# Opposition Brief — Emulex Corp. v. Varjabedian, 139 S. Ct. 782 (2019) (No. 18-459)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 2019

## Text

No. 18-459
In the Supreme Court of the United States

EMULEX CORPORATION, ET AL., PETITIONERS
v.

GARY VARJABEDIAN, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

JUAN E, MONTEVERDE DANIEL L. GEYSER
MILES D. SCHREINER Counsel of Record
MONTEVERDE & ASSOCIATESPC GEYSERP.C.
The Empire State Building One Energy Square
350 Fifth Ave., Ste. 4405 4925 Greenville Ave., Ste. 200
New York, NY 10118 Dallas, TX 75206

(214) 800-2660
BENJAMIN HEIKALI daniel. geyser@geyserpc.com
FARUQI & FARUQI LLP

10866 Wilshire Blvd., Ste. 1470
Los Angeles, CA 90024

QUESTION PRESENTED

Section 14(e) of the Securities Exchange Act of 1934,
15 U.S.C. 78n(e), sets out two distinct forms of liability “in
connection with any tender offer.” Its first clause makes
it “unlawful for any person to make any untrue statement
of a material fact or omit to state any material fact neces-
sary in order to make the statements made, in light of the
circumstances under which they are made, not mislead-
ing.” Its second clause makes it “unlawful for any person
* * * to engage in any fraudulent, deceptive, or manipula-
tive acts or practices.”

Consistent with its plain text, this Court has twice con-
strued language materially indistinguishable from the
first clause to require a showing of negligence, not scien-
ter. And this Court has also confirmed that where, as
here, a statute separates two clauses with the disjunctive
(declaring it “unlawful” to violate the first clause “or” the
second), each clause can retain its own distinct culpability
requirement.

The question presented is:

Whether an action premised solely on Section 14(e)’s
first clause, not its second, requires a pleading of scienter
to state a claim.

(1)

Il

PARTIES TO THE PROCEEDING BELOW

Petitioners are Emulex Corporation; Bruce C. Ed-
wards; Jeffrey W. Benck; Gregory S. Clark; Gary J. Dai-
chendt; Paul F. Folino; Beatriz V. Infante; John A. Kelley;
Rahul N. Merchant; Nersi Nazari; Dean A. Yoost; Avago
Technologies Wireless (USA) Manufacturing, Inc.; and
Emerald Merger Sub, Inc.

Respondents are Gary Varjabedian and Jerry Mutza.
Mr. Varjabedian filed the initial complaint in this case, but
the district court ultimately appointed Mr. Mutza as lead
plaintiff for the class. See Pet. App. 1a n.1.

Ill

TABLE OF CONTENTS

Page
IT cnscecictcttenianecncminsenete 1
Jurisdiction “ 1
0 eee 1
Statement 3
Argument 7
A. The decision below does not create a
square circuit conflict aie 7
B. The decision below is correct ; 14
C. The petition does not present an important
question warranting further review in this
case 24
Conclusion 31
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, 11, 24
Blue Chip Stamps v. Manor Drug Stores,
421 U.S. 723 (1975) 29
Chris-Craft Indus., Inc. v. Piper Aircraft Corp.,
480 F.2d 341 (2d Cir. 1973) 7
Connecticut Nat'l Bank v. Fluor Corp., 808 F.2d 957
(2d Cir. 1987) 9
Continental Airlines, Inc., In re, 932 F 2d 282
(3d Cir. 1991) 20
Cutter v. Wilkinson, 544 U.S. 709 (2005) 29
DeKalb Cty. Pension Fund v. Transocean Ltd.,
817 F.3d 393 (2d Cir. 2016) 24
Digital Island Sec. Litig., In re, 357 F.3d 322
(3d Cir. 2004) 11

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

IV

Page
Cases—continued:
Feldbaum v. Avon Prods., Inc., 741 F.2d 234

Te 13
Flaherty & Crumrine Preferred Income Fund, Inc.,

565 F.3d 200 (5th Cir. 2009) 10
Garcia v. United States, 469 U.S. 70 (1984) 20
Gerstle v. Gamble-Skogmo, Inc., 478 F.2d 1281

(2d Cir. 1973) 23, 24
Glover v. United States, 531 U.S. 198 (2001) 29
Hamilton-Brown Shoe Co. v. Wolf Bros. & Co.,

240 U.S. 251 (1916) 30
Henson v. Santander Consumer USA Inc.,

137 S. Ct. 1718 (2017) 14
JI. Case Co. v. Borak, 377 U.S. 426 (1964) ..0......cceee 27, 29
Lane v. United States, 286 F 3d 723

(4th Cir. 2002) 20
Matrixx Initiatives, Inc. v. Siracusano,

563 U.S. 27 (2011) 27
McFarland v. Wells Fargo Bank, N.A., 810 F.3d 273

(4th Cir. 2016) 19

Piper v. Chris-Craft Indus., Inc., 430 U.S. 1 (1977).......... 22
Pryor v. U.S. Steel Corp., 591 F. Supp. 942

(S.D.N.Y. 1984) 18
Schreiber v. Burlington N., Inc.,

472 U.S. 1 (1985) 15, 22, 29
SEC v. Adler, 137 F.3d 1325 (11th Cir. 1998).............. 12, 13

SEC v. Ginsburg, 362 F.3d 1292 (11th Cir. 2004)........ 12, 13
SEC v. Texas Gulf Sulphur Co., 401 F.2d 833

(2d Cir. 1968) 23, 24
Smallwood v. Pearl Brewing Co., 489 F.2d 579

(5th Cir. 1974) 9,10
Stevens v. Employer-Teamsters Joint Council No. 84

Pension Fund, 979 F.2d 444 (6th Cir. 1992)................. 19

Tellabs, Inc. v. Makor Issues & Rights, Ltd.,
Se Sa I OE ed inariieriscincsinvacnenseintartinndntsnertnapetsetnenenseeeseess 27

Page
Cases—continued:
TSC Indus., Inc. v. Northway, Inc.,

a 27
United States v. Naftalin, 441 U.S. 768 (1979)............ 19, 20
United States v. O'Hagan, 521 U.S. 642 (1997) ..........c000 22
United States v. Sheldon, 755 F.3d 1047

ESE SPIE en AS 19
Virginia Military Inst. v. United States,

508 U.S. 946 (1993) 30
Yates v. United States, 135 S. Ct. 1074 (2015)... 20
Yee v. City of Escondido, 503 U.S. 519 (1992) 0.0... 29
Youakim v. Miller, 425 U.S. 231 (1976) ........ccccccceceeeseeseeeeee 29

Statutes and regulations:
Private Securities Litigation Reform Act of 1995,

Pub. L. No. 104-67, 109 Stat. 737 25, 29
Securities Act of 1933,

Pub. L. No. 73-22, 48 Stat. 74 passim

15 U.S.C. 77q(a) (§ 17(a)) 16, 18, 19

15 U.S.C. T7q(a) (§ 17(a)(1)) 12, 13

15 U.S.C. T77q(a) (§ 17(a)(2)) passim
Securities Exchange Act of 1934,

Pub. L. No. 73-291, 48 Stat. 881 passim

15 U.S.C. 78j(b) (§ 10(b)) passim

15 U.S.C. 78n(a) (§ 14(a)) 10, 11, 23, 24, 29

15 U.S.C. 78n(d)(4) (§ 14(d)(4)) 21

15 U.S.C. 78n(e) (§ 14(e)) passim

15 U.S.C. 78u-4(b)(1)(A) 25

15 U.S.C. 78u-4(b)(1)(B) 25

15 U.S.C. 78u-4(b)(2)(A) 25
Securities Litigation Uniform Standards Act of 1998,

Pub. L. No. 105-353, 112 Stat. 3227 29
28 U.S.C. 1254(1) 1
17 C.F.R. 240.10b-5 (Rule 10b-5) .. passim

17 C.F.R. 240.14a (Rule 14a-9) 11

VI

Page
Miscellaneous:

L. Bebchuk, et al., Fairness Opinions: How Fair Are
They and What Can Be Done About It?,

1989 Duke L.J. 27 (Feb. 1989) 27
H.R. Rep. No. 1711, 90th Cong., 2d Sess. (1968) ............... 22
L. Loss, et al., Fundamentals of Securities Regulation

(5th ed. 2004) 16
3 L. Loss, Securities Regulation (2d ed. 1961)..........-0++ 15
Stephen M. Shapiro et al., Supreme Court Practice

(10th ed. 2013) 30

U.S. Courts, Federal Judicial Caseload Statistics 2018
26

In the Supreme Court of the United States

No. 18-459

EMULEX CORPORATION, ET AL., PETITIONERS
vz

GARY VARJABEDIAN, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

BRIEF FOR THE RESPONDENTS IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. la-26a)
is reported at 888 F.3d 399. The order and opinion of the
district court (Pet. App. 27a-57a) is reported at 152 F.
Supp. 3d 1226.

