FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GARY VARJABEDIAN,

Plaintiff-Appellant,

v.

EMULEX CORPORATION; BRUCE C.

EDWARDS; JEFFREY W. BENCK;

GREGORY S. CLARK; GARY J.

DAICHENDT; PAUL F. FOLINO;

BEATRIZ V. INFANTE; JOHN A.

KELLEY; RAHUL N. MERCHANT;

NERSI NAZARI; DEAN A. YOOST;

AVAGO TECHNOLOGIES WIRELESS 

(USA) MANUFACTURING, INC.;

EMERALD MERGER SUB, INC.,

Defendants-Appellees.

No. 16-55088

D.C. No.

8:15-cv-00554-

CJC-JCG

OPINION

Appeal from the United States District Court

for the Central District of California

Cormac J. Carney, District Judge, Presiding

Argued and Submitted October 5, 2017

Pasadena, California

Filed April 20, 2018

Before: Susan P. Graber, Mary H. Murguia,

and Morgan Christen, Circuit Judges.
2 VARJABEDIAN V. EMULEX

Opinion by Judge Murguia;

Concurrence by Judge Christen

SUMMARY*

Securities

The panel affirmed in part and reversed in part the 

district court’s dismissal of a putative securities class action 

complaint arising from a corporate merger.

Reversing in part, and disagreeing with five other 

circuits, the panel held that intervening guidance from the 

Supreme Court compelled the conclusion that claims under 

Section 14(e) of the Securities Exchange Act of 1934, 15 

U.S.C. § 78n(e), require a showing of negligence, rather than 

scienter.

The panel affirmed the district court’s (1) conclusion that 

Section 14(d)(4) of the Exchange Act does not create a 

private right of action for shareholders confronted with a 

tender offer and (2) dismissal of the complaint as to one 

defendant because it was not a proper defendant.

Because plaintiff’s Section 14(e) claim survived, his 

claim under Section 20(a) of the Exchange Act also 

remained. The panel remanded for the district court to 

reconsider defendants’ motion to dismiss under a negligence 

standard.

 * This summary constitutes no part of the opinion of the court. It 

has been prepared by court staff for the convenience of the reader.
VARJABEDIAN V. EMULEX 3

Concurring, Judge Christen wrote that she fully 

concurred in the panel’s decision. She wrote separately to 

explain why the Supreme Court’s holdings in Ernst & Ersnt 

v. Hochfelder, 425 U.S. 185 (1976), and Aaron v. Sec. & 

Exchange Comm’n, 446 U.S. 680 (1980), persuaded her to 

depart from other circuits’ interpretation of Section 14(e).

COUNSEL

Juan E. Monteverde (argued), Monteverde & Associates PC,

New York, New York; Barbara A. Rohr, Faruqi & Faruqi 

LLP, Los Angeles, California; for Plaintiff-Appellant.

Eric N. Landau (argued), and Travis Biffar, Jones Day, 

Irvine, California; Erica L. Reilley, Jones Day, Los Angeles, 

California; for Defendants-Appellees Emulex Corporation, 

Bruce C. Edwards, Jeffrey W. Benck, Gregory S. Clark, 

Gary J. Daichendt, Paul F. Folino, Beatriz V. Infante, John 

A. Kelley, Rahul N. Merchant, Nersi Nazari, and Dean A. 

Yoost.

Matthew Rawlinson (argued) and Hilary Mattis, Latham & 

Watkins LLP, Menlo Park, California; for DefendantsAppellees Avago Technologies Wireless (USA) 

Manufacturing, Inc.; Emerald Merger Sub, Inc.
4 VARJABEDIAN V. EMULEX

OPINION

MURGUIA, Circuit Judge:

Plaintiff-Appellant Jerry Mutza1 (“Plaintiff”) appeals the 

district court’s dismissal of his putative securities class 

action complaint, brought on behalf of former Emulex 

Corporation shareholders. The district court dismissed 

Plaintiff’s complaint because he failed to plead a strong 

inference of scienter for Defendants’ alleged violations of 

Section 14(e) of the Securities Exchange Act of 1934, 

15 U.S.C. § 78n(e) (“Exchange Act”). In so concluding, the 

district court followed out-of-circuit authorities holding that 

Section 14(e) claims require proof of scienter. The district 

court noted, however, that the Ninth Circuit had yet to decide 

whether Section 14(e) claims require plaintiffs to plead that 

defendants acted with scienter. We now hold that Section 

14(e) of the Exchange Act requires a showing of negligence, 

not scienter. Accordingly, we reverse the dismissal of the 

complaint and remand the case to the district court for it to 

reconsider Defendants’ motion to dismiss under a 

negligence standard.

Moreover, because Plaintiff’s Section 14(e) claim 

survives, his claim under Section 20(a) of the Exchange Act 

also remains. Further, for the reasons detailed below, we 

affirm the district court’s (1) conclusion that Section 

 1 Although Gary Varjabedian filed the initial complaint and the 

notice of appeal, the district court appointed Jerry Mutza as Lead 

Plaintiff in this case. Indeed, both Plaintiff-Appellant’s opening brief and 

the answering brief identify Jerry Mutza as the court-appointed Lead 

Plaintiff in this action. The case caption, however, reflects Varjabedian 

as Plaintiff. There is no material difference between Mutza and 

Varjabedian for purposes of this appeal, as they both represent the same 

class of Emulex shareholders and are represented by the same counsel.
VARJABEDIAN V. EMULEX 5

14(d)(4) of the Exchange Act does not create a private right 

of action and (2) dismissal of the complaint as to Emerald 

Merger Sub, Inc. because it is not a proper defendant.

I. BACKGROUND

This case centers on the merger between Emulex Corp. 

