority

shareholders, sellers of shares during the takeover

29

and the SEC”). In 1969, a law review article noted

that, “[a]s most observers predicted, the federal courts

have now accepted jurisdiction under Section 14(e) of

suits by offeree companies,” and suits brought by

offerors and shareholders were likely. W. McNeil

Kennedy, Defensive Take-Over Procedures Since the

Williams Act, 19 CATH. U. L. REV. 158, 162 (1969).9

The courts and Congress’s acquiescence in the

private right has extended well beyond the years

immediately after its passage. Although sometimes

sloppy with respect to parsing the differing culpability

standards, courts of appeals have continued to

unquestioningly allow private enforcement. See, e.g.,

Ceres Partners v. GEL Assocs., 918 F.2d 349, 352 (2d

Cir. 1990) (upholding a private right of action on

behalf of tender offer shareholders under Section

14(e)); Plaine v. McCabe, 797 F.2d 713, 717–18 (9th

Cir. 1986) (same); Fla. Commercial Banks, 772 F.2d at

1516–19 (upholding a private right of action for an

issuer under Section 14(e)); Gearhart Indus., Inc. v.

Smith Int’l Inc., 741 F.2d 707, 714–16 (5th Cir. 1984)

(same).

And while this Court has never explicitly

pronounced that Section 14(e) confers a private right,

it has done everything but. Piper denied the private

right only to tender offerors, and both the majority and

9 It was not until the late 1970s that some scholarship

began to question the existence of implied private rights under

the Williams Act. See, e.g., Harvey L. Pitt, Standing to Sue Under

the Williams Act After Chris-Craft: A Leaky Ship on Troubled

Waters, 34 BUS. LAW. 117 (1978). And that scholarship failed to

gain any traction in the appellate courts.

30

dissent

recognized

that

shareholders

were

indisputably the protected class under Section 14(e),

presuming their right to private enforcement. See 430

U.S. at 39, 42, 57–58. Schreiber similarly took as given

the existence of the private right when defining its

elements. 472 U.S. at 2. Rondeau, 422 U.S. at 60 &

n.10, acknowledged the existence of “an adequate

remedy by way of an action for damages,” when ruling

on the Williams Act’s requirements for injunctive

relief. And O’Hagan, 521 U.S. at 667, 671, twicereferred to Section 14(e) as a “self-operating”

provision. Such a long-settled understanding of courts,

litigants, and Congress should not be disrupted,

especially given the historical embrace of private

rights in the securities law context.10

D.

Allowing

a

Negligence-Based

Private Right Under Section 14(e)

Furthers the Statute’s Purpose and

Is Sound Public Policy.

In enacting the Exchange Act and its follow-on

statutes, “Congress sought to substitute a philosophy

of full disclosure for the philosophy of caveat emptor.”

New Prime Inc. v. Oliveira, 139 S. Ct. 532, 544 (2019)

(Ginsburg, J., concurring) (quoting SEC v.

Zandford, 535 U.S. 813, 819 (2002)). That is why the

statute “should be construed not technically and

10 As Respondents explain, Congress has made no attempt

to change this status quo, despite repeated opportunities to do so

when amending the securities laws; if anything Congress has

endorsed the existence of a private right under Section 14(e). See

Resp. Br. 41–43.

31

restrictively, but flexibly

remedial purposes.” Id.

to

effectuate

its

To achieve these remedial purposes, the Court

has long recognized the importance of private

securities litigation as a supplement to government

regulation. E.g., Tellabs, Inc., 551 U.S. at 320 n.4

(2007) (“Nothing in the PSLRA . . . casts doubt on the

conclusion ‘that private securities litigation is an

indispensable tool with which defrauded investors can

recover their losses’—a matter crucial to the integrity

of domestic capital markets.” (quoting Merrill Lynch,

Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 81

(2006))); Lampf, Pleva, Lipkind, Prupis & Petigrow v.

Gilbertson, 501 U.S. 350, 376 (1991) (private lawsuits

are “an essential tool for enforcement of the 1934 Act’s

requirements” and “a necessary supplement to

Commission action” (first quoting Basic Inc. v.

Levinson, 485 U.S. 224, 231 (1988); then quoting

Bateman Eichler, Hill Richards, Inc. v. Berner, 472

U.S. 299, 310 (1985))).