JURISDICTION

The judgment of the court of appeals was entered on
April 20, 2018. A petition for rehearing was denied on Sep-
tember 6, 2018 (Pet. App. 58a-59a). The petition for a writ
of certiorari was filed on October 11, 2018. The jurisdic-
tion of this Court is invoked under 28 U.S.C. 1254(1).

INTRODUCTION

According to petitioners, the Ninth Circuit wrongly
departed from multiple circuits in holding that Section

(1)

14(e) of the Securities Exchange Act of 1934 requires
proof of negligence, not scienter. And according to peti-
tioners, this “circuit split” is “as square, obvious, and con-
sequential as they come.” Pet. 15. Petitioners are wrong
across the board.

First, the Ninth Circuit’s decision does not implicate
any direct circuit conflict. Petitioners cannot identify a
single appellate decision that squarely rejects the Ninth
Circuit’s logic, much less in the relevant context (constru-
ing Section 14(e)’s first clause, not its second) and after
this Court’s intervening guidance. Once the circuit deci-
sions are reviewed in their proper context (which petition-
ers brush aside), the circuit conflict is illusory.

Second, the Ninth Circuit correctly read Section
14(e)’s plain language to mean what it says. Its two clauses
are set up as separate, independent bans on distinct
wrongdoing. The first clause—prohibiting material mis-
statements and omissions—has nothing to do with scien-
ter. Indeed, a scienter requirement does not expressly ap-
pear anywhere in Section 14(e), and only its second clause
even uses words traditionally associated with scienter
(“fraudulent, deceptive, and manipulative”). This Court
has twice construed materially identical text as requiring
mere negligence, not scienter. There is no reason to give
the same language a different meaning here.

Third, this case lacks any broader significance war-
ranting review. Petitioners predict a rash of reckless se-
curities litigation, but their concerns are unfounded. Se-
curities claims are difficult. to prove. There are few cases
that can satisfy every other heightened element, but
would still lose on scienter alone. This issue is unlikely to
matter in any meaningful number of cases, which is likely
why few appellate courts have squarely addressed the
question.

Finally, petitioners suggest in passing that the Court
should grant review to decide whether Section 14(e) au-
thorizes a private right of action. That question was not
pressed or passed upon below; quite the contrary, peti-
tioners expressly conceded that Section 14(e) does sup-
port a private right of action. In any event, that question
is insubstantial on the merits. Every single circuit to have
confronted the question has reaffirmed that Section 14(e)
is privately enforceable; this Court has implicitly done the
same; and Congress has twice enacted major overhauls of
the securities laws without disturbing this clear and un-
broken line of authority. Congress enacted Section 14(e)
against the backdrop of directly analogous implied actions
in this very context; when Congress invoked the same tex-
tual formulation, it quite clearly intended the same result.
If the Court nonetheless thinks the issue has any possible
merit, it should at least await a vehicle where the petition-
ers did not outright waive the question below.

The Ninth Circuit faithfully read Section 14(e)’s plain
text consistent with this Court’s unmistakable guidance,
and its decision does not directly conflict with the actual
holding of any court of appeals. The petition for a writ of
certiorari should be denied.

STATEMENT

1. This action arises from a merger between Emulex
Corporation and Avago Technologies. The companies an-
nounced their merger agreement in February 2015, with
“Avago offering to pay $8.00 for every share of outstand-
ing Emulex stock.” Pet. App. 2a-3a. That price reflected a
26.4% premium over the previous closing price, and a
4.8% premium over Emulex’s 52-week high. C.A. E.R. 96-
97; see also Pet. App. 39a.

Emulex hired Goldman Sachs to perform a fairness
analysis on the proposed deal. As part of its work, Gold-
man Sachs conducted a premium analysis—a study of 17
comparable transactions that Goldman Sachs “deemed
most similar to the proposed merger.” Pet. App. 4a-5a.
That analysis revealed Emulex’s premium was decidedly
below average: other companies received mean and me-
dium premiums of (i) 44.8% and 50.8% over their undis-
turbed stock price, and (ii) 17.6% and 14.4% over their 52-
week highs. C.A. E.R. 261. Those figures represented
multiples of the premium offered to Emulex’s sharehold-
ers. Goldman Sachs nonetheless concluded the merger
was fair “despite a below-average premium.” Pet. App. 5a.

Emulex filed a 48-page Recommendation Statement
with the SEC supporting Avago’s offer and encouraging
shareholders to tender their shares. Pet. App. 3a-4a; C.A.
E.R. 45. It listed nine reasons for that recommendation,
including (repeatedly) that “Emulex shareholders would
receive a premium on their stock.” Pet. App. 4a. Despite
devoting five single-spaced pages to summarizing Gold-
man Sachs’s fairness opinion, Emulex neglected to dis-
close the premium analysis (or its showing of a below-av-
erage premium) at any point in its extended filing. /d. at
5a, 30a.

The merger was ultimately consummated, but the ap-
proval was close: only 60.58% of outstanding shares were
tendered. C.A. E.R. 194.

2. In response to these events, a shareholder class filed
suit against Emulex, its board, and Avago for violating
federal securities laws. Pet. App. 5a-6a. As relevant here,
the class sought relief under Section 14(e) of the Securi-
ties Exchange Act of 1934, 15 U.S.C. 78n(e), which was
added as part of the Williams Act of 1968, Pub. L. No. 90-
439, 92 Stat. 454.

Section 14(e) sets out two distinct types of liability in
the tender context. Its first clause prohibits “any untrue
statement of a material fact or [a material] omi[ssion],”
and its second clause prohibits “any fraudulent, deceptive,
or manipulative acts or practices.” 15 U.S.C. 78n(e). The
class alleged a violation of the first clause: petitioners
made material misstatements and omissions by touting
the premium while failing to “disclose[]” it “was below av-
erage.” Pet. App. 5a.

3. The district court dismissed the complaint. Pet.
App. 27a-57a. It held that scienter was required to prove
a Section 14(e) violation, and it found the class failed to
adequately allege scienter. /d. at 33a-51a. In the course of
its analysis, the court acknowledged respondents’ position
that scienter was not required, and recognized that schol-
ars and treatises read Section 14(e)’s first clause as im-
posing only a negligence standard. /d. at 35a-36a. While
the court admitted respondents’ position was “not entirely
without merit,” it decided the “better view” was to follow
“the wealth of persuasive case law to the contrary.” /d. at
36a.’

4. a. The court of appeals reversed. Pet. App. la-26a.
As relevant here, the court held that claims premised on
Section 14(e)’s first clause “require[] a showing of negli-
gence, not scienter.” /d. at 2a. Because respondents’
claims were premised solely on that first clause, the court
found the district court erred by requiring a showing of
intentional misconduct. /d. at 20a.

The Ninth Circuit started its analysis with the text.
Pet. App. 8a. It noted that a “plain reading” of Section

' Because the district court dismissed the complaint on culpability
grounds, it declined to decide whether respondents had adequately

pleaded materiality. See Pet. App. 34a n.3.

