FILED
                                                                 United States Court of Appeals
                                      PUBLISH                            Tenth Circuit

                      UNITED STATES COURT OF APPEALS                     May 11, 2018

                                                                     Elisabeth A. Shumaker
                             FOR THE TENTH CIRCUIT                       Clerk of Court
                         _________________________________

EMPLOYEES’ RETIREMENT SYSTEM
OF THE STATE OF RHODE ISLAND,

      Plaintiff - Appellant,

and

MICHAEL ERBER,

      Plaintiff,
                                                           No. 17-5034
v.

THE WILLIAMS COMPANIES, INC.;
WILLIAMS PARTNERS L.P.;
WILLIAMS PARTNERS GP, LLC;
ALAN S. ARMSTRONG; DONALD R.
CHAPPEL,

      Defendants - Appellees.
                      _________________________________

                     Appeal from the United States District Court
                       for the Northern District of Oklahoma
                        (D.C. No. 4:16-CV-00131-JHP-FHM)
                       _________________________________

Ira A. Schochet, Labaton Sucharow LLP, New York, New York (Joel H. Bernstein,
Michael W. Stocker, Eric J. Belfi and Eric D. Gottlieb, Labaton, Sucharow LLP, New
York, New York, and William B. Federman and Joshua D. Wells, Federman &
Sherwood, Oklahoma City, Oklahoma, with him on the briefs), for Plaintiff-Appellant.

Sandra C. Goldstein, Cravath, Swaine & Moore LLP, New York, New York (Antony L.
Ryan, Cravath, Swaine & Moore LLP, New York, New York, and Michael J. Gibbens,
Elliot P. Anderson, Crowe & Dunlevy, P.C., Tulsa, Oklahoma, and Mary H. Tolbert,
Oklahoma City, Oklahoma, with her on the brief), for Defendants-Appellees.
                         _________________________________

Before LUCERO, BALDOCK, and HARTZ, Circuit Judges.
                  _________________________________

HARTZ, Circuit Judge.
                         _________________________________

       Employees’ Retirement System of the State of Rhode Island (Plaintiff) appeals the

dismissal of its amended complaint (the Complaint) in a putative class-action suit. It

alleges violations of federal securities law because of the failure to disclose merger

discussions that affected the value of its investment. Exercising jurisdiction under 28

U.S.C. § 1291, we affirm. The Complaint fails to adequately allege facts establishing a

duty to disclose the discussions, the materiality of the discussions, or the requisite

scienter in failing to disclose the discussions.

       I.     FACTUAL ALLEGATIONS

       Before setting forth the factual background, we should explain the sources we rely

on. As a general rule, the only facts we consider in assessing the sufficiency of a

complaint are those alleged in the complaint itself. See Gee v. Pacheco, 

,

1186 (10th Cir. 2010). On occasion, however, it is proper to look beyond the complaint,

and this appeal presents such an occasion. We have recognized that we may consider

“documents that the complaint incorporates by reference,” “documents referred to in the

complaint if the documents are central to the plaintiff’s claim and the parties do not

dispute the documents’ authenticity,” and “matters of which a court may take judicial

notice.” 

marks omitted). In securities cases it is not unusual to

consider “documents incorporated by reference into the complaint, public documents


                                               2
filed with the SEC [Securities and Exchange Commission], and documents the plaintiffs

relied upon in bringing suit.” Slater v. A.G. Edwards & Sons, Inc., 

, 1196

(10th Cir. 2013). We may look to the contents of a referenced document itself rather than

solely to what the complaint alleges the contents to be. See Roth v. Jennings, 

, 511 (2d Cir. 2007). But “such documents may properly be considered only for what

they contain, not to prove the truth of their contents.” 

internal quotation

marks omitted).

         In this case, the Complaint acknowledges that its allegations derive in part from

“regulatory filings with the SEC” and “press releases and media reports,” Aplt. App. at

A22; and it specifically cites several filings and public statements, including a press

release and a transcript of a meeting with security analysts. The following summary

relies for the most part on the specific allegations in the Complaint; but we supplement

those allegations with additional properly referenced material, indicating when we do so.

         Defendant Williams Companies, Inc. (Williams) is an energy company. At the

times material to the Complaint, its president and chief executive officer (CEO) was

Defendant Alan Armstrong and its chief financial officer (CFO) was Defendant Donald

Chappel. Armstrong also served on its board of directors. Defendant Williams Partners

GP LLC (Williams Partners GP) is a limited-liability company owned by Williams.

Armstrong was chairman of the board and CEO; and Chappel was CFO and a director.

Defendant Williams Partners L.P. (WPZ) is a master limited partnership, whose general

partner was Williams Partners GP. Williams owned 60% of WPZ’s limited-partnership

units.


                                               3
       Plaintiff’s case centers on merger discussions between Williams and Energy

Transfer Equity L.P. (ETE), a competing energy firm. The members of the putative class

purchased units of WPZ between May 13, 2015 (when Williams announced that it

planned to merge with WPZ) and June 19, 2015 (when ETE announced that, despite

having been rebuffed by Williams, it would seek to merge with Williams and that such a

merger would preclude the merger with WPZ). The value of the units dropped

significantly after this announcement. Ultimately, ETE merged with Williams and the

proposed WPZ merger was not consummated. The Complaint alleges that the class

members paid an excessive price for WPZ units because Williams had not disclosed

during the class period its merger discussions with ETE.

       Those discussions began in early 2014 when Kelcy Warren, the chairman and

board of directors of LE GP, LLC, the general partner of ETE, contacted Williams’ CEO

Armstrong to informally express ETE’s interest in exploring a merger. Armstrong said

he would take any offer to the Williams board of directors. Although not alleged in the

Complaint, the SEC Form S-4 registration statement filed by ETE (in connection with the

ETE merger with Williams) disclosed that Armstrong told Warren that he did not believe

that Williams was interested in a deal.