(“Emulex”) and Avago Technologies Wireless 

Manufacturing, Inc. (“Avago”). Emulex was a Delawareincorporated technology company that sold storage adapters, 

network interface cards, and other products. On February 25, 

2015, Emulex and Avago issued a joint press release 

announcing that they had entered into a merger agreement, 

with Avago offering to pay $8.00 for every share of 

outstanding Emulex stock. The $8.00 price reflected a 

premium of 26.4% on Emulex’s stock price the day before 

the merger was announced.

Pursuant to the terms of the announced merger 

agreement, a subsidiary of Avago, Emerald Merger Sub, Inc. 

(“Merger Sub”), initiated a tender offer for Emulex’s 

outstanding stock on April 7, 2015. A tender offer is a 

technique whereby the offeror, Avago, seeks to obtain 

control of a target corporation, here Emulex, by publicly 

offering to purchase a specified amount of the target 

company’s stock. See Arthur Fleisher, Jr. & Robert H. 

Mundheim, Corporate Acquisition by Tender Offer, 115 U. 

Pa. L. Rev. 317, 317 (1967). The offeror requests the 

stockholders of the target corporation “tender” their shares, 

at a fixed price, customarily in excess of the current market 

value, in order to gain control of the target company. Id.; see 

also Piper v. Chris-Craft Indus., Inc., 430 U.S. 1, 22 (1977). 

When a tender offer is made, the target company often issues 

a statement to its shareholders recommending that they 

either accept or reject the tender offer. Emulex decided to 

issue such a statement but, before doing so, hired Goldman 
6 VARJABEDIAN V. EMULEX

Sachs to determine whether the proposed merger agreement 

would be fair to shareholders. Goldman Sachs determined 

that the agreement would be fair to shareholders and 

provided Emulex with financial analyses supporting 

Goldman Sachs’s position. Based in part on Goldman 

Sachs’s opinion, Emulex filed a 48-page Recommendation 

Statement with the Securities and Exchange Commission 

(“SEC”) pursuant to 17 C.F.R. § 240.14d-101 Schedule 

14D-9.

The Recommendation Statement supported the tender 

offer and recommended that shareholders tender their shares. 

It listed nine reasons for the recommendation: (1) the value 

shareholders would receive in the merger “was greater than 

could be reasonably expected” in the future if they continued 

to hold Emulex stock; (2) other available alternatives and 

transactions were less favorable; (3) Emulex shareholders 

would receive a premium on their stock; (4) Goldman Sachs 

found that the merger was fair; (5) the cash consideration 

shareholders would receive was certain; (6) the agreement 

provided that Emulex could back out if it received a better 

offer before closing; (7) the agreement permitted Emulex to 

modify its recommendation; (8) a termination fee built into 

the merger agreement would not preclude subsequent thirdparty offers for Emulex; and (9) closing conditions were 

appropriate.

The Recommendation Statement in support of the tender 

offer also included a summary of Goldman Sachs’s fairness 

opinion. The summary describes in some detail the processes 

Goldman Sachs followed when rendering its opinion. The 

Recommendation Statement also highlights four particular 

financial analyses—the Historical Stock Trading Analysis, 

the Selected Companies Analysis, the Illustrative Present 

Value of Future Share Price Analysis, and the Illustrative 
VARJABEDIAN V. EMULEX 7

Discounted Cash Flow Analysis—that supported Goldman 

Sachs’s fairness opinion. These analyses looked at different 

metrics of Emulex’s past, present, and expected financial 

performance to help Goldman Sachs develop its fairness 

opinion.

Goldman Sachs also produced a one-page chart titled 

“Selected Semiconductor Transactions,” alternatively 

referred to as the “Premium Analysis.” The Premium 

Analysis selected certain transactions in the industry that 

Goldman Sachs deemed most similar to the proposed merger 

between Avago and Emulex, and reviewed the respective 

premiums stockholders received in those transactions. 

Altogether, the Premium Analysis collected seventeen 

transactions involving a semiconductor company between 

2010 and 2014. Emulex’s 26.4% premium fell within the 

normal range of semiconductor merger premiums listed in 

the Premium Analysis, but it was below average. Goldman 

Sachs opined that the merger was fair despite a belowaverage premium, and Emulex elected not to summarize the 

one-page Premium Analysis in the Recommendation 

Statement. Enough Emulex shareholders ultimately 

accepted the tender offer to consummate the merger. On 

May 5, 2015, Merger Sub merged into Emulex, with Emulex 

surviving as a wholly-owned subsidiary of Avago.

Not all the shareholders, however, were happy with the 

merger’s terms. Some believed the $8.00-per-share price 

offered was inadequate given Emulex’s significant growth 

leading up to the tender offer and the company’s prospects 

for future growth. This class of shareholders, who claimed 

they were misled by Emulex, Avago, Merger Sub, and the 

Emulex Board of Directors (collectively, “Defendants”) into 

believing that the merger was better than it actually was, 

brought a lawsuit against Defendants. The district court 
8 VARJABEDIAN V. EMULEX

eventually named Mutza Lead Plaintiff. Plaintiff alleges that 

Defendants violated federal securities laws, specifically 

Section 14(e) of the Exchange Act, by failing to summarize 

the Premium Analysis in the Recommendation Statement, 

which would have disclosed that the 26.4% premium was 

below average compared to similar mergers. Plaintiff also 

sought to hold the directors of Emulex vicariously liable as 

“controlling persons” under Section 20(a) of the Exchange 

Act.

The district court dismissed the complaint with 

prejudice. In deciding to do so, the district court concluded 

that Section 14(e) requires a showing of scienter and that 

Plaintiff failed to plead scienter. Next, the district court 

rejected Plaintiff’s separate claim under Section 14(d), 

concluding that Section 14(d)(4) does not establish a private 

right of action for shareholders confronted with a tender 

offer. Finally, the court dismissed the Section 20(a) claim 

because Plaintiff did not adequately plead a claim under 

Section 14(d) or (e).2 Plaintiff timely appeals.

