UNITED STATES COURT OF APPEALS FOR THE TENTH CIRCUIT

________________ _________________ UNITED FOOD AND COMMERCIAL WORKERS UNION LOCAL 880 PENSION FUND, individually and on behalf of all others similarly situated, Plaintiff - Appellant,

v. CHESAPEAKE ENERGY CORPORATION; AUBREY K. MCCLENDON; MARCUS C. ROWLAND; MICHAEL A. JOHNSON; RICHARD K. DAVIDSON; FRANK A. KEATING; BREENE M. KERR; CHARLES T. MAXWELL; DONALD L. NICKLES; FREDERICK B. WHITTERMORE; MERRILL A. MILLER, JR., Defendants - Appellees, and UBS INVESTMENT BANK; ABN AMRO; BANC OF AMERICA SECURITIES LLC; WELLS FARGO SECURITIES, Defendants. No. 13-6165 (D.C. No. 5:09- CV-01114-D)

________________ _________________ ORDER

________________ _________________ Before HARTZ , EBEL , and GORSUCH , Circuit Judges.

________________ _________________ FILED United States Court of Appeals Tenth Circuit 

### November 12, 2014
Elisabeth A. Shumaker Clerk of Court2 This matter is before us on appellant’s Petition for Rehearing and Rehearing En
Banc . We also have a response from the appell ees and the reply file d via our order dated October 3, 2014. Upon consideration, the re quest for panel rehearing is denied by the panel assigned to this appeal originally. All of the pleadings were also forwarded to all of the active judges of the court who were not recused. As no member of the original panel or any active judge called for a poll, the petiti on for en banc rehearing is likewise denied. The panel has, however, sua sponte made one small amendment to the original opinion at page 18. The amende d version of the decision is attached to this order. The clerk is directed to f ile the amended version nunc pro tunc to the original filing date of August 8, 2014.

Entered for the Court

ELISABETH A. SHUMAKER, ClerkPUBLISH UNITED STATES COURT OF APPEALS
TENTH CIRCUIT

UNITED FOOD AND COMMERCIAL WORKERS UNION LOCAL 880 PENSION FUND, individually and on behalf of all others similarly situated, Plaintiff - Appellant,

v. CHESAPEAKE ENERGY CORPORATION; AUBREY K. MCCLENDON; MARCUS C. ROWLAND; MICHAEL A. JOHNSON; FRANK A. KEATIN G; BREENE M. KERR; CHARLES T. MAXWELL; DONALD L. NICKLES; FREDERICK B. WHITTERMORE; MERRILL A. MILLER, JR., Defendants – Appellees,

and
UBS INVESTMENT BANK; ABN AMRO; BANC OF AMERICA SECURITIES LLC; WELLS FARGO SECURITIES,

Defendants

. No. 13-6165

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA (D.C. No. 5:09-CV-01114-D) FILED United States Court of Appeals Tenth Circuit 

### August 8, 2014
Elisabeth A. Shumaker Clerk of Court2 Steven F. Hubachek (Eric Al an Isaacson and James I. Jaconette, with him on the briefs), Robbins Geller Rudman & Dowd LLP, San Dieg o, California, for Plaintiff - Appellant. Robert P. Varian (Kenneth Herzinger, M. Todd Scott, Christin J. Hill, and Alexander K. Talarides, with him on the brief), Orrick, Herrington & Sutcliffe LLP, San Francisco, California, for Defendants - Appellees.

Before HARTZ , EBEL , and GORSUCH , Circuit Judges.

HARTZ, Circuit Judge.

