EMPLOYEES' RETIREMENT SYSTEM OF THE STATE OF RHODE ISLAND, Plaintiff - Appellant,
THE WILLIAMS COMPANIES, INC.; WILLIAMS PARTNERS L.P.; WILLIAMS PARTNERS GP, LLC; ALAN S. ARMSTRONG; DONALD R. CHAPPEL, Defendants - Appellees. and MICHAEL ERBER, Plaintiff,
from the United States District Court for the Northern
District of Oklahoma (D.C. No. 4:16-CV-00131-JHP-FHM)
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),
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
LUCERO, BALDOCK, and HARTZ, Circuit Judges.
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.
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, 627 F.3d 1178, 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." Id.
(internal quotation marks omitted). In securities cases it is
not unusual to consider "documents incorporated by
reference into the complaint, public documents filed with the
SEC [Securities and Exchange Commission], and documents the
plaintiffs relied upon in bringing suit." Slater v.
A.G. Edwards & Sons, Inc., 719 F.3d 1190, 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,
489 F.3d 499, 511 (2d Cir. 2007). But "such documents
may properly be considered only for what they contain, not to
prove the truth of their contents." Id.
(citation and internal quotation marks omitted).
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
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
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
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.
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 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."
Id. at A106.
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." Id. at A35. 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.
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 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
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
(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 . . . .
Id. at A134.
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.
Id. at A146. 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.
Id. at A151. 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
Id. Williams also 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, " id. at A159,
included "[s]atisfaction of the conditions to the
completion of the proposed merger, including approval by
Williams stockholders, " id. "Given the
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
than 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 strayed from holding
its operating assets in master limited partnerships rather
than directly-an arrangement that allegedly provided various
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.
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