II. STANDARD OF REVIEW

We review de novo a district court’s decision to grant a 

motion to dismiss under Federal Rule of Civil Procedure 

12(b)(6). Knievel v. ESPN, 393 F.3d 1068, 1072 (9th Cir. 

2005). We also review de novo questions of statutory 

interpretation. Millard v. United Student Aid Funds, Inc., 

66 F.3d 252, 253 (9th Cir. 1995). Because Plaintiff argues 

 2 Claims under Section 20(a) necessarily rise and fall with the other 

securities claims. To prevail on a Section 20(a) claim, “a plaintiff must 

first prove a primary violation of underlying federal securities laws, such 

as Section [14(e)], and then show that the defendant exercised actual 

power over the primary violator.” In re NVIDIA Corp. Sec. Litig., 

768 F.3d 1046, 1052 (9th Cir. 2014).
VARJABEDIAN V. EMULEX 9

that Section 14(e) of the Exchange Act requires Plaintiff to 

show Defendants were negligent by not including the 

Premium Analysis in the Recommendation Statement—not 

that Defendants intentionally excluded the Premium 

Analysis to mislead shareholders—this case requires us to 

interpret Section 14(e).

III. DISCUSSION

A. Section 14(e) Claim

1. Federal Securities Law Background

The Exchange Act of 1934, codified at 15 U.S.C. 

§§ 78a–78qq, is one of two major federal securities statutes 

Congress enacted in the wake of the Great Depression. The 

other statute is the Securities Act of 1933, 15 U.S.C. §§ 77a–

77aa. The Exchange Act and the Securities Act of 1933 

differ in purpose and scope. “The general purpose of the 

Securities Act [of 1933] is to regulate the initial distribution 

of securities by issuers to public investors. . . . The Exchange 

Act [of 1934] provides for the regulation of the securities

exchange markets and the operations of the corporations 

listed on the various national securities exchanges.” 

Elisabeth Keller & Gregory A. Gehlmann, Introductory 

Comment: A Historical Introduction to the Securities Act of 

1933 and the Securities Exchange Act of 1934, 49 Ohio St. 

L.J. 329, 330 (1988). In other words, the Securities Act of 

1933 governs initial public offerings (“IPOs”) while the 

Exchange Act, at issue here, regulates all subsequent 

securities transactions (e.g., sales on the open market, proxy

solicitations, tender offers).

Section 14(e) was not part of the original Exchange Act 

enacted in 1934. Rather, Congress added Section 14(e) as an 

amendment to the Securities Exchange Act as part of the 
10 VARJABEDIAN V. EMULEX

Williams Act. Schreiber v. Burlington N., Inc., 472 U.S. 1, 8 

(1985). The purpose of Section 14(e) is to regulate the 

conduct of a broad range of people who could influence the 

outcome of a tender offer. Piper, 430 U.S. at 24. To that end, 

Section 14(e) “was expressly directed at the conduct of a 

broad range of persons, including those engaged in making 

or opposing tender offers or otherwise seeking to influence 

the decision of investors or the outcome of the tender offer.” 

Id.

2. Whether Section 14(e) requires Plaintiff to 

show Defendants knew their actions were 

wrong or only that they were negligent.

The main question here is whether Section 14(e) requires 

proof of scienter, as the district court held, or mere 

negligence. “Statutory interpretation begins with the plain 

language of the statute.” United States v. Johnson, 680 F.3d 

1140, 1144 (9th Cir. 2012) (internal quotation marks 

omitted). A plain reading of Section 14(e) readily divides the 

section into two clauses, each proscribing different conduct:

It shall be unlawful for any person [1] to 

make any untrue statement of a material fact 

or omit to state any material fact necessary in 

order to make the statements made, in the 

light of the circumstances under which they 

are made, not misleading, or [2] to engage in 

any fraudulent, deceptive, or manipulative 

acts or practices, in connection with any 

tender offer . . . .

15 U.S.C. § 78n(e) (emphasis added). The use of the word 

“or” separating the two clauses in Section 14(e) shows that 

there are two different offenses that the statute proscribes; to 

construe the statute otherwise would render it “hopelessly 
VARJABEDIAN V. EMULEX 11

redundant” and would mean “one or the other phrase is 

surplusage.” Hart v. McLucas, 535 F.2d 516, 519 (9th Cir. 

1976).

In concluding that claims under Section 14(e) require 

allegations of scienter, the district court stated: “Considering 

the wealth of persuasive case law to the contrary, the Court 

concludes that the better view is that the similarities between 

Rule 10b-5 and § 14(e) require a plaintiff bringing a cause 

of action under § 14(e) to allege scienter.” 3 The district court 

relied on decisions from five other circuits holding that 

Section 14(e) claims require alleging scienter. See, e.g.,

Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU 

Corp., 565 F.3d 200, 207 (5th Cir. 2009); In re Digital Island 

Sec. Litig., 357 F.3d 322, 328 (3d Cir. 2004); SEC v. 

Ginsburg, 362 F.3d 1292, 1297 (11th Cir. 2004); Conn. Nat’l 

Bank v. Fluor Corp., 808 F.2d 957, 961 (2d Cir. 1987); 

Adams v. Standard Knitting Mills, Inc., 623 F.2d 422, 431 

(6th Cir. 1980). However, we are persuaded that the rationale 

underpinning those decisions does not apply to Section 14(e) 

of the Exchange Act. At their core, the decisions from these 

five circuits rest on the shared text found in both Rule 10b-5 

and Section 14(e). Yet important distinctions exist between 

Rule 10b-5 and Section 14(e)—distinctions that strongly 

militate against importing the scienter requirement from the 

context of Rule 10b-5 to Section 14(e).