       Nine months later, ETE conveyed another expression of interest to Williams’

financial advisor Barclays Capital. Williams’ board retained Barclays and legal counsel

to provide guidance on ETE’s interest in a merger. After a special meeting of the board

in early December 2014, it decided that “it was not in the best interest of [Williams]

stockholders to engage in discussions with ETE at that time,” Aplt. App. at A33, although


                                             4
it requested its management and Barclays to further study ETE (as well as other strategic

opportunities). Then in January the board agreed to obtain more details about ETE’s

interest in a combination with Williams after completion of a pending merger between

WPZ and a company called Access Midstream Partners (AMP). Accordingly, in

February 2015, after the AMP merger, Defendant Armstrong reached out to Warren.

Armstrong reiterated that he would convey any offer to Williams’ board. The S-4 adds

that Armstrong also told Warren that Williams “was not seeking a combination” but

“always considers strategic proposals.” 

      On May 6, Armstrong and Warren met again, with Defendant Chappel and a

colleague of Warren also present. The Complaint describes the meeting as ending with

ETE’s informal proposal to merge still “open.” 

The description in the S-4 is

less upbeat. According to that report, the ETE representatives suggested the logic of

combining Williams’s natural-gas assets with ETE’s diversified portfolio of energy assets

and Armstrong pointed out the strength of Williams’s focus on natural-gas infrastructure.

Armstrong said he would discuss with his board any offer made by Warren, Warren said

that ETE would not make an offer unless Armstrong supported it, and an offer from ETE

was neither made nor requested.

      In the meantime, Williams was pursuing a plan to acquire WPZ in full (it already

owned 60% of the units). On May 12 the Williams board met with WPZ executives and

advisers to discuss Williams’ possible acquisition of the remainder of WPZ’s outstanding

units. The boards of both companies unanimously approved the merger that day and the

companies entered into a merger agreement. Williams would no longer be a holding


                                            5
company that owned shares in WPZ but instead would directly incorporate WPZ into its

structure. According to the Complaint, this absorption of a master limited partnership

and consolidation of its assets into a single operating entity has since been adopted by

several energy-infrastructure companies—but at the time only one company had done so

(about a year before Williams made its decision).

       The next day, a joint press release announced the Williams-WPZ merger,

Defendants conducted a presentation to securities analysts (the Analysts Presentation),

and WPZ filed a Form 8-K with the SEC. The Form 8-K set forth the conditions for the

merger:

       (i) the approval and adoption of the Merger Agreement and the Merger by
       holders of at least a majority of the outstanding WPZ [limited-partnership
       units]; (ii) [obtaining] all material required governmental consents . . . ;
       (iii) the absence of legal injunctions or impediments . . . ; (iv) the
       effectiveness of a registration statement on Form S-4. . . ; (v) approval of
       the listing on the New York Stock Exchange . . . ; (vi) the affirmative vote
       of the holders of the majority of the aggregate voting power present at the
       [Williams] Stockholder Meeting . . . ; and (vii) the affirmative vote of the
       holders of a majority of the outstanding shares of [Williams] Common
       Stock . . . .

       At the Analyst Presentation, representatives of Williams and WPZ discussed the

proposed merger and answered questions. Defendant Armstrong began his remarks with

enthusiasm:

       Really glad to have everybody here today. And I have a very genuine smile
       on my face today as we completed I think what is a fantastic transaction for
       us, and really simplifying and really being—positioning us to extend the
       duration of the great growth trajectory we’ve got in front of us.




                                             6


Defendant Chappel provided a detailed discussion of the proposed merger.

After describing the financial advantages of the merger and its financial projections, he

discussed the timing of the merger, stating:

       We would expect to complete and file the initial S-4 filing with the SEC
       during the month of June. We would then work through SEC comments.
       That would go effective. We’d have a mailing to Williams shareholders
       and then a shareholder vote and closing in the third quarter of 2015.

He concluded by saying that there was one condition of the merger—the

approval of those holding WPZ units—that would not be problematic:

       There’s no risk around the WPZ vote because Williams has [a] majority of
       the votes, so the outcome of the WPZ vote is already known.

gave a slide presentation providing supplemental information regarding

the merger. The slides made a number of cautionary remarks about the deal. Notably, a

list of “[s]pecific factors that could cause actual results to differ from results

contemplated by the forward-looking statements,” 

included “[s]atisfaction of

the conditions to the completion of the proposed merger, including approval by Williams

stockholders,” 

uncertainties and risk factors that could cause our actual

results to differ materially from those contained in any forward-looking statement,”

Williams advised investors “not to unduly rely on our forward-looking statement.” 

a week after the public announcement, ETE presented a written offer to

acquire Williams. ETE included a condition to its offer that had never been brought up in

prior discussions: ETE would not merge with Williams if Williams merged with WPZ.

The Complaint alleges that this condition was unsurprising because ETE had never




                                               7
strayed from holding its operating assets in master limited partnerships rather than

directly—an arrangement that allegedly provided various financial advantages.

       After considering the offer for a month, Williams rejected it on Sunday, June 21,

sending ETE a letter explaining that ETE’s proposal undervalued Williams. Also that

day, Williams issued a press release announcing that it had authorized a process to

explore a range of strategic alternatives following an unsolicited acquisition offer. The

press release did not identify ETE as the offeror.

       On Monday, ETE issued a press release disclosing its interest in merging with

Williams and stating that its proposal would be a better deal for Williams’ investors than

the merger of Williams with WPZ. The public announcement had a significant effect on

the value of WPZ units, which dropped 7.6% from the Friday close.

       On September 25, Williams’ board of directors voted (with Defendant Armstrong

in the minority) to merge with ETE. (ETE’s S-4 revealed that the board vote was 8–5.)

To effectuate the merger, Williams terminated its agreement with WPZ. The Complaint

includes no allegations about how the board came to accept the ETE offer during the

three months from June 22 to September 25. According to a detailed and lengthy

discussion in the S-4, however, Williams’ board examined a variety of strategic

possibilities, including mergers with a number of other companies. It narrowed its

options to ETE and two other parties, both of which had proposed mergers with Williams

without requiring termination of the proposed merger of Williams and WPZ.

       Plaintiff filed suit on March 7, 2016. It filed the amended complaint (the

Complaint) on August 31, 2016. The Complaint alleges that Defendants’ failure to


                                             8
disclose the merger discussions with ETE violated sections 10(b) and 20(a) of the

Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and SEC Rule 10b-5, 17

C.F.R. § 240.10b-5.

