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Sean Griffith on the evolution of merger litigation

Ann Lipton informs us that:

Sean Griffith recently wrote a book chapter explaining how plaintiffs’ merger-related challenges developed over time.  Plaintiffs began by seeking disclosure-only settlements, but after Trulia stamped out the practice in Delaware, plaintiffs began bringing claims in federal court challenging corporate proxies under Rule 14a-9.  And once they got there, they realized they did not have to limit themselves to merger litigation, and began bringing other kinds of proxy-related claims, and eventually these morphed into individual, rather than class, actions.

Ann goes on to ponder DGCL 220 books and records inspections in the M&A context.

Delaware's Latest Guidance on Material Adverse Change Clauses

From Fried Frank:

Channel Medsystems, Inc. v. Boston Scientific Corporation (Dec. 18, 2019) is the Delaware Court of Chancery’s first decision issued since the Delaware Supreme Court’s 2018 Akorn decision to evaluate whether an acquiror had a right, under a merger agreement, to terminate a pending acquisition on the grounds that there was a “Material Adverse Effect” or “Material Adverse Change” in the target company. (We use “MAE” and “MAC” interchangeably in this memorandum.) Akorn was the first case in which the Court of Chancery, post-trial, found the existence of an MAE and the first post-trial Delaware decision to find that an acquiror had the right to terminate a merger agreement based on an MAE. In Channel, by contrast, Chancellor Bouchard ruled, after trial, that there was not an MAE and that the acquiror was required to close the merger.

Both Akorn and Channel involved the discovery, between signing and closing of a merger agreement, that a target company executive, without knowledge of the target, had submitted fraudulent reports to the Food and Drug Administration relating to the company’s products (in Akorn, the target’s key products, and in Channel, the target’s sole product). In Akorn, there was a dramatic decline in the target company’s financial performance and a severe and “durationally significant” loss of its potential future earnings due to the regulatory noncompliance. In Channel, however, before the acquiror sought to terminate the transaction, the FDA had accepted the target’s remediation plan (which indicated that FDA approval of the target’s product was likely); the remediation plan did not appear to involve significant ongoing costs or other effects on the target; and, prior to trial, the FDA approved the product. The Chancellor held that the acquiror had failed to prove, on a quantitative or qualitative basis, that an MAE would be reasonably expected to occur, and thus it did not have a right to terminate the agreement.

Lots more very helpful analysis follows.

Yours truly cited by Delaware Chancery Court in the Panera Bread Company Appraisal case

From Vice Chancellor Zurn's opinion:

The board of directors “has the sole power to negotiate the terms on which the merger will take place and to arrive at a definitive merger agreement embodying its decisions as to those matters.”⁴³⁴

⁴³⁴ Stephen M. Bainbridge, Mergers and Acquisitions 56 (2d ed. 2009) (citing 8 Del. C. § 251(b)); accord 8 Del. C. § 141 (“The business and affairs of every corporation organized under this chapter shall be managed by or under the direction of a board of directors ....”).

IN RE APPRAISAL OF PANERA BREAD COMPANY, CV 2017-0593-MTZ, 2020 WL 506684, at *25 (Del. Ch. Jan. 31, 2020).

The preponderance of the evidence shows that the board directed Shaich’s negotiations and “arrive[d] at a definitive merger agreement embodying its decisions as to th[ose] matters.”⁴⁶³

⁴⁶³ Bainbridge, supra note 434, at 56.

Id. at *26.

