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California shareholder dispute headed to U.S. Supreme Court

A subsidiary of a California chipmaker is to have its appeal heard by the U.S. Supreme Court. Broadcom Inc. seeks to resolve a shareholder lawsuit over its acquisition four years ago of Emulex Corp., headquartered less than 100 miles north of San Diego in Costa Mesa. Broadcom Inc. is located farther to the north, in San Jose.

The question that looms over the case, and similar cases, is whether shareholders must show intent to defraud when suing a business over statements made during the acquisition process.

Back in 2015, Colorado-based Avago Technologies Wireless Manufacturing paid nearly $610 million to purchase Emulex Corp., which manufactured chips and routers for data centers. Avago Technologies later merged with Broadcom.

An Emulex shareholder filed in federal court a securities class action lawsuit to prevent the deal from being consummated. His lawsuit filed in California did not carry the day, but the shareholder amended the suit, adding a claim that Emulex had failed to disclose crucial data about other transactions when it urged its shareholders to accept the offer.

The plaintiffs argue that they were misled and that they accepted an acquisition that did not value their Emulex shares highly enough. A district court dismissed their claim, stating that plaintiffs had not shown proof of intent to mislead. But in April of last year, 9th U.S. Circuit Court of Appeals breathed new life into the lawsuit by ruling that plaintiffs were not required to show intent; evidence of negligence would suffice.

News sources say that a ruling by the U.S. Supreme Court is expected in June.

Clearly, a ruling in favor of the shareholders could have major implications for future shareholder lawsuits.

Businesses facing these types of serious disagreements should contact a law firm experienced in obtaining cost-effective resolutions of shareholder disputes.