       II.    DISCUSSION

              A.      Standard of Review and Legal Background

       “We review de novo the grant of a Rule 12(b)(6) motion to dismiss for failure to

state a claim.” 

. “To survive a motion to dismiss, a complaint

must contain sufficient factual matter, accepted as true, to state a claim to relief that is

plausible on its face.” Ashcroft v. Iqbal, 

, 678 (2009) (internal quotation

marks omitted). “A claim has facial plausibility when the plaintiff pleads factual content

that allows the court to draw the reasonable inference that the defendant is liable for the

misconduct alleged.” 

Complaint asserts a claim under the Securities Exchange Act,

it must also satisfy the requirements of the Private Securities Litigation Reform Act

(PSLRA), 15 U.S.C. § 78u-4. “The enactment of the PSLRA in 1995 marked a bipartisan

effort to curb abuse in private securities lawsuits, particularly the filing of strike suits.”

City of Philadelphia v. Fleming Cos., Inc., 

, 1258 (10th Cir. 2001) (internal

quotation marks omitted). The statute “was intended to eliminate some of the abuses

experienced in private securities litigation, such as the routine filing of lawsuits whenever

there is a significant change in an issuer’s stock price, the abuse of the discovery process

to impose costs so burdensome that it is often economical for the victimized party to

settle, and the manipulation by class action lawyers of the clients they purportedly


                                                9
represent.” 

(ellipsis and internal quotation marks omitted). With respect

to pleading, the PSLRA requires that allegations of misrepresentation must satisfy a

heightened standard: “[T]he complaint must ‘specify each statement alleged to have been

misleading, the reasons why the statement is misleading, and, if an allegation regarding

the statement or omission is made on information and belief, the complaint shall state

with particularity all facts on which [the plaintiff’s] belief is formed.’” In re Gold Res.

Corp. Sec. Litig., 

, 1108–09 (10th Cir. 2015) (quoting 15 U.S.C. § 78u-

4(b)(1)(B)).

         Section 10(b) of the Securities Exchange Act prohibits “any manipulative or

deceptive device or contrivance in contravention of [SEC] rules and regulations.” 15

U.S.C. § 78j(b).1 “Rule 10b–5 implements this provision.” SEC v. Zandford, 

, 819 (2002). The rule makes it unlawful “(a) [t]o employ any device, scheme, or

artifice to defraud, (b) [t]o make any untrue statement of a material fact or to omit to state

1
    The complete language is as follows:

     It shall be unlawful for any person, directly or indirectly, by the use of any means or
     instrumentality of interstate commerce or of the mails, or of any facility of any
     national securities exchange—
         ...
         (b) To use or employ, in connection with the purchase or sale of any security
         registered on a national securities exchange or any security not so registered, or
         any securities-based swap agreement any manipulative or deceptive device or
         contrivance in contravention of such rules and regulations as the Commission may
         prescribe as necessary or appropriate in the public interest or for the protection of
         investors.

15 U.S.C. § 78j.




                                              10
a material fact necessary in order to make the statements made, in the light of the

circumstances under which they were made, not misleading, or (c) [t]o engage in any act,

practice, or course of business which operates or would operate as a fraud or deceit upon

any person, in connection with the purchase or sale of any security.” 17 C.F.R.

§ 240.10b–5. To state a claim under Rule 10b–5, a plaintiff must allege: “(1) a

misleading statement or omission of a material fact; (2) made in connection with the

purchase or sale of securities; (3) with intent to defraud or recklessness; (4) reliance; and

(5) damages.” Grossman v. Novell, Inc., 

, 1118 (10th Cir. 1997). In

addition, when the claim is for omission of a material fact, the plaintiff must show that

the defendant had a duty to disclose the omitted information. See 

        Liability under § 20(a) of the 1934 Securities Exchange Act is derivative of

another person’s liability under the Act. Section 20(a) provides that “a person who

controls a party that commits a violation of securities laws may be held jointly and

severally liable with the primary violator.” Maher v. Durango Metals, Inc., 

, 1304–05 (10th Cir. 1998) (“[T]o state a prima facie case of control person liability,

the plaintiff must establish (1) a primary violation of the securities laws and (2) ‘control’

over the primary violator by the alleged controlling person.”). Because Plaintiff’s claim

under § 20(a) is premised on the claim that Defendants violated § 10(b), our rejection of

the latter claim necessarily disposes of the former as well.

              B.     Plaintiff’s Claims

       Plaintiff seeks to represent purchasers of WPZ stock from May 13, 2015, through

June 19, 2015. It alleges one misleading statement at the Analysts Presentation (on the


                                             11
first day of the class period) and one omission of a material fact at that time. The alleged

misleading statement was that the Williams-WPZ merger was a done deal, there being

“no risk” that it would not be consummated. The alleged omission was the failure to

disclose that Williams and ETE had been having discussions about a potential merger

that would prevent the WPZ merger. Plaintiff contends that as a result of Defendants’

alleged deception, the members of the putative class overpaid for units in WPZ, as shown

by the sharp drop in the value of those units when ETE’s merger discussions with

Williams were eventually announced on June 22 (the first business day after the class

period).

       The district court properly dismissed the claim based on the alleged misleading

statement because the allegation is based on a mischaracterization of what Defendants

said. As for the alleged material omission, we affirm on three grounds: (1) Defendants

had no duty to disclose the merger discussions with ETE; (2) even if there was a duty to

disclose, Plaintiff failed to adequately allege that the discussions were material; and (3)

even if Defendants had a duty to disclose and the discussions were material, Plaintiff

failed to adequately allege that Defendants possessed the requisite scienter when failing

to disclose the merger discussions.

                     1)     The Alleged No-Risk Statement

       Plaintiff asserts that the prospect of a merger of Williams with ETE placed the

consummation of the Williams-WPZ merger in doubt, yet Defendants publicly

announced at the Analysts Presentation that the Williams-WPZ merger was a done deal,

even going so far as to say that the Williams-WPZ merger was a “no-risk” proposition.


