Argument analysis: Justices debate time travel in assessing liability for inadequate disclosures about tender offers
on Apr 16, 2019 at 11:55 am
The argument yesterday in Emulex Corp. v. Varjabedian presented the justices with an odd interpretive problem about revisions to the securities laws made in the 1960s to govern tender offers. At that time, federal courts commonly read statutes as “implying” private rights of action, permitting private parties to file suit to enforce the securities laws whenever it seemed a useful way to ensure compliance. So when Congress wrote the provision proscribing misleading information in disclosures about tender offers (Section 14(e) of the Securities Exchange Act) by using language that had received that treatment already, it would have been reasonable for Congress at that time to expect that courts would find a private right of action under that statute as well.
That was then, but this case comes up now. Federal courts now are most reluctant to infer private rights of action, viewing the practice as an intrusion on the legislature’s paramount responsibility and authority to define the jurisdiction of the federal courts. Put simply, then, the question for the justices is whether they should read Section 14(e) to mean what Congress probably should have expected it to mean when Congress wrote it or read it under the court’s modern system of statutory interpretation.
For several of the justices, this is not a close call. Sparring with Daniel Geyser (representing the investors challenging a disclosure as misleading), Chief Justice John Roberts was vociferous in his condemnation of the “ancien régime” and the “bad old days” when courts freely recognized private rights of action. For Roberts:
[I]t’s not just a question of Congress’s words or even Congress’s intent. It goes to the authority of the courts to engage in the sort of fundamental law-making enterprise that inferring a private cause of action involves. In other words, the reason we do it differently is not because we have any different view on the tools of congressional intent. It’s because we have a different view on the appropriate limits on our authority.
Justice Brett Kavanaugh seemed just as solid in his opposition to private suits under Section 14(e). As he put it, “we look at the statute these days.” He acknowledged that “we’re not overruling [cases] that recognized private rights of action before, but we’re not expanding [them] either. … Just to state the obvious, there’s no private right of action in the text.” He ridiculed the argument for finding an implied right of action as “kind of a time travel argument,” creating a cause of action now because “Congress would have thought in 1968 that courts create implied causes of action.”
To be sure, there was considerable pushback. Several justices were troubled that the broad argument against a private right of action was not raised properly in the lower courts. Justice Ruth Bader Ginsburg, posing the first question of the argument as usual, asked Gregory Garre (representing the company) why the court should consider the issue “when it wasn’t raised in this case until … the motion for rehearing in the court of appeals.” Garre admitted that his client had conceded the point in the face of adverse precedent in the lower courts, but insisted that mentioning it in the petition for certiorari should be good enough. That brought a sharp retort from Justice Sonia Sotomayor:
Aren’t we rewarding you for not raising it adequately below, rewarding you for mentioning it in two sentences in your cert petition and not asking us to take it as a separate question presented? Where should we draw the line as to when we stop rewarding counsel for … moving the ball on cert grounds. … You could write almost any question and throw the kitchen sink in if you choose.
Another prominent train of thought turned on the incongruity of recognizing a private right of action under Section 14(a) (for misleading proxy statements), something the Supreme Court did long ago, but not recognizing one under Section 14(e) (for misleading tender-offer disclosures). Ginsburg, for example, asked Garre how it could be “rational to distinguish 14(a) from 14(e) for private right purposes? …. So proxy statements go one way. Tender offers go the other?” As Justice Stephen Breyer put it, “why would you want to have one set of language meaning negligence when they try to take you over by proxy statements, but … exactly the same words, not negligence, when they try to take you over by a tender offer?”
Justice Elena Kagan took another tack, challenging the idea that the justices should “throw out the statutory interpretation toolbox,” and suggesting instead that it is enough to be a “sensible statutory interpreter.” She argued that the “context” should be critical: “Congress is looking at something, a particular set of words that has been found uniformly to create a private right of action, and then Congress writes those same words.” Garre’s repeated recourse to the text, in Kagan’s view, “suggest[ed] that the usual tools of statutory construction … go out the window; all of a sudden context doesn’t matter; we just look mechanically at the words because this is such a fraught inquiry.” Even the most casual observer could recognize a marked distinction between the tools Kagan would apply here and the tools Roberts finds at hand.
The stark methodological divide is typical in an area in which the justices often have disagreed. The argument does not suggest a court likely to reach a quick consensus, but rather groups of justices applying their settled views to the case before them. An April argument with such an entrenched division of views sounds like a late June opinion.
Editor’s Note: Analysis based on transcript of oral argument.
[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel on an amicus brief in support of the respondents in this case. The author of this post is not affiliated with the firm.]