Best Price Rule Does Not Compel Purchase of Tendered Shares Subject to Transfer Restrictions

1. Introduction

This appeal arose out of a two-step merger/tender offer in which Nuvei Corporation sought to acquire all shares of Paya Holdings, Inc. for $9.75 per share. The Appellants—Paya shareholders who were also “Sponsors” of an earlier SPAC transaction—held “Earnout Shares” subject to a Sponsor Support Agreement (“SSA”) that imposed transfer restrictions until the end of an “Earnout Period” and also provided for forfeiture of the shares upon a change in control below a $15.00 per-share threshold.

When Nuvei launched its tender offer, Appellants tendered their Earnout Shares. Nuvei declined to purchase them on the ground that they were not “validly tendered” because the Letter of Transmittal required tendering holders to have “full power and authority” to transfer the shares and to tender them “free and clear” of restrictions and adverse claims. Appellants sued, contending that Nuvei’s refusal to pay them $9.75 per share violated the SEC’s Best Price Rule by effectively paying them $0 while paying other tendering shareholders $9.75.

The key legal issue on appeal was narrow but consequential: whether the Best Price Rule requires an offeror to purchase any shares tendered in response to a tender offer, even if the tender violates transfer restrictions imposed by the tendering holder’s own prior agreements (here, the SSA).

2. Summary of the Opinion

The Third Circuit affirmed dismissal of the Best Price Rule claim, but on a different conceptual footing than the district court’s “no consideration was actually paid” rationale. The court held that the Best Price Rule’s text addresses only the equality of consideration paid for securities purchased in a tender offer; it does not speak to whether an offeror must purchase every tendered share or whether an offeror may insist on tender-offer conditions such as free transferability.

Because federal tender-offer law was “silent” on whether offerors may enforce transfer restrictions against tendered shares, the dispute defaulted to state-law/private ordering: the parties’ agreements governed whether the shares could be validly tendered and accepted for payment. The court therefore left intact Nuvei’s ability to reject restricted shares as invalidly tendered and concluded that the Best Price Rule did not require Nuvei to purchase them.

3. Analysis

3.1. Precedents Cited

Polaroid Corp. v. Disney

The opinion situates the Best Price Rule and All Holders Rule as products of the Williams Act’s investor-protection purpose, citing Polaroid Corp. v. Disney, 862 F.2d 987 (3d Cir. 1988). In Polaroid Corp., the Third Circuit upheld the validity of the All Holders Rule as within the SEC’s authority and recognized an implied private right of action under Section 14(d) to enforce it.

Here, Polaroid Corp. matters in two ways:

• Doctrinal framing: It anchors the tender-offer rules in Williams Act enforcement and confirms the Third Circuit’s willingness to analyze these SEC rules as substantive constraints on tender offers.
• Limits of prior resolution: The court notes that Polaroid Corp. did not reach a closely related question—whether an offeror may reject certain shares as invalid under the offer’s terms—because of standing. That gap becomes the “novel question” addressed in this case.

In re Digital Island Securities Litigation

The court also relies on its only prior Best Price Rule case, In re Digital Island Securities Litigation, 357 F.3d 322 (3d Cir. 2004), for the proposition that Best Price Rule claims can be subject to heightened pleading standards (Rule 9(b)) and that certain pre-offer payments may fall outside the Rule’s scope. While not directly controlling, In re Digital Island Securities Litigation reinforces that the Best Price Rule is not a free-floating fairness mandate; its operation depends on the timing and character of “consideration paid” within the tender-offer framework.

Bonkowski v. Oberg Indus. and United States v. Johnson (textual interpretation)

For interpretive method, the court cites Bonkowski v. Oberg Indus., 787 F.3d 190 (3d Cir. 2015), emphasizing that regulatory interpretation follows “well-established principles of statutory interpretation,” and United States v. Johnson, 114 F.4th 148 (3d Cir. 2024), for the proposition that analysis “begins and ends” with ordinary meaning where the text is plain.

These citations are not decorative: they supply the court’s core move—reading the Best Price Rule as an equality-of-price rule once a purchase occurs, not as a purchase-compulsion rule that overrides tender conditions or private transfer restrictions.