14(e) “divides the section into two clauses, each proscrib-
ing different conduct.” /bid. It found that the “text of the
first clause” is “devoid of any suggestion that scienter is
required.” /d. at 16a. It explained that this Court had con-
strued “largely identical” text to “require[] a showing of
negligence, not scienter.” Jd. at 13a (discussing Aaron v.
SEC, 446 U.S. 680 (1980), and Ernst & Ernst v. Hoch-
felder, 425 U.S. 185 (1976)). And the court reinforced its
conclusion with Section 14(e)’s “legislative history and
purpose”—which “place[ ] more emphasis on the quality of
information shareholders receive in a tender offer than on
the [issuer’s] state of mind.” /d. at 15a-16a.

While recognizing that other courts had suggested sci-
enter is required, the Ninth Circuit exhaustively refuted
their logic, especially their presumption that the same
rules apply to both Rule 10b-5 (which requires scienter)
and Section 14(e)’s first clause (which does not). Pet. App.
Ya-16a. As the Ninth Circuit explained, those courts over-
looked “important distinctions” between the two provi-
sions, and likewise ignored (or preceded) this Court’s per-
tinent authority. /d. at 9a, 14a-15a. The court explained,
for example, that E'rnst’s conclusion to require scienter
under Rule 10b-5 “had nothing to do with [its] text,” but
instead resulted from the Rule’s “relationship” with “its
authorizing legislation, Section 10(b),” which textually did
require scienter. /d. at 11a-12a (further noting that “(this
rationale regarding Rule 10b-5 does not apply to Section
14(e), which is a statute, not an SEC Rule”). And it ex-
plained that other decisions preceded Aaron, which con-
strued Section 17(a)(2)’s parallel language to “not require
a showing of scienter”—thus “cast{ing] doubt” on earlier
Section 14(e) decisions from multiple circuits. Jd. at 12a.

b. Judge Christen concurred in “full{].” Pet. App. 20a.
She emphasized that the panel’s decision “is a faithful ap-
plication” of this Court’s decisions, unlike other courts

that failed to “address|]| the ramifications of the Supreme
Court’s holdings.” /d. at 20a-26a. Under the Act’s plain
text, she explained, “[o)nly the second clause of § 14(e)
contemplates a scienter requirement; Congress did not
use the words signaling a heightened standard of culpa-
bility in the first clause of the statute.” /d. at 24a.

Judge Christen concluded that one “cannot be sure
how other circuits would rule were they to revisit § 14(e)
in light of Ernst & Ernst and Aaron.” Pet. App. 26a.

5. The court of appeals subsequently denied a petition
for rehearing without recorded dissent. Pet. App. 58a-59a.

ARGUMENT

A. The Decision Below Does Not Create A Square
Circuit Conflict

Contrary to petitioners’ contention, the Ninth Circuit
did not create a genuine circuit conflict. Petitioners cannot
identify a single circuit actually deciding the issue after
analyzing Section 14(e)’s first clause, especially in a case
post-dating this Court’s authoritative decisions. None of
the cases grapple with the Ninth Circuit’s rationale.
Those cases rest on scant reasoning (or worse); some ad-
dress the question in dicta (and thus held nothing); and at
least one “decided” the issue when it was wncontested by
both sides, leaving nothing to decide. Aside from a few er-
rant statements and some superficial disagreement, there
is no legitimate split. Further review is unwarranted.

1. a. Petitioners argue that the Ninth Circuit’s holding
conflicts with an “unbroken line of decisions,” starting
with the Second Circuit’s decision in Chris-Craft Indus.,
Inc. v. Piper Aircraft Corp., 480 F.2d 341 (2d Cir. 1973).
See Pet. 12. But Chris-Craft was decided before this
Court’s intervening decisions in Ernst and Aaron, which
undeniably altered the landscape. And the overriding ef-
fects of this Court’s precedents are obvious. According to

Chris-Craft, because the text of Section 14(e) is “virtually
identical” to the text of Rule 10b-5, the two provisions
should have the same elements. 480 F.2d at 362. But Ernst
later explained that Rule 10b-5 was narrowed due to the
limiting language in Section 10(b), which does not limit
Section 14(e). And Aaron construed language indistin-
guishable from Section 14(e)’s first clause to require neg-
ligence, not scienter. Chris-Crajt did not break down and
examine Section 14(e)’s text (see 480 F.2d at 362-363), and
it assumed a direct connection between Rule 10b-5 and
Section 14(e) that (under Ernst and Aaron) does not exist.
The Second Circuit had no occasion to consider the rele-
vant question in light of this Court’s subsequent author-
ity.

Moreover, petitioners overlook the Second Circuit’s
actual holding. While the court said that “mere negli-
gence” was not enough, it continued to adopt a pseudo-
negligence standard: “In sum, and put as simply as possi-
ble, the standard for determining liability under § 14(e)
*** is whether plaintiff has established that defendant
either (1) knew the material facts that were misstated or
omitted, or (2) failed or refused to ascertain such facts
when they were available to him or could have been dis-
covered by him with reasonable effort.” 480 F.2d at 364
(emphasis added). The latter phrase closely approximates
today’s version of negligence, further eliminating any
practical daylight between Chris-Craft and the decision
below. In any event, the Second Circuit ultimately held
that “each of the defendants violated § 14(e),” so there
was culpability under either standard. Id. at 362. The
question presented here was thus irrelevant to the out-
come. If this is a conflict at all, it is exceptionally weak.

To overcome these problems, petitioners say the Sec-
ond Circuit has “adhered” to a scienter requirement “ever
since,” but they cite only a single case for support. Pet. 12

(invoking Connecticut Nat'l Bank v. Fluor Corp., 808
F.2d 957 (2d Cir. 1987)). While Flwor at least came after
this Court’s relevant decisions, it neither discussed nor
analyzed Ernst or Aaron. It merely declared the issue
“settled” without explanation, let alone any attempt to
square Chris-Craft’s (discredited) rationale with this
Court’s authority. It is hard to understand Flour as ree-
onciling Chris-Craft with two Supreme Court cases it
failed to cite. And Fluor’s scant review was unsurprising:
the plaintiff's claims there—focusing on type size and par-
agraph placement—arguably implicated Section 14(e)’s
second clause, not its first, presenting a different legal
question. 808 F.2d at 960-961. There is no live conflict with
the Second Circuit.

b. Nor is there any genuine conflict with the Fifth Cir-
cuit. Contra Pet. 12-13. First, Smallwood v. Pearl Brew-
ing Co., 489 F.2d 579 (5th Cir. 1974), also arose before
Ernst and Aaron, rendering any theoretical conflict stale.
And it is especially stale given Smallwood’s narrow rea-
soning: according to the Fifth Circuit, because Congress
modeled Section 14(e) after “the second paragraph of
Rule 10b-5,” then Congress also “accepted the preceden-
tial baggage” of those words. /d. at 605. Yet the “words”
of Rule 10b-5 were modeled after the words of Section
17(a\(2), which Aaron later construed to require negli-
gence, not scienter. See Aaron, 446 U.S. at 696-697 (con-
struing 15 U.S.C. 77q(a)(2)’s prohibition on “untrue state-
ment{s]” of material fact or material “omis[issions]”);
Ernst, 425 U.S. at 213 n.32 (explaining Rule 10b-5’s
“deriv[ation]” from Section 17). The Fifth Circuit would
have been aware of this important development had it de-
cided the issue after Aaron. As it stands today, however,

10

the “precedential baggage” of the relevant language flips
the Fifth Cireuit’s conclusion on its head.*