NASAA’s state regulators agree. Private

securities actions help maintain robust capital

markets by deterring fraud and other corporate

malfeasance and by convincing investors that if they

are harmed by incomplete or untrue disclosures, they

have fair opportunities to recover their losses. Federal

regulators, too, are on record as supporting private

actions. See SG Br. 30–31 (agreeing that private rights

recognized by the Court are an “important adjunct to

government enforcement”).

In a 2018 speech, SEC Commissioner Robert J.

Jackson acknowledged that “world-class [SEC]

32

enforcement attorneys cannot do it all alone, [and]

[t]hat’s why the Supreme Court has said for years that

policing corporate wrongdoing is a team effort.” Robert

J. Jackson Jr., Comm’r, SEC, Address at CECP CEO

Investor Forum: Keeping Shareholders on the Beat: A

Call for a Considered Conversation About Mandatory

Arbitration (Feb. 26, 2018).11

The SEC’s Investor Advocate likewise recently

described the “very good reasons why shareholders

have been given private causes of action.” Rick

Fleming, Investor Advocate, SEC, Address at PLI’s

The SEC Speaks in 2018: Mandatory Arbitration: An

Illusory Remedy for Public Company Shareholders

(Feb. 24, 2018). 12 He explained the government’s

“traditionally . . . limited role in policing our markets,

as evidenced by the fact that only 4,600 SEC

employees oversee approximately $72 trillion in

securities trading each year, as well as the disclosures

of more than 8,100 public companies and the activities

of more than 26,000 registered entities.” Id. And he

recounted his experiences as a state regulator, where

he “frequently cautioned investors that they should

retain private counsel, because even though the

interests of victims were generally aligned with the

interests of [state securities regulators], those

interests could diverge.” Id. Thus, “it might be in the

best interest of the state to take away a license,” but

that could “decrease the likelihood that a victim would

Available

at

https://www.sec.gov/news/speech/jacksonshareholders-conversation-about-mandatory-arbitration022618.

12 Available

at https://www.sec.gov/news/speech/fleming-secspeaks-mandatory-arbitration.

11

33

be repaid.” Id. “[I]nvestors [also] have remedies that

may not be available to regulators, the most important

of which is the ability to seek full restitution of their

losses instead of merely disgorging the bad actor’s illgotten gains.” Id. NASAA could not agree more:

private actions are necessary complements to, not

substitutes for, state and federal enforcement. And

these observations by federal enforcers belie the

Solicitor General’s suggestion that state or federal

enforcement actions and private state claims alone are

an adequate substitute for federal private actions. SG

Br. 32 n.4.

Even Congress, in legislation designed to curtail

the scope of private securities litigation through the

Private Securities Litigation Reform Act of 1995, Pub.

L. No. 104-67, 109 Stat. 757, and the Securities

Litigation Uniform Standards Act of 1998, Pub. L. No.

105-353, 112 Stat. 3227, retained the core principle

that private rights of action should remain: “The SEC

enforcement program and the availability of private

rights of action together provide a means for

defrauded investors to recover damages and a

powerful deterrent against violations of the securities

laws.” S. REP. No. 104-98, at 8 (1995).

Finally, private securities litigation such as the

implied right that has long existed under Section 14(e)

serves a significant role in maintaining investor

confidence by enforcing disclosure standards set forth

in the securities laws. As this Court has recognized,

the “magnitude of the federal interest in protecting the

integrity and efficient operation of the market for

nationally traded securities cannot be overstated.”

Dabit, 547 U.S. at 78. Nor is it a problem that implied

34

private actions may overlap with express private

actions or government enforcement. As this Court has

recognized, a belts-and-suspenders approach to

securities enforcement is welcome: given the broad

goals of the securities laws to achieve honest and

efficient markets based on fair and full access to

information, the “fact that there may well be some

overlap is neither unusual nor unfortunate.” Naftalin,

441 U.S. at 778 (quoting SEC v. Nat’l Sec., Inc., 393

U.S. 453, 468 (1969)).

CONCLUSION

For the foregoing reasons, the Court should

affirm the Ninth Circuit’s decision or dismiss the

petition as improvidently granted.

Respectfully submitted.

A. Valerie Mirko

Zachary T. Knepper

NORTH AMERICAN

SECURITIES

ADMINISTRATORS ASSN.

March 28, 2019

Ruthanne M. Deutsch

Counsel of Record

Hyland Hunt

DEUTSCH HUNT PLLC