                 FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

CLAUDE A. REESE,                          No. 12-35260
                            Plaintiff,
                                         D.C. No. 2:08-cv-
                and                        01008-MJP

CITY OF EDINBURGH COUNCIL AS
ADMINISTERING AUTHORITY OF THE              OPINION
LOTHIAN PENSION FUND;
BANKINTER GESTION DE ACTIVOS
SGIIC; FRANKFURT TRUST
INVESTMENT-GESELLSCHAFT MBH;
FRANKFURTER-SERVICE
KAPITALANLAGE-GESELLSCHAFT
MBH; PIPEFITTERS LOCAL UNION
#537 TRUST FUNDS, individually
and on behalf of all others similarly
situated,
               Plaintiffs-Appellants,

                 v.

ROBERT A. MALONE,
                         Defendant,

JOHN BROWNE; BP PLC; BP
EXPLORATION (ALASKA), INC.;
MAUREEN L. JOHNSON; STEVEN
MARSHALL,
            Defendants-Appellees.
2                        REESE V. MALONE

          Appeal from the United States District Court
            for the Western District of Washington
          Marsha J. Pechman, District Judge, Presiding

                    Argued and Submitted
               May 9, 2013—Seattle, Washington

                     Filed February 13, 2014

     Before: Sidney R. Thomas and Jacqueline H. Nguyen,
     Circuit Judges, and Raymond J. Dearie, District Judge.*

                     Opinion by Judge Dearie


                           SUMMARY**


                         Securities Fraud

    The panel affirmed in part and reversed in part the district
court’s dismissal of a complaint under §§ 10(b), 18(a), and
20(a) of the Securities Exchange Act of 1934 and Rule 10b-5
by BP shareholders alleging that the company knowingly, or
with deliberate recklessness, made false and misleading
statements about the condition of Alaskan pipelines and the
company’s pipeline maintenance and leak detection practices
prior to and in the wake of an oil spill.


 *
   The Honorable Raymond J. Dearie, Senior United States District Judge
for the Eastern District of New York, sitting by designation.
  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                      REESE V. MALONE                         3

    The panel held that the plaintiffs adequately pled the
falsity and materiality of a statement about corrosion rate;
they also adequately pled scienter as to this statement. The
panel held that the plaintiffs adequately pled the falsity and
materiality of two statements distinguishing pipelines; they
also alleged with particularity facts giving rise to a strong
inference of scienter. The panel held that the plaintiffs did
not sufficiently allege scienter with respect to a statement
regarding BP’s “world class corrosion monitoring and leak
detection systems.” With respect to an annual report
statement regarding compliance with environmental laws and
regulations, the plaintiffs adequately pled both falsity and
scienter. The panel concluded that, under a holistic analysis,
the plaintiffs’ allegations of scienter combined to create a
strong inference of BP’s deliberate recklessness as to the false
or misleading nature of its public statements.


                         COUNSEL

Thomas A. Dubbs (argued), Javier Bleichmar, and Erin H.
Rump, Labaton Sucharow LLP, New York, New York;
Robert D. Stewart and Timothy Michael Moran, Kipling Law
Group PLLC, Seattle, Washington, for Plaintiffs-Appellants.

Richard C. Pepperman II (argued) and Patrick B. Berarducci,
Sullivan & Cromwell LLP, New York, New York; Diane L.
McGimsey, Sullivan & Cromwell LLP, Los Angeles,
California; David C. Lundsgaard, Graham & Dunn PC,
Seattle, Washington, for Defendants-Appellees.
4                    REESE V. MALONE

                         OPINION

DEARIE, Senior District Judge:

    In March of 2006, an oil leak in one of BP’s Alaskan
pipelines spilled approximately 200,000 gallons of oil onto
the Alaskan tundra. Despite BP’s public statements
suggesting that the spill was an anomaly, a second leak was
discovered five months later in a different BP oil transit line
in the region. As a result, the company temporarily shut
down regional operations.

    This class action complaint was filed by BP shareholders,
who allege that the company knowingly, or with deliberate
recklessness, made false and misleading statements about the
condition of the pipelines and BP’s pipeline maintenance and
leak detection practices prior to and in the wake of the first
spill. They seek relief under Sections 10(b), 18(a) and 20(a)
of the Securities Exchange Act of 1934, and Rule 10b–5, for
investment losses incurred when the second spill and
shutdown allegedly caused a four percent decline in BP’s
share price.

    The district court granted defendants’ motion to dismiss
with prejudice. Although the court found that some of the
statements were actionably false or misleading, it dismissed
the claims because plaintiffs did not plead facts sufficient to
show that the challenged statements gave rise to a strong
inference of scienter. We have jurisdiction pursuant to
28 U.S.C. § 1291, and we reverse in part and affirm in part.
                          REESE V. MALONE                                  5

                        I. BACKGROUND

      A. The Parties

    Plaintiffs-appellants (hereinafter “plaintiffs”) in this class
action are purchasers of BP’s common stock and American
Depository Receipts (“ADRs”) between June 30, 2005, and
August 4, 2006.1          Defendants-appellees (hereinafter
“defendants”) in this case are: (1) BP, the largest oil and gas
producer in the United States; (2) BP Exploration Alaska
(“BPXA”) (hereinafter “BP-Alaska”), a Delaware corporation
and wholly-owned subsidiary of BP based in Anchorage,
Alaska; (3) John Browne, BP’s CEO during the class period;
and (4) Maureen Johnson, BP-Alaska’s Senior Vice President
and Greater Prudhoe Bay Performance Unit Leader during the
class period.

      B. BP’s Corrosion Monitoring Practices and the
         Prudhoe Bay Spills

    Prudhoe Bay, the area where the spills took place, is
located on the Northern Slope of Alaska and contains more
than sixteen miles of oil transit lines (“OTLs”). BP-Alaska


  1
    On appeal, the only remaining plaintiffs are holders of BP’s ADRs.
“ADRs are issued by U.S. depository banks and represent ‘one or more
shares of foreign stock or a fraction of a share. If you own an ADR, you
have the right to obtain the foreign stock it represents.’” Morrison v. Nat’l
Australia Bank, 547 F.3d 167, 168 n.1 (2d Cir. 2008) (citing the U.S.
Securities & Exchange Commission website). The district court dismissed
claims brought by purchasers of BP’s ordinary shares, which trade only
on foreign exchanges. In doing so, the district court relied on the Supreme
Court’s decision in Morrison v. National Australia Bank, 130 S. Ct. 2869,
2884 (2010), which limited the extraterritorial jurisdiction of U.S.
securities laws. Plaintiffs do not appeal the ruling.
6                     REESE V. MALONE

operates “three similar low-stress pipelines” at Prudhoe
Bay—the Western Operating Area (“WOA”), the Eastern
Operating Area (“EOA”), and the Lisburne lines. There are
a variety of methods of maintaining pipelines, but the
principal process is called “pigging.” “Maintenance pigging”
consists of inserting a mechanical tool to clean the inside of
the pipeline and remove debris and undesirable material.
“Smart pigging” is used to detect the presence of cracks,
corrosion, and pitting within the pipeline. According to
media coverage and the company’s eventual admissions, BP
“pigged” the Prudhoe Bay OTLs infrequently and at a rate
that fell significantly below industry standards for this type of
pipeline. Instead, BP monitored for internal corrosion using
less accurate methods, including an ultrasonic device used to
measure the thickness of pipeline wall and “corrosion
coupons,” small metal plates placed inside the pipeline every
ninety days to inspect for corrosion.

