April 25, 2022

M&A Disclosure: 8th Circuit Says No Duty to Update Under Section 14(a)

This Shearman blog discusses the 8th Circuit’s decision in Carpenters’ Pension Fund of Ill. v. Neidorff, (8th Cir.; 4/22).  The case involved allegations that the buyer’s directors and officers concealed their knowledge of significant financial problems at the target from shareholders, and that as a result, the joint proxy statement was false and misleading.

The court dismissed those allegations and related breach of fiduciary duty claims, but the most interesting part of the decision to me is the Court’s response to claims that the buyer failed to update information in the proxy statement. The Court rejected those allegations out of hand.  In fact, according to the Court, Section 14(a) of the Exchange Act imposes no duty to update information in a proxy statement:

As to Appellants’ argument that the failure to update the Proxy Statement rendered it materially misleading, Appellants have not cited, and we have not found, any authority supporting the proposition that § 14(a) requires a company to update its proxy statement. Moreover, this argument is inconsistent with the text of Rule 14a-9(a), which provides that a proxy statement may not contain “any statement which, at the time and in the light of the circumstances under which it is made, is false or misleading with respect to any material fact,” 17 C.F.R. § 240.14a-9(a) (emphasis added), and the language of the Proxy Statement itself, which provides in all capital letters that neither Centene nor Health Net intends to update the Proxy Statement and that both companies disclaim any responsibility to do so.

Based on a quick look, there appears to be at least some 8th Cir. authority recognizing a duty to update under the federal securities laws, but as the Court noted in a footnote, none of the authority cited by the plaintiffs involved Section 14(a) claims. What about a 10b-5 claim?  It turns out there wasn’t’ one, because it looks like the plaintiffs simply alleged that the directors and officers were negligent, and while that’s good enough to support a Rule 14a-9 claim, isn’t enough to establish the level of scienter required for a Rule 10b-5 claim.

John Jenkins