 3 Rule 10b-5 is an SEC regulation promulgated under Section 10(b) 

of the Exchange Act. See Zucco Partners, LLC v. Digimarc Corp., 

552 F.3d 981, 889–990 (9th Cir. 2009). The rule provides that “‘[i]t shall 

be unlawful for any person . . . [t]o engage in any act, practice, or course 

of business which operates or would operate as a fraud or deceit upon 

any person, in connection with the purchase or sale of any security.’” Id. 

(citing 17 C.F.R. § 240.10b-5(c)).
12 VARJABEDIAN V. EMULEX

The first of the other circuits’ decisions came in 1973, a 

few years after Section 14(e) was enacted, when the Second 

Circuit held that Section 14(e) requires a showing of 

scienter: “[W]e shall follow the principles developed under 

Rule 10b-5 regarding the elements of [Section 14(e)] 

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

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

One year after Chris-Craft, the Fifth Circuit followed 

suit and held, “[w]e are in accord with the Second Circuit 

that the same elements must be proved to establish a 

violation of either [Section 14(e)] or [Rule 10b-5].” 

Smallwood v. Pearl Brewing Co., 489 F.2d 579, 605 (5th Cir. 

1974) (citing Chris-Craft, 480 F.2d at 362). Those two 

circuits arrived at the conclusion that Rule 10b-5 required a 

showing of scienter.

Then, in 1976, the Supreme Court in Ernst & Ernst v. 

Hochfelder, 425 U.S. 185, 193 (1976), held that claims under 

Section 10(b) of the Exchange Act and Rule 10b-5 must 

allege scienter. Importantly, as it relates to this case, the 

Supreme Court’s reasoning in reaching that decision casts 

doubt on the rationale of Chris-Craft and Smallwood. The 

Court in Ernst & Ernst began with the text of Rule 10b-5(b), 

which states: “It shall be unlawful . . . [t]o make any untrue 

statement of a material fact or omit to state any material fact 

. . . .” Ernst & Ernst, 425 U.S. at 195–96. Addressing that 

phrase, the Court noted, “[v]iewed in isolation the language 

of [Rule 10b-5(b)] . . . could be read as proscribing, 

respectively, any type of material misstatement or omission 

. . . whether the wrongdoing was intentional or not.” Ernst 

& Ernst, 425 U.S. at 212 (emphases added). In other words, 

the Court acknowledged that the wording of Rule 10b-5(b) 

could reasonably be read as imposing a scienter or a 

negligence standard. This means that Rule 10b-5(b)’s text, 
VARJABEDIAN V. EMULEX 13

and by extension the identical phrasing in the first clause of 

Section 14(e), did not necessarily compel finding a scienter 

requirement. Compare 17 C.F.R. § 240.10b-5(b), with 

15 U.S.C. § 78n(e).

The Court in Ernst & Ernst nevertheless went on to 

conclude that Rule 10b-5(b) requires a showing of scienter 

because of the relationship between Rule 10b-5 and its 

authorizing legislation, Section 10(b) of the Exchange Act. 

Significantly, the Court’s conclusion that scienter is an

element of Rule 10b-5(b) had nothing to do with the text of 

Rule 10b-5. As the Court explained:

Rule 10b-5 was adopted pursuant to authority 

grand [sic] the [SEC] under § 10(b) . . . . [The 

scope of Rule 10b-5] cannot exceed the 

power granted the [SEC] by Congress under 

§ 10(b). . . . [W]e think the [SEC’s] original 

interpretation of Rule 10b-5 was compelled 

by the language and history of § 10(b) . . . .

When a statute speaks so specifically in terms 

of manipulation and deception, and of 

implementing devices and contrivances—the 

commonly understood terminology of 

intentional wrongdoing—and when its 

history reflects no more expansive intent, we 

are quite unwilling to extend the scope of the 

statute to negligent conduct.

Ernst & Ernst, 425 U.S. at 212–14 (emphasis added). Put 

simply, Rule 10b-5 requires a showing of scienter because it 

is a regulation promulgated under Section 10(b) of the 

Exchange Act, which allows the SEC to regulate only

“manipulative or deceptive device[s].” 15 U.S.C. § 78j(b). 
14 VARJABEDIAN V. EMULEX

This rationale regarding Rule 10b-5 does not apply to 

Section 14(e), which is a statute, not an SEC Rule.

Later in 1980, the Supreme Court provided useful 

guidance for interpreting the first clause of Section 14(e) of 

the Exchange Act in Aaron v. SEC, 446 U.S. 680 (1980). The 

securities provision at issue in Aaron—Section 17(a)(2) of 

the Securities Act of 1933—and the first clause of Section 

14(e), contain nearly identical wording. Both sections 

prohibit “any untrue statement of a material fact or any 

omission to state a material fact necessary in order to make 

the statements made . . . not misleading.”4 Compare 

15 U.S.C. § 77q(a)(2), with 15 U.S.C. § 78n(e). Importantly, 

the Court in Aaron held that Section 17(a)(2) does not 

require a showing of scienter. Aaron, 446 U.S. at 696–97.