    On March 2, 2006, an oil spill was discovered in the
WOA pipeline. Estimates suggest the leak went undetected
for at least five days, spilling approximately 4,800 barrels of
oil (about 200,000 gallons) onto the Alaskan tundra.
Subsequent investigation found that the leak was the result of
a quarter-inch wide hole in a pipeline caused by internal
corrosion. The second spill was discovered five months later
on August 5 and 6, 2006. This leak occurred in a different
corroded pipeline in the EOA, on the opposite side of
Prudhoe Bay, spilling another twenty-five barrels of oil
(about 1,000 gallons). Following the second spill, BP
temporarily shut down the Prudhoe Bay oil field, which
accounts for more than eight percent of total U.S. oil
production.
                         REESE V. MALONE                                 7

    The complaint alleges that BP had ample notice of, and
disregarded, corrosion monitoring deficiencies at Prudhoe
Bay. In 2001, the Alaska Department of Environmental
Conservation hired Coffman Engineers, Inc. (“Coffman”) to
evaluate a report BP submitted on its corrosion prevention
efforts. Coffman raised many questions about BP-Alaska’s
pigging practices and ultimately concluded that “the reporting
style makes it difficult to develop a qualitative understanding
of the basis for [BP’s] corrosion strategy.”2 Plaintiffs also
claim that BP’s Board of Directors was warned about the
severe corrosion problems at Prudhoe Bay in 2004, when
Chuck Hamel, an advocate for BP workers in Alaska, voiced
concerns about corrosion and environmental threats at
Prudhoe Bay. The warnings are documented in a letter from
Hamel to Walter Massey, the chairman of the environmental
committee of BP’s non-executive board of directors, advising
Massey of “serious corrosion” and predicting a “major
catastrophic event.”3

     C. Government Intervention

    The first spill on March 2, 2006, received significant
publicity and sparked immediate government intervention. It
quickly came to light that BP had not tested the integrity of
the WOA with a smart pig since 1998.




 2
   Plaintiffs also allege that BP intervened to have the report re-written,
and the questions about pigging were eliminated.
 3
   The correspondence was revealed through the media after the second
spill in August of 2006. The pertinent articles ran in the Financial Times
and on MSNBC.com.
8                    REESE V. MALONE

    On March 15, 2006, the U.S. Department of
Transportation Pipeline and Hazardous Materials Safety
Administration (“PHMSA”) issued a Corrective Action Order
(“CAO”) to BP-Alaska, addressed to defendant Maureen
Johnson, Greater Prudhoe Bay Performance Unit Leader.
The CAO preliminary findings identified six additional
“anomalies” of internal corrosion, including one area with
ninety percent corrosion and only 0.04 inches of wall
remaining. It also noted the similarities between the three
Prudhoe Bay Lines:

       The PBWOA [WOA line] is one of three
       similar low-stress pipelines operated by
       Respondent that feed into PS-1. . . All three
       pipelines were constructed around the same
       time, operate in similar environmental
       conditions, transport the same quality crude
       oil that contributed to the cause of the internal
       corrosion in PBWOA, and are operated and
       maintained in a similar manner by
       Respondent.

The order concluded that “continued operation of [BP’s]
WOA, EOA and Lisburne hazardous liquid pipelines without
corrective measures would be hazardous to life, property and
the environment.” It mandated several specific corrective
actions, including the requirement that BP inspect all three
lines with smart pigs within certain deadlines.

    Under the terms of the Corrective Action Order, BP had
three months to smart pig the EOA line by June 15, 2006. It
failed to do so. The FS2-FS1 segment of the EOA line was
not inspected until July 22, 2006, more than a month after the
deadline. The delayed results showed significant corrosion,
                       REESE V. MALONE                            9

including sixteen different corroded areas with wall loss
exceeding seventy percent, including two spots with greater
than eighty percent loss. One hundred eighty-seven tested
areas showed wall loss of close to fifty percent. As a result,
BP decided to bypass certain parts of the pipelines instead of
fixing them.

    The second leak, this time in the EOA transit line, was
discovered on August 5 and 6, 2006. In response, the
Pipeline and Hazardous Materials Safety Administration
issued Amendment No. 2 to the Corrective Action Order on
August 10, 2006, adding more stringent directives and
corrective actions including periodic reporting requirements
and tight deadlines.

    Both the Senate and the House of Representatives
launched investigations regarding the spills.4 On September
7, 2006, several BP executives were called to testify about the
shutdown of Prudhoe Bay at a hearing before the House
Subcommittee on Oversight and Investigations. During the
hearing, Richard C. Woolam, leader of the Corrosion
Inspection and Chemicals Group at BP-Alaska for many
years before the spills, was asked when he became aware of
the “pipeline integrity problems” at Prudhoe Bay, “including
concerns about accelerated localized corrosion, microbial
corrosion and [the fact] that the failure to send maintenance
pigs or smart pigs down the transmission lines was placing
those pipelines at high risk of failure.” Mr. Woolam invoked
the Fifth Amendment and refused to answer. Several parties
testified that BP’s maintenance practices deviated from
industry standards. PHMSA Administrator Thomas J. Barrett

 4
   On September 12, 2006, the Senate Committee on Energy and Natural
Resources held a hearing on the Prudhoe Bay spill and shutdown.
10                   REESE V. MALONE

stated, “Given the multiple risk factors for corrosion in the
Prudhoe Bay environment and the low velocities on these
lines, it is mystifying that BP did not run cleaning pigs
regularly on these transit lines. Most pipeline operators
demonstrate a higher standard of care than this regardless of
whether they are federally regulated or not.” Kevin Hostler,
President and CEO of Alyeska Pipeline Service, a pipeline
design, building, and maintenance company in Alaska,
testified that pigging is particularly important for low-stress
lines and should be part of a routine maintenance program.

    In October of 2007, BP-Alaska pled guilty to a
misdemeanor violation of the Clean Water Act, 33 U.S.C.
§§ 1319(c)(1), 1321(b)(3), for the negligent discharge of a
harmful quantity of oil to a water of the United States, and
agreed to pay a $20 million fine in settlement of federal and
state criminal violations. In the plea agreement, BP admitted
that it was aware of the corrosion in the WOA pipelines in
2005. BP also conceded knowledge of the company’s
“insufficient inspection data” on the EOA line and awareness
of sediment buildup in those pipelines prior to both spills.
With respect to the company’s corrosion monitoring
practices, BP also knew that the WOA line had not been
pigged since 1998, eight years before the leak, and that the
EOA line had not been pigged since 1990, sixteen years
before the leak.

   On March 31, 2009, both the Department of Justice
(“DOJ”) and the State of Alaska filed separate civil lawsuits.
The DOJ’s civil complaint was for violations of the Clean
Water Act, the Clean Air Act, and Federal Pipelines Safety
Laws. On July 20, 2011, BP-Alaska entered into a consent
decree to settle the claims, agreeing to pay $25 million in
                        REESE V. MALONE                            11

civil penalties and make $60 million in improvements to its
pipelines in Alaska.

    The State of Alaska’s civil suit addressed BP-Alaska’s
alleged violations of state laws mandating compliance with a
State-approved oil discharge prevention and contingency plan
(“the Plan”) and requirements for operating and maintaining
a leak detection system. The State’s complaint alleged that
BP-Alaska “failed to adequately monitor corrosion rates [and]
failed to adjust corrosion inhibitor levels in the OTLs”
pursuant to the Plan. State of Alaska Compl. ¶¶ 142–45.
With respect to BP’s failure to adequately monitor corrosion
rates, the State’s complaint relied on BP-Alaska’s October
2007 Guilty Plea to allege that BP “knew that it had
insufficient inspection data on the EOA OTL.” Id. ¶¶ 41, 50.
The State also pointed to BP-Alaska’s EOA Incident
Investigation Report, which concluded that the number of
ultrasonic thickness measurements collected by BP “were not
sufficient to accurately represent the true condition of the
line.” Id. ¶ 62.