                                             12
In support of this contention, the Complaint alleges that Defendants referred to the

merger in the past tense, announcing that the merger was a “transaction [that Williams

and WPZ] just got done,” one that had already been “completed” and “finished.” Aplt

App. at A46–47. According to Plaintiff, “Reasonable investors would understand . . .

[these statements to mean that] the conditions for [completion of the Williams-WPZ

merger] were mere formalities . . . [and] that Defendants were unaware of any material

risk to consummation of the merger.” Aplt. Reply Br. at 13.

       A reasonable person, however, would not interpret Defendants statements at the

Analysts Presentation as saying more had happened than had actually happened. After

all, a lot had happened. Those who ran the affairs of Williams and WPZ had agreed on a

detailed plan to merge the two entities. When Defendants spoke in the past tense, they

were clearly referring to what had been agreed upon. They were not saying, as Plaintiff

would have it, that the merger had been consummated. On the contrary, they made quite

explicit what further steps were necessary.

       And, contrary to Plaintiff’s assertion, no one said that “there existed no present

facts—‘no risk’—that posed a danger of an adverse result.” Aplt. Br. at 47. Defendants

noted a number of factors that could prevent their predictions from coming true and

cautioned investors “not to unduly rely on our forward-looking statement.” Aplt. App. at

A159. Plaintiff misleadingly extracts the “no risk” comment from a statement Defendant

Chappel made about the steps that needed to be taken to effectuate the merger. Chappel

closed his remarks at the Analysts Presentation by stating that Williams was expecting to

(1) “complete and file the initial S-4 filing with the SEC during the month of June”;


                                              13
(2) “work through SEC comments”; and then (3) “have a mailing to Williams

shareholders and then a shareholder vote and closing in the third quarter of 2015.” 

He then stated: “There’s no risk around the WPZ vote because Williams has [a]

majority of the votes, so the outcome of the WPZ vote is already known.” 

Chappel did not state that any other element of the merger was guaranteed.

Indeed, by pointing out that one element was “no risk,” he was implying that there was a

risk with respect to each of the other elements.

       In short, the Complaint does not adequately allege that Defendants falsely

communicated that the WPZ merger would certainly take place.

                     2)     Failure to Disclose Merger Discussions with ETE

        Among the elements of a claim under Rule 10b-5 for failure to disclose are

(1) that the defendant had a duty to disclose the information, (2) that the undisclosed

information was material, and (3) that the defendant acted with the requisite scienter. See

, 1125. In our view, the Complaint failed on each of these

elements. It did not adequately allege that Defendants had a duty to disclose the merger

discussions, that the discussions were material, or that Defendants acted with the requisite

scienter. We start with duty.

                            a.     Duty to Disclose at Time of Announcement of WPZ
                                   Merger

       Defendants had no duty under the securities laws to disclose the merger talks with

ETE when it announced the planned Williams-WPZ merger, even if the existence of such

talks was material information. Rule 10b–5 does “not create an affirmative duty to



                                             14
disclose any and all material information. Disclosure is required under [the Rule] only

when necessary to make statements made, in the light of the circumstances in which they

were made, not misleading.” Matrixx Initiatives, Inc. v. Siracusano, 

, 44

(2011) (ellipsis and internal quotation marks omitted); see McDonald v. Kinder-Morgan,

Inc., 

, 998 (10th Cir. 2002) (“[A] duty to disclose arises only where both the

statement made is material, and the omitted fact is material to the statement in that it

alters the meaning of the statement.” (emphasis added) (brackets and internal quotation

marks omitted)). “[S]ilence, absent a duty to disclose[,] cannot serve as the basis for

liability under Rule 10b–5.” 

(internal quotation marks

omitted). And “a duty to disclose under § 10(b) does not arise from the mere possession

of nonpublic market information.” Chiarella v. United States, 

, 235 (1980).

       Defendants made no statement about the prospects of Williams merging with any

other companies when the Williams-WPZ merger was announced. There was therefore

no need to disclose the discussions with ETE “to make . . . statements made, in the light

of the circumstances in which they were made, not misleading.” 

.

Two opinions of other circuits support, and illustrate, the proposition.

       In Brody v. Transitional Hospitals Corp., 

(9th Cir. 2002), the

plaintiffs had sold shares in the defendant company after the company issued a press

release describing its plans to buy back hundreds of thousands of its shares. The

plaintiffs complained that the press release had not also disclosed that other companies

had submitted proposals to acquire the defendant (which presumably would have

increased the value of the shares). See 

1006–07. The Ninth Circuit rejected


                                             15
the plaintiffs’ contention that “once a disclosure is made, there is a duty to make it

complete and accurate.” 

(internal quotation marks omitted). “This

proposition,” said the court, “has no support in the case law.” 

“prohibit[s] only misleading and untrue statements, not statements that are incomplete.”

actionable under the securities laws, an omission must be misleading; in other

words it must affirmatively create an impression of a state of affairs that differs in a

material way from the one that actually exists.” 

that statements be

“complete” would be to impose an excessive burden since “[n]o matter how detailed and

accurate disclosure statements are, there are likely to be additional details that could have

been disclosed but were not.” 

concluded that plaintiffs had no claim: “If

the press release had affirmatively intimated that no merger was imminent, it may well

have been misleading. The actual press release, however, neither stated nor implied

anything regarding a merger.” 

Circuit reached the same conclusion in Glazer v. Formica Corp., 

(2d Cir. 1992). The defendant corporation issued two press releases on the

same day, announcing that it was rejecting the offer of a leveraged buyout from the

plaintiffs but would consider “any legitimate acquisition proposal.” 

Not

mentioned in the releases was that the company had already begun meeting with other

companies and investment banks to discuss being acquired. See 

One of

these discussions ripened into a leveraged-buyout (LBO) agreement. See 

time, however, the plaintiffs had already sold their shares in the defendant at a

substantially lower price than the ultimate acquisition price. They filed suit, claiming


                                              16
that the defendant corporation intentionally withheld information about buyout

negotiations in order to depress its stock and to deter other acquirers. See 

The

Second Circuit concluded that the corporation did not have a duty to disclose its

negotiations with the investment banks and other companies. See 

“[T]he mere

fact that exploration of merger or LBO possibilities may have reached a stage where that

information may be considered material does not, of itself, mean that the companies have

a duty to disclose.” 

its two press releases, the corporation made no other

public statements about its merger discussions. See 

was entirely

consistent with the press releases it did issue. It alerted the public that it would consider

any serious merger proposal, and its private negotiations with an investment bank were

consistent with that announcement. See 

of the Defendants in this case said anything at the Analysts

Presentation that was inconsistent with Williams having received overtures from ETE.