Rotkiske v. Klemm (no judicial “supplementing”)

Invoking Rotkiske v. Klemm, 589 U.S. 8 (2019), the court underscores a separation-of-powers limitation: courts may not supply absent provisions. Appellants’ theory effectively would add a requirement to the Best Price Rule—“purchase all tendered shares regardless of enforceable restrictions”—that the text does not contain. Rotkiske provides the principle for rejecting that invitation.

Schreiber v. Burlington N., Inc. and the Williams Act’s own text

The court bolsters its reading by pointing to the Williams Act itself, citing Schreiber v. Burlington N., Inc., 472 U.S. 1 (1985), which noted Section 14(d)’s substantive tender-offer requirements, including “payment of the same price to all those whose shares are purchased.” The statute the court highlights—15 U.S.C. § 78n(d)(7)—requires equal price only for holders “whose securities are taken up and paid for pursuant to the tender offer.”

That statutory phrase is pivotal. The court treats it as confirmation that the legal regime anticipates that some tendered securities may not be “taken up and paid for,” leaving room for acceptance conditions (like “validly tendered,” “free transferability,” and being outstanding at consummation).

In re Phila. Newspapers, LLC and New Jersey v. New York (silence vs. ambiguity)

Appellants pressed policy and history. The court responds with interpretive discipline, citing In re Phila. Newspapers, LLC, 599 F.3d 298 (3d Cir. 2010), for the rule that unambiguous text forecloses resort to purpose/history, and New Jersey v. New York, 523 U.S. 767 (1998) (Breyer, J., concurring), for the maxim that “silence is not ambiguity.”

This is how the court converts the “novel issue” into a straightforward textual outcome: the rule is silent on compelled purchase; silence means no judicially created mandate.

In re WHX and WHX Corp. v. SEC (SEC practice context)

Although the court deems text dispositive, it notes that its reading aligns with SEC guidance and industry practice, citing In re WHX, Exchange Act Release No. 47,980, 80 S.E.C. Docket 1153 (June 4, 2003), overruled on other grounds by WHX Corp. v. SEC, 362 F.3d 854 (D.C. Cir. 2004). The referenced point: tender offers may be open to all, yet a shareholder’s independent action (encumbering shares) may limit that shareholder’s ability to participate.

That observation supports the court’s conceptual separation between (1) an offer being “open to all holders” and (2) a particular holder’s capacity to tender “validly” given encumbrances.

Vallies v. Sky Bank; Ashcroft v. Iqbal; Bell Atl. Corp. v. Twombly (procedural posture)

On standard of review and pleading, the court cites Vallies v. Sky Bank, 432 F.3d 493 (3d Cir. 2006) (de novo review of Rule 12(b)(6) dismissal) and the plausibility standard from Ashcroft v. Iqbal, 556 U.S. 662 (2009), quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). These citations situate the holding as a legal insufficiency: even accepting pleaded facts, the Best Price Rule theory fails as a matter of law because the Rule does not impose the duty Appellants assert.

3.2. Legal Reasoning

(a) The court’s textual “fit” analysis of the Best Price Rule

The Best Price Rule provides that an offeror must pay to any security holder “for securities tendered in the tender offer” the highest consideration paid to any other security holder for securities tendered. The court reads this as a rule about price parity among accepted-and-paid tenders, not as a rule about mandatory acceptance of any tender.

Crucially, the court identifies what the Rule does not say:

• It does not specify when an offeror must purchase tendered shares.
• It does not bar tender-offer terms and conditions of acceptance (such as “freely transferable” or “validly tendered” conditions).
• It does not preempt or invalidate state-law/private transfer restrictions that render a tender defective under offer documents.

(b) Harmonizing the Rule with the Williams Act’s “taken up and paid for” language

The court reinforces its reading with the Williams Act’s own phrasing in 15 U.S.C. § 78n(d)(7): equal price is owed to those “whose securities are taken up and paid for.” That language, the court reasons, presupposes that some securities may be tendered but not taken up and paid for. Therefore, the statutory structure leaves room for offer conditions and for a validity screen at acceptance.

(c) Silence triggers state-law/private ordering

Having found no federal command to purchase restricted shares, the court treats the issue as governed by “the parties’ private agreements formed under state law.” This is a classic “gap” allocation: federal tender-offer law supplies the non-discrimination rule on price for accepted shares; state contract/corporate law supplies the rules for whether particular shares are transferable, forfeited, or encumbered, and whether tender conditions are satisfied.

(d) Doctrinal containment: avoiding transformation of Best Price into a super-remedy

A major implicit concern is remedial overbreadth. Appellants’ approach would convert an equal-price rule into a compulsory-purchase mechanism that could:

• Override bargained-for transfer restrictions (here, designed to align sponsor incentives in a de-SPAC structure).
• Force acquirers to accept shares the tendering party lacks authority to transfer (contrary to the Letter of Transmittal’s representation).
• Potentially destabilize tender mechanics by expanding federal liability whenever a tender is rejected as invalid.

By holding the Rule “silent” on compelled acceptance, the court confines the Best Price Rule to its core anti-discrimination function.

3.3. Impact

Immediate doctrinal impact in the Third Circuit

• Limits Best Price Rule theories: Plaintiffs cannot repackage a “rejected tender” dispute as a Best Price Rule claim merely by pointing to a $0 outcome for rejected shares versus a paid price for accepted shares.
• Clarifies the acceptance/price boundary: The Best Price Rule regulates equality of consideration among those whose shares are purchased; it does not mandate that all tenders must be accepted.

Practical impact on deal practice

• Reinforces validity conditions: Offerors can continue to require (and enforce) conditions that shares be freely transferable, unencumbered, and validly tendered, without automatically triggering Best Price exposure for rejected tenders.
• Elevates importance of shareholder-side restrictions: Sponsors and other holders with lockups, earnouts, forfeiture provisions, pledges, or other encumbrances should expect that federal tender-offer law will not rescue them from state-law restrictions that prevent valid tender.
• SPAC/earnout relevance: The case underscores that earnout and forfeiture mechanics—common in de-SPAC and sponsor arrangements—can be outcome-determinative in later change-of-control/tender contexts.

Potential future litigation questions left open

The opinion deliberately avoids broader pronouncements and leaves room for future disputes such as:

• Whether particular tender conditions are enforceable under state law (e.g., contract interpretation, waiver, estoppel).
• Whether an offeror’s rejection was pretextual (e.g., discrimination disguised as “invalid tender”)—a different factual and legal theory than the one accepted here.
• How the All Holders Rule might apply if an offer is “open to all” in form but functionally excludes a subset through impermissible conditions (not alleged here; the court notes All Holders compliance was undisputed).

4. Complex Concepts Simplified

Tender offer

A tender offer is a public invitation by an acquirer to shareholders to sell their shares at a stated price, typically subject to conditions (minimum shares tendered, regulatory approvals, and procedural requirements for a “valid tender”).

All Holders Rule vs. Best Price Rule

• All Holders Rule (17 C.F.R. § 240.14d-10(a)(1)): the offer must be open to all holders of the class of securities subject to the offer.
• Best Price Rule (17 C.F.R. § 240.14d-10(a)(2)): if the offeror pays a price to one tendering holder, it must pay the highest price to all holders whose shares are purchased in the tender offer.

This case emphasizes the difference between “you may participate” (All Holders) and “if we buy your shares, we must pay you no less than others” (Best Price). It rejects the notion that Best Price also means “we must buy everyone’s tendered shares.”

“Validly tendered” and Letters of Transmittal

Tender offers typically require shareholders to certify—through a Letter of Transmittal—that they have authority to transfer the shares and that the shares are not encumbered. If those certifications are untrue because of contractual transfer restrictions, the offeror may treat the tender as invalid.

Transfer restrictions, lockups, earnouts, and forfeiture provisions

These are private contractual mechanisms (often governed by state law) that can limit a shareholder’s ability to sell or transfer shares for a period of time, or that condition vesting/retention of shares on price or performance. Here, the SSA restricted transfer and provided for forfeiture if the change-of-control price was below $15.00.

5. Conclusion

The Third Circuit’s decision in Pawneet Abramowski v. Nuvei Corp. draws a clear boundary around the SEC’s Best Price Rule: it is a parity-of-price rule for shares that are “taken up and paid for,” not a federal mandate requiring an acquirer to purchase every tendered share regardless of state-law transfer restrictions or tender-offer validity conditions.

By treating the Rule’s silence as dispositive—and by anchoring its reading in the Williams Act’s “taken up and paid for” text—the court preserves the central investor-protection function of the Best Price Rule while preventing it from becoming a vehicle to override private ordering in share-transferability. The message to future litigants is straightforward: disputes about whether restricted or forfeitable shares can be tendered are primarily matters of contract and corporate law, not automatic Best Price Rule violations.