     D. Procedural History

    Plaintiffs filed the complaint5 in 2008, alleging that
defendants made false and misleading statements in violation
of Sections 10(b), 18(a) and 20(a), and Rule 10b–5 of the
Securities Exchange Act of 1934. The United States District


 5
   The original complaint named as defendants BP, BP America Inc., BP-
Alaska, and four officers and/or directors of the companies, including
Maureen Johnson, John Browne, Steve Marshall, former director and head
of the Board of Directors environmental committee for BP-Alaska, and
Walter Massey, former director and head of the Board of Directors
environmental committee for BP-Alaska.
12                       REESE V. MALONE

Court for the Western District of Washington6 granted in part
and denied in part defendants’ motion to dismiss, finding only
one of the twenty-five statements to be actionable. That one
statement was contained in quarterly filings with the SEC,
made in connection with BP-Alaska’s obligations to its
shareholders, in which the company represented that it would
operate Prudhoe Bay pursuant to the “Prudent Operator
Standard.” Ruling on interlocutory appeal, a panel of this
Court reversed, concluding that “[BP-Alaska’s] contractual
promise to act as a prudent operator did not expressly or
implicitly assert that [BP-Alaska] was in full compliance with
its obligations thereunder . . . .” Reese v. BP Exploration
(Alaska) Inc., 643 F.3d 681, 693 (9th Cir. 2011). The Court
did not reach the issue of scienter.

    Plaintiffs’ First and Second Amended Complaints add
significant facts that came to light during the investigations
and lawsuits arising out of the spills. They focus on five
types of false or misleading statements: (i) a press statement
made by Johnson regarding the most recent inspection data
indicating that corrosion was occurring at a low and
manageable rate; (ii) two press statements by Johnson
suggesting that the March spill was anomalous and
distinguishing the WOA OTL conditions with those of the
other Prudhoe Bay pipelines; (iii) a statement by CEO
Browne at an April 2006 press conference stating that the first
spill occurred “in spite of the fact that [BP has] both world
class corrosion monitoring and leak detection systems”; (iv)
a statement in BP’s 2005 Annual Report stating that
management believed BP was in compliance, in all material


 6
   The case originated in the United States District Court for the Central
District of California and was subsequently transferred to the Western
District of Washington pursuant to 18 U.S.C. § 1404.
                       REESE V. MALONE                           13

respects, with applicable environmental laws and regulations;
and (v) statements in the 2004 and 2005 Annual Reports
touting BP’s “environmental best practices.”

    The district court dismissed the Second Amended
Complaint in its entirety with prejudice for failure to state a
claim. Although the court found that some of the statements
were actionably false, it dismissed the claims based on the
finding that plaintiffs did not plead facts giving rise to a
strong inference of scienter. The court concluded that the
Second Amended Complaint’s allegations “portray a
company that poorly understood the challenges it faced in
Prudhoe Bay, not one that engaged in securities fraud.” This
appeal followed.7

            II. THE PLEADING STANDARDS

     “We review de novo a district court’s grant of a motion to
dismiss for failure to state a claim under Federal Rule of Civil
Procedure 12(b)(6) and for failure to allege fraud with
particularity under Federal Rule of Civil Procedure 9(b). ”
WPP Luxembourg Gamma Three Sarl v. Spot Runner, Inc., et
al., 655 F.3d 1039, 1047 (9th Cir. 2011).

    A. The Dual Pleading Requirements

      Section 10(b) of the Securities Exchange Act of 1934
provides that it is unlawful “[t]o 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
. . . any manipulative or deceptive device or contrivance . . . .”

   7
      The fifth category of statements regarding “environmental best
practices” has been abandoned on appeal.
14                    REESE V. MALONE

15 U.S.C. § 78j(b). Pursuant to this section, the Securities
and Exchange Commission promulgated Rule 10b–5, which
makes it unlawful, among other things, “[t]o make any untrue
statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in the light
of the circumstances under which they were made, not
misleading.” 17 C.F.R. § 240.10b–5(b).

    To state a securities fraud claim, plaintiff must plead: “(1)
a material misrepresentation or omission by the defendant;
(2) scienter; (3) a connection between the misrepresentation
or omission and the purchase or sale of a security; (4) reliance
upon the misrepresentation or omission; (5) economic loss;
and (6) loss causation.” Thompson v. Paul, 547 F.3d 1055,
1061 (9th Cir. 2008) (quoting Stoneridge Inv. Partners, LLC
v. Scientific-Atlanta, Inc., 552 U.S. 148, 157 (2008)).

    At the pleading stage, a complaint stating claims under
Section 10(b) and Rule 10b–5 must satisfy the dual pleading
requirements of Federal Rule of Civil Procedure 9(b) and the
Private Securities Litigation Reform Act (“PSLRA”). In re
VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 694, 701 (9th
Cir. 2012). Under Rule 9(b), claims alleging fraud are
subject to a heightened pleading requirement, which requires
that a party “state with particularity the circumstances
constituting fraud or mistake.” Fed. R. Civ. P. 9(b). And
since 1995, all private securities fraud complaints are subject
to the “more exacting pleading requirements” of the PSLRA,
which require that the complaint plead with particularity both
falsity and scienter. Zucco Partners, LLC v. Digimarc Corp.,
552 F.3d 981, 990 (9th Cir. 2009).
                      REESE V. MALONE                        15

    B. Falsity and Materiality

    To plead falsity, the complaint must “specify each
statement alleged to have been misleading, [and] the reason
or reasons why the statement is misleading.” 15 U.S.C.
§ 78u–4(b)(1)(B). If an allegation regarding the statement or
omission is made on information and belief, the complaint
must “state with particularity all facts on which that belief is
formed.” Id.

     “Central to a 10b–5 claim is the requirement that a
misrepresentation or omission of fact must be material.” In
re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010). A
statement is material when there is “a substantial likelihood
that the disclosure of the omitted fact would have been
viewed by the reasonable investor as having significantly
altered the ‘total mix’ of information made available.” Basic
Inc. v. Levinson, 485 U.S. 224, 231–32 (1976) (quoting TSC
Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)). To
plead materiality, the complaint’s allegations must “suffice to
raise a reasonable expectation that discovery will reveal
evidence satisfying the materiality requirement, and to allow
the court to draw the reasonable inference that the defendant
is liable.” Matrixx Initiatives, Inc. v. Siracusano, 131 S. Ct.
1309, 1323 (2011) (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 556 (2007), and Ashcroft v. Iqbal, 129 S. Ct.
1937, 1949 (2009)) (internal citations and quotation marks
omitted). “Although determining materiality in securities
fraud cases should ordinarily be left to the trier of fact,
conclusory allegations of law and unwarranted inferences are
insufficient to defeat a motion to dismiss for failure to state
a claim.” In re Cutera, 610 F.3d at 1108 (internal citations
and quotation marks omitted).
16                    REESE V. MALONE

     C. Scienter

    Scienter is defined as “a mental state embracing intent to
deceive, manipulate, or defraud.” Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 193 n.12 (1976). To adequately
plead scienter, the complaint must “state with particularity
facts giving rise to a strong inference that the defendant acted
with the required state of mind.” 15 U.S.C. § 78u–4(b)(2)(A)
(emphasis added). Under the analysis set forth by the
Supreme Court in Tellabs, a court must first accept all factual
allegations in the complaint as true. Tellabs, Inc. v. Makor
Issues & Rights, Ltd., 551 U.S. 308, 322 (2007). The court
must then “consider the complaint in its entirety, as well as
other sources courts ordinarily examine when ruling on Rule
12(b)(6) motions to dismiss, in particular, documents
incorporated into the complaint by reference, and matters of
which a court may take judicial notice.” Id.