Petitioners again respond (Pet. 13) that the Fifth Cir-
cuit “adhered” to a scienter requirement in Flaherty &
Crumrine Preferred Income Fund, Inc., 565 F.3d 200 (5th
Cir. 2009). But Flaherty’s limited discussion was dicta. It
found no actionable “misstatement” because the chal-
lenged disclosures were “accurate//”—i.e., the disclo-
sures were not “insufficient, let alone fraudulent.” 565
F.3d at 210-211 (emphasis added). That predicate finding
was outcome-determinative. Scienter was discussed only
hypothetically—‘“/e/ven assuming” any statement was
“misleading.” Jd. at 211 (emphasis added). In understand-
ably cursory treatment, Flaherty declared Section 14(e)’s
elements “identical to the Section 10(b)/Rule 10b-5 ele-
ments” (id. at 207 (citing Smallwood)), but never asked
whether Smallwood survived Ernst or Aaron, which it
never mentioned. The question presented thus has not
been definitively resolved in the Fifth Circuit.

c. Petitioners next count Adams v. Standard Knitting
Mills, Inc., F.2d 422 (6th Cir. 1980), as part of the
split. Pet. 13. This is more than a reach. Adams was not
even a Section 14(e) case; it resolved different claims (e.g.,
under “[Sections] 10(b) and 14(a)”), and thus held nothing
under Section 14(e). 623 F.2d at 423-424. The Sixth Circuit
discussed Section 14(e) merely as “another * * * consider-

® While Smallwood declared “mere negligence” insufficient, it em-
phasized “[t}he trend” in federal courts “toward a more relaxed [sci-
enter] test,” again suggesting a standard resembling negligence. 489
F 2d at 606.

11

ation” for its actwal holding under the Act’s other provi-
sions. /d. at 430 (looking to Congress’s intent behind “sub-
sequent amendments that are indirectly linked to 14(a)”).*
Even Adams’s sparse analysis fails to help petitioners.
The Sixth Circuit suggested that “scienter” was required
under Section 14(e) because it “use[s] the words ‘fraudu-
lent,’ ‘deceptive,’ and ‘manipulative.” 623 F.2d at 431. But
those words appear exclusively in Section 14(e)’s second
clause, which is irrelevant here. Adams ignored the first
clause’s distinct language, and never considered that each
clause could have different elements, including distinct
“culpability requirement(s].” Aaron, 446 U.S. at 697. And
since Adams was issued before Aaron by a month, it did
not grapple with Aaron’s discussion of Section 17(a)(2),
which mirrors Section 14(e)’s relevant language. See id.
at 695-697. In short, if Adams believed that scienter ap-
plies whenever Congress “uses” language like Section
14(e)’s second clause (per Ernst), it presumably would
also find negligence applies whenever Congress “uses”
language like Section 14(e)’s first clause (per Aaron).
That question, again, remains open in the Sixth Circuit.‘
d. Petitioners’ reliance on Jn re Digital Island Sec.
Litig., 357 F.3d 322 (3d Cir. 2004), is likewise flawed. See
Pet. 13-14. The issue there was conceded: “both parties”

’ Adams’s holding under those other provisions was not even unan-
imous. 623 F.2d at 447 (Weick, J., dissenting on denial of reh’g) (“un-
like Section 10(b),” “neither Section 14(a) nor Rule 14a-9 uses lan-
guage which would even suggest a [scienter] requirement”).

* Indeed, it is far from obvious that the Sixth Circuit even intended
its commentary to apply to Section 14(e)’s first clause: it grounded its
views directly in the presumption that “Congress intends scienter
when it uses the above quoted language”—.e., “the words ‘fraudu-
lent,’ ‘deceptive,’ and ‘manipulative.” 623 F.2d at 431. The Sixth Cir-
cuit did not say what standard is appropriate when Congress uses the
different “language” in Section 14(e)’s first clause (7e., the making of
“any untrue statement of a material fact” or material “omi[ssion]”).

12

“agree|d]” that “Section 14(e) requires proof of scienter”
(357 F.3d at 328 & n.9), so there was nothing for the court
to decide. It is hardly obvious that Digital’s single para-
graph on an undisputed issue stands as binding precedent
in the Third Circuit.

In any event, likely because the issue was uncontested,
Digital’s commentary was brief. 357 F.3d at 328. It said
that because Section 14(e) was “modeled” on Section
10(b) and Rule 10b-5, it must likewise require “proof of
scienter.” /bid. But the court drew that rough comparison
without analyzing Section 14(e)’s actual text, acknowledg-
ing its two independent clauses, explaining why those dis-
tinct clauses have the same elements, or reconciling its
views with Aaron (which the Third Circuit never cited or
discussed). Moreover, the complaint was dismissed on al-
ternative grounds, and the Third Circuit declared the
plaintiffs’ theory “a weak inference teetering on an un-
founded assumption.” /d. at 327, 330. It is a stretch to la-
bel Digital—a thin analysis of an uncontested issue in a
poor vehicle—as a genuine conflict.

e. As their final shot, petitioners argue that SEC v.
Ginsburg, 362 F.3d 1292 (11th Cir. 2004), also rejected the
Ninth Circuit’s position. Pet. 14. But Ginsburg did not
even present the same issue: it confronted insider-trad-
ing allegations, which fall under Section 14(e)’s second
clause, not its first. See 362 F.3d at 1295. Ginsburg
treated claims identically under “§ 10(b) and § 14(e)” de-
spite their obvious textual differences, and found that
both require “scienter” without explanation. Jd. at 1297.
Indeed, Ginsburg’s sole “support” consisted of a bald ci-
tation to SEC v. Adler, 137 F.3d 1325 (11th Cir. 1998),
which addressed claims “under § 10(b), Rule 10b-5, and
§ 17(a)(1),” not Section 14(e). 137 F.3d at 1340.

13

And it goes downhill from there: Adler tellingly lim-
ited its “scienter” discussion to Section “17(a)(1),” not Sec-
tion 17(a)(2). See 137 F.3d at 1340. The former approxi-
mates claims under Section 14(e)’s second clause, requir-
ing scienter; the latter approximates claims under Section
14(e)’s first clause, requiring negligence. Aaron, 446 U.S.
at 695-697. If anything, this indicates that the Eleventh
Circuit, like the Ninth Circuit, would have drawn the cor-
rect line were this question factually presented.

In any event, Ginsburg’s (sparse) discussion was irre]l-
evant to the outcome because scienter was satisfied. See
362 F.3d at 1296. Ginsburg thus addressed the wrong
clause, was unreasoned, and would have reached the same
result under a negligence standard. That is thin gruel for
a circuit conflict.®

2. Petitioners’ claim of a “square, obvious, and conse-
quential” circuit conflict (Pet. 15) is thus deeply over-
blown. But to the extent some disagreement exists, this is
a clear-cut case for further percolation. No other court of
appeals has grappled with the Ninth Circuit’s analysis. As
explained above, other circuits have overlooked Section

° Unlike petitioners, the U.S. Chamber of Commerce argues that
Eighth Circuit law is also “in conflict” with the decision below. U.S.
Chamber Amicus Br. 4 (citing Feldbaum v. Avon Prods., Inc., 741
F 2d 234, 237 (8th Cir. 1984)). There is a reason that not even peti-
tioners included this case among the purported split. Feldbauwm had
nothing to do with culpability requirements. The word “scienter” does
not appear anywhere in the opinion, and the court’s limited discussion
focused on whether there was a material misstatement or manipu-
lative device. See 741 F.2d at 236-237 (“we hold the District Court was
correct in its dismissal of plaintiff's claim that defendants failed to
disclose material facts”; “[wJe also agree with the District Court’s
conclusion that the option granted to AVP is not a manipulative de-
vice”). While most of petitioners’ authority focused on the wrong
clause in Section 14(e), the Chamber’s case does not even focus on the
right question.

14

14(e)’s operative text, flouted Aaron’s construction of in-
distinguishable language, and embraced E'rnst’s holding
while ignoring its controlling rationale—which expressly
cabins Ernst to Section 10(b)’s unique context. If petition-
ers are truly right that all of these factors are irrelevant,
then the Court can take up the issue after at least one
court of appeals confirms its prior position. But review at
this point is decidedly premature.