They spoke only about the merger in which Williams would absorb WPZ. They did not

mention other potential transactions that might occur—or that it had conducted, or had

not conducted, merger discussions with other firms. In particular, they did not state that

the Williams-WPZ deal would be exclusive of any other merger. What they did say did

not create a duty to disclose conversations with ETE. Disclosing that Defendants had

engaged in talks with ETE would not “alter[] the meaning” of any of the statements made

about the Williams-WPZ deal. 

.

       Plaintiff contends that our decision in Hassig v. Pearson, 

, 646 (10th

Cir. 1977), establishes that Defendants had a duty to disclose the possibility of a merger.


                                              17
The plaintiff in Hassig owned stock in a local bank whose shares were closely held. See

He apparently had sought business counseling on occasion from the

defendant, who was president of the bank and, with his wife, owned about half the shares.

See 

course of several years, he had discussions about the possibility of

selling his shares with the defendant. See 

In May or June of 1972, when

the plaintiff told the defendant that he wished to sell his stock for $125 a share, the

defendant expressed no opinion on the value but said that he was not interested “because

he had control, and was giving consideration to retiring and selling his own stock.” 

A few months later the plaintiff asked the defendant if he knew of a buyer and said

he was anxious to sell his stock. See 

the defendant, who again

mentioned that he was considering selling his interest in the bank, said he knew of a

buyer, and the plaintiff sold his shares. See 

suffered some medical

problems the next month, precipitating his agreement to seriously consider selling the

shares. See 

was consummated in March 1973, shortly after the parties

settled on the details of the transaction, including the price of $243 per share. See 

describes as an “essential fact” that the defendant was considering whether

or not to sell his shares in the bank when the plaintiff had a conversation with him about

selling the plaintiff’s shares. 

(internal quotation marks omitted). But Plaintiff

reads too much into that statement. Our opinion says nothing about duties to disclose;

and there was no need to determine whether the defendant had a duty to disclose his

intent to sell (or even the materiality of that intent), because there was no dispute that this

had in fact been disclosed. Moreover, we affirmed a judgment in favor of the defendant.


                                              18
See 

Thus, the language of Hassig relied on by Plaintiff is, at best, dictum

confined to a specific, unusual fact situation. It would be a stretch too far to say that

Hassig stands for the proposition that there is always a freestanding duty to disclose the

possibility of a merger (or other disposition of the controlling interest of a company).

       Plaintiff alternatively contends that Defendants had a duty to disclose the ETE

discussions because their assertion at the Analysts Presentation that the WPZ merger was

a done deal was a material statement that was misleading in the absence of disclosure of

the merger conversations with ETE. But as already explained above, Defendants made

no such assertion. On the contrary, they described a number of conditions that had to be

satisfied for the merger to take place and they made several cautionary statements. The

only condition of the merger described as “no risk” was the vote of approval by WPZ,

which was controlled by Williams.

       The case before us is readily distinguishable from another case relied upon by

Plaintiff, Nakkhumpun v. Taylor, 

(10th Cir. 2015). The defendants in that

case misled investors regarding the value of a company when it was announced that a

deal to purchase a large share of the company’s core asset had fallen through. The

announcement said that “[w]hile [the other company] was unable to arrange financing for

the transaction on terms acceptable to us, we remain confident in the value of our . . .

asset.” 

(internal quotation marks omitted). Omitted from the announcement

was that the reason the purchaser had backed out was that it had decided that the asset

was worth far less than the purchase price. See 

Thus, the announcement

gave a misleading account of why the deal had not been consummated. This is in stark


                                              19
contrast to the case before us, where nothing was communicated by Defendants at the

Analysts Presentation that was inconsistent with there having been merger conversations

between Williams and ETE.

                            b.     Duty to Update Defendants’ Statements

       Plaintiff argues in the alternative that even if Defendants were not required to

disclose any information about Williams’ discussions with ETE during the mid-May

Analysts Presentation, they were required to update their disclosures a few days later

when ETE made a formal proposal to Williams. Whether there is ever such a duty to

update is uncertain. We suggested the possibility when we once stated that if a

defendant’s statement “later turns out to be false, the defendant may be under a duty to

correct any misleading impression left by the statement.” 

.

Other circuits are divided. Compare Finnerty v. Stiefel Labs., Inc., 

, 1317–

18 (11th Cir. 2014) (defendant, which had a 162-year history as a private firm and had

previously made statements that it would “continue to be privately held,” had a duty to

update by disclosing that it had begun merger negotiations), and United States v. Schiff,

, 170 (3d Cir. 2010) (concluding that a “narrow” duty to update may arise

when a company makes an initial statement that concerns “fundamental changes” in the

nature of the company and “subsequent events produce an extreme or radical change in

the continuing validity of that initial statement” (emphasis, brackets, and internal

quotation marks omitted)), with Gallagher v. Abbott Labs., 

, 808 (7th Cir.

2001) (“We do not have a system of continuous disclosure.” ); 

(“[A] statement

may be ‘corrected’ only if it was incorrect when made . . . .”).


                                             20
       We need not decide this issue today. Even if there is a duty to update in some

circumstances, there was no duty here. Defendants would have a duty to disclose ETE’s

formal proposal only if they had said something at the Analysts Presentation that was

rendered false by the ETE proposal. But they had not. Their statements were consistent

with the possibility that the WPZ merger would have to be cancelled because of a future

event, such as a merger with an outside entity. That this possibility was now more likely

would affect the materiality analysis, but not the existence of a duty.

                            c.     Materiality of Williams’ Early Discussions with
                                   ETE

       We also hold that the existence of the early merger discussions was not material

information. Information is material “only if a reasonable investor would consider it

important in determining whether to buy or sell stock.” 