    A strong 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.” Id. at 314. The inference must be that “the
defendant[ ] made false or misleading statements either
intentionally or with deliberate recklessness.” Zucco,
552 F.3d at 991 (emphasis added) (internal quotation marks
omitted). Deliberate recklessness means that the reckless
conduct “reflects some degree of intentional or conscious
misconduct.” S. Ferry LP, No.2 v. Killinger, 542 F.3d 776,
782 (9th Cir. 2008). “[A]n actor is [deliberately] reckless if
he had reasonable grounds to believe material facts existed
that were misstated or omitted, but nonetheless failed to
obtain and disclose such facts although he could have done so
without extraordinary effort.” In re Oracle Corp. Sec. Litig.,
                      REESE V. MALONE                         17

627 F.3d 376, 390 (9th Cir. 2010) (quoting Howard v. Everex
Sys., Inc., 228 F.3d 1057, 1064 (9th Cir. 2000)).

    Facts showing mere recklessness or a motive to commit
fraud and opportunity to do so provide some reasonable
inference of intent, but are not independently sufficient. In re
Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 974 (9th
Cir.1999), abrogated on other grounds by S. Ferry LP,
542 F.3d at 784. It may also be reasonable to conclude that
high-ranking corporate officers have knowledge of the critical
core operation of their companies. S. Ferry LP, 542 F.3d at
785–86.

    The Supreme Court has emphasized that courts “must
review all the allegations holistically” when determining
whether scienter has been sufficiently pled. Matrixx, 131 S.
Ct. at 1324 (quoting Tellabs, 551 U.S. at 326). The relevant
inquiry is “whether all of the facts alleged, taken collectively,
give rise to a strong inference of scienter, not whether any
individual allegation, scrutinized in isolation, meets that
standard.” Tellabs, 551 U.S. at 323; N.M. State Inv. Council
v. Ernst & Young LLP, 641 F.3d 1089, 1095 (9th Cir. 2011).

                     III. DISCUSSION

    A. Johnson’s Assurances About the Low Manageable
       Corrosion Rate

    Turning to the statements at issue, on March 15, 2006,
approximately two weeks after the first spill, Maureen
Johnson, BP-Alaska Senior Vice President and Greater
Prudhoe Bay Performance Unit Leader, told the Associated
Press (“AP”) that “corrosion was seen in the 34 inch oil
transit line [that caused the March 2 spill] in a September
18                    REESE V. MALONE

[2005] inspection but appeared to be occurring at a ‘low
manageable corrosion rate.’”

     1. Falsity

    We agree with the district court that plaintiffs have
adequately pled the falsity of this statement. Plaintiffs allege
that BP’s internal documents at the time showed that the
corrosion rate at one of the tested areas was 32 mills
(thousands of an inch) per year (“MPY”) in 2005, compared
to only 3 MPY in 2004. They argue that a level of corrosion
above 30 MPY is the highest of three levels in BP’s own
internal classification metric and represents a “sharp and
rapid spike in the corrosion rate.” Plaintiffs also reference a
detailed report of their expert, Dr. Smart, who opined that a
corrosion rate of 32 MPY was “high” and “not manageable.”

    Defendants characterize Johnson’s statement as merely
incomplete, emphasizing that only one of the 47 locations
tested showed a corrosion rate of 32 MPY, and only seven
locations showed an increase in corrosion. See, e.g., Brody v.
Transitional Hosp. Corp., 280 F.3d 997, 1006 (9th Cir. 2002)
(acknowledging that Rule 10b–5 does not contain a
“freestanding completeness requirement”).            However,
Johnson’s statement about the “low and manageable”
corrosion rate effectively denied that BP had any warning of
high corrosion before the first pipeline leak. This is
objectively misleading; according to facts as alleged,
inspection data showed objectively high corrosion rates and
dramatically increased corrosion in certain places. Given the
obvious reality that it only takes corrosion in one spot—and
a hole as small as 0.25 inches—to leak 200,000 gallons of oil
into the environment, it is self-evident that Johnson’s
statement was misleading.          By omitting information
                     REESE V. MALONE                        19

regarding BP’s detection of high corrosion levels, Johnson
affirmatively created an “impression of a state of affairs that
differ[ed] in a material way from the one that actually
exist[ed].” Berson v. Applied Signal Tech., Inc., 527 F.3d
982, 985 (9th Cir. 2008) (quoting Brody, 280 F.3d at 1006).

    We also reject defendants’ argument that Johnson’s
statement was immaterial in the wake of the first leak. The
complaint focuses on the falsity of Johnson’s statement with
respect to BP’s knowledge of the pipeline problems in
advance of the spill. It also alleges facts demonstrating that
this was a key question raised in the media and government
investigations. Facts demonstrating public interest in the
withheld information support its materiality. See, e.g., In re
2TheMart.com, Inc. Sec. Litig., 114 F. Supp. 2d 955, 961
(C.D. Ca. 2000) (pointing to public interest in the company’s
website development on an online message board as evidence
of materiality). And while the spill itself certainly raised
public skepticism with respect to BP’s pipeline maintenance
and corrosion monitoring practices, disclosure of the fact that
the company ignored troubling warning signs may have
altered the “total mix” of information available to investors,
who depend upon BP’s management team to make sound
decisions. Basic, 485 U.S. at 231–32.

   2. Scienter

    The key question is whether plaintiffs have adequately
pled the element of scienter. By way of background, Johnson
was BP-Alaska’s Senior Vice President and Greater Prudhoe
Bay Performance Unit Leader during the class period and was
directly responsible for the Prudhoe Bay pipeline operations.
She holds a Bachelor of Science degree in Chemical
Engineering and a Ph.D. in Environmental Science and
20                       REESE V. MALONE

Engineering.8 The complaint recites Johnson’s involvement
in working with various government bodies to comply with
the Corrective Action Order and her responsibility for
reporting to BP leadership regarding the March spill.

    Johnson’s statement about the low corrosion rates was
made on March 15, 2006, about two weeks after the first
pipeline leak was discovered on March 2, 2006. The district
court found that the timing of Johnson’s statement
“undermines Plaintiff’s argument” that Johnson made them
with scienter. More specifically, the court reasoned that
Johnson “had no way of knowing in March 2006 that another
leak would occur six months later in a separate pipeline on
the other side of the Prudhoe Bay, so it seems unlikely she
would have intended that her statements deceive investors
about the possibility of future spills in other areas.”