 

Mesa Petroleum's T Boone Pickens has died, RIP

T. Boone Pickens Jr. Dies. Lots of memories, including the landmark case, Unocal v. Mesa Petroleum. And representing him at Baker Botts. And meeting him on Capitol Hill. And his role in Anatomy of a Merger. RIP https://t.co/i18Gg4ERip

— Gordon Smith (@professor_smith) September 11, 2019

I once talked to Pickens about old stories of his raids, particularly Gulf, and the reception he got then vs activists today. My favorite quote: "One said 'He’s a fast buck artist.' Who in the hell wants to be a slow buck artist?" https://t.co/yUx33lMgsR

— Dave Benoit (@DaveCBenoit) September 11, 2019

There’s a great moment in this documentary at about 17:20 where T Boone Pickens calls himself a geologist and Sir James Goldsmith calls himself a grocer. If you were engaged in the corporate takeover wars of the 1980s, that’s Robin Williams level comedy. https://t.co/8lyitpfpg6 pic.twitter.com/3V5L2qUthz

— Professor Bainbridge (@ProfBainbridge) January 4, 2019

The MAC is Back: Material Adverse Change Provisions After 'Akorn'

New article by a pair of Wachtell, Lipton lawyers sheds useful light on the status of material adverse change clauses:

On December 7, 2018, the Delaware Supreme Court upheld the Delaware Court of Chancery’s October 1, 2018 decision which held that Fresenius Kabi AG, a German pharmaceuticals company, had properly terminated its merger agreement with Akorn, Inc., a U.S. generic pharmaceuticals company. Akorn is the first time that a Delaware court has permitted the termination of a merger agreement on the basis of a material adverse effect, commonly known as a “MAC” or “MAE”. While the Delaware courts have previously opined on the scope and effect of MAC provisions in public merger agreements, no buyer had previously been able to successfully terminate a merger agreement on such grounds. Akorn upends a longstanding view among practitioners that the Delaware courts will generally decline to recognise a MAC and demonstrates, that given sufficiently egregious facts and relevant merger agreement provisions, the Delaware courts will allow a buyer to walk away from a merger agreement based on changed circumstances or contractual breaches. Akorn also provides new insights and guidance on how Delaware courts may interpret MAC provisions as well as practical considerations relevant to M&A negotiations, merger agreement drafting, and how to handle unexpected negative developments going forward. The Delaware Supreme Court’s twopage affirmation was as terse as the 246-page Court of Chancery opinion was exhaustive, so the discussion below is largely drawn from the latter opinion by Vice Chancellor Laster.

Emmerich, Adam O. and Norwitz, Trevor S., The MAC is Back: Material Adverse Change Provisions After 'Akorn' (March 7, 2019). The International Comparative Legal Guide to: Mergers & Acquisitions, Global Legal Group Ltd., 13th ed. 2019. . Available at SSRN: https://ssrn.com/abstract=3400249

Griffith on Representation & Warranty Insurance in M&A Contracting

Very important new paper:

Efficient contracting depends upon imposing risk on the party with superior access to information. Yet the parties in mergers and acquisitions transactions now commonly use Representation and Warranty Insurance (“RWI”) to shift this risk to a third-party insurer. Because liability and trust go together, RWI would seem to give rise to a credible commitment problem between the transacting parties, and it raises adverse selection and moral hazard problems for the insurer.

This paper examines the emergence of RWI, focusing on three interrelated questions. First, how does RWI affect transactions? Second, why do transacting parties use RWI? And third, why do insurers sell RWI?

The paper follows a two-fold empirical methodology. It develops data both by surveying RWI market participants—insurers, brokers, lawyers, and private equity managers—and also by analyzing a sample of over 400 acquisition agreements, approximately half of which involved RWI.

The results show a broad transfer of mispricing risk from buyers and sellers to insurers. RWI allows sellers to minimize risk at exit and allows buyers to control risk aversion in selecting investments. At the same time, RWI threatens to disrupt the contracting process by introducing problems of credible commitment, moral hazard, and adverse selection. Insurers’ ability to respond to these problems through shifts in the deal market and the underwriting cycle may determine whether RWI ultimately facilitates or impedes mergers and acquisitions.

