Boylan v. Sogou Inc.

Background

Patrick Boylan, a holder of Sogou American Depositary Shares, challenged Sogou’s planned going-private merger. Under the merger agreement, non-affiliated holders of Sogou stock, including holders of American Depositary Shares, would be cashed out at $9 per share, less $0.05 in fees. Boylan alleged that Sogou violated Section 13(e) of the Securities Exchange Act and Securities and Exchange Commission Rule 13e-3 by making false or misleading statements about whether shareholders could exercise dissenters’ or appraisal rights under Cayman Islands law.

Sogou’s original transaction statement said that shareholders could not use the statutory procedure for exercising dissenters’ rights because the merger was a short-form merger. After a Cayman Islands court held that appraisal rights were available in a short-form merger, but stayed the effect of its order pending appeal, Sogou filed an amended transaction statement. The amended statement described the Cayman Islands decision, the stay, the uncertainty created by the appeal, and Boylan’s lawsuit. Boylan argued that the amended disclosure still violated Rule 13e-3. Sogou argued that it had satisfied its disclosure duties.

Standing

Sogou argued that Boylan lacked standing, meaning he had not shown the personal injury required to bring the claim in federal court. The court agreed. For purposes of the preliminary-injunction motion, Boylan had to support standing with specific facts rather than relying only on the allegations in his complaint.

The court concluded that Boylan had not shown a concrete and particularized injury that was actual or imminent. His claim was based on Sogou’s alleged failure to disclose information about dissenters’ rights and the Changyou decision, but Boylan acknowledged that he already knew that information. The court therefore held that Boylan lacked standing to pursue the matter.

Preliminary Injunction

The court separately held that, even if Boylan had standing, he had not satisfied the requirements for a preliminary injunction. He had to show either a likelihood of success on the merits or sufficiently serious questions for litigation, likely irreparable harm, a favorable balance of hardships, and that an injunction would not harm the public interest.

The court found no irreparable harm. Boylan argued that shareholders might sell their shares without knowing about appraisal rights and that the alleged disclosure failure had depressed the market price of Sogou’s American Depositary Shares. The court concluded that the claimed price-related injury could be remedied with money and that the remaining alleged harms were speculative or could be addressed through legal remedies. The court also rejected as speculative Boylan’s argument that disclosure might have encouraged Tencent to increase the merger offer.

The court further held that Boylan had not shown a likelihood of success. It decided that Section 13(e) does not provide an implied private right of action for a shareholder to enforce the disclosure requirements at issue. The court explained that the statute does not expressly authorize private lawsuits and that the legislative history did not show that Congress intended to create such a remedy.

In the alternative, the court held that Boylan had not shown that Sogou violated Section 13(e) or Rule 13e-3. The court read the Cayman Islands order as staying its terms pending appeal and concluded that Sogou accurately disclosed that the order had created uncertainty about appraisal rights. The court also found that Boylan had not identified authority showing that Sogou’s disclosure was legally insufficient.

Disposition

The court denied Boylan’s motion for a preliminary injunction and directed the Clerk of Court to terminate the motion. The court did not rule on Sogou’s anticipated motion to dismiss; instead, it set deadlines for that motion, Boylan’s opposition, and Sogou’s reply.