    We disagree. With respect to timing, the fact that
Johnson, given her position, made the statement about
corrosion data supports the inference that she made it with
scienter. In the wake of a crisis that has the potential to

     8
      Appellant’s Opening Brief points to the website of Michigan
Technological University, Johnson’s undergraduate alma mater, for
information on her educational background. See Chemical Engineering:
2010 Convocation, Mich. Technological Univ., http://www.chem.mtu.edu/
chem_eng/news/2010/convocation2010.html (last visited Jan. 30, 2014).
Appellee has not challenged the accuracy of this information, and we take
judicial notice of it in accordance with Rule 201 of the Federal Rules of
Evidence. See Fed.R.Evid. 201(b)(2) (“The court may judicially notice a
fact that is not subject to reasonable dispute because it . . . can be
accurately and readily determined from sources whose accuracy cannot
reasonably be questioned.”); see also Daniels-Hall v. Nat. Educ. Ass’n,
629 F.3d 992, 998–99 (9th Cir. 2010) (taking judicial notice of
information, undisputed by the parties, made available on public school
websites).
                     REESE V. MALONE                        21

repeat itself, Johnson had every reason to review the results
of BP-Alaska’s corrosion monitoring to understand what
happened, as well as to assess the possibility of future leaks
in similar pipelines. Evidence of high levels of corrosion
would be central to this inquiry. Indeed, BP’s monitoring
practices and the question of whether the spill could have
been prevented were the focus of both public and government
inquiries after the March 2006 spill. In this context, Johnson
also had a clear motive for omitting information about the
detection of high corrosion levels. See Tellabs, 551 U.S. at
325 (acknowledging that motive can be a relevant
consideration in the scienter analysis); In re Daou Sys., Inc.,
411 F.3d 1006, 1024 (9th Cir. 2005) (considering evidence of
executives’ personal motive to perpetuate fraud as one factor
in examining the totality of the circumstances). The
revelation that BP ignored red flags would portend serious
corporate mismanagement, a portent that would be
detrimental both to BP and to Johnson personally, as head of
the Prudhoe Bay Unit responsible for the spill. In common
parlance, if anyone knew of the flawed monitoring program
and the likelihood of failures in the pipeline system, Dr.
Johnson did.

    Furthermore, plaintiffs need not demonstrate that Johnson
intended to deceive investors about the likelihood of future
spills. The fact that she knew her statement was materially
misleading is sufficient. See, e.g., Berson, 527 F.3d at 987
(finding that once the company “chose to tout [its] backlog,
they were bound to do so in a manner that did not mislead
investors” by obscuring evidence of past customer stop-work
orders). Johnson’s statement was misleading, which is
significant regardless of whether another pipeline was likely
to fail in the immediate future.
22                    REESE V. MALONE

    The district court went on to apply the Tellabs analysis,
weighing the competing inferences of fraudulent and non-
fraudulent intent. In doing so, the court concluded that “the
inference that . . . Johnson intended to mislead investors by
falsely reassuring them that BP’s corrosion efforts were
adequate . . . is not as strong as the opposing inferences that
Johnson misunderstood BP’s data or that she did not have
access to the data.” Plaintiffs argue that this reasoning does
not comply with Tellabs because the district court “sua
sponte” created hypothetical facts outside the Second
Amended Complaint to create a stronger non-culpable
inference.

    In Tellabs, the Supreme Court imposed a duty upon courts
to weigh plausible competing inferences. Tellabs, 551 U.S.
at 323–24 (“The strength of an inference cannot be decided
in a vacuum . . . a court must consider plausible, nonculpable
explanations for the defendant’s conduct, as well as
inferences favoring the plaintiff.”). Here, while it is possible
that Johnson misunderstood the data or did not, despite her
position, have access to it, such a scenario is unlikely under
these circumstances.

      First, the inference that Johnson misunderstood the data
is simply not plausible. The complaint alleges and supports
the fact that the high corrosion levels detected were
objectively alarming—the highest of three levels in BP’s own
internal classification metric—and a dramatic increase from
baseline levels. Accepting these allegations as true, there is
little room for misunderstanding on Johnson’s part, especially
given her role and responsibility as Greater Prudhoe Bay
Performance Unit Leader and her expertise as a doctor of
Chemical Engineering.
                      REESE V. MALONE                        23

     Second, the inference that Johnson did not have access to
the corrosion data is directly contradicted by the fact that she
specifically addressed it in her statement. As discussed, the
timing of the statements and the heightened significance of
high corrosion rates in the wake of the first oil spill also
undermine it. This case is distinguishable from situations
where information may have been obscured from high-level
executives. See, e.g., Glazer Capital Mgmt. v. Magistri,
549 F.3d 736, 743–49 (9th Cir. 2008) (no strong inference of
scienter on the part of the company CEO in the absence of
facts showing he was personally aware of illegal payments or
that he was actively involved in details of Asian sales).
Unlike in Glazer, Johnson addressed corrosion rate data
specifically, rendering it unlikely that she was not aware of it
or the concerning aspects of the company’s findings.
Moreover, Johnson is not like the CEO of a large enterprise,
who may be removed from the details of a specific business
line or remote business activity. As Greater Prudhoe Bay
Performance Unit Leader, Johnson was directly responsible
for the WOA and EOA operations. In this role, not only
would Johnson be aware of corrosion problems, but she
would be among the first to know. A strong inference of
scienter is therefore found in the pled facts.

    But perhaps most importantly, Johnson “bridge[d] the
[scienter] gap” herself by referencing the data directly. S.
Ferry, 542 F.3d at 783. It is unclear what further facts
plaintiffs would need to plead to create a stronger inference
that she had access to information she discussed publicly. To
that extent, we agree with plaintiffs’ argument that “[b]y
making a detailed factual statement, contradicting important
data to which she had access, a strong inference arises that
she knowingly misled the public as to its clear meaning.” See
S. Ferry, 542 F.3d at 785 (holding that “detailed and specific
24                      REESE V. MALONE

allegations about management’s exposure to factual
information within the company” support an inference of
scienter); see also Nursing Home Pension Fund, Local 144 v.
Oracle Corp., 380 F.3d 1226, 1230 (9th Cir. 2004) (“The
most direct way to show both that a statement was false when
made and that the party making the statement knew that it
was false is via contemporaneous reports or data, available to
the party, which contradict the statement.”) (emphasis added).
Furthermore, when we consider the totality of the
circumstances, including the timing of the statement and
Johnson’s motive to mischaracterize the September 2005
inspection results, there is a strong inference of scienter that
is not only cogent, but far more compelling than speculation
regarding misunderstanding or lack of access.

      B. Statements Distinguishing the WOA and EOA
         Lines

     Plaintiffs also challenge two statements Johnson made
after the first spill contrasting the conditions in the WOA
pipeline (where the March spill occurred) and the EOA
pipeline (where the August spill would later occur). The first
statement was reported in the AP article on March 15, 2006:
“Similar problems have not been found in other lines
downstream and elsewhere in Prudhoe Bay, and Johnson said
it appears the highly corrosive conditions were unique to that
line . . . .” The second statement attributed to Johnson
appeared in Petroleum News, a weekly oil and gas trade
publication,9 on May 14, 2006: “We’ve looked at all of the
same oil transit lines . . . none has the same combination of
factors . . . bacteria in the facility, low flow rate and low
corrosion inhibitor carry over . . . .”

