Ninth Circuit Decision on Exchange Act Section 14(e)

Recently, the Ninth Circuit held that only negligence, not scienter, is required to be shown where a violation of the tender offer provisions of Section 14(e) is alleged.  In Varjabedian v. Emulex Corp., the Ninth Circuit court remanded the case for reconsideration of the defendants’ motion to dismiss based on a negligence standard.  The District Court had previously dismissed the complaint for failure to plead a strong inference of scienter in connection with the alleged Section 14(e) violations.  The Ninth Circuit’s conclusion that only a negligence standard applies is at variance with decisions in various other circuits.  In reaching its conclusion, the Ninth Circuit relied on the legislative history of the Williams Act, which it stated is intended to be broad and address the quality of the information provided to stakeholders in a tender offer.  Perhaps the circuit split may at some point be addressed by the Supreme Court.