The Ninth Circuit’s analysis is the most robust of any
case resolving this issue, counterbalancing the simple
head-counting on the other side. Given that no other cir-
cuit has squarely addressed this question in an appropri-
ate case, there is every reason to offer them a chance to
sharpen the issues and reach the correct disposition. As of
now, however, petitioners have failed to identify a genuine
conflict warranting the Court’s immediate intervention.

B. The Decision Below Is Correct

Review is also unwarranted because the Ninth Cir-
cuit’s decision is correct. Petitioners’ contrary view (Pet.
15-22) is incompatible with Section 14(e)’s plain text, stat-
utory purpose, and legislative history, and their reading
is irreconcilable with this Court’s interpretation of indis-
tinguishable language in related securities provisions. Pe-
titioners’ argument is meritless and should be rejected.

1. a. Statutory interpretation starts with the text (e¢.9.,
Henson v. Santander Consumer USA Inc., 137 8. Ct.
1718, 1721 (2017)), and the text here is unambiguous. Sec-
tion 14(e) is plainly divided into two clauses, each target-
ing a different category of prohibited conduct:

It shall be unlawful for any person [1] to make any un-
true statement of a material fact or omit to state any
material fact necessary in order to make the state-
ments made, in the light of the circumstances under
which they are made, not misleading, or [2] to engage

15

in any fraudulent, deceptive, or manipulative acts or

practices, in connection with any tender offer * * * .
15 U.S.C. T7n(e) (brackets added).

The first clause has no hint of scienter. It does not ex-
pressly require scienter (or any specific state of mind). It
does not use any of the usual terms associated with scien-
ter (Aaron, 446 U.S. at 695-696), even though the second
clause does (Ernst, 425 U.S. at 199). Its terms are satisfied
whenever a covered defendant makes a material misstate-
ment or omission, irrespective of the actor’s intent. And it
does so in the context of a statute mandating disclosure
so shareholders can make informed decisions. Schreiber
v. Burlington N., Inc., 472 U.S. 1, 8-10 (1985). A negligent
misstatement or omission is still a misstatement or omis-
sion, and it still deprives shareholders of necessary infor-
mation. If Congress wanted to restrict Section 14(e)’s
reach to intentional wrongdoing, it assuredly knew how to
do it.

b. This Court has already twice construed indistin-
guishable language as requiring negligence, not scienter.
First, the Court in Aaron so held for Section 17(a)(2),
which prohibits “obtain[ing] money or property by means
of any untrue statement of a material fact or any [mate-
rial] omission.” 15 U.S.C. 77q(a)(2); compare 15 U.S.C.
78n(e) (using indistinguishable terms). As Aaron ex-
plained, that language is “devoid of any suggestion what-
soever of a scienter requirement.” 446 U.S. at 696. It
quoted a “well-known commentator” as noting “[t|here is
nothing on the face of [Section 17(a)(2)] itself which
smacks of scienter or intent to defraud.” /bid. (quoting 3
L. Loss, Securities Regulation 1442 (2d ed. 1961)).* While

* That same “well-known commentator” examined Section 14(e)'s
text and concluded its first clause likewise requires negligence, not

16

other parts of Section 17(a) might require scienter, this
Court found that Section 17(a)(2)’s language “compells|}
the conclusion” that “scienter” is not “required.” /d. at
697.

Petitioners have no real answer for the obvious paral-
lel between Sections 14(e) and 17(a)(2). Aaron read mate-
rially indistinguishable language to “mean what it so
plainly seems to say”—that scienter was not required. 446
U.S. at 697. There is simply no basis for assigning the
same words a different meaning here.’

Second, this Court in Ernst read the same language
the same way, finding that Rule 10b-5(b)’s parallel text
“could encompass both intentional and negligent behav-
ior.” 425 U.S. at 212-213 (Rule 10b-5(b)’s language,
“{vjiewed in isolation,” proscribes “any type of material
misstatement or omission,” “whether the wrongdoing was
intentional or not”); accord Aaron, 446 U.S. at 696 (reaf-
firming this point). While Ernst ultimately adopted a dif-
ferent reading, it did so for independent reasons, none of

scienter. L. Loss, et al., Fundamentals of Securities Regulation 652
(5th ed. 2004) (reproduced at C.A. E.R. 190).

' Petitioners argue Aaron is distinguishable because (i) Section
17(a) is not privately enforceable, and (ii) Aaron involved claims for
injunctive relief. Pet. 21-22. As for the first: the relevant question is
not who enforces these sections, but what these sections mean; the
“identity of the plaintiff” is irrelevant. Aaron, 446 U.S. at 691 (so hold-
ing). As for the second: the right inquiry is not what relief is available
once culpability is established, but the standard for establishing cul-
pability. Ibid. (rejecting the proposition that the standard turns on
“the identity of the plaintiff or the nature of the relief sought”) (em-
phasis added). Aaron examined the plain text and determined intent
was not required to prove a violation. The language in each section
(Sections 14(e) and 17(a)(2)) is indistinguishable, and Aaron con-
strued that language on its face to require only negligence, not scien-
ter.

17

which apply here. See Ernst, 425 U.S. at 212-213 (explain-
ing that, under its natural reading, Rule 10b-5 would “ex-
ceed” the SEC’s rulemaking authority, given Section
10(b)’s narrow focus on “intentional wrongdoing”).

In response, petitioners argue that, whatever its rea-
soning, Ernst still “held” that scienter was required, and
Section 14(e) tracks Section 10(b) and Rule 10b-5. Pet. 15-
16. This is perplexing. Ernst’s disposition turned on the
limited scope of Section 10(b), not the broader language in
Rule 10b-5. See Aaron, 446 U.S. at 690 (so noting). As
Ernst explained, Section 10(b), unlike Section 14(e), fo-
cused exclusively on concepts invoking scienter (“manip-
ulation,” “deception,” etc.). 425 U.S. at 197-199. Because
Section 10(b) required scienter, Rule 10b-5 also had to re-
quire scienter; otherwise, the SEC’s rule would “exceed”
the scope of its rulemaking authority. /d. at 212-213.*

Those points have nothing to do with Section 14(e). Its
two clauses are each found in a statute, not a regulation.
There is no concern of the SEC exceeding its authority,
because the question is what Congress itself wrote into the
statute. And while Section 14(e)’s second clause mirrors
Section 10(b)’s language, its first clause has no counter-
part in Section 10(b). That first clause sweeps beyond Sec-
tion 10(b)’s narrow focus, and its terms are “devoid of any
suggestion whatsoever of a scienter requirement.” Aaron,
446 U.S. at 696. For exactly those reasons, this Court

* Contrary to petitioners’ contention, Ernst’s “central teaching”
thus was not its brief reference to “procedural restrictions” (Pet. 21);
the Court was clear that Section 10(b)’s language drove the analysis.
Ernst, 425 U.S. at 200-201 (focusing “primarily on the language of
that section”); see also Aaron, 446 U.S. at 690 (2£rnst’s “most im-
portant” consideration “was the plain meaning of the language of
§ 10(b)”). Petitioners are wrong to minimize the Court’s paramount
focus on the language itself.

18

readily concluded that Section 17(a)(2) required negli-
gence, not scienter, despite its parallels to Section 10(b)
and Rule 10b-5. The same logic inescapably applies here.
See also, e.g., Pryor v. U.S. Steel Corp., 591 F. Supp. 942,
955 n.19 (S.D.N.Y. 1984).

Petitioners retort that Congress modeled Section
14(e)’s language on the text of Rule 10b-5, so the two must
have the same meaning. Pet. 16, 21. But this ignores that
Rule 10b-5(b) itself was based on the text of Section
17(a)(2) (see Ernst, 425 U.S. at 213 n.32), which, again, this
Court construed to require negligence, not scienter (see
Aaron, 446 U.S. at 695-697). Had the Rule not been con-
strained by the narrower text of Section 10(b), the Court
presumably would have adopted Rule 10b-5’s natural
reading, consistent with its origins in Section 17. To the
extent the historical source dictates the text’s meaning,
this only reaffirms the Ninth Circuit’s construction.’

2. Petitioners’ efforts to avoid the plain text fall short.

a. Petitioners insist that Section 14(e)’s separate
clauses must be read together to impose a unitary scienter
requirement. Pet. 17-18. But this Court already rejected
that proposition in Aaron, holding that no “uniform”
treatment was required. 446 U.S. at 697. It explained that
provisions like this are properly read as targeting sepa-
rate categories, each with their own independent require-
ments. /bid. (“each subparagraph of § 17(a) ‘proscribes a
distinct category of misconduct”). This is confirmed by
“the use of an infinitive to introduce each of [the] subsec-
tions, and the use of the conjunction ‘or’ at the end of the

* Petitioners thus miss the irony in arguing that “the Ninth Cirev't
overlooked that, unlike Section 14(e), Section 17 of the 1933 Act was
not ‘modeled on the antifraud provisions of § 10(b) of the [1933] Act
and Rule 10b-5.”” Pet. 21. On the contrary, Rule 10b-5 was modeled
after Section 17. Ernst, 425 U.S. at 213 n.32. Petitioners thus have the
history exactly backwards.

19

first two.” United States v. Naftalin, 441 U.S. 768, 774
(1979). Had Congress wanted identical coverage under
each clause, it would have used the same wording in each
section. /d. at 773-774. Instead, Congress outlined “dis-
tinct categor|ies] of misconduct” because “[eJach succeed-
ing prohibition is meant to cover additional kinds of ille-
galities—not to narrow the reach of the prior sections.”
Id. at 774; accord Aaron, 446 U.S. at 697."

That reasoning controls here. As with Section 17(a),
Section 14(e)’s clauses are phrased in the disjunctive, and
each clause is “introducei[d]”’ with “an infinitive.”
Naftalin, 441 U.S. at 774. Congress enumerated two pro-
hibitions to establish liability if one “or” the other is met;
it did not separate out independent commands (each with
its own infinitive) only to collapse the two together. See,
e.g., McFarland v. Wells Fargo Bank, N.A., 810 F.3d 273,
285 (4th Cir. 2016); United States v. Sheldon, 755 F.3d
1047, 1050 (9th Cir. 2014); Stevens v. Employer-Team-
sters Joint Council No. 84 Pension Fund, 979 F.2d 444,
452 (6th Cir. 1992).

Moreover, petitioners’ reading invites an obvious sur-
plusage problem: if each clause requires scienter, then
these two separate provisions, drafted in conspicuously
different terms, would cover the same conduct. An inten-
tional “untrue statement” surely qualifies as a “fraudu-
lent, deceptive, or manipulative act{] or practice[]” (15
U.S.C. 78n(e)), leaving nothing for Section 14(e)’s first

” Although Section 17(a) is broken into forma] subsections, the
Court looked primarily at “the words themselves,” not “the use of
separate numbers to introduce each subsection.” Naftalin, 441 U.S.
at 774 n.5. The section’s “punctuation” was addressed only in a single
footnote as mere “confirmation” for the language appearing “‘on the
face of the statute.” /bid. At bottom, the operative language in each
provision is still found in a single sentence.

20

clause to do. These clauses use different language to in-
voke different prohibitions, and the Ninth Circuit’s con-
struction gives independent meaning to “each distinct
category of misconduct.” Aaron, 446 U.S. at 697. Petition-
ers’ theory, by contrast, reads the first clause straight out
of the statute. See Lane v. United States, 286 F.3d 723,
730-731 (4th Cir. 2002).

b. Nor does noscitur a sociis require a different out-
come. Pet. 17. That canon cannot override each clause’s
unambiguous language, and petitioners cannot explain
why the second clause (with its distinct prohibition)
should artificially limit the first clause’s natural scope. /n
re Continental Airlines, Inc., 982 F.2d 282, 288 (3d Cir.
1991). Petitioners might have a point if Congress had pro-
hibited [1] “mak{ing] any untrue statement” or [2] “en-
gagling] in any other fraudulent, deceptive, or manipula-
tive” act. But “Congress did not write the statute that
way.” Naftalin, 441 U.S. at 773. Congress isolated the
terms invoking scienter to a distinct clause, and clearly
delineated the section’s two prohibitions by phrasing
them in the disjunctive, introducing each with the infini-
tive “to.” “When Congress has separated terms with the
conjunction ‘or,’ it is presumed that Congress intended to
give the terms ‘their separate, normal meanings.” /bid.
(quoting Garcia v. United States, 469 U.S. 70, 73 (1984)).”

" A better use of noscitur a sociis here is construing the three
words in the second clause by “the company [they] keep[]” (Yates v.
United States, 135 S. Ct. 1074, 1085 (2015))—which is why it makes
sense to require scienter for “manipulative” or “deceptive” acts. But
it makes no more sense to impose a scienter requirement for the first
clause than it would to eliminate one for the second—even though the
first clause is naturally read to capture only negligence and in fart
precedes the second part of the sentence.

21

In sum, just as there was no reason in Aaron to distort
Section 17(a)(2)’s natural meaning due to its “neigh-
borling]” clauses (Pet. 17), there is no reason to distort
Section 14(e)’s first clause here. Petitioners have no legal
or logical basis for reading this distinct language to im-
pose a uniform culpability requirement. See, e.g., Aaron,
446 U.S. at 697 (rejecting an analogous proposition).

c. Petitioners also focus on Section 14(e)’s limited rule-
making delegation (Pet. 18), but this proves respondents’
point. That delegation authorizes the SEC to regulate ac-
tions falling within Section 14(e)’s second clause, but not
its first. 15 U.S.C. 78n(e) (limiting the SEC’s focus to “acts
and practices” that “are fraudulent, deceptive, or manip-
ulative”). If Congress felt both clauses covered the same
ground, it would have authorized rulemaking under the
entire subsection. The limited delegation reaffirms that

ulent, deceptive, or manipulative.” That undefined con-
duct begs for rules clarifying stakeholders’ rights and ob-
ligations. Congress’s targeted delegation says nothing
about the standards to prove a violation under the first
clause.

Anyhow, the SEC had preexisting authority under Section 14(d)
to regulate mandatory disclosures for tender offers, including any
misstatements or omissions. 15 U.S.C. 78n(d)(4).

22

d. Petitioners argue that the outcome in #rnst turned
not on the text, but Section 10(b)’s absence of “significant
procedural restrictions” —and Congress would not au-
thorize an action for “mere negligence” without imposing
the same safeguards found in its “express causes of ac-
tion|].” Pet. 16, 21 (citing Ernst, 425 U.S. at 208-209). Pe-
titioners have misread Ernst: the Court’s concern was not
the absence of procedural restrictions per se, but the re-
ality that extending the “remedy under § 10(b)” would
“nullify” the express actions under other sections (by cov-
ering the same ground). Ernst, 425 U.S. at 209 (discussing
Section 10(b)’s substantive overlap with “causes of action
covered by §§ 11, 12(2), and 15”). There is no such concern
with Section 14(e)’s targeted prohibitions in the tender
context.”

In short, contrary to petitioners’ contention, the
Court's single paragraph on this point does not stand for
the sweeping proposition that negligence standards are
always verboten in implied rights of action.

3. Petitioners’ theory would also undermine Con-
gress’s objectives. Section 14(e) was “devoted to disclo-
sure.” Schreiber, 472 U.S. at 11-12. It affirmed the offe-
ror’s obligation “to make full disclosure of material infor-
mation” (H.R. Rep. No. 1711, 90th Cong., 2d Sess. 11
(1968)), arming shareholders with the facts necessary to
make intelligent decisions. U/nited States v. O'Hagan, 521
U.S. 642, 667-668 (1997); Piper v. Chris-Craft Indus., Inc.,
430 U.S. 1, 30-31 (1977).

That purpose is frustrated when corporate actors fail
to furnish material information, intentionally or other-
wise. A negligence standard “serve|s] to reinforce the
high duty of care owed by a controlling corporation” to its

'S Besides, the culpability standard is a substantive element; scien-
ter is not a “procedural” restriction. Contra Pet. 18.

23

shareholders (Gerstle v. Gamble-Skogmo, Inc., 478 F.2d
1281, 1300 (2d Cir. 1973)), especially when making critical
decisions. Congress expected corporate statements to be
correct—which is why it declared it “unlawful” to “make
any untrue statement” or “omilssion].” 15 U.S.C. 78n(e)
(emphasis added). Requiring scienter undercuts Con-
gress’s disclosure mandate.

Section 14(e)’s context also differs from other areas
where scienter makes sense. Rule 10b-5 cases, for exam-
ple, often target speakers under no “obligation” to say an-
ything. Gerstle, 478 F.2d at 1300. An innocent mistake on
a non-mandatory topic requires heightened protection,
which preserves the incentive for speakers to voluntarily
disclose information. /bid.; see also, e.g., SEC v. Texas
Gulf Sulphur Co., 401 F.2d 833, 866-867 (2d Cir. 1968)
(Friendly, J., concurring) (“If the only choices open to a
corporation are either to remain silent and let false ru-
mors do their work, or to make a communication, not /e-
gally required, at the risk that a slip of the pen or failure
properly to amass or weigh the facts * * * will lead to
large judgments,” “most corporations would opt for the
former”) (emphasis added).

Those concerns have little place in the context of com-
pulsory disclosures. Sections 14(a) and 14(e) govern com-
pulsory statements required by law before corporate mer-
gers can be submitted for shareholder approval. In that
different context, speakers are required to provide neces-
sary information so shareholders can make informed de-
cisions. While the decision to voluntarily speak on other
topics is sensibly left to a higher bar, Section 14(e)’s plain

24

text reflects Congress’s intent to subject these disclosures
to more stringent review."

Finally, a scienter requirement is incompatible with
Section 14’s broader scheme. Congress enacted Section
14(e) to impose the same rules in the tender context that
Section 14(a) already imposed in the proxy context. See,
e.g., Adams, 623 F.2d at 430 (Congress intended uniform
“standards of liability” for Sections 14(a) and 14(e)). And
courts have overwhelmingly recognized that negligence is
sufficient to state a claim under Section 14(a). DeKalb Cty.
Pension Fund v. Transocean Ltd., 817 F.3d 393, 409 &
n.95 (2d Cir. 2016). There is no obvious reason for adopt-
ing a different liability standard under Section 14(e).

C. The Petition Does Not Present An Important

Question Warranting Further Review In This
Case

All else aside, the question presented lacks sufficient
importance to warrant further review. A negligence
standard is unlikely to determine the outcome in all but a
tiny percentage of securities cases, and Congress’s aims

‘“ Petitioners repeatedly invoke Judge Friendly’s observation of
the “frightening” consequences of adopting a negligence standard un-
der Section 10(b) and Rule 10b-5, and suggest the same concerns
arise in these “analogous circumstances.” See Pet. 4, 19 (quoting
Texas Gulf, 401 F.2d at 866-867 (Friendly, J., concurring)). This point
has already been refuted by—Judge Friendly himself: While “{i}mpo-
sition of too liberal a standard with respect to culpability” would deter
“statements issued by corporations[] without legal obligation to do
so,” “/s/uch considerations do not apply” to “proxy statement{s] re-
quired by the Proxy Rules.” On the contrary, “a broad standard of
culpability here will serve to reinforce the high duty of care owed by
a controlling corporation to minority shareholders in the preparation
of a proxy statement seeking their acquiescence in this sort of trans-
action ***.” Gerstle, 478 F.2d at 1300 (Friendly, J.) (emphasis
added) (drawing an explicit contrast to Rule 10b-5 and Texas Gulf).

25

are not frustrated by ensuring that mandatory disclo-
sures are in fact disclosed. Moreover, courts have been
enforcing private actions under Section 14(e) for decades,
and Congress, if anything, has endorsed the practice as a
useful regulatory tool.

A negligence standard properly holds corporate actors
responsible for failing to deliver the facts essential for in-
formed shareholder decision-making. Petitioners may
nevertheless insist the sky is about to fall, but their con-
trary arguments are wrong, waived, or both. This Court’s
intervention is unwarranted.

1. Petitioners assert that the Ninth Circuit’s decision
will spark “abus[ive]” securities litigation. Pet. 22-24. This
grave prediction is overblown. The elements of securities
claims (especially materiality) are notoriously difficult to
prove. Plaintiffs must cross multiple thresholds to survive
a motion to dismiss, including the PSLRA’s other height-
ened-pleading requirements. 15 U.S.C. 78u-4(b)(1)(A)-
(B). That Section 14(e)’s first clause does not require sci-
enter does not mean weak claims get a free pass."

For similar reasons, petitioners are simply wrong that
the decision below will act as a “magnet” drawing all se-
curities cases to the Ninth Circuit. Pet. 3, 23. Venue deci-
sions are motivated by a multitude of considerations. It is
the rare case where a plaintiff feels he can satisfy every-
thing except scienter and sues in an unnatural location for
that reason alone. And if petitioners’ worry is well-

Petitioners argue the Ninth Circuit’s decision is at odds with the
PSLRA’s objectives. Pet. 24-25. But Congress could have required
scienter across the board; it instead recognized that not every securi-
ties claim warrants scienter, and required a “strong inference” only
for those that do. 15 U.S.C. 78u-4(b)(2)(A). Petitioners cannot substi-
tute Congress’s scalpel with a sledgehammer.

26

founded, this Court will have plenty of future opportuni-
ties to revisit the question. But there is no reason to grant
review based on a hypothetical spike that does not actu-
ally exist."

Petitioners hint that the Ninth Circuit’s law is to
blame for the percentage of securities cases filed in that
circuit. Pet. 23 (“In 2017, for example, plaintiffs’ lawyers
filed more than one-fifth of all merger-related class ac-
tions in the Ninth Circuit.”). What petitioners ignore is
that (due to its size) approximately the same percentage
of all cases are filed in that circuit. See, e.g., U.S. Courts,
Federal Judicial Caseload Statistics 2018, tbl. C-1
(49,669 of 292,076
civil actions). The Ninth Circuit covers nine of the fifty
States (approximately 20%), and hears its fair share of
cases across all subjects. It is geography, not lenient
standards, that drives its docket.

Moreover, this is an odd vehicle for petitioners to com-
plain about forum-shopping: respondents filed suit in Cal-
ifornia against a California business engaged in miscon-
duct in California. See, e.g., C.A. E.R. 74 (Schedule 14D-
9 statement submitted by Emulex’s CEO from “Costa
Mesa, California”). Petitioners are thus correct that
venue here was not by “happenstance.” Pet. 23. It was the
most natural and obvious location for the suit.

‘6 Petitioners argue that the “vast majority” of securities suits are
dismissed, and predict that will change if suits can survive based on
“a plausible allegation of negligence.” Pet. 25 (citing statistics). Yet
petitioners’ statistics are meaningless unless such suits were dis-
missed based on failure to allege scienter. In lodging their broad
claims, petitioners make no effort to parse out suits dismissed based
on settlements or other relief; and they make no effort to separate
suits that fail on the merits due to other deficiencies. The change in
standard from scienter to negligence will not affect the outcome in
any such litigation, and petitioners are wrong to baldly presume oth-
erwise.

27

2. Petitioners also ignore the profound benefits pro-
duced by legitimate shareholder lawsuits. Congress de-
manded that companies disclose material facts in the ten-
der context. Yet the desire to consummate a merger can
encourage selective disclosure, and there are documented
incentives for investment banks to whitewash fairness
opinions. L. Bebchuk, et al., Fairness Opinions: How
Fair Are They and What Can Be Done About It?, 1989
Duke L.J. 27, 30 (Feb. 1989). The SEC lacks the resources
to monitor each recommendation statement in real-time.
E.g., JI. Case Co. v. Borak, 377 U.S. 426, 432 (1964). Sec-
tion 14(e), by design, keeps the process honest. See, e.g.,
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,
313 (2007) (recognizing the role of “meritorious private ac-
tions” in enforcing securities laws and supplementing
USDOJ and SEC efforts).

This very case illustrates the point. Here, Emulex re-
fused to provide relevant information (Goldman Sachs’s
premium analysis) on a marginal tender offer. The pro-
posal was an obvious close call, with barely 60% of out-
standing shares ultimately tendered. C.A. E.R. 194. Rea-
sonable investors would surely be interested to know that
Goldman Sachs identified comparable transactions and
found that this offer fell in the bottom end. C.A. E.R. 96-
97, 261 (44.8% (mean) and 50.8% (median) versus 26.4%
(Emulex)); see Matrixx Initiatives, Inc. v. Siracusano,
563 U.S. 27, 30-31 (2011).

While this does not automatically establish the trans-
action was unfair, Section 14’s entire point is letting the
market decide fairness for itself. TSC Indus., Inc. v.
Northway, Inc., 426 U.S. 438, 448 (1976). Petitioners de-
prived shareholders of key information that Goldman
Sachs found sufficiently important to include in its own
analysis. (Goldman Sachs does not often waste a board’s
time with irrelevant material.) That information cut

28

against the offer’s fairness, and shareholders were enti-
tled to the information under Section 14(e). It is unclear
why a scienter standard should excuse petitioners’ mis-
take."

3. Petitioners obliquely suggest the Court should
grant review on a vu_stion the Ninth Circuit did not de-
cide: whether Section 14(e) provides a “private right of ac-
tion at all.” Pet. 3, 20. This is meritless. First and fore-
most, that splitless question was not resolved below be-
cause it was not raised below. On the contrary, petitioners
expressly conceded the point: “defendants do not dispute
that Section 14(e) provides for a private right of action.”
Emulex C.A. Br. 47; see also Avago C.A. Br. 4 (“join[ing]
and incorporat{ing] by reference” Emulex’s brief). Peti-
tioners accordingly did not even attempt to preserve the
issue below (not even in a footnote), but explicitly con-
ceded the question. Petitioners are bound by that waiver,
and it is too late now to revisit their tactical decision.

In any event, petitioners’ argument on this score is in-
substantial. According to petitioners and the U.S. Cham-
ber, “Section 14(e) contains no private right, not even a
hint of one.” U.S. Chamber Br. 3; Pet. 20. Yet Section
14(e) contains exactly the same “hints” that have sup-
ported private rights under related securities laws for

'’ SIFMA’s amicus brief is effectively a broadside against private
securities litigation generally. See, e.g., SIFMA Br. 7-13. Some organ-
izations may not like the securities laws, but the question here is how
best to read the text, purpose, and history of Section 14(e) to deter-
mine its proper elements; the answer is not to abandon all traditional
tools of statutory interpretation to adopt whatever construction hap-
pens to minimize securities claims. And if SIFMA believes the secu-
rities laws are too prone to abuse, its proper audience is Congress,
not the courts. The political branches have proven perfectly capable
of adopting new rules to police abusive securities practices. If policy-
makers believe the tender context is ripe for new regulation, Con-
gress is well-equipped to solve the problem.

29

decades. E..g., Blue Chip Stamps v. Manor Drug Stores,
421 U.S. 723, 730 (1975) (Section 10(b) and Rule 10b-5);
Borak, 377 U.S. at 430-431 (Section 14(a)). And Congress
has repeatedly revamped core features of securities liti-
gation without once suggesting that these private rights
should not exist. See, ¢.g., Securities Litigation Uniform
Standards Act of 1998, Pub. L. No. 105-353, 112 Stat. 3227;
Private Securities Litigation Reform Act of 1995, Pub. L.
No. 104-67, 109 Stat. 737. Since its enactment, courts have
repeatedly confirmed that “a private right of action may
be inferred from Section 14(e).” Smallwood, 489 F.3d at
596 n.20 (“follow[ing] the overwhelming weight of author-
ity” and “reaffirm[ing] the importance of private litigation
to the effective enforcement of the securities laws”). This
is likely why petitioners admitted below that “Section
14(e) provides for a private right of action.” Emulex C.A.
Br. 47 (emphasis omitted)."

The Supreme Court is “a court of review, not of first
view.” Cutter v. Wilkinson, 544 U.S. 709, 718 n.7 (2005). If
the Court wants to rethink half a century of settled prac-
tice, it should at least wait for a vehicle where the question
presented was not expressly abandoned below. See, e.g.,
Glover v. United States, 531 U.S. 198, 205 (2001) (refusing
to consider “questions neither raised nor resolved be-
low”); Yee v. City of Escondido, 503 U.S. 519, 538 (1992)
(“[plrudence” dictates “awaiting ***the benefit of
* * * lower court opinions squarely addressing the ques-
tion”); Youakim v. Miller, 425 U.S. 231, 234 (1976) (absent

'’ Congress’s inaction is all the more telling in light of this Court’s
implicit recognition that Section 14(e) provides a private right of ac-
tion. See, e.g., Schreiber, 472 U.S. at 2 (reviewing and deciding the
elements of Section 14(e)’s private right of action).

30

“exceptional” circumstances, this Court does not grant re-
view on “questions not pressed or passed upon below”)."

4. Finally, this case arises in an interlocutory posture,
a sufficient reason alone for denying the petition. Hamil-
ton-Brown Shoe Co. v. Wolf Bros. & Co., 240 U.S. 251, 258
(1916) (the lack of a final judgment “alone furnishe[s] suf-
ficient ground” for denying certiorari); see also, e.g., Vir-
ginia Military Inst. v. United States, 508 U.S. 946, 946
(1993) (Sealia, J., respecting the denial of certiorari)
(“(wle generally await final judgment in the lower courts
before exercising our certiorari jurisdiction”).

“(E |xcept in extraordinary cases, [a] writ [of certio-
rari] is not issued until final decree” (Hamilton-Brown
Shoe, 240 U.S. at 258), and there is nothing at all “extraor-
dinary” here. This case reaches the Court from a motion
to dismiss. The Ninth Circuit decided a single issue re-
lated to one challenge to a single element of respondents’
claims, and remanded for the district court to reconsider
the remainder of petitioners’ motion. If petitioners later
wish to present the same question, they can do so again, if
necessary, upon final judgment. That slight inconvenience
for the individual parties in this single case does not war-
rant abandoning the Court’s traditional and sound prac-
tice of refusing to hear interlocutory appeals in all but the
most unusual and compelling circumstances. See, ¢.g.,
Stephen M. Shapiro et al., Supreme Court Practice § 4.18,
at 282-285 (10th ed. 2013).

And adhering to that practice is particularly sound
here, where additional proceedings will allow additional
time for the issue to percolate among the lower courts. If

'* Indeed, if petitioners and their amici genuinely believe this is an
important question, it is all the more reason to deny review entirely.
There is no reason for the Court to consume its limited bandwidth
deciding the proper elements of a right of action that petitioners
(wrongly) believe does not exist.

31

respondents ultimately prevail on the merits and other
circuits reject the Ninth Circuit’s position after squarely
addressing the question in a meaningful way, review in
this Court might then be appropriate. But it is plainly
premature at this time.
CONCLUSION
The petition for a writ of certiorari should be denied.

Respectfully submitted.
JUAN E. MONTEVERDE DANIEL L. GEYSER
MILES D. SCHREINER Counsel of Record
MONTEVERDE & ASSOCIATES PC GEYSER P.C.
The Empire State Building One Energy Square

350 Fifth Ave., Ste. 4405 4925 Greenville Ave., Ste. 200
New York, NY 10118 Dallas, TX 75206

(214) 800-2660
BENJAMIN HEIKALI daniel. geyser(@geyserpc.com
FaruQqi & FaARuqI LLP

10866 Wilshire Blvd., Ste. 1470
Los Angeles, CA 90024

NOVEMBER 2018

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385016_0860%3A03. Public record. Not legal advice.