 9
     See Petroleum News, available at www.petroleumnews.com.
                      REESE V. MALONE                        25

   1. Falsity

     Accepting the allegations in the complaint as true, the
statements are plainly false and misleading. Shortly after the
second spill, BP-Alaska’s Vice President of Regulatory
Affairs & Compliance admitted in a letter to regulators that
“the causal factors that appear to most strongly influence
pitting corrosion,” including low flow velocity leading to
“Microbiologically Induced Corrosion and/or Under Deposit
Corrosion,” existed in both the EOA and WOA lines.
Another letter in April 2007 from BP-Alaska’s regulator
highlights BP’s acknowledgment that “the primary cause of
the March and August 2006 failure was aggressive
microbiologically induced corrosion (“MIC”) . . . promoted
by the particular operating and internal characteristics of the
WOA and EOA pipelines, including, but not limited to, low
crude oil flow velocities; the corrosivity of the material
transported; the presence of water and sediments; an
ineffective corrosion inhibitor program; and a lack of
maintenance pigging.” And a September 2006 memorandum
preparing BP officials to testify before Congress states,
“There is a certain amount of similarity between the EOA and
WOA oil transit pipelines. Because of these similarities it
was believed the pipelines also had similar conditions.” On
this basis, it is clear that plaintiffs have adequately pled the
falsity of Johnson’s statements contrasting the WOA and
EOA lines.

     Defendants argue that the statements are not false or
materially misleading because they pertain to “[BP-Alaska]’s
preliminary assessments of the corrosive conditions of the
OTLs, which were subject to change based on the Company’s
ongoing review and subsequent pigging of the OTLs.” Even
if that were the case, Johnson’s statements do not explicitly
26                    REESE V. MALONE

state or even imply that the findings are preliminary or
somehow incomplete. Indeed, the second statement in May
2006, almost two months after the first spill, indicates that it
was informed by post-spill inspections demonstrating the
uniqueness of the WOA OTL conditions. Yet the complaint
contains significant facts suggesting: (1) BP was aware of the
high risk of corrosion and the inadequacies of their corrosion
monitoring policies years before the spill; (2) BP knew that
the EOA line had not been pigged since 1990 and that there
was insufficient inspection data on the line; and (3) BP had
not yet complied with the Corrective Action Order requiring
it to smart pig the EOA, which the pleadings suggest is the
only truly reliable method of measuring corrosion. Accepting
these allegations as true, it was false and misleading for
Johnson to make statements distinguishing the conditions in
the WOA and EOA lines in March and May of 2006.

    Defendants also argue that the public was aware of the
similarities between the lines, and therefore Johnson’s
statement contrasting them was not misleading. We disagree.
The CAO merely notes the general similarities in the
conditions and maintenance of the lines and suggests a
comparable risk of corrosion. In the face of that information,
Johnson made more specific statements suggesting that a
review had been conducted and the lines were actually
different in respects material to the spill. Her statements lend
an element of certainty to a situation previously indicating
risk, which is inherently misleading. See, e.g., Berson,
527 F.3d at 987 (“It goes without saying that investors would
treat [risk and certainty] differently.”).
                      REESE V. MALONE                         27

    2. Scienter

    The district court found that plaintiffs failed to adequately
allege scienter. Relying once again on the timing of
Johnson’s statements, the court found it more plausible that
Johnson’s statements simply “summarize[d] the preliminary
results of [BP-Alaska’s] ongoing investigation of the March
spill.” The court also found that plaintiffs did not show that
Johnson was aware of information making her statements
false. Considering the “totality of the circumstances,” as
instructed by the Supreme Court in Tellabs, we disagree.

        a. Evidence of Contemporaneous Knowledge

    The regulators’ Corrective Action Order, delivered to
Johnson on March 15, 2006, stated that the WOA Line was
“one of three similar low-stress pipelines” operated by BP.
Specifically, the agency found that the WOA and EOA lines
were “constructed around the same time, operate[d] in similar
environmental conditions, transport[ed] the same quality
crude oil that contributed to the cause of the internal
corrosion in PBWOA, and [were] operated and maintained
in a similar manner.” It was the similarity between lines that
prompted the agency’s conclusion that “the continued
operation of [BP-Alaska’s] WOA [and] EOA . . . without
corrective measures will be hazardous to life, property and
the environment.” Plaintiffs note that Johnson indisputably
had access to this information when she made the March
statement, and at least two months prior to making the May
statement.

    The complaint also contains information directly
contradicting Johnson’s statements, much of which came to
light through discovery related to government investigations,
28                   REESE V. MALONE

civil lawsuits and associated guilty pleas in the months and
years following the spills. The district court dismissed this
circumstantial evidence of scienter because “[e]ach of the
documents contradicting Johnson’s March and May 2006
statements regarding the two pipelines is dated after she made
the statements in question.” In doing so, the district court
overlooked significant evidence of scienter that can be
gleaned from these later disclosures.

    Plaintiffs need not show that the documents existed at the
time that the misleading statements were made. See Roncini
v. Larkin, 253 F.3d 423, 437 (9th Cir. 2001). Temporal
proximity of an allegedly fraudulent statement or omission
and a later disclosure can be circumstantial evidence of
scienter. Id.; see also Berson, 527 F.3d at 988 n.5 (SEC
disclosure two weeks after a misleading statement “bolsters
the inference” that defendants had knowledge when they
made the statement). Here, the district court discarded as
irrelevant the August 31, 2006 letter sent by BP-Alaska to
PHMSA stating that both the EOA and WOA pipelines had
“low flow velocities” and were susceptible to
microbiologically induced corrosion. The court also
disregarded the September 2006 memorandum preparing BP
officials to testify before Congress, which acknowledged
similarity between the EOA and WOA. Specifically, when
questioned as to how BP could have been confident of the
EOA condition without a more extensive testing regime, BP
pointed to the fact that there was a certain amount of
similarity between lines, and that “[b]ecause of these
similarities it was believed the pipelines also had similar
conditions.”

   Because the statements and the contradictory disclosures
are separated by three to six months, they may not
                      REESE V. MALONE                        29

independently establish scienter. However, given the
relatively constant, long-term nature of the information, we
believe they bolster the inference of scienter—particularly
when considered in conjunction with other facts alleged in the
complaint. S. Ferry, 542 F.3d at 784 (“[F]ederal courts
certainly need not close their eyes to circumstances that are
probative of scienter viewed with a practical and common-
sense perspective.”).

     There is nothing in the record suggesting that flow
velocity and susceptibility to corrosion were factors that ever
differed in the WOA and EOA lines. To the contrary, BP’s
historical data between 1996 and 2006 shows that the WOA
and EOA lines exhibited the lowest flow velocities during
that ten year period—at a rate two to three times slower than
the majority of the other OTLs. The two lines also had the
“most” variations from the desired level of basic sediment
and water during that period. BP-Alaska was monitoring
these factors for years before the spills and was aware that the
WOA and EOA lines had similar conditions with a higher
risk of corrosion compared to the other lines. This fact is
bolstered by the September 2006 memorandum indicating
that BP-Alaska took the similarities into account when
devising a testing regime for the EOA. Although this
information does not prove scienter with respect to Johnson,
it certainly strengthens the inference significantly.

    The complaint also alleges that on May 5, 2006, nine days
before Johnson’s May 14 statement, BP’s Board received a
memorandum prepared by David K. Peattie, BP’s Vice
President for Exploration and Production, stating that
“[i]nspections [have] indicated that the corrosion which led
to the leak may not [have been] an isolated case,” and that
pigging was needed to verify the structural integrity of those
30                   REESE V. MALONE

lines. The complaint alleges that Johnson was tasked with
reporting to BP executives regarding the BP-Alaska’s
response to the Prudhoe Bay spills.