In 2008 Chesapeake Energy Corporation was one of the largest producers of natural gas in the United States, with thousands of wells in se veral states. By early July of that year the price of natural gas had risen to its highest level since the end of 2005 and Chesapeake’s stock price had risen about 50% in the prior six months. Against that background, on July 9, 2008, Chesapeake sold 25 milli on shares of common stock in a public offering. Soon thereafter, a financial crisis rocked the global economy. The New York Stock Exchange Composite Index—tracking the exchange where Chesapeake was listed—fell more than 30% in the three months after the Chesapeake offering. Chesapeake was hit even hard er, with sharp drop s in the prices of natural gas and Chesapeake’s stock.3 United Food and Commercial Workers Union Local 880 Pe nsion Fund (Plaintiff), representing the class of all persons who purchased securitie s in the offering, contends that Chesapeake and named individual defend ants (collectively Chesapeake), violated §§ 11, 12(a)(2), and 15 of the Securitie s Act of 1933, 15 U.S.C. §§ 77k, 77 l (a)(2), and
77 o , because the Registration Statement for the offering was materially false and misleading. (Plaintiff also raised claims against other defendants associated with the underwriting of the offering.) According to Plaintiff, Chesap eake should have disclosed (1) that it had expanded a risky gas-price hedg ing strategy that made it vulnerable to a fall in natural-gas prices, and (2) that CEO Aubr ey McClendon had ple dged substantially all his company stock as security for margin loans and lacked th e resources to meet margin calls. The district court granted summary j udgment for Chesapeake. On June 21, 2013, the court dismissed the claims against the underwriter defendants without prejudice and granted a joint motion for entr y of judgment under Fed. R. Civ. P. 54(b) as to Chesapeake. Plaintiff appeals. Exercising jurisdiction unde r 28 U.S.C. § 1291, we affirm because Chesapeake’s alleged omi ssions were not material or misleading. I. BACKGROUND Chesapeake was the country’ s third-largest producer of natural gas at the time of the offering. It produced billions of cubic f eet of natural gas each day and had trillions of cubic feet of reserves. Its strategy was to focus on the discovery, acquisition, and development of natural gas in the United Stat es. Before the offering the company had4 increased production every year for 18 years, and in the first quarter of 2008 it had drilled hundreds of new wells. The stock offering was on July 9, 2008. Information about Chesapeake and the details of the offering were set forth in th e Registration Statement, which included a prospectus and incorporated by reference some of Chesapeake’s recent filings with the Securities and Exchange Commission (SEC). Chesapea ke sold 25 million shares of common stock in the offering. Natural-gas prices had been rising steepl y. From December 31 , 2007, to July 3, 2008, less than a week before the offering, the price had moved from $7.483 per million btu (British thermal units) to $13.577. Unsurp risingly, Chesapeake’s stock price had also risen. In the six months preceding the offe ring its stock price had increased by almost half. But the upward trends sharply reversed after the offering. In three months the price of natural gas fell about 45%, an index of stock in Chesapeake’s in dustry peers fell 56% , and Chesapeake’s stock fell about 70%. This suit originated in 2 009 when various parties filed complaints against Chesapeake and its investment bankers in the Southern Distri ct of New York. The district court consolidated the lawsuits and appointed Plaintiff to represent the class. Plaintiff filed its amended complaint on Sept ember 11, 2009. On Chesapeake’s motion, the case was transferred a month later to the Western District of Oklahoma. Chesapeake moved for summary judgment on December 28, 2011.5 The district court granted Chesapeake’s mo tion. It ruled (1) that the Registration Statement “disclosed in detail the risks asso ciated with Chesapeake ’s hedging strategy,” Order at 22, United Food & Commercial Workers Un ion v. Chesapeake Energy Corp. , No. CIV-09-1114-D (W.D. Okla. Mar. 29, 2013 ), (2) that Chesapeake had adequately disclosed that McClendon had pledged most of his shares as collateral, and (3) that additional disclosure about his financial resour ces was “beyond the scope of that which is reasonable because it requires speculation about unpredictable future events that could not be ascertained at the time of the Offering,” id. at 34. II. DISCUSSION “We review the district court’s grant of summary judgment de novo, applying the same standards that the district court should ha ve applied.” Merrifield v. Bd. of Cnty.
Comm’rs , 654 F.3d 1073, 1077 (1 0th Cir. 2011) (internal qu otation marks omitted). Summary judgment shall be granted if “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matte r of law.” Fed. R. Civ. P. 56(a). When considering a motion for summary judgmen t, “[w]e examine the record and all reasonable inferences that might be drawn fro m it in the light most favorable to the nonmoving party.” Merrifield , 654 F.3d at 1077 (i nternal quotation marks omitted). “We can affirm on any ground supported by the reco rd, so long as the appellant has had a fair opportunity to address that ground.” Id. (brackets and internal quotation marks omitted). A. The Applicable Statutes6 Plaintiff alleges violations of sections 11, 12(a)(2), and 15 of the Securities Act of 1933. Section 11 imposes liability on certain persons 1 “[i]n case any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to st ate a material fact required to be stated therein or necessary to make the statements therein no t misleading.” 15 U.S.C. § 77k(a). Plaintiffs “need not allege scienter, reliance, or loss causation.” In re Morgan Stanley Info. Fund Sec. Litig. , 592 F.3d 347, 359 (2d Cir. 2010). “A statemen t is material only if a reasonable investor would consider it important in determining whether to buy or sell stock.” McDonald v. Kinder-Morgan , Inc. , 287 F.3d 992, 998 (10th Cir. 2002) (internal quotation marks omitted). Aside from disclosures required by regulation, “[a] duty to disclose arises only where both the statement made is material, and the omitted fact is material to the

1 Persons subject to liability include: (1) every person who signed the regi stration statement; (2) every person who was a director of (or person perfo rming similar functions) or partner in the issuer at the time of the filing of the part of the registration statement with respect to which hi s liability is asserted; (3 ) every person who, with his consent, is named in the registra tion statement as being or about to become a director, person performing similar functions, or partner; (4) every accountant, engineer, or apprai ser, or any person whose profession gives authority to a statement made by him, who has with his consent been named as having prepared or certified a ny part of the registration statement, or as having prepared or certified any report or valuation which is used in connection with the registration statemen t, with respect to the statement in such registration statement, report, or valuation, which purports to have been prepared or certified by him; (5) every underwrite r with respect to such security. 15 U.S.C. § 77k(a).7 statement in that it alters th e meaning of the statement.” Id. (brackets and internal quotation marks omitted). An omission is mate rial only if disclosure of what is omitted would “significantly alter[] the tota l mix of information available.” Slater v. A.G. Edwards & Sons, Inc. , 719 F.3d 1190, 1197 (10th Cir. 20 13). Although the question of materiality is “usually reserv ed for the trier of fact, we do not hesitate to dismiss securities claims . . . where the alleged misstatements or om issions are plainly immaterial.” Id. (internal quotation marks omitted). Section 12(a)(2) similarly im poses liability on any person who “offers or sells a security . . . by means of a prospectus or or al communication, which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements, in light of the circumstances unde r which they were made, not misleading.” 15 U.S.C. § 77 l (a)(2). The definition of materiality is the same as under section 11 (and under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b)), see Morgan Stanley , 592 F.3d at 360, and the plaintiff, as with section 11, need not “allege scienter, reliance, or loss causation,” id. at 359. Together, the two sections impose liability for material misstatemen ts or omissions in a registra tion statement or prospectus for a stock offering. As the Second Circuit has put it: [T]he language of sections 11 and 12(a)(2) creates three potential bases for liability based on registration statemen ts and prospectuses filed with the SEC: (1) a misrepresentation; (2) an omission in contravention of an affirmative legal disclosure obligation; and (3) an omission of information that is necessary to pr event existing disclosures from being misleading. Id

