When the Same Words Mean Different Things: Varjabedian v. Emulex Corp., and the Requirements of Section 14(e) of the Exchange Act

Abstract

On April 20, 2018, in Varjabedian v. Emulex Corp., the United States Court of Appeals for the Ninth Circuit held that Section 14(e) of the Securities Exchange Act of 1934 requires only a showing of negligence, not scienter, to establish a violation. The Ninth Circuit derived that requirement from the fact that Section 14(e) resembles Section 17(a)(2) of the Securities Act of 1933. In reaching this conclusion, the Ninth Circuit split with all the other courts to consider this question. The Second, Third, Fifth, Sixth, and Eleventh Circuits had previously held that Section 14(e) shares more similarities with Rule 10b-5, itself promulgated under Section 10(b) of the Exchange Act. Under that line of reasoning, because Rule 10b-5 actions have a scienter requirement, so too do Section 14(e) actions. This Comment argues that the majority view, that Section 14(e) more closely resembles Rule 10b-5 and thus requires a showing of scienter, not mere negligence, is correct.