    The district court emphasized that plaintiffs did not show
that Johnson herself was aware of information making her
statements false. Although some of the circumstantial
evidence supporting scienter is not directly linked to Johnson
in the complaint, we can impute scienter based on the
inference that key officers have knowledge of the “core
operations” of the company. See S. Ferry, 542 F.3d at
784–86 (upholding the core operations inference after
Tellabs). When we consider these inferences under the
totality of the circumstances, we find a strong inference of
scienter that is not outweighed by any competing inferences.

       b. The Core Operations Inference

    Allegations regarding management’s role may help satisfy
the PSLRA scienter requirement in three circumstances.
First, the allegations may be viewed holistically, along with
other allegations in the complaint, to raise a strong inference
of scienter under the Tellabs standard. Id. at 785–86.
Second, the allegations “may independently satisfy the
PSLRA where they are particular and suggest that defendants
had actual access to the disputed information,” as in Daou,
411 F.3d at 1023, and Oracle, 380 F.3d at 1234. S. Ferry,
542 F.3d at 786. Third, in rare circumstances, such
allegations may be sufficient, without accompanying
particularized allegations, where the nature of the relevant
fact is of such prominence that it would be “absurd” to
suggest that management was without knowledge of the
matter. Id. (citing Berson, 527 F.3d at 988).
                      REESE V. MALONE                        31

    Johnson is BP-Alaska’s Senior Vice President and
Greater Prudhoe Bay Performance Unit Leader, overseeing
operations in the area where the spill took place. The
complaint alleges additional facts regarding her role during
the aftermath of spills. First, the Corrective Action Order
from regulators was addressed directly to Johnson. She was
also responsible for reporting to BP leadership regarding the
response to the spills in Prudhoe Bay. And finally, she took
an active role in communicating to the press regarding the
condition of the pipelines in the wake of the spills. From
these allegations, it is clear that Johnson is in a position of
knowledge; indeed, she appears to be both the external and
internal gatekeeper of information on the Prudhoe Bay
pipelines. On the basis of these facts alleged in the
complaint, we find it absurd to believe that she did not have
knowledge of information contradicting her statements. At
the very least, Johnson had knowledge that it would be
deliberately reckless to make those statements in March and
May of 2006.

    Turning first to the absurdity analysis, the seminal case is
Berson v. Applied Signal Technology, Inc., 527 F.3d 982 (9th
Cir. 2008). There, plaintiffs did not allege any specific facts
showing that individually named officers actually knew about
large customer stop-work orders.              Id. at 987–88.
Nevertheless, the court held that plaintiffs demonstrated a
“strong inference” of scienter based on the officers’ positions
and the nature of the misstatements. Id. at 988. The officers
were “directly responsible for [the company’s] day-to-day
operations,” and the stop work orders “were prominent
enough that it would be ‘absurd to suggest’ that top
management was unaware of them.” Id. (citing No. 84
Employer-Teamster Joint Council Pension Trust Fund v. Am.
W. Holding Corp., 320 F.3d 920, 943 n. 21 (9th Cir. 2003)).
32                    REESE V. MALONE

    Here, it is absurd to think that Johnson, as head of the
Prudhoe Bay operations and an experienced chemical
engineer, was without knowledge of the comparable
condition of the WOA and EOA lines when she made her
“uniqueness” statements. The evidence indicates that the
lines were objectively similar with comparable conditions
documented for at least a decade. BP admits having treated
the pipelines the same for the purposes of monitoring
practices on the basis of their similarity. It is also as absurd
to think that Johnson was unaware of the paucity of
inspection data on the EOA line in light of the fact that it had
not been smart pigged in 16 years. This information is the
epitome of “core” to pipeline operations at Prudhoe Bay.
Compared to the stop-work orders in Berson, which were
news-oriented—thereby significantly reducing the time
management had to absorb the information—here the
information we are imputing to Johnson is fundamental to
operations of her business over the tenure of her career. In
that sense, it is even more absurd to suggest that Johnson was
unaware of it.

    The “actual access” analysis also supports scienter,
because Johnson’s statements are specific and reflect her
access to the disputed information. There is a stronger
inference of scienter here than in situations where executives
are held responsible for the falsity of accounting statements.
See Daou, 411 F.3d at 1023–24 (finding that plaintiffs pled
scienter based on specific allegations of direct involvement in
the production of false accounting statements and reports);
Oracle, 380 F.3d at 1234 (top executives’ admittedly detail-
oriented management style led to reasonable inference that
they were aware of significant accounting irregularities).
Here, Johnson’s statements were her own very specific
representations of the company’s findings. The May 2006
                      REESE V. MALONE                          33

statement, which makes references to specific conditions
found in the pipelines, strongly suggests she had access to the
disputed information and the total mix of allegations make
such a conclusion irrefutable.

     Both the absurdity and actual knowledge analysis are
sufficient to create a strong inference of scienter. But looking
at the totality of the circumstances under the Tellabs analysis
makes the inference irresistible. The speculation that Johnson
was merely summarizing a preliminary investigation does not
outweigh the strong inference of scienter in light of the
allegations discussed above, including the alleged pattern of
deception that followed.

    C. Statement Regarding BP’s “World Class” Leak
       Detection System and Corrosion Monitoring
       Program

    Plaintiffs also focus on a statement by BP’s CEO John
Browne at a press conference on April 25, 2006. Browne
stated that the first spill occurred “in spite of the fact that we
have both world class corrosion monitoring and leak
detection systems, both being applied within regulations set
by the Alaskan authorities.” The district court was correct in
finding that these statements appear to be false based on the
results of later investigations revealing that the pipelines were
under-inspected, under-maintained, and subject to severe risk
of corrosion-related failure.

    The district court was also correct that plaintiffs do not
allege facts sufficient to independently create a strong
inference of scienter. They do not allege facts showing that
Browne knew about the problems when he made the
statement. And under the core operations inference analysis,
34                    REESE V. MALONE

plaintiffs would have to show that it would be “absurd to
suggest management was without knowledge of the matter”
or that the facts “are particular and suggest that defendants
had actual access to the disputed information.” S. Ferry,
542 F.3d at 786.

    To that extent, plaintiffs do not set forth specific facts
supporting an inference that Browne had “actual access” to
the information when he made his statement. In this instance,
the timing of the statement, under the totality of the
circumstances, does not support a strong inference of scienter.
The statement was made at a press conference only a month
after the first spill. The district court noted that the Board did
not receive a detailed update about the spill until ten days
after Browne’s press conference. It also noted that the
Corrective Action Order did not speak in terms of specific
legal violations.

    Accordingly, a strong inference of scienter is not found in
the pled facts. Given this conclusion, we affirm only with
respect to Browne on plaintiffs’ first claim for relief for
violation of § 10(b) and Rule 10b–5.

     D. Annual Report Statement Regarding Compliance
        with Environmental Laws and Regulations

    Plaintiffs also take issue with BP’s 2005 Annual Report,
issued on June 30, 2006, which states, “Management believes
that the Group’s activities are in compliance in all material
respects with applicable environmental laws and regulations.”
The Report also disclosed that BP was “in discussion with
PHMSA on assuring compliance with the corrective actions
outlined in the order.” Accepting the truth of the alleged facts
for the purposes of this motion, we find no reasonable basis
                     REESE V. MALONE                        35

for management’s “belief” that BP was in material
compliance with applicable environmental laws and
regulations. Moreover in light of the significant, public
nature of the potential compliance issues, we find it most
unlikely that top management was unaware of facts
undermining its belief in compliance.