. at 360.8 Section 15 states that “[e]very person who, by or through stock ownership, agency, or otherwise, . . . cont rols any person liable under sec tions [11 and 12], shall also be liable jointly and severally with and to th e same extent as such controlled person.” 15 U.S.C. § 77 o (a). In other words, section 15 allows “a person who cont rols a party that commits a violation of the secu rities laws” to “be held join tly and severally liable with the primary violator.” Maher v. Durango Metals, Inc. , 144 F.3d 1302, 1304–05 (10th Cir. 1998). Section 15 claims in this action thus depend upon the success of claims under sections 11 and 12(a)(2). Plaintiff argues that Chesapeake viol ated these securities laws because the materials it provided in conn ection with its public stock o ffering should have disclosed (1) that it had changed its risky hedging strategy and (2) that CEO McClendon had pledged substantially all his co mpany stock as security for margin loans and lacked the resources to meet margin calls . We turn first to the al legations involving hedging and then those involving McClendon ’s margin loans. For each claim we set out additional relevant background before disc ussing the merits of the claim. B. Hedging Strategy (Knockout Swaps) Chesapeake used a hedging strategy to manage pric e volatility in the market for natural gas. Hedging enables a seller to lo ck down how much it w ill earn when it sells its natural gas in the future so th at it does not have to worry ab out dramatic fluctuations in price. Perhaps to oversimplif y a bit, say Chesapeake wanted to be assured that when it sold a million Mcf (thousand cubic feet) of gas on a date 20 months in the future (the sale9 date), it would be paid $9 per Mcf (the fixed price). It could enter into a contract (wholly separate from Chesapeake’s sales of gas to customers) under which Chesapeake would receive from (or pay to) a third party (often a financial institu tion like Morgan Stanley or Lehman Brothers) the difference between the ma rket price of that quantity of gas on the sale date and the cost of that quantity at the fixed price. If the market price dropped below the fixed price, Chesap eake would be protected by a payment from the third party that equaled the difference between what it was paid on the market and what it would have been paid if the market price had been $9 per Mcf. On the other hand, if the market price on the sale date exceeded $9, Chesapeake would have to pay the third party the excess of what it was paid on the market ove r what it would have been paid at $9 per Mcf. These contracts—called swaps—matured up to 30 months in the future. Although the swaps stabilized Chesapeake’s financia l position and decreased its vulnerability to fluctuations in the price of natural gas, 2 the contracts in themselves could end up costing Chesapeake money. If, as already explained, the market price exceeded the fixed price, Chesapeake had to pay the other party to the swap contract. The loss on the swap contract essentially represents how much mo re Chesapeake could have earned by selling gas on the market without entering into a sw ap contract. One could say that swaps represented bets that the price of natural gas would not exceed the fixed price.

2 Swaps did not always work out as neatly as this idealized description. The Registration Statement explained that they exposed the comp any to additional risk in certain circumstances, such as if the other part y to the swap failed to perform.10 Chesapeake also entered in to more complicated hedging contracts. For example, it used knockout swaps, which were like ordi nary swaps except that the other party was excused from paying if the market price of na tural gas fell below a certain threshold (the knockout price) on the date of maturity. The knockout price was generally set about three dollars below the negotiated fixed pric e. Knockout swaps provided less protection from falling prices than ordinary swaps becaus e they did not limit Ch esapeake’s risk if the price of natural gas fell too far. In th at event Chesapeake woul d be left with the market price for its natural gas. On the ot her hand, the other party to a swap contract would pay Chesapeake more to enter into a contract with a knockout feature because of that added risk assumed by Ch esapeake. If ordinary swaps represented a bet that naturalgas prices would not exceed the fixed price, the knockout feature represented a bet that prices would not drop below the knockout price. Chesapeake had increased its income by hundreds of m illions of dollars through the use of knockout swaps. Its swaps had been “knocked out” by low natural-gas prices only four times before the offe ring. But when natural-gas pr ices fell dramatically in 2008, the knockout provision was expensive fo r Chesapeake. Plaintiff estimates that the losses exceeded $500 million. The Registration Statement included gene ral information about Chesapeake’s hedging strategy. It explained that when natural-gas prices rose, its hedging strategy would be costly: “[O]ur hedgi ng strategy allows us to predic t with greater certainty the effective natural gas and oil prices to be received for our hedged production,” but “can11 also limit the prices we actually realize for our natural gas and oil production and therefore reduce our natural gas and oil revenues in the future.” Aplt. App., Vol. II at 949. The Registration Statement also disclosed that because natural gas and oil prices had risen “dramatically” in 2008, its hedgi ng strategy had “negatively impacted our earnings in the first quarter of 2008 during which we incurred $1.1 billion of unrealized losses.” Id

. Not predicting the imminent fall in natu ral-gas prices, it assumed that prices would continue to rise and said that “we anticipate incurring additional substantial unrealized losses in the quarter ended June 30, 2008, and we expect such losses could result in our reporting negative revenues from natural gas and oil sales and will result in an overall net loss fo r such quarter.” Id

. Although absent from the Registration Statement itself, information about knockout swaps could be found in the SEC f ilings incorporated in the statement. Of those filings, the May 10-Q—a quarterly report with data through March 2008—provided the most recent disclosures ab out Chesapeake’s knockout swap s. It listed the volume of knockout swaps Chesapeake had entered into that would mature in 2008, 2009, and 2010, and stated the average fixed pr ice and the average knockout price for the contracts. Plaintiff argues that Chesapeake violat ed securities laws when its Registration Statement did not disclose that it had entered into more knockout swaps and raised the knockout prices after it filed the May 10 -Q. For specific data on the increase in knockout-swap volume and the increase in knockout prices after the May 10-Q and before the July offeri ng, Plaintiff points to Chesapeake’s August 8-K, which came out12 after the offering. (8-Ks are forms to notify investors of ce rtain events important to the company.) Plaintiff contends that Chesap eake’s failure to disclose these changes concealed two kinds of risk: (1) more swaps with knockout provisions meant increased vulnerability to a fall in natural-gas prices; a nd (2) the knockout swaps were riskier than they had been in the past b ecause they had higher knockout prices (natural-gas prices would not need to fall to as low a price befo re the knockout provis ion was triggered). According to Plaintiff, investors would ha ve wanted to know about Chesapeake’s increased emphasis on knockout swaps because “[w]hen natural gas pr ices hit a knockout price, the consequences are severe: the counterparty need not perform, and Chesapeake loses its hedged price.” Aplt. Br. at 39. It says that once Chesapeake chose to provide information about its knockout hedging strategy by incorporating the May 10-Q, “it had a duty to be bot h accurate and complete.” Id. at 38 (internal quotation marks omitted). We hold, however, that there was no violation of Chesapeake’s disclosure duties. We doubt that the Registration Statement was misleading. Certainly, Plaintiff has failed to support its claim that Chesapeake ch anged its knockout hedging strategy in the second quarter of
2008. In any event, Chesapeake had publicly di sclosed before the offering the gist of what was later disclo sed in the August 8-K. We look first at the Registration Statement and the documents it incorporates . Rather than indicating th at the May 10-Q, a quarterly report with data through the end of March 2008, reflected what Chesapeake’s hedging positions would be on Ju ly 9, 2008, the offering materi als signaled that Chesapeake’s13 hedging commitments and the value of its hedging contracts changed substantially over time. The most recent annual report said that “[c]omm odity markets are volatile and Chesapeake’s hedging activities are dynamic.” Defs.-Appellees Req. for Judicial Notice at 51, United Food & Commercial Workers Un ion v. Chesapeake Energy Corp. , No. 13-6165 (10th Cir. Dec. 9, 2013). The Registration Statement itself said that Chesapeake had “incurred $1.1 billion of unrealized losses” in the first quarter of 2008 and “we anticipate incurring additional substa ntial unrealized losses in the quarter ended June 30, 2008.” Aplt. App., Vol. II at 949. One could see the variability in hedging activity by comparing Chesapeake ’s most recent annual repor t (with data through 2007) with the May 10-Q (with data through March 2008): during the first quarter of 2008, Chesapeake had increased the volume of kn ockout swaps maturing in the fourth quarter of the year by 29% and its 20 09 knockout swaps by 84%. The authorities relied on by Plaintiff do not support its contention that Chesapeake’s disclosures were misleading. Plaintiff cites In re Lehman Brothers Securities & ERISA Litigation , 799 F. Supp. 2d 258 (S.D.N .Y 2011), for the proposition that “‘a statement regarding a company’s he dging strategy obliges it to disclose when it alters or suspends that strategy.’” Aplt. B r. at 46 (emphasis and internal quotation marks omitted) (quoting Lehman , 799 F. Supp. 2d at 283). But the opinion cannot be read as saying that disclosure is required of any a lteration in application of a hedging strategy that reportedly makes frequent adjustments in response to market conditions. The nondisclosure in Lehman was qualitatively far different from the alleged nondisclosure14 here. The defendants in Lehman allegedly did not disclose that they had repeatedly entered into a particular type of financia l transaction (called a “Repo 105,” which we need not define) whose sole purpose was to influence a financial metric called net leverage. See Lehman , 799 F. Supp. 2d at 269, 283. The metric mattered to investors “because it was an indicator of the company’s ability to absorb any lo sses sustained by its riskiest assets.” Id. at 269. Lehman Brothers disc ussed net leverage in its offering materials, and company officers mentioned it in oral statements, w ithout any disclosure that the company used short-term Repo 105 tr ansactions at the end of each financial quarter to “temporarily and artificially” im prove the net leverage announced in its quarterly reports. Id. at 283. In contrast, Chesapeake disclosed that it used knockout swaps and provided past financial statements that showed how the company historically used them. Plaintiff similarly cites Caiola v. Citibank, N.A. , 295 F.3d 312 (2d Cir. 2002), as establishing that “once [Chesapeake] chose to discuss its hedging strategy, it had a duty to be both accurate and complete.” Aplt. Br. at 38 (brackets omitted) (quoting Caiola , 295 F.3d at 331). But again Plaintiff read s too much into the court’s statement. Caiola was not requiring disclosure of every detail of a hedging strategy. In Caiola , which reversed the dismissal on the pleadings of a 1 0b-5 claim, Citibank alle gedly had agreed to perform a sophisticated type of hedging for a client but then ended the hedging without providing any notice. See 295 F.3d at 317–18. The clie nt entered into trades worth millions of dollars (and paid Citibank millions in commissions) with the expectation that15 he was protected from certain risks becau se Citibank was hedg ing his position. See id. at 318. The client alleged that he ultimately lost tens of millions of dollars pursuing an investment strategy that had become extremel y risky when Citibank secretly terminated the hedging program. See id. at 319. Citibank’s failure to inform its client that it had stopped hedging is a far cry from Chesapeake ’s failure to include the most recent information about its knockout hedges in the Registration Statement. Moreover, almost all the change in Chesapeake’s knock out-swap hedging was disclosed before the offering date in the May 8-K filed by Chesapeake with the SEC. To support its claims that the ch anges in the hedging were “dramatic,” Aplt. Br. at 37, and “substantial[],” id. at 38, Plaintiff’s brief compares the data in the May 10 -Q with the data in the August 8-K, which show ed that after the first qua rter of 2008 Chesapeake increased the volume of knockout swaps and the knockout prices. In the interval between the two reports Chesapeake increased the vo lume of swaps maturing in the last two quarters of 2008 by 12%, the volume of swap s in 2009 by 25%, an d the 2010 swaps by 61%. (The knockout prices are harder to compare because the 10- Q reports an average price while the 8-K reports a range.) Almost all these increases, how ever, are reported in the May 8-K. Between the May 8-K and the August 8-K the increase in volume was only 3% for 2009 swaps and there was no increase for 2010 swaps; 3 and the knockout-price