(internal

quotation marks omitted).

       Whether the prospect of a merger is material information has been an important

recurring issue in federal court. The Supreme Court addressed the issue in Basic Inc. v.

Levinson, 

(1988). Although the defendant, Basic, had been in merger

discussions with a competitor for two years, it had made three public statements during

that period in which it denied that it was engaged in merger negotiations. See 

It then suspended trading in its shares, issued a public announcement that it had been

approached by another company concerning a merger, and accepted the competitor’s

merger offer the next day. See 

The plaintiffs, who had sold their stock

during the two-year period in which Basic had denied engaging in merger discussions,



                                             21
accused Basic of making misleading statements to depress its stock price. See 

29.

       The Supreme Court noted that the “application of [the] materiality standard to

preliminary merger discussions is not self-evident.” 

It said that when an

“event is contingent or speculative in nature, it is difficult to ascertain whether the

‘reasonable investor’ would have considered the omitted information significant at the

time,” and that “[m]erger negotiations, because of the ever-present possibility that the

contemplated transaction will not be effectuated, fall into [that] category.” 

the proper approach, the Court rejected two bright-line tests for

evaluating the materiality of merger discussions. One was the “agreement in principle”

test, which limited disclosures by holding that merger negotiations “by definition” could

not be material if the parties had not agreed on the price and structure of the transaction.

The test had three policy justifications: avoiding overwhelming investors

with excessive information, preserving confidentiality of merger discussions, and

providing a clear rule for determining when disclosure is appropriate. 

was

not persuaded. It rejected the notion that merger discussions were so inherently tentative

and risky that requiring disclosure of any preliminary discussions could mislead

investors. See 

The materiality requirement was designed to “filter out

essentially useless information,” not to assume that investors have a “child-like

simplicity” and are unable to grasp the “probabilistic significance of negotiations.” 

a corporation’s need to keep preliminary discussions confidential, “[t]he ‘secrecy’

rationale is simply inapposite to the definition of materiality,” and is “more properly


                                              22
considered under the rubric of an issuer’s duty to disclose.” 

Finally, the Court

stressed that while any bright-line rule for materiality would be easier to follow, “ease of

application alone is not an excuse for ignoring the purposes of the Securities Acts.” 

Determining materiality “requires delicate assessments of the inferences a

reasonable shareholder would draw from a given set of facts and the significance of those

inferences.” 

internal quotation marks omitted). Any rule “that

designates a single fact or occurrence as always determinative of an inherently fact-

specific finding such as materiality, must necessarily be overinclusive or underinclusive.”

bright-line test rejected by the court was that merger discussions are

automatically material if the company has denied their existence. See 

But that

test fails to recognize that materiality is an element of the claim in addition to falsity. To

be actionable under Rule 10b-5, a statement must be “misleading as to a material fact. It

is not enough that a statement is false or incomplete, if the misrepresented fact is

otherwise insignificant.” 

       After rejecting these bright-line rules, the Supreme Court adopted the

“probability/magnitude” test for determining when preliminary merger discussions are

material. 

test the courts analyze the probability that a merger will succeed

and the magnitude of the transaction. See 

The inquiry is fact-specific. See 

the probability that the event will occur, a factfinder will need to look to

indicia of interest in the transaction at the highest corporate levels,” such as “board

resolutions, instructions to investment bankers, and actual negotiations between


                                              23
principals or their intermediaries.” 

The magnitude of a transaction may be

indicated by “the size of the two corporate entities” and “the potential premiums over

market value.” 

stressed that “[n]o particular event or factor short of

closing the transaction need be either necessary or sufficient by itself to render merger

discussions material.” 

remanded the case for reconsideration under the

proper materiality standard.

       Two decisions by fellow circuits illustrate that merger discussions are generally

not material in the absence of a serious commitment to consummate the transaction. In

Jackvony v. RIHT Financial Corp., 

, 415 (1st Cir. 1989) (Breyer, J.), the

First Circuit affirmed a directed verdict because no reasonable juror could conclude that

the preliminary merger plans and negotiations were material. The defendant, Hospital

Trust, had begun considering a merger with a competitor. Senior management had

described the Trust as an attractive “takeover candidate,” it received at least two

expressions of interest from other banks, some of its officials had expressed the view that

it needed four times its present assets to survive, and its general counsel had prepared a

position paper and recommended acquiring outside services relating to a possible merger.

But those facts did not make the discussions material. “For one thing,”

said the court, “the evidence shows no more than the type of concern about possible

acquisition that many large companies frequently express; it reveals no concrete offers,

specific discussions, or anything more than vague expressions of interest.” 

(emphasis added). The court explained: “For large corporations to make public

announcements every time directors discuss any such matter in terms as vague as those


                                             24
presented in this evidence or receive ‘tentative feelers’ of the general sort revealed by this

evidence would more likely confuse, than inform, the marketplace.” 

       A similar analysis and conclusion appears in Taylor v. First Union Corp. of S.C.,

, 244 (4th Cir. 1988). Two banks in separate states discussed the possibility

of a merger across state lines if such mergers became lawful. See 

At the time,

the Supreme Court was considering in Northeast Bancorp, Inc., v. Board of Governors of

the Federal Reserve System, 

, 178 (1985), whether interstate banking was

legal. See 

–43. The Fourth Circuit concluded that the merger

discussions were too “preliminary, contingent, and speculative” to be considered

material. 

The parties had not agreed to the price or structure of the merger,

and there was “no evidence of board resolutions, actual negotiations, or instructions to

investment bankers to facilitate a merger.” 

The court cautioned that

“[t]hose in business routinely discuss and exchange information on matters which may or

may not eventuate in some future agreement,” and “[n]ot every such business

conversation gives rise to legal obligations.” 

(citations omitted). “The

materiality of information concerning a proposed merger is directly related to the

likelihood the merger will be accomplished; the more tentative the discussions the less

useful such information will be to a reasonable investor in reaching a decision.” 

“To hold otherwise would result in endless and bewildering guesses as to the

need for disclosure, operate as a deterrent to the legitimate conduct of corporate

operations, and threaten to bury the shareholders in an avalanche of trivial information;


                                             25
the very perils that the limit on disclosure imposed by the materiality requirement serves

to avoid.” 