Keywords: mergers, acquisitions, contract, insurance, representations, warranties, private equity, indemnification, escrow, adverse selection, moral hazard, credible commitment, M&A, deal, rep & warranty, transaction insurance

Griffith, Sean J., Deal Insurance: Representation & Warranty Insurance in M&A Contracting (May 28, 2019). Minnesota Law Review, Forthcoming; Fordham Law Legal Studies Research Paper. Available at SSRN: https://ssrn.com/abstract=3395491

Delaware Chancery Court Flunks Target Firm's lawyers

From Francis Pileggi:

A recent Delaware Court of Chancery opinion began by describing the complaint as reading like a law school exam designed to test the knowledge of a student regarding the requirements in the DGCL that must be satisfied in connection with a merger, and the court commented that the company would not have done well on the exam. 

Chuckle. Go read the whole thing.

Case note on Verition Partners Master Fund Ltd. v. Aruba Networks, Inc.

Delaware Supreme Court Clarifies Appraisal Law https://t.co/5cOUFtIllt Case note on Verition Partners Master Fund Ltd. v. Aruba Networks, Inc.

— Professor Bainbridge (@ProfBainbridge) May 1, 2019

Kahn v. MFW requires controller self-disablement early

Delaware Supreme Court Clarifies Ab Initio Requirement for BJR Review https://t.co/HAgLzLGQJM Controller must self-disable before substantive economic bargaining starts

— Professor Bainbridge (@ProfBainbridge) May 1, 2019

Keith Sharfman and Bill Carney on Aruba and appraisal arbitrage causes me to ask "why not just abolish appraisal"?

They begin with a brilliantly concise statement of the problem:

The corporate law world has been abuzz of late about the commendable effort by Delaware’s courts to scale back “appraisal arbitrage”: a trading strategy predicated on deal dissenters receiving via appraisal litigation more for their shares than the deal prices from which they dissent. For years, parties engaging in appraisal arbitrage enjoyed the opportunity to initiate essentially risk free appraisal litigation with substantial upside potential, because it was assumed by courts and litigants that “fair value” entitled dissenters to at least the price of the deal they were rejecting and potentially more. But happily, this misunderstanding and misapplication of the law of appraisal now appears finally to have reached its end.

They continue:

The Court of Chancery Court then struck yet a further blow in 2018 in its appraisal decision in Verition Partners Master Fund, Ltd. v. Aruba Networks, Inc., which awarded deal dissenters even *less* than the deal price. Relying on a previously underenforced provision of Delaware’s appraisal statute, Section 262(h), which excludes from fair value any value that is uniquely associated with the deal from which appraisal-seeking shareholders dissent, the Court of Chancery awarded to the dissenters as fair value only their shares’ public trading price prior to the deal’s announcement.

They go on to discuss various aspects of the debate. Do go read the whole thing. And then answer me this question: Why not just abolish appraisal?

I also commend to your attention my post from 2012 on appraisal.

Battling over Boilerplate in M&A Agreements

In one corner we have Choi, Stephen J. and Gulati, Gaurang Mitu and Scott, Robert E., The Black Hole Problem in Commercial Boilerplate (November 25, 2016). Available at SSRN: https://ssrn.com/abstract=2835681

Rote use of a standard form contract term can erode its meaning, a phenomenon made worse when the process of encrustation introduces various formulations of the term. The foregoing process, when it occurs, weakens the communicative properties of boilerplate terms, leading some terms to lose much, if not all, meaning. In theory, if a clause is completely emptied of meaning through this process it can create a contractual “black hole.” The more frequent and thus potentially more pervasive problem arises when, as the term loses meaning, random variations in language appear and persist, resulting in what we term a “grey hole.” The question that follows is what interpretive strategy courts should use when parties exploit these variations, persuading a court to adopt an interpretation of the grey hole term that (a) surprises the market that previously had disregarded the term and (b) results in an interpretation that the market disavows. Traditional doctrine holds that even if the court errs, parties have an incentive to revise the standard language to exclude the aberrant interpretation. But what if the assumptions about the costs and motivations to revise this type of boilerplate are wrong? We seek to gain purchase on this question with a study of the pari passu clause, a standard provision in sovereign debt contracts that almost no one seems to understand. This clause gained fame in 2011 because of a series of court decisions in New York arguably misinterpreting a particular variation of the clause. Even though the courts’ interpretation put at risk a multi-trillion dollar debt market, meaningful revisions to the language of the boilerplate term did not begin to appear until late 2014. Market forces, in other words, worked very slowly to remedy a major systemic problem, leading to considerable costs. We ask, therefore, whether courts might not do more to avoid the problem at the front end rather than depend on market forces to correct court error at the back end.