Although Section 17(a)(2) appears in the Securities Act 

of 1933, while Section 14(e) appears in the Exchange Act, 

“statutes dealing with similar subjects should be interpreted 

harmoniously.” Jonah R. v. Carmona, 446 F.3d 1000, 1007 

(9th Cir. 2006) (quoting Jett v. Dallas Indep. Sch. Dist., 491 

U.S. 701, 738–39 (1989) (Scalia, J., concurring)). Beyond 

their nearly identical text, Section 14(e) and Section 17(a) 

serve similar purposes. Both provisions govern disclosures 

and statements made in connection with an offer of 

securities, albeit in different contexts: Section 17(a) applies 

 4 Section 17(a)(2) contains additional language that is missing from 

the first clause of Section 14(e). Specifically, the phrase “to obtain 

money or property by means of,” appears in Section 17(a)(2) but not in 

Section 14(e). This phrase did not factor into the Supreme Court’s 

analysis, and there is no meaningful discussion of the significance of 

these words in Aaron. Instead, the words that were outcome 

determinative are the same words appearing in both provisions: “by 

means of any untrue statement of a material fact or any omission to state 

a material fact.” Aaron, 446 U.S at 696.
VARJABEDIAN V. EMULEX 15

to initial public offerings while Section 14(e) applies to 

tender offers. Chris-Craft, 480 F.2d at 359 (“The Williams 

Act of 1968, of which § 14(e) is a part, was enacted to . . .

require tender offer disclosures similar to those required for 

issuance of new securities.” (emphasis added)).

Accordingly, both Ernst & Ernst and Aaron cast doubt 

on the underlying rationale of Chris-Craft and Smallwood. 

Ernst & Ernst provides that the scienter requirement is 

rooted not in the text of Rule 10b-5, but rather in the 

relationship between Rule 10b-5 and its authorizing 

legislation. Ernst & Ernst, 425 U.S. at 212–14. Aaron took 

a further step by holding that the plain language of Section 

17(a)(2), which is largely identical to the first clause of 

Section 14(e), requires a showing of negligence, not scienter. 

Aaron, 446 U.S. at 696–97. In so doing, Aaron rejected the 

Second Circuit’s rationale for holding that a negligence 

standard does not apply to claims under Section 17(a).5

Despite the Supreme Court’s decisions in Ernst & Ernst

and Aaron, circuit courts have continued to adopt the 

reasoning in Chris-Craft and Smallwood. For instance, in 

1987, the Second Circuit cited Chris-Craft, holding that “[i]t 

is well settled in this Circuit that scienter is a necessary 

element of a claim for damages under § 14(e) of the 

Williams Act.” Conn. Nat’l Bank, 808 F.2d at 961. Likewise, 

as recently as 2009, the Fifth Circuit cited Smallwood for the 

proposition that “[t]he elements of a claim under Section 

14(e), which applies to tender offers, are identical to the 

 5 In Chris-Craft, the Second Circuit rejected the argument that 

Section 17(a) imposes a mere negligence standard. 480 F.2d at 363 (“We 

have indicated, however, that mere negligent conduct is not sufficient to 

permit plaintiffs to recover damages in a private action under § 17(a) or 

§ 10(b).” (internal quotation marks omitted)).
16 VARJABEDIAN V. EMULEX

Section 10(b)/Rule 10b-5 elements.” Flaherty, 565 F.3d at 

207. Similarly, in 2004, the Third Circuit cited Smallwood

and held, “[w]e therefore join those circuits that hold that 

scienter is an element of a Section 14(e) claim.” Digital 

Island, 357 F.3d at 328.

The two other circuits to reach this conclusion also do 

not account for the distinction between Rule 10b-5 and 

Section 14(e). The Sixth Circuit, for instance, concluded that 

Section 14(e) requires scienter because “Congress used the 

words ‘fraudulent,’ ‘deceptive,’ and ‘manipulative.’” 

Adams, 623 F.2d at 431. The Sixth Circuit does not appear 

to have considered that the first clause of Section 14(e) does 

not contain any of those words. In fact, the Adams decision 

predated the Aaron decision by a month, so the Sixth Circuit 

did not have the benefit of the Supreme Court’s decision in 

Aaron holding that the language of Section 17(a)(2), and by 

extension the language of the first clause of Section 14(e), 

requires only a showing of negligence.

Lastly, the Eleventh Circuit appears to have concluded, 

for the first time in 2004, that Section 14(e) requires scienter, 

but it seems to have relied on the common wording in Rule 

10b-5 and Section 14(e). See Ginsburg, 362 F.3d. at 1297–

98. Although the court cited to SEC v. Adler, 137 F.3d 1325, 

1340 (11th Cir. 1998), to support the proposition that Section 

14(e) claims require a showing of scienter, Adler does not 

analyze or discuss Section 14(e). Accordingly, it seems that 

Ginsburg too relied on the common wording of Rule 10b-5 

and Section 14(e) for its holding that Section 14(e) claims 

require scienter. With the benefit of Ernst & Ernst and 

Aaron, the most compelling argument is that the first clause 

of Section 14(e) requires a showing of negligence, not 

scienter.
VARJABEDIAN V. EMULEX 17

Moreover, Section 14(e) differs fundamentally from 

Section 10(b) because, under Section 14(e), the SEC is 

authorized to regulate a broader array of conduct than under 

Section 10(b). “[U]nder § 14(e), the [SEC] may prohibit acts 

not themselves fraudulent under the common law or § 10(b), 

if the prohibition is ‘reasonably designed to prevent . . . acts 

and practices [that] are fraudulent.’” United States v. 

O’Hagan, 521 U.S. 642, 673 (1997) (alterations in original) 

(quoting 15 U.S.C. § 78n(e)). “This authority derives from 

the prophylactic rule-making power granted to the SEC by 

Section 14(e), a power that has no parallel in Section 10(b).” 

Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1005 (9th 

Cir. 2002) (emphasis added). If the SEC can prohibit “acts 

themselves not fraudulent” under Section 14(e), then it 

would be somewhat inconsistent to conclude that Section 

14(e) itself reaches only fraudulent conduct requiring 

scienter.

The conclusion that Section 14(e) requires a showing of 

negligence, as opposed to scienter, also finds some support 

in the legislative history and purpose of the Williams Act. 