(internal quotation marks omitted).

       Guided by these decisions, we readily conclude that Williams’ talks with ETE

before May 12 were not material. Plaintiff must allege facts showing the likelihood of

both a Williams-ETE merger and a substantial impact on WPZ unitholders resulting from

a merger. The Complaint fails in both respects.

       First, the Complaint does not plausibly allege that a Williams-ETE merger was

likely when the Analysts Presentation statements were made. It mentions conversations

and the willingness of Williams’ executives to convey offers to its board. But it fails to

allege any “concrete offers, specific discussions, or anything more than vague

expressions of interest.” 

. Although it alleges that the

Williams’ board began examining strategic opportunities, it does not allege that this

examination focused on just ETE or even just mergers. Nothing alleged in the Complaint

contradicts, or is even inconsistent with, (1) the assertion in the S-4 that Armstrong’s

statement in response to the first overture in early 2014 was that “he did not believe

[Williams] was interested in a combination,” Aplt. App. at A105; (2) Armstrong’s

repetition of that statement on February 13 and March 2, 2015—telling ETE that

Williams “was not seeking a combination,” 

(3) the statement in the S-4 that

the dinner meeting in May 2015 ended without any offer being made by ETE or any

request for an offer made by Williams, see id.; or (4) the statement in ETE’s press release

of June 22, 2015, that up until then “Williams’ management has inexplicably ignored

ETE’s efforts to engage in a discussion with Williams regarding a transaction that


                                             26
presents a compelling value proposition for its stockholders,” 

It is not

enough that the allegations of the Complaint are “merely consistent with” there being a

serious commitment to merge the two companies. 

(internal

quotation marks omitted). The allegations here are fully consistent with there being no

commitment whatsoever.

       In addition, merger discussions between Williams and ETE would be material

information to WPZ investors only if they thought that the merger would substantially

affect the value of WPZ units. The Complaint suggests that investors would be

concerned about an ETE merger because it would require termination of the merger

between Williams and WPZ. But it does not allege that ETE had ever indicated before

the Analysts Presentation that it could not tolerate the WPZ merger. The Complaint

simply notes some advantages of retaining WPZ as a master limited partnership and

points out that only one major energy company had chosen to consolidate in that manner,

having done so in 2014. But as Williams pointed out at the Analysts Presentation, there

can also be advantages to consolidation, the advantages and disadvantages depend on the

particular circumstances of the master limited partnership, consolidation of WPZ with

Williams looked advantageous at that time, and Williams might create or acquire other

2
   The second sentence of the Complaint states: “Lead Plaintiff’s information and belief
is based upon counsel’s investigation, which includes review and analysis of:
(a) regulatory filings with the [SEC]; (b) press releases and media reports; (c) securities
analyst reports; (e) [sic] other public information; and (f) analysis of the foregoing by a
consulting expert.” Aplt. App. at A22. It appears that the Plaintiff’s allegations
regarding the discussions between ETE and Williams are founded on the S-4 and ETE’s
press release. We think it ironic that Plaintiff has built its failure-to-disclose-material-
information allegations on statements cherry-picked from these documents, which present
a quite different picture when read in their entirety.

                                            27
master limited partnerships in the future. Although the Complaint suggests reasons why

ETE might look unfavorably on the WPZ merger if it were to combine with Williams, it

only speculates that WPZ investors would reasonably view such a combination as fatal to

the WPZ merger.

       In short, under the probability/magnitude test the allegations of the Complaint do

not present a plausible claim that the existence of merger conversations between

Williams and ETE before the Analysts Presentation was a material fact to WPZ

unitholders.

       Plaintiff cites Castellano v. Young & Rubicam, Inc., 

(2d Cir. 2001),

in support of its materiality argument. But that case is distinguishable on two grounds.

First, the merger discussions in Castellano were significantly further advanced than in

our case. Second, and perhaps more importantly, what was material in that case was that

there had been any serious efforts to restructure the closely held company, whereas in this

case Plaintiff was not concerned about any old merger but only a merger with ETE–

because that was the only merger that could undercut the WPZ merger.

       In Castellano the plaintiff was an executive and one of the largest shareholders of

the defendant, a privately held advertising agency. See 

The other shares

were held only by a select group of employees, and no one could sell or transfer shares

without first offering them to the company. See 

The company had a falling out

with the plaintiff. See 

It could force his ouster but only on one year’s

notice, so it was trying to persuade him to resign. See 

180. If a shareholder’s

employment ended, the company could purchase the shares for their book value at the


                                             28
end of the prior year, which was approximately the company’s net income per share for

that year. See 

The final sticking point in the departure negotiations was

settling on the terms for buying the plaintiff’s stock. See 

his concerns was

that his retirement would cause him to “lose the opportunity to profit as an equity holder

if [the company] went public.” 

the company “assured him [it] was not

going to go public and that nothing was going to change in the near future.” 

marks omitted). But he still insisted, and received, some protection if the

company went public in the next 20 months and the value of the shares increased above

book value. See 

on April 1, 1996. See 

was not told is that the company had been engaged in serious

negotiations to restructure the company. In August 1995 the company had commenced

merger negotiations with a publicly traded competitor. See 

The company

hired an investment banker to assist, but the two companies were unable to come to

terms, and negotiations ended in late 1995. See 

same period the company

was also consulting with the same investment banker to evaluate the possibility of having

an initial public offering (IPO) to become a publicly traded company. See 

December the investment banker advised against an IPO but suggested a leveraged

recapitalization and arranged a meeting in early 1996 with an LBO firm. See 

and the company entered into a confidentiality agreement, and they retained outside

accountants and lawyers to conduct due diligence. See 

Executives of the

company had daily meetings for several weeks to discuss the transaction. See 

1996 the LBO firm told the company it was “considering a transaction that would


                                            29
price [the company’s] equity at double its current book value”; but the investment banker

reported on March 31 (the day before the plaintiff resigned) that its analysis suggested

that the shares should be worth even more. 