In the other corner we have Anderson, Robert and Manns, Jeffrey David, Boiling Down Boilerplate in M&A Agreements: A Response to Choi, Gulati, & Scott (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=3327687

“Boilerplate” consists of standardized terms whose meaning is intended to be consistent from one transaction to the next, and these provisions are ubiquitous in contracts and related transactional documents. In their recent Duke Law Journal article Stephen Choi, Mitu Gulati, and Robert Scott have highlighted the potentially corrosive effect of the legal drafting process on boilerplate provisions. They show how incremental edits to boilerplate pari passu clauses for sovereign debt agreements have led to textual “black holes,” which potentially undercut the standardization purpose, wording, and substantive meaning of these boilerplate provisions. In this Article we offer preliminary evidence of a similar textual “black hole” phenomenon taking place in the mergers and acquisitions context.

We show that the mergers and acquisition context epitomizes the problem of unreflective copying of precedent provisions combined with ad hoc edits to individual clauses, which erode the textual integrity and meaning of boilerplate provisions. Each agreement is based on a prior deal precedent, and drafters frequently incorporate sections of the prior deal without sufficient scrutiny about the degree to which idiosyncratic novelties have been introduced in the precedent document that may be inapplicable to the new deal. At the same time, high levels of “editorial churning” take place in the process of transforming each precedent into the current acquisition agreement. The result is a problem of “drafting drift.” Boilerplate provisions live on from deal to deal, yet gradually shed their textual integrity and potentially lose their clear meaning as ad hoc edits are copied from deal to deal and new ad hoc edits are added at each stage.

We show how it is possible to identify the paragraphs of acquisition agreements which serve as boilerplate and to document both the degree and type of textual “drift” of these provisions over multiple generations. We construct “family trees” for boilerplate provisions by tracing the ancestors of each provision backwards in a linear way to each prior precedent. Then we reverse the process to show how ancestor provisions have progeny extending out in multiple directions which become increasingly dissimilar to their original ancestor and to each other over a few generations of acquisition agreements.

Our study shows that incremental changes in boilerplate from one generation to the next foster rapid “speciation” of the terms. Small additions and deletions from boilerplate text lead to significant cumulative effects over multiple generations. We demonstrate that this textual “drift” takes place both within individual boilerplate lineages, but also even more broadly for boilerplate provisions that have a common ancestor precedent, yet evolve separately along different lineages of precedents. Like the Big Bang, the heterogeneity of boilerplate text appears to increase in all directions, which supports an “expanding universe” theory for boilerplate that undermines the textual integrity and the meaning of boilerplate terms. While we will expand on the quantitative and qualitative analysis of the evolution of boilerplate in a future work, the preliminary evidence presented in this paper reinforces the case for the textual “black hole” theory.

Saying goodbye to entire fairness

My friend and UCLAW colleague Iman Anabtawi recently wrote an insightful article on Delaware's evolving jurisprudence on conflict of interest transactions, especially in the M&A context:

Merger and Acquisition (M&A) transactions create the potential for self-interested behavior by the boards of directors of acquired, or target, corporations because target boards may have self-interested reasons for preferring one acquirer over any other. The preferred acquirer may, for example, be more likely to retain the services of certain board members or to employ them in some other capacity after the completion of the transaction. In recognition of these potential conflicts of interest, the courts have recognized that target boards of directors may not always be incentivized to exercise their business judgment in M&A transactions in the best interests of shareholders and have therefore held them to the heightened standard of review of enhanced scrutiny. Enhanced scrutiny contemplates substantive judicial review of the reasonableness of the target board’s conduct in the sale of the company. Until recently, enhanced scrutiny review was not susceptible to being adjusted downward to business judgment-level review through procedural safeguards, such as the constitution of a special committee of the board or shareholder ratification. A special committee was not considered to be an effective means of cleansing an inherent conflict, and shareholder approval of the transaction was deemed to approve only the board’s decision to sell, as opposed to the board’s conduct of the sale process. The Delaware Supreme Court revisited the issue, holding that the shareholder ratification doctrine applies to a shareholder approval of an M&A transaction on the rationale that shareholders, particularly institutions, are at least as well-positioned as judges to evaluate the merits of a sale. As a result, approval of an M&A deal by target shareholders displaces enhanced scrutiny of the board of directors’ conduct in managing the sale in favor of the business judgment rule, effectively making the target board’s decision unreviewable. This Article argues that recent Delaware jurisprudence on shareholder ratification constitutes a fundamental shift in M&A jurisprudence, predicts that, while it will reduce deal litigation, it will have unnecessary detrimental effects on deal process, and proposes a procedural mechanism for mitigating those effects in the form of a bifurcated shareholder vote on each of the deal process and the sale transaction.

Anabtawi, Iman, The Twilight of Enhanced Scrutiny in Delaware M&A Jurisprudence. 43 Delaware Journal of Corporate Law (January 2019, Forthcoming); UCLA School of Law, Law-Econ Research Paper No. 18-11. Available at SSRN: https://ssrn.com/abstract=3248474

Amir Licht has just posted an article that deserves to be read in conjunction with Iman's piece:

This Essay entertains the idea that Delaware’s corporate law is set on a trajectory that would eventually lead to reforming its doctrine of entire fairness as we now know it by retiring the doctrine’s substantive fairness review prong and insisting on fully-informed consent as the only way for validating tainted transactions. A growing array of cases, in which the centerpiece is Kahn v. M&F Worldwide Corp. (MFW), creates a legal sphere within which traditional entire fairness analysis has no application. Within this sphere, things rise or fall depending solely on the existence or absence of an uncoerced fully-informed ratification, in line with fundamental principles of fiduciary law in Delaware and in other common law jurisdictions. The critical move, which may take time to materialize, will take place when the courts deal the traditional doctrine the coup de grâce and abolish substantive fairness review entirely, if one may say so. Treating this development as highly desirable in principle, this Essay discusses practical and normative issues that call for attention in order to ensure its successful functionality, including the use of technology to ensure the integrity of informed consent through shareholder voting and the rise of institutional cross ownership, which may call for special attention in MFW-relevant settings.

Licht, Amir N., Farewell to Fairness: Towards Retiring Delaware's Entire Fairness Review (February 8, 2019). European Corporate Governance Institute (ECGI) - Law Working Paper No. 439/2019. Available at SSRN: https://ssrn.com/abstract=3331097 or http://dx.doi.org/10.2139/ssrn.3331097

Badawi and de Fontenay: Is There a First-Drafter Advantage in M&A?

Interesting new paper:

Does the party that provides the first draft of a merger agreement get better terms as a result? There is considerable lore among transactional lawyers on this question, yet it has never been examined empirically. In this Article, we develop a novel dataset of drafting practices in large M&A transactions involving U.S. public-company targets. We find, first, that acquirers and sellers prepare the first draft of the merger agreement with roughly equal frequency, contrary to the conventional wisdom that acquirers virtually always draft first. Second, we find that there is little or no advantage to providing the first draft with respect to the most monetizable merger agreement terms, such as merger breakup fees. Third, and notwithstanding, we do find an association between drafting first and a more favorable outcome for terms that are harder to monetize, more complex, and that tend to be negotiated exclusively by counsel, such as the material adverse change (MAC) clause. These findings are consistent with the view that the negotiation process generates frictions and agency costs, which can affect the final deal terms and result in a limited first-drafter advantage.