3 The comparison for 2008 swaps must take into account that some swaps matured in the interim. Although th e August 8-K shows a decrease of 26% from the May 8-K, the August 8-K reports on one fewer quarter. Neither report discloses swap volume by Continued . . .16 range increased by only 15% (one dollar) for 2 008 swaps and 3% (25 cents) for 2009 and 2010. The disclosures in th e three relevant reports are summarized in the following chart:

* 2008 volumes are not for the entire year (they include the last three quarters for the May filings and the last two

quarters for the August filing) ** Knockout price is reported as an aver age in the 10-Q and a range in the 8-K *** The 10-Q reports quarterly volumes in 2008 as follows: 2Q-60,380; 3Q-62,560; 4Q-63,810 **** 8-Ks report in billion cubic feet (bcf), which have been approximately converted to billion btu (bbtu) by multiplying by 1,023. Plaintiff argues that it is inappropriate to consider the May 8-K because it was not part of the offering materials. But the report is still relevant. The claim here is that Chesapeake failed to disclose material information, and “[m] ateriality . . . depends on the information that already ex ists in the market.” Slater , 719 F.3d at 1197. Undisclosed information is material only if its disclosure would have “s ignificantly altered the total mix of information available” to a reasonable investor. Id. (internal quotation marks omitted). Public documents are part of that total mix if an investor interested in a particular type of information about a co mpany would know of the existence of the

quarter; but the May 8-K shows swap volumes of about 24,000 bbtu maturing per month for the rest of 2008, and the monthly average in the August 8-K is about 28,000, about a 17% increase. The monthly increase between the May 10-Q and the May 8-K was about 15%. 2008* 2009 2010