The Senate Report that accompanied Section 14(e) states: 

“This provision would affirm the fact that persons engaged 

in making or opposing tender offers or otherwise seeking to 

influence the decision of investors or the outcome of the 

tender offer are under an obligation to make full disclosure 

of material information to those with whom they deal.” S. 

Rep. No. 510, 90th Cong., 2d Sess. (1968). Moreover, the 

Supreme Court has noted, “[t]he purpose of the Williams Act 

is 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.” Rondeau v. Mosinee 

Paper Corp., 422 U.S. 49, 58 (1975). The legislative history 

suggests that the Williams Act places more emphasis on the 

quality of information shareholders receive in a tender offer 
18 VARJABEDIAN V. EMULEX

than on the state of mind harbored by those issuing a tender 

offer. Such a purpose supports a negligence standard.

Ultimately, because the text of the first clause of Section 

14(e) is devoid of any suggestion that scienter is required, 

we conclude that the first clause of Section 14(e) requires a 

showing of only negligence, not scienter.

B. Omission of a material fact

The district court did not reach the question whether 

omitting the Premium Analysis—a one-page chart 

containing seventeen transactions involving semiconductor 

companies—from the Recommendation Statement 

constitutes omission of a material fact in the context of the 

entire transaction, and we will not reach the question. 

Although it is difficult to show that this omitted information 

was indeed material, we remand for the district court to 

consider the question in the first instance. See Zucco 

Partners, 552 F.3d at 991 (“[T]he plaintiff must plead a 

highly unreasonable omission, involving not merely simple, 

or even inexcusable negligence, but an extreme departure 

from the standards of ordinary care, and which presents a 

danger of misleading buyers or sellers that is either known 

to the defendant or is so obvious that the actor must have 

been aware of it.” (internal quotation marks omitted)).

C. Section 14(d)(4) claim

The parties contest whether Section 14(d)(4) of the 

Exchange Act provides an implied right of action. The 

statute provides that “[a]ny solicitation or recommendation 

to the holders of . . . a security to accept or reject a tender 

offer . . . shall be made in accordance with [SEC] rules and 

regulations.” 15 U.S.C. § 78n(d)(4). One such regulation, 

Rule 14d-9, states that a recommendation statement must 
VARJABEDIAN V. EMULEX 19

include “information required by Items 1 through 8 of 

Schedule 14D-9 or a fair and adequate summary thereof.” 

17 C.F.R. § 240.14d-9(d). In addition, Item 8 on Schedule 

14D-9 requires a company’s directors to furnish 

“information, if any, as may be necessary to make the 

required statements, in light of the circumstances under 

which they are made, not materially misleading.” 17 C.F.R. 

§ 240.14d-101; 17 C.F.R. § 229.1011(c). Simply put, 

Section 14(d)(4) imposes an obligation on a company’s 

directors to provide material information if such information 

is necessary to ensure that other required disclosures are not 

materially misleading.

The test for determining whether a federal statute creates 

an implied right of action was set forth in Cort v. Ash and 

entails four questions:

First, is the plaintiff one of the class for 

whose especial benefit the statute was 

enacted—that is, does the statute create a 

federal right in favor of the plaintiff? Second, 

is there any indication of legislative intent, 

explicit or implicit, either to create such a 

remedy or to deny one? Third, is it consistent 

with the underlying purposes of the 

legislative scheme to imply such a remedy for 

the plaintiff? And finally, is the cause of 

action one traditionally relegated to state law

. . . ?

422 U.S. 66, 78 (1975) (citations and internal quotation 

marks omitted). The fourth factor—the relationship with 

state law—is not relevant here. After analyzing this claim 

under the Cort factors, the district court concluded that 
20 VARJABEDIAN V. EMULEX

Section 14(d)(4) does not create a private right of action and 

dismissed this claim.

After reviewing the factors outlined in Cort, we agree 

with the district court. The first factor weighs against finding 

an implied right of action because the statute’s focus is on 

the person regulated, those who issue “[a]ny solicitation or 

recommendation to . . . accept or reject a tender offer.” 

15 U.S.C. § 78n(d)(4); Alexander v. Sandoval, 532 U.S. 275, 

289 (2001) (“Statutes that focus on the person regulated 

rather than the individuals protected create no implication of 

an intent to confer rights on a particular class of persons.” 

(internal quotation marks omitted)).

Next, considering the second factor, there is no 

indication of any legislative intent to provide for a private 

right of action. Section 14(d)(4) is a generic statute simply 

requiring that recommendation statements abide by the 

SEC’s rules.

Finally, turning to the third factor, it would 

be inconsistent with the legislative scheme of 

the Williams Act to imply a remedy under 

Section 14(d)(4). It is undisputed that Section 

14(e) provides for a private right of action to 

challenge alleged misrepresentations or 

omissions in connection with a tender offer. 

The question, then, is whether Congress 

intended to imply a private right of action 

under Section 14(d)(4) as an alternative to 

Section 14(e). However, holding that Section 

14(d)(4) provides an implied right of action 

would be redundant and potentially cause 

tension with Section 14(e).
VARJABEDIAN V. EMULEX 21

Accordingly, we affirm the district court’s conclusion that 

Section 14(d)(4) does not create an implied right of action.

D. Section 20(a) claim

As stated above, claims under Section 20(a) of the 

Exchange Act necessarily depend on Plaintiff’s Section 

14(d)(4) and (e) claims. In re NVIDIA Corp. Sec. Litig., 

768 F.3d 1046, 1052 (9th Cir. 2014). Because Plaintiff’s 

Section 14(d)(4) claim fails, but Plaintiff’s Section 14(e) 

claim remains, the Section 20(a) claim also survives for the 

district court to consider on remand.