Badawi, Adam B. and de Fontenay, Elisabeth, Is There a First-Drafter Advantage in M&A? (January 17, 2019). Available at SSRN: https://ssrn.com/abstract=3317622 or http://dx.doi.org/10.2139/ssrn.3317622

Emulex followup #2: Will it matter?

John Coffee thinks Emulex will prove to be much ado about nothing:

Defendants are hoping that the Supreme Court’s decision earlier this month to grant certiorari in Varjabedian v. Emulex Corp.[11] will produce a decision that slows the spread of merger objection cases. In that case, the Ninth Circuit panel held that because Section 14(e) of the Securities Exchange Act authorizes the SEC to prohibit acts not themselves fraudulent under the common law or Section 10(b) (at least if the prohibition was reasonably designed to prevent acts and practices that were fraudulent), the plaintiff in such a case need not allege scienter, but only negligence. Although this position is arguable, every other circuit that has ruled has decided to the contrary, and the Ninth Circuit has not done well in the Supreme Court when it is the lone dissenter among the circuits. More importantly, some hope that the Supreme Court will rule (as some amici have requested it to do) that there is no implied private cause of action under Section 14(e). Although this is possible, the issue was not discussed in any detail in Emulex. Thus, the court is more likely to insist on scienter, while noting in a parenthesis or footnote that “for purposes of this case we have assumed with the parties that a private cause of action exists under Section 14(e), which issue we reserve for a future day.”

Still, assume that the court either says that there is no private cause of action under Section 14(e) or mandates that scienter must be plead. What will the impact be? Either decision will, of course, provoke hundreds of law firm memos to clients, but the real world impact may be very modest. Plaintiffs could simply assert the same allegations under Section 10(b) and Rule 10b-5. Or, if a merger vote by a publicly listed corporation is involved, a cause of action might also be plead under the proxy rules and Section 14(a) (and such a suit in some circuits requires no allegation of scienter). The false premise in expecting Emulex to restrict the flood of merger objection cases is the assumption that plaintiffs want to take their cause of action to trial. In the vast majority of such cases, however, they do not. Rather, they are either (a) exploiting the lawsuit’s potential ability to disrupt the merger’s timetable or (b) selling preclusion to the defendant because settling the current frivolous suit may prevent other litigation with greater merit. Hence, the fact that plaintiffs must base their cause of action on Rule 10b-5 (where they cannot satisfy the pleading requirements) is not prohibitive because they plan to settle, not fight.

First, judges could solve that problem by smacking plaintiff lawyers who bring such cases with Rule 11 sanctions. But most federal judges lack the spine to do so. Second, somebody like Ted Frank or Sean Griffith could intervene in such settlements.

Update:

I think you’re right now that I stop and think about it. Section 14(e) lacks the purchase or sale requirement, which allows for standing for non-tendering shareholders. See Piper v. Chris-Craft, 430 US 1, 39.

— Professor Bainbridge (@ProfBainbridge) January 23, 2019

Emulex followup #1: Status of the implied right of action

As a followup to my previous post, I should note that some have argued that the case presents the Supreme Court with a broader issue than the scienter question on which my Legal Pulse column focused. Ann Lipton, for example, points out that:

When the defendants petitioned for certiorari, here’s how they phrased the Question Presented:

Whether the Ninth Circuit correctly held, in express disagreement with five other courts of appeals, that Section 14(e) of the Securities Exchange Act of 1934 supports an inferred private right of action based on a negligent misstatement or omission made in connection with a tender offer.

Note the precise wording here ....

It’s really two questions: first, what is the state of mind element under Section 14(e), and second is there a private right of action at all?  The implication of the defendants’ petition for cert is, well, no, there isn’t, and the amicus brief filed by the Chamber of Commerce makes that argument explicitly.

So what the defendants are really angling for is a declaration that plaintiffs cannot bring claims under 14(e) at all, with a fallback position of, if they can, they have to show intent. 

Ann points out that tossing the private right of action under Section 14(e) and Rule 14e-3 would lead to all sorts of odd results when you step back and look at how Delaware corporate and federal securities law interact in this context. (Go read it.)

As Ann points out, the modern Supreme Court is a lot less found of implied private right of action than it used to be, but as she also points out the Court is reluctant to outright overturn long established implied private actions. As I tell my students, the Court has gotten out of the business of creating or expanding implied private rights of action, but has grandfathered those that have been approved at some point by a one of at least 5 justices. If so, the section 14(e) implied right of action is safe.

In an interesting post Kevin LaCroix reaches the same conclusion:

Chamber’s counsel argued in its amicus brief that the courts of appeals have ignored the U.S. Supreme Court’s precedents on inferring statutory rights of action. The Chamber’s brief, in urging the Court to take up the case, contended that the case could provide the Court a chance to rule that the circuit courts improperly implied a right of action under Section 14(e) and could thereby eliminate a “complex, judicially-created liability scheme.”

In her November 14, 2018 post on her On the Case blog about the Chamber’s amicusbrief (here), Alison Frankel quotes Stanford Law Professor Joseph Grundfest as predicting not only that the Court would take up the Emulex case, but that it would conclude that there is no private right to sue under Section 14. Interestingly, in making his comments, Grundfest does not seem to be limiting his prediction just to the private right of action under Section 14(e); rather he seems to be suggesting that the Court will conclude there is no private right of action at all under any part of Section 14. Obviously, if the Court were to go so far, then the Emulex decision would indeed have a very significant impact on federal court merger objection litigation.

There may be grounds to be skeptical of the likelihood that the Court would in fact go so far as to eliminate the private right of action under Section 14 altogether, or even with respect just to Section 14(e). In her article about the Chamber’s amicus brief, Frankel quotes counsel for Emulex as saying, first, that Congress has amended the securities laws numerous times since the courts recognized the private right of action under Section 14(e), and yet did not address the issue. In addition, Emulex’s counsel notes that the issue of whether there is a private right of action under Section 14 arguably was not fully addressed in the courts below, which would seem to eliminate the possibility that the Supreme Court would take up the issue for the first time in the case now. Indeed, the plaintiff in the Emulex case argued in his brief in opposition to the cert petition (here) that Emulex itself conceded in the lower courts that there is a private right of action under Section 14(e).

Corban Rhodes and Anna Menkova further explain that:

... some have seen the case as an opportunity for the high court to go far beyond that question and deny investors any ability to bring claims under Section 14(e), declaring that no private right of action exists, regardless of the standard.

This effort is misguided for several reasons. First, the Emulex case is a poor vehicle to consider a question of this magnitude, especially after petitioners raised the issue only as a passing afterthought in the petition itself, and never briefed it below. Second, the question is not ripe for the Supreme Court’s review, given that there is no circuit split on this issue, despite private Section 14(e) claims having been recognized for decades. Third, even if the court were to take up this broader question, the court’s own reasoning in past Section 14(e) cases supports the existence of an implied private right of action. And finally, as a policy matter, while state court remedies provide some means of relief for investors defrauded in the context of a merger, federal courts should not abdicate their role in protecting investors and ensuring the integrity and transparency of tender offers.

They go on to elaborate on each of those points in some detail, concluding:

A case in which the issue was not even raised below, and where there is no circuit split, is hardly the correct vehicle to consider eradicating a long-recognized federal right.

All of which seems correct. As Ann Lipton points out, however:

... the Supreme Court doesn’t have to go all the way to holding that 14(e) provides no right of action to make an impact; all it has to do is say “We reserve for another day the question whether a private right of action exists under 14(e),” and we are off to the races.  Expect a bunch of test cases, and a concerted, coordinated build of precedent in the lower courts, now more populated with Republican judges inclined to be skeptical of private claims.  And that, I suspect, is really what the defendants, and the Chamber of Commerce, consider endgame.