Form Filing Date Reporting Through Swap Volume (bbtu) KO Price** Swap Volume (bbtu) KO Price** Swap Volume (bbtu) KO Price** 10-Q*** 5/12/08 3/31/08 186,750 6.22 280,100 6.13 109,500 6.13 8-K  5/2/08 5/1/08 191,301 5.45 to 6.50 339,636 5.45 to 7.25 175,956 5.45 to 7.25 8-K** ** 8/1/08 7/31/08 141,174 6.45 to 7.50 350,889 5.45 to 7.50 175,956 5.45 to 7.5017 record and could readily access it. See United Paperworkers Int’l Union v. Int’l Paper
Co. , 985 F.2d 1190, 1199 (2d Cir. 1993) (“The total mix of information may also include information already in the pub lic domain and facts known or reasonably available to the shareholders.” (internal qu otation marks omitted)); Garber v. Legg Mason, Inc. , 347 F. App’x 665, 668–69 (2d Cir. 2009); In re Keyspan Corp. Sec. Litig. , 383 F. Supp. 2d 358, 372–76 & n.6 (E.D.N.Y. 2003); Greenhouse v. MCG Capital Corp. , 392 F.3d 650, 656–57 (4th Cir. 2004). As Greenhouse observes, “[A] ‘reasonabl e investor’ is neither an ostrich, hiding her head in the sand from relevant information, nor a child, unable to understand the facts and risks of investing.” 392 F.3d at 656. Here, the May 8-K was readily available on the SEC website, a nd a reasonable investor interested in Chesapeake’s swap practices would know from prior 8-Ks that these disclosures provide the latest information on the subject. We recognize that in United Paperworkers the court refused to consider disclosures in a 10-K not subm itted to the shareholders with the proxy materials. But there were several circumstances diffe rent from what are present here. United Paperworkers concerned a proxy request to vote on a shareholder proposal to require the company to undertake certain environmental initiatives. Garber , 347 F. App’x at 669, distinguished United Paperworkers on the ground that it involved a proxy statement rather than a registration statement and inve stors would be likely to consider a wider universe of information when deciding wh ether to buy stock than when voting on a specific issue. Keyspan , 383 F. Supp. 2d at 374 n.6, further distinguished it on the18 grounds that it predated “the explosion in Internet availability” of SEC filings and involved an affirmatively misl eading representation rather th an a nondisclosure. Perhaps most significantly, in United Paperworkers the court reasoned that “a reasonable shareholder [voting on the environmental proposal, who] had read both the Proxy Statement and the annual re port would have received no indication that additional information pertinent to [the proposal] was available in the 10-K Report.” 985 F.2d at 1200. In contrast, here, as mentioned above, an interested investor would have clear notice that 8-Ks would report knockout-swap activity. Also distinguishable are the two cases cited by Plaintiff to support its view that the May 8-K should not be considered. In New Jersey Carpenters He alth Fund v. Royal Bank of Scotla nd Group, PLC , 709 F.3d 109, 126–27 (2d Cir. 2013), the court held that the defendant could not escape nondisclosure liability based on “sporadic news reports” that did not even supply the undisclosed information. Id. at 127 (internal quotation marks omitted). As for MidAmerica Federal Savings & Lo an Ass’n v. Shearson/American Express, Inc. , 886 F.2d 1249 (10th Cir. 1989), the clai m there (which was actually under the Oklahoma statutory equivalent to secti on 12(a)(2)) was based on an oral statement that was undeniably false. We did not addr ess the issue of materiality but held that liability for the false oral stat ement could not be escaped by the delivery of a prospectus (containing correct information) after the cu stomer had agreed to enter into the new investment strategy when the customer “had no reason to believe the prospectuses would reveal information that would radi cally change the transaction.” Id. at 1256. We are not19 holding that an outright false statement is im material if publicly available information contradicts it. What is involved here is a claim that accurately reported information must be updated; in this circumst ance, we think the “total mi x” includes readily available information providing that update. Finally, Plaintiff argues that summary j udgment was inappropriate on materiality because it offered expert testimony that the omissions were material, the stock price dropped after the August 8-K was released, a nd Chesapeake restructured its hedges in the fall of 2008 to avoid the consequences of fa lling gas prices. But none of that evidence can overcome the fact that the May 8-K supplied essentia lly all the information whose absence in the Registration Statement is th e basis of Plaintiff’s claim. Additional disclosure would not have “altered the total mi x of information available” to investors. Slater , 719 F.3d at 1197 (interna l quotation marks omitted). C. McClendon’s Margined Stock Chesapeake’s CEO at the time of the o ffering, Aubrey McClendon, owned more than 5% of the company. Most of his shares were held in margin accounts and pledged as collateral for hundreds of millions of dolla rs of loans. McClen don had purchased the shares on margin using borrowed money. So l ong as the price of Chesapeake stock rose, the shares provided sufficient collateral for the loans. In fact, the quantity of shares held in the accounts would be in excess of colla teral requirements and federal regulations would allow him to take excess cash or securities out of the margin accounts. See 12 C.F.R. § 220.4(e)(1), (2).20 Unfortunately for McClendon , Chesapeake stock plummeted during the financial crisis. Rather than enjoying excess collateral, he had to se ll nearly all his Chesapeake stock between October 8 and 10, 2008, to meet margin calls. These sales were disclosed after the market closed on October 10. Mc Clendon released a public statement saying: “These involuntary and unexpected sale s were precipitated by the extraordinary circumstances of the worldwide financial crisis . . . . In no way do these sales reflect my view of the company’s financial position or my view of Chesapeake’s future performance potential.” Aplt. App., Vol. II at 535 (inter nal quotation marks omitted). The closing price of Chesapeake’s stock declined from 27 .567 on October 3 to 15.7471 on Friday, October 10, although it boun ced back up to close at 20.5704 on October 14. Plaintiff argues that the Registration Stat ement was inadequate because it did not disclose that McClendon “had risked nearly all hi s Chesapeake shares on margin loans.” Aplt. Br. at 51. This failure to disclose, it argues, violated section 11 both because it was required by 17 C.F.R. § 229.4 03(b) (Item 403(b)) and because it made the Registration Statement misleading. See Slater, 719 F.3d at 1196 (liability under section 11 attaches “for omissions of facts that are required as part of a registration statement or those necessary to make the statement not misl eading”). We disagree. The Registration
Statement included the disclosure s about McClendon’s stock that are required by Item 403(b), and further disc losure was not required. To be sure, the disclo sures about McClendon’s hol dings were limited. The Registration Statement included an SEC form DEF 14A filed on Apr il 29, 2008, stating21 only that McClendon owned 29, 529,975 shares of Chesapeake (5.5% of the total shares outstanding) and that 29,332,493 of those shares were “held in bank or brokerage margin

accounts or escrow accounts s ecuring brokerage accounts.” Aplt. App., Vol. I at 177 n.(d). But Item 403(b) does not require much on form DEF 14A. It states in pertinent part: Security ownership of management. Fu rnish the following information, as of the most recent practicable date, in substantially the tabular form indicated . . . . Show [in the first two columns the class of stock and the name of the owner,] in co lumn (3) the tota l number of shares beneficially owned and in column (4) the percent of the class so owned. Of the number of shares shown in column (3), indi cate, by footnote or otherwise, the amount of shares that are pl edged as security . . . . 17 C.F.R. § 229.403(b). 4 Plaintiff contends that Chesapeake’s disclosure did not comply with Item 403(b) because the disclosure of how many shares McClendon held in margin accounts did not disclose how many shares were pledged as collateral. It correc tly points out that just because a security is held in a margin account does not mean th at it serves as collateral. See Capital Mgmt. Select Fund LTD. v. Bennett , 680 F.3d 214, 22 8 (2d Cir. 2012) (“Margin accounts move up or down with . . . the price moveme nts of the collateral. . . . [I]f [the broker] was not asking for more collatera l, some of [the clie nt’s] securities [held

4 These disclosure requirements apply “to each class of equity securities of the registrant or any of its parents or subsidiaries, incl uding directors’ qualifying shares, beneficially owned by all directors and nom inees, naming them, each of the named executive officers as defined in Item 402(a)(3) (§ 229.402(a)(3)), and directors and executive officers of the registrant as a group, without nami ng them.” 17 C.F.R. § 229.403(b).22 in margin accounts] were proba bly excess collateral.”). Fe deral regulations prescribe special rules for excess margin securities, which are define d as securities in a margin account “having a market value in excess of 140 percent of the total of the debit balances in the customer’s account . . . which the brok er or dealer identifies as not constituting margin securities.” 17 C.F.R. § 240.15c3-3(a )(5). And regulations provide that margin excess—securities or cash held in a margin acco unt that exceed collateral requirements— can be taken out of a margin account. See 12 C.F.R. § 220. 4(e)(1), (2). But while Plaintiff is correct that not all sh ares held in margin accounts necessarily serve as collateral, there is no merit to its claim that Chesapeake’s Item 403(b) disclosures were misleading. Item 403(b) requires disclosure of shares pledged as security and permits doing so “by footnote or otherwise.” Given that context, a reasonable investor would have understood that Chesapeake included its Schedule 14A footnote to satisfy the Item 403( b) obligation to report shares pledged as security. As Chesapeake explains, there is “no requirement that officers and directors list or describe the accounts in which th ey hold corporate stock.” Aplee. Br. at 33. The obvious purpose of the footnote was to fulf ill Chesapeake’s Item 403(b) obligation, not to needlessly inform investors about what types of accoun ts McClendon owned. Indeed, Plaintiff adopted this commonsense readin g of Chesapeake’s disclosure in the allegations of its amended complaint. Paragraph 34 of the ame nded complaint describes the disclosure as23 “the statement that Defendant McClendon had margined his stock.” 5 Aplt. App., Vol. I at
54. Nowhere does the complaint allege that the disclosure violated Item 403(b) or was misleading because it communica ted only which types of acc ounts McClendon’s shares were held in, without stating how many shar es were actually pledged as collateral. Rather than complain about la ck of disclosure of pledges, it complains of lack of disclosure of McClendon’s personal financial resources (which proved to be inadequate to protect against the need to sell stock on the market to cove r margin calls). But Item 403(b) does not require that.