E. Merger Sub Defendant

Finally, we affirm the district court’s dismissal of 

Merger Sub as a Defendant in this case. The Federal Rules 

of Civil Procedure are clear that a corporation’s capacity to 

be sued is determined “by the law under which it was 

organized.” Fed. R. Civ. P. 17(b)(2). As a Delaware 

corporation, Merger Sub Corporation ceased to exist after 

the merger was consummated, and its rights and liabilities 

now belong to the surviving corporation, Emulex. See 8 Del. 

C. § 259.

IV. CONCLUSION

We are aware that our holding today parts ways from our 

colleagues in five other circuits. However, for the reasons 

discussed above, we are persuaded that intervening guidance 

from the Supreme Court compels the conclusion that Section 

14(e) of the Exchange Act imposes a negligence standard. 

Accordingly, we REVERSE the district court’s decision as 

to the Section 14(e) claim because the district court 

employed a scienter standard in analyzing the Section 14(e) 

claim. We also REMAND for the district court to reconsider 
22 VARJABEDIAN V. EMULEX

Defendant’s motion to dismiss under a negligence standard. 

On remand, the district court shall also consider whether the 

Premium Analysis was material, an argument that 

Defendants raised but that the district court did not reach. In 

addition, the district court shall consider Plaintiff’s Section 

20(a) claim since the Section 14(e) claim survives. We also 

AFFIRM the district court’s conclusion that Section 

14(d)(4) does not create an implied right of action. Finally, 

we AFFIRM the district court’s dismissal of Merger Sub 

because it is not a proper Defendant.

AFFIRMED in part, REVERSED in part, and 

REMANDED. The parties shall bear their own costs on 

appeal.

CHRISTEN, Circuit Judge, concurring:

I fully concur in today’s decision and write separately 

only to explain why Supreme Court case law persuades me 

to depart from the interpretations of § 14(e) announced by 

several other circuits. By my read, in considering what 

degree of culpability § 14(e) requires, these courts have not 

addressed the ramifications of the Supreme Court’s holdings 

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

Aaron v. Securities & Exchange Commission, 446 U.S. 680 

(1980). I conclude that the decision we reach today is a 

faithful application of these Supreme Court cases.

The Second Circuit was among the first to consider the 

showing required to establish a § 14(e) violation. In ChrisCraft Industries, Inc. v. Piper Aircraft Corp., 480 F.2d 341 

(2d Cir. 1973), the court observed that the language of 
VARJABEDIAN V. EMULEX 23

§ 14(e) is virtually identical to that of Rule 10b-5.1 Id. at 

362. The court reasoned that § 14(e) must therefore require 

scienter, the same degree of culpability required by Rule 

10b-5, citing its earlier decision in Securities and Exchange 

Commission v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d 

Cir. 1968). In that case, the Second Circuit reviewed other 

sections of the Securities Exchange Act of 1934, but not 

Rule 10b-5’s enabling statute. Id. at 854–55. A year later, 

the Fifth Circuit agreed with the Second Circuit’s ChrisCraft decision, that “the same elements must be proved to 

establish a violation of either Section [14(e)] or . . . Rule 

[10b-5].” Smallwood v. Pearl Brewing Co., 489 F.2d 579, 

605 (5th Cir. 1974) (citing Chris-Craft Indust., Inc., 

480 F.2d at 362).

In 1976, the Supreme Court also agreed that Rule 10b-5 

requires a showing of scienter, but it reached this conclusion 

for a different reason. Ernst & Ernst v. Hochfelder, 425 U.S. 

185 (1976). Ernst & Ernst observed that Rule 10b-5’s 

authorizing statute, § 10(b), prohibited “any manipulative or 

deceptive device or contrivance in contravention of such 

rules and regulations as the [Securities and Exchange 

Commission] may prescribe.” 425 U.S. at 187–88 

(emphasis added). Because this statutory language “strongly 

suggest[s]” that Congress intended § 10(b) to prohibit only 

knowing or intentional misconduct, id. at 197, the Court 

concluded that the scope of Rule 10b-5 cannot exceed the 

threshold Congress established when it adopted § 10(b). Id. 

 1 Both § 14(e) and Rule 10b-5 prohibit “mak[ing] any untrue 

statement of a material fact [or omitting to state a material fact] necessary 

in order to make the statements . . ., in the light of the circumstances 

under which they [were] made, not misleading.” Both § 14(e) and Rule 

10b-5 also prohibit fraudulent or intentionally deceptive acts. See

15 U.S.C. § 78n(e); 17 C.F.R. § 240.10b-5(a).
24 VARJABEDIAN V. EMULEX

at 214. Importantly, Ernst & Ernst expressly recognized that 

the language of Rule 10b-5, in isolation, “could be read as 

proscribing . . . any type of material misstatement or 

omission . . . that has the effect of defrauding investors, 

whether the wrongdoing was intentional or not.” Id. at 212 

(emphasis added). Nevertheless, the Court determined that 

the specific language of the authorizing statute necessarily 

cabins the sweep of the rule, so that a showing of scienter is

required to establish a violation of Rule 10b-5. Id. at 212–

14.

In 1980 the Supreme Court explained that Congress 

sometimes required different levels of culpability within a 

single securities statute. Aaron v. Securities & Exchange 

Commission addressed the level of culpability required by 

§ 17(a) of the Securities Act of 1933, a statutory provision 

containing language nearly identical to the statute at issue in 

this case, § 14(e). 446 U.S. 680, 682 (1980). Aaron 

examined the text of § 17(a) and noted that only § 17(a)(1) 

includes the terms “device,” “scheme,” and “artifice”:

It shall be unlawful for any person in the offer 

or sale of any securities . . . by the use of any 

means or instruments of transportation or 

communication in interstate commerce or by 

use of the mails, directly or indirectly

(1) to employ any device, scheme, or 

artifice to defraud, or

(2) to obtain money or property by means 

of any untrue statement of a material fact 

or any omission to state a material fact 

necessary in order to make the statements 

. . ., in light of the circumstances under 
VARJABEDIAN V. EMULEX 25

which they were made, not misleading 

. . . .