   1. Falsity

     Statements of legal compliance are pled with adequate
falsity when documents detail specific violations of law that
existed at the time the warranties were made. See Glazer,
549 F.3d at 741–42 (finding a statement regarding
“compliance in all material respects with all laws” to be
actionably false when the complaint points to an SEC cease
and desist order issued 11 months later detailing violations of
Section 13 of the Exchange Act and the Foreign Corrupt
Practices Act). Here, the complaint cites evidence of
numerous violations, confirmed and alleged, of
environmental laws and regulations, including: (1) the Clean
Water Act, evidenced by BP’s 2007 Guilty Plea with the
DOJ; (2) Alaskan laws, evidenced by the company’s civil
settlement with the State; and (3) Pipeline Safety Laws,
arising from BP-Alaska’s failure to comply with PHMSA’s
March 15, 2006 COA. Based on these allegations—the
validity of which were ultimately confirmed by the
company’s guilty plea, consent decree, and millions of dollars
in fines and penalties—defendants cannot say that they were
in compliance, in all material respects, with applicable
environmental laws and regulations.

   The district court found the Annual Report statements too
“vague and ambiguous” to support the allegation of falsity.
Specifically, the court found that the statement could have
36                   REESE V. MALONE

“encompass[ed] the state of affairs described in the Hayward
memorandum—that ‘efforts [were] underway with the
[regulator] to either amend or extend the compliance order to
address these issues.’” Id.

    While ongoing discussions with regulators suggest some
effort to achieve compliance, these efforts do not negate the
pre-existing, significant violations of federal and state
environmental laws alleged in the complaint. The alleged
violations of the Clean Water Act arose, in part, from the
March 2006 “unauthorized discharge[ ] of crude oil into
navigable waters of the United States,” as well as “violations
of the Spill Prevention Control and Countermeasure (SPCC)
regulations promulgated pursuant to the Clean Water Act.”
The basis for pled violations of Alaskan law arose from BP-
Alaska’s allegedly non-compliant corrosion monitoring and
management systems, as well as its failure to comply with its
own Spill Prevention Plan, as required by state law. And
finally, the Pipeline Safety Laws were implicated by “[BP-
Alaska]’s failure to comply with [the PHMSA CAO] pursuant
to 49 U.S.C. § 60112, requiring [BP-Alaska] to perform
corrective action on its pipelines.”

    Had BP actually complied with the Corrective Action
Order at the time the statements were made, there may have
been some basis for believing that BP had achieved
“compliance in all material respects.” But in this case,
defendants had yet to take critical steps towards corrective
action. Most importantly, BP had yet to follow orders to pig
the EOA line, where the second spill would take place only
a month later. And BP did more than fall a little short on
meeting the deadline; according to the complaint, compliance
on six Corrective Action Order mandates was not achieved,
and in certain cases not even attempted, for as long as five
                      REESE V. MALONE                        37

months after the deadline. Nor had BP received an
amendment of or extension to the Corrective Action Order at
the time the Annual Report was issued. Based on allegations
before us, we see no basis for the belief that BP had achieved
compliance in “in all material respects with applicable
environmental laws and regulations” by June 30, 2006.

    The next question is whether BP escapes possible liability
by prefacing the statement with the phrase “management
believes,” and using the qualifier material compliance. While
the district court was correct to recognize that these terms
weigh against falsity, we have not discerned facts supporting
management’s “belief” in material compliance under the
circumstances.

    A statement of belief is a “‘factual’ misstatement
actionable under Section 10(b) if (1) the statement is not
actually believed, (2) there is no reasonable basis for the
belief, or (3) the speaker is aware of undisclosed facts tending
seriously to undermine the statement’s accuracy.” Kaplan v.
Rose, 49 F.3d 1363, 1375 (9th Cir. 1994) (citing In re Wells
Fargo Sec. Litig., 12 F.3d 922, 930 (9th Cir. 1993),
superseded by statute on other grounds, 15 U.S.C. § 78u-
4(b)(1)); In re Cooper Sec. Litig., 691 F. Supp. 2d 1105, 1115
(C.D. Ca. 2010). The mere fact of ongoing “discussions”
with regulators is insufficient to create a belief in “material
compliance” with the law.            Here, the violations of
environmental law were egregious—BP had just spilled over
200,000 gallons of oil onto the Alaskan tundra in violation of
the Clean Water Act. Its corrosion monitoring and leak
detection systems fell below industry standards and state
requirements. And the discussions with regulators took place
in the context of recent violations of the terms of the
Corrective Action Order, imposed to mitigate “hazard[s] to
38                   REESE V. MALONE

life, property and the environment.” Based on the pled facts,
it is unclear how BP’s management could consider the
company to be “in compliance” or, alternatively, could view
the violations to be immaterial.

   For the foregoing reasons, we find that plaintiffs have
adequately pled falsity.

     2. Scienter

     A more difficult question is whether there is a strong
inference of scienter. Unlike the other allegedly misleading
statements at issue, the Annual Report statement is not
attributed to a particular individual. It is, however, a self-
purported statement of “management[’s]” beliefs.
Accordingly, the district court properly conducted the Berson
absurdity test, but found that “[p]laintiffs do not allege that
information regarding compliance with the CAO was
prominent enough that it would be absurd to suggest that top
management was unaware” of the information.

    We have a different view of the pled facts. The complaint
and materials incorporated by reference establish the
prominence of the issue of compliance with environmental
laws and regulations, including the Corrective Action Order.
They detail the significant federal and state government
intervention into BP’s operations after the March 2006 spill.
Moreover, the fact that the Annual Report itself discussed the
March spill and the Corrective Action Order also underscores
the prominence of the issue. And perhaps most importantly,
the former CEO requested updates on the company’s
response to the spill in the form of briefing memoranda,
which is direct evidence of its prominence in the eyes of BP’s
top management. In light of the magnitude of the violations,
                     REESE V. MALONE                        39

the immense public attention on BP in the wake of the spills,
and the contemporaneous documents demonstrating
management’s awareness of the company’s non-compliance
with the Corrective Action Order, we find it “absurd” that
management was not aware of BP’s significant, existing
compliance issues that rendered the statement misleading.

     The Annual Report language also belies an inference of
non-culpability. On the one hand, by positioning the
statement as “management’s belief” and including the caveat
regarding compliance in all material respects, BP signaled to
the market that it is an opinion subject to debate or error. On
the other hand, it also indicates awareness that such a belief
may be unfounded. The paragraph containing the statement
at issue reads:

       Management cannot predict future
       developments, such as increasingly strict
       requirements of environmental laws and the
       resulting enforcement policies thereunder, that
       might affect the Group’s operations or affect
       the exploration for new reserves or the
       products sold by the Group. A risk of
       increased environmental costs and impacts is
       inherent in particular operations and products
       of the Group and there can be no assurance
       that material liabilities and costs will not be
       incurred in the future. In general, the Group
       does not expect that it will be affected
       differently from other companies with
       comparable assets engaged in similar
       businesses. Management believes that the
       Group’s activities are in compliance in all
40                   REESE V. MALONE

        material respects with applicable
        environmental laws and regulations.

BP p.l.c., Annual Report (Form 20-F) at 69 (June 30, 2006)
(emphasis added).

     The language alerts investors regarding the potential for
future compliance issues to have an adverse impact on the
company. But at the same time, it puts the emphasis on
unpredictable risks that would not disproportionately affect
BP, while denying any belief in risks unique to the company
in the wake of the spill. In this context, the statement
regarding management’s belief in compliance appears to be
made with intent to downplay BP’s non-compliance with
existing laws and regulations. In this context, we believe the
inference of an intent to mislead investors with respect to the
BP’s role in causing the spill is strong and as compelling as
the possibility that top management simply lacked
information about the company’s compliance issues.

     E. Holistic Scienter Analysis

    In Matrