## Facts

- Avago, through a merger subsidiary, commenced a tender offer in April 2015 to acquire Emulex for $8.00 per share, reflecting a 26.4% premium to the preannouncement price.
- Emulex’s board unanimously recommended that shareholders tender and filed a Recommendation Statement with the SEC.
- The Recommendation Statement described a fairness opinion and analyses by Goldman Sachs, including discussion of deal premium comparisons.
- Shareholders alleged the Recommendation Statement omitted a one-page “Premiums Paid Analysis” indicating the 26.4% premium was below the average premium in comparable transactions.
- A former shareholder brought a putative class action alleging the omission made the tender-offer disclosures misleading.

## Issues

1. Whether a private claim under Exchange Act § 14(e) based on tender-offer misstatements or omissions requires scienter or only negligence.
2. Whether Exchange Act § 14(d)(4) creates a private right of action.
3. Whether the merger subsidiary was a proper defendant for the pleaded disclosure-based claims.

## Decision

- Reversed the dismissal of the § 14(e) claim and remanded because negligence, not scienter, is the required mental state for § 14(e) misstatement/omission claims.
- Reinstated the § 20(a) control-person claim to the extent it depended on the viability of the § 14(e) claim.
- Affirmed dismissal of the § 14(d)(4) claim because that subsection does not create a private right of action.
- Affirmed dismissal of the merger subsidiary because it was not a proper defendant on the pleaded theories.

## Legal Principles

- Exchange Act § 14(e) contains distinct clauses; the clause prohibiting material misstatements or omissions in connection with a tender offer supports liability based on negligence rather than scienter.
- A scienter requirement may apply to the separate § 14(e) clause prohibiting “fraudulent, deceptive, or manipulative” acts, but that requirement does not govern misstatement/omission claims brought under the first clause.
- Where a district court dismissed a § 14(e) disclosure claim for failure to plead scienter, the proper remedy is remand to assess sufficiency under a negligence standard.
- Exchange Act § 14(d)(4) does not provide an implied private right of action absent clear statutory text or congressional intent.
- A defendant must have a sufficient alleged connection to the challenged tender-offer disclosures to be a proper party to a § 14(e) misstatement/omission claim.

## Conclusion

The Ninth Circuit held that private tender-offer disclosure claims under the misstatement/omission clause of § 14(e) require only negligence, revived the related § 20(a) claim, but declined to recognize any private action under § 14(d)(4) and left the merger subsidiary dismissed as an improper defendant.


Varjabedian v. Emulex Corp., 888 F.3d 399 (9th Cir. 2018)