15 U.S.C. § 77q(a)(1)–(2) (emphasis added). Citing Ernst & 

Ernst, the Aaron Court explained that “device,” “scheme,” 

and “artifice” “all connote knowing or intentional practices,” 

in sharp contrast to the language of § 17(a)(2), “which 

prohibits any person from obtaining money or property ‘by 

means of any untrue statement [or omission] of a material 

fact.’” Aaron, 446 U.S. at 696. Because § 17(a)(2) is

“devoid of any suggestion whatsoever of a scienter 

requirement,” id., the Court held that § 17(a)(1) requires 

scienter, and that § 17(a)(2) does not. Id. at 697.

Ernst & Ernst and Aaron are both critical to the decision 

we issue today. Ernst & Ernst explains that where Congress 

prohibited “fraudulent” or “deceptive” practices—as in the 

second clause of § 14(e)—a heightened showing of 

culpability is required. Where Congress used language 

banning untrue statements of material fact (or the omission 

of a material fact necessary to make a statement not 

misleading), a lesser showing of culpability will suffice. 

With the holding of Ernst & Ernst in mind, the words 

Congress used in § 14(e) are illuminating:

It shall be unlawful for any person to make 

any untrue statement of a material fact or 

omit to state any material fact necessary in 

order to make the statements made, in the 

light of the circumstances under which they 

are made, not misleading, or to engage in any 

fraudulent, deceptive, or manipulative acts or 

practices, in connection with any tender offer 

or request or invitation for tenders, or any 

solicitation of security holders in opposition 
26 VARJABEDIAN V. EMULEX

to or in favor of any such offer, request, or 

invitation.

15 U.S.C. § 78n(e) (emphasis added). Only the second 

clause of § 14(e) contemplates a scienter requirement; 

Congress did not use the words signaling a heightened 

standard of culpability in the first clause of the statute.2

Aaron is important to today’s decision because it 

reminds us that when Congress uses a disjunctive, a single 

statutory provision can call for more than one level of 

scienter. The similarities between the statute discussed in 

Aaron, § 17(a), and the statute at issue here, § 14(e), are 

striking: both statutes include distinct clauses separated by a 

disjunctive “or,” with one clause containing terms that 

plainly proscribe more culpable conduct by using terms like 

“fraudulent,” “deceptive,” “device,” or “artifice.” And both 

statutes have a separate clause more expansively prohibiting 

“untrue statement[s] of a material fact.” See 15 U.S.C. 

§§ 77q(a), 78n(3). Because Aaron held that § 17(a)’s two 

clauses require different degrees of culpability, it strongly 

suggests the same is true of the two very different clauses in 

§ 14(e).

 2 This reading of § 14(e) is consistent with the Supreme Court’s 

separate instruction that the scope of conduct that may be regulated under 

§ 14(e) is broader than that under § 10(b). See United States v. O’Hagan, 

521 U.S. 642 (1997) (holding that under § 14(e), the SEC may prohibit 

“acts not themselves fraudulent under the common law or § 10(b), if the 

prohibition is reasonably designed to prevent acts and practices that are 

fraudulent” (internal quotation marks and alteration omitted)). Our 

court, too, has recognized that § 14(e) authorizes the SEC to promulgate 

rules “that prohibit acts not themselves fraudulent,” which is “a power 

that has no parallel in Section 10(b).” Brody v. Transitional Hospitals 

Corp., 280 F.3d 997, 1005 (9th Cir. 2002).
VARJABEDIAN V. EMULEX 27

Some circuits continue to rule that § 14(e) requires 

scienter in the wake of Ernst & Ernst and Aaron, but in 

doing so they have maintained their reliance on pre-Ernst & 

Ernst and pre-Aaron circuit case law. See Conn. Nat’l Bank

v. Fluor Corp., 808 F.2d 957, 961 (2d Cir. 1987) (citing 

Chris-Craft for the proposition that “[i]t is well settled in this 

Circuit that scienter is a necessary element of a claim for 

damages under § 14(e) of the Williams Act”); In re Digital 

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

Connecticut National Bank and Smallwood to hold “[w]e . . .

join those circuits that hold that scienter is an element of a 

Section 14(e) claim”); Flaherty & Crumrine Preferred 

Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 207 (5th Cir. 

2009) (citing Smallwood for the proposition that “[t]he 

elements of a claim under Section 14(e), which applies to 

tender offers, are identical to the Section 10(b)/Rule 10b-5 

elements”).

We cannot be sure how other circuits would rule were 

they to revisit § 14(e) in light of Ernst & Ernst and Aaron, 

but I question the continuing viability of the foundation for 

Chris-Craft and the cases that followed it.3 I am persuaded 

that the decision we issue today is most consistent with the 

Supreme Court’s decisions in Ernst & Ernst and Aaron.

 3 Chris-Craft held that § 14(e) requires scienter because the identical 

language in Rule 10b-5 requires scienter. Chris-Craft Indust., Inc., 

480 F.2d at 362. But the earlier case that Chris-Craft cited for the 

proposition that Rule 10b-5 requires more than negligence concluded 

that Rule 10b-5 regulates “a standard of conduct that encompasses 

negligence as well as active fraud.” Sec. and Exchange Comm’n v. Tex. 

Gulf Sulphur Co., 401 F.2d 833, 855 (2d Cir. 1968) (emphasis added).