5 In full, the relevant paragraph of the complaint reads as follows: The Registration Statement failed to disc lose the true risk and uncertainties concerning Defendant McClendon’s holdings of Chesapeake stock. Chesapeake’s Form 14A, da ted April 29, 2008, whic h was incorporated by reference in the Registration Statem ent, represented that Defendant McClendon beneficially controlled 29, 529,975 shares of Chesapeake stock and footnoted that 29,332[,]493 of t hose shares were “held in bank or brokerage margin accounts or escr ow accounts securing brokerage accounts.” This statemen t was an inaccurate statement of material fact because the Registration Statement fa iled to disclose that Defendant McClendon lacked the cash necessary to satisfy his margin loans such that if there was a significant decline in th e value of his investments, the stock would be seized and sold into the market, thereby causing a significant decline in the price of Chesap eake stock. Furthermore, the statement that Defendant McClendon had margined his stock did not fully and adequately advise investors of the true risks a nd uncertainties regarding this action. Indeed, investors did not know that Defendant McClendon lacked the financial resources necessary to satisfy his margins loans such that, if the value of his investments declined, his stock would be seized and sold into the market. Aplt. App., Vol. I at 53–54 (emphasis added).24 Far from being misleading, Chesapeake’s disclosure method was a conservative way to fulfill Item 403(b)’s requirement. S ecurities that are exce ss margin one day can become required collateral the next day if they decline in value. See Securities Credit Regulation § 3:53 ( 2d ed. 2013) (“If, as a result of changes in market values, the customer’s debit balance increas es . . . , the customer’s marg in excess is eliminated, and the amount is no longer available to the cust omer for new securities transactions or withdrawals.”). All shares held in margin accounts ar e vulnerable to margin calls, depending on movements in the market. The disclosure that Plaintiff insists on—listing exactly the number of shares serving as collateral at the moment of reporting—can understate risk by obscuring th e fact that other shares held in margin accounts might be needed as collateral in the future. Chesapeake’s failure to sp ecify how many of McClend on’s shares actively served as collateral was not a material omission because, if anythi ng, it provided an excessive warning of risk by overstating the number of collateralized sh ares. The purpose of the Item 403(b) disclosure was to alert investors to the possibility that McClendon’s interests were not aligned with their own. See 71 Fed. Reg. 53158, 53197 (Sept. 8, 2006) (because shares used as collateral “may be subject to material risk or contingencies that do not apply to other shares,” they “have the poten tial to influence management’s performance and decisions”). The amended complaint em phasized the importance of this purpose: [A]n investor knowing of McClendon’s personal financial risk might fear that McClendon would be motivated to cause Chesapeake to take shortterm risks in the hope of keeping stock prices high in the short-term at the25 expense of long-term growth . . . or to make large bonus payments to him if his personal investments sour. Aplt. Br. at 59. Item 403(b) disclosures al so alert investors to the possibility that a company’s stock price will fall because a large shareholder like McClendon may be forced to sell many shares at once. But a prudent investor worried about these risks would assume that all of McClendon’s shares held in margin accounts were pledged as collateral. A reasonable i nvestor would have understo od the risks inherent in McClendon’s margined-stock holdings based on Chesapeake’s disclosures. (Plaintiff does not argue that the omission was materi al because it could have made potential investors less likely to purchase shares.) Plaintiff argues, however, that even if Chesapeake complied with Item 403(b), it had an independent duty “to disclose that Mc Clendon lacked the resources to meet any potential margin call.” Id. at 67. Because McClendon l acked the necessary financial resources, he had to sell large numbers of shar es over a short period of time, presumably depressing the stock’s value. We reject Plaintiff’s argument that furthe r disclosure was required. The risk of margin calls and the consequent need of the ow ner of the stock to sell shares is obvious. Even the wealthiest investor could lack read ily available liquid assets to cover a large margin call, particularly when, as here, th e call comes when financial markets are frozen (meaning very few assets are truly liquid). No purpose would have been served by “disclosing” that McClendon might have to sell a large portion of the margined stock if26 the bottom dropped out of the ma rket. In a similar context, Judge Sweet noted that “‘[i]t is not a violation of any securities law to fail to disclose a result that is obvious even to a person with only an elementary unde rstanding of the stock market.’” Newman v. L.F. Rothschild, Unte rberg, Towbin , 651 F. Supp. 160, 164 (S.D.N.Y. 1986) (quoting Vaughn v. Teledyne, Inc. , 628 F.2d 1214, 1 220 (9th Cir. 1980)). In addition, the omission of informa tion regarding McClendon’s financial resources is actionable only if the omission was necessary to make something in the Registration Statement not misleading. See Slater , 719 F.3d at 1196. Yet Plaintiff has not pointed to what statement was misleading because of the absence of the disclosure. The Registration Statement contains no repres entation of McClendon’s capacity to cover margin calls with his financial resources. In Slater the plaintiff contended that the offering documents were mislea ding because they did not di sclose that the repurchase agreements entered into by the issuer of the stock had cross- default provisions (so that default on one constituted a default on the others). We reject ed the contention, explaining: [T]he Plaintiffs cannot show how the omission of the cross-default provisions made the statement misleadi ng. The statement merely mentions Thornburg’s dependence on repurchase agreements to borrow money and that a decline in the value of their AR M assets could trigger a margin call. There is no mention about the possibility of failing to meet a margin call or its consequences. Default, let alon e cascading default, is an entirely different subject that is not even bro ached in the statem ent. Because the statement gives no impression, one way or the other, about the effect on the company of failing to meet a margin ca ll, there is no basis for believing the statement was misleading.27 Slater , 719 F.3d at 1204. So here as well. In re Franchard Corp. , 42 S.E.C. 163, 1964 WL 6 7454 (July 31, 1964), relied on by Plaintiff, does not assist its cause. In that case the controllin g shareholder, whose reputation was the essential ingredient of th e stock offering, had engaged in extensive financial shenanigans, which, if disclosed, would have warn ed potential investors of his questionable character and the financial precariousness of the new company. Nothing remotely similar has ev en been alleged here. In short, we reject Plaintiff’s cont ention that the Registration Statement was misleading because of its failure to disclo se that McClendon lacked the financial resources to always be able to cover his ma rgin calls. The Registration Statement said nothing to the contrary and the risk was obvi ously inherent in the quantity of margined stock disclosed. III. CONCLUSION We AFFIRM the district court’s grant of summary judgment to Chesapeake. We GRANT Chesapeake’s request for judicial notice.