When the LBO firm formally

offered the proposal, the company rejected it as inadequate. See 

another LBO firm began in June, and in August 1996 the company reached an agreement

with that firm that gave the company’s shareholders 2.4 times the book value per share

received by the plaintiff. See 

Circuit held that a jury could properly determine that these prior

negotiations, even though unsuccessful, were material. The discussions about a merger

could be found to demonstrate that the “company’s intention to merge or undertake other

restructuring has moved beyond its incipient stages and ripened into purposeful action,

and that the company has been a plausible merger candidate in the judgment of at least

one potential partner,” which would “significantly alter[] the total mix of information

available,” particularly when this would have been the first occasion that the company

“had ever considered transferring equity to an outsider.” 

As for the

discussions with the leveraged-buyout firm, they were also material given the magnitude

of the transaction (“potentially leading to a doubling or tripling of the value of

[shareholders’] holdings”) and the seriousness of the company’s involvement, including

the “intense attention” of the company’s executives, its “engagement of law firms and

investment bankers, and the parties’ entrance into a confidentiality agreement and

extensive due diligence.” 

                                             30
       Castellano is at best a distant relative of this case. The merger and leveraged-

buyout discussions in Castellano were much more advanced than the brief, informal

conversations and communications between ETE and Williams before the Analysts

Presentation, which involved no confidentiality agreements, no exchanges of financial

information, and no offers. And even Williams’ general interest in hearing proposals for

strategic opportunities was of little relevance to Plaintiff. Plaintiff’s concern was having

the WPZ merger consummated, and the only threat to consummation that it has identified

among the possible strategic opportunities was a merger with ETE.

       We also quickly dispose of Plaintiff’s contention that our opinion in Hassig, 

, supports its materiality argument. Our analysis of duty earlier in this opinion

discussed Hassig at some length. We repeat that one should not read too much into

dictum in that case, particularly when we conducted no probability/magnitude analysis.

Suffice it to say that Hassig does not require us to depart from the above analysis of

materiality in this case.

                            d.     Scienter

       Even if there was a duty to disclose and the challenged statements were material,

the Complaint suffers from another fatal defect: it fails to adequately allege that

Defendants acted with the requisite scienter—“intent to defraud or recklessness.”

. We have defined recklessness in this context as “conduct

that is an extreme departure from the standards of ordinary care, and which presents a

danger of misleading buyers or sellers that is either known to the defendant or is so

obvious that the actor must have been aware of it.” 

.


                                              31
       The PSLRA imposes a heightened pleading standard for scienter. “It is not

sufficient for a plaintiff to allege generally that the defendant acted with scienter

. . . . Rather, the plaintiff must, ‘with respect to each act or omission . . . , state with

particularity facts giving rise to a strong inference that the defendant acted with the

required state of mind.’” Gold Res. 

(quoting 15 U.S.C. § 78u–

4(b)(2)(A)) (emphasis added). We consider “not only inferences urged by the plaintiff

. . . but also competing inferences rationally drawn from the facts alleged.” Tellabs, Inc.

v. Makor Issues & Rights, Ltd., 

, 314 (2007). “[A]n inference of scienter

must be more than merely plausible or reasonable—it must be cogent and at least as

compelling as any opposing inference of nonfraudulent intent.” 

Defendants’ scienter we look only to material facts “reasonably

available” to them by the time of the Analysts Presentation. 

.

“Securities fraud cases often involve some more or less catastrophic event occurring

between the time the complained-of statement was made and the time a more sobering

truth is revealed (precipitating a drop in stock price).” 

marks

omitted). “In the face of such intervening events, a plaintiff must set forth, as part of the

circumstances constituting fraud, an explanation as to why the disputed statement was

untrue or misleading when made.” 

marks omitted).

       Plaintiff claims that Defendants acted with scienter when they failed to disclose

ETE’s overtures because they knew or recklessly disregarded the risk that (1) the

Williams-ETE merger would be approved and (2) a Williams-ETE deal would gravely

endanger the Williams-WPZ deal. We are not persuaded.


                                               32
       First, as explained above in the discussion of materiality, Plaintiff’s allegations fall

far short of establishing that it was likely that a merger with ETE would occur and would

put a kibosh on the WPZ merger. Given the small likelihood that the ETE contacts posed

a risk to the WPZ merger, one can hardly draw a “strong inference” that Defendants

intended to deceive investors by failing to disclose those contacts publicly or that

Defendants knew or must have been aware (because the conclusion was so obvious) that

a failure to disclose would mislead investors.

       Second, Plaintiff’s allegations of scienter are unpersuasive because the Complaint

fails to allege any plausible motive why Defendants would wish to mislead investors

about the prospects of the Williams-WPZ deal. Although the absence of an apparent

motive does not necessarily defeat a finding of scienter, it does make such a finding more

difficult to sustain. See In re Level 3 Commc’ns, Inc. Sec. Litig., 

, 1347

(10th Cir. 2012). The Complaint suggests no reason (other than a desire not to waste

everybody’s time) why Williams would not wish to disclose at the Analysts Presentation

that ETE had made overtures to Williams about a merger and that the WPZ merger would

be inconsistent with ETE’s business model at the time. Indeed, if Williams thought there

was a substantial likelihood that the WPZ merger would not go through, what would be

its motive to press forward on the transaction? The fact that it did press forward creates a

“strong inference” that it did not think the ETE overtures would lead to termination of the

consolidation, not a strong inference of the scienter that Plaintiff needs to establish.

       Plaintiff’s opening brief suggests that the Williams executives had a motive to

conceal the Williams-ETE merger discussions because their own jobs were at stake. But


                                              33
this self-interest is not alleged in the Complaint, so we decline to address the suggestion,

which probably lacks merit anyway. See 

(“Allegations that

merely charge that executives aim to prolong the benefits they hold are, standing alone,

insufficient to demonstrate the necessary strong inference of scienter. For this reason

assertions that a corporate officer or director committed fraud in order to retain an

executive position simply do not, in themselves, adequately plead motive.” (ellipsis and

internal quotation marks omitted)).

       We hold that the Complaint fails to adequately allege scienter.

       III.   CONCLUSION

       We AFFIRM the district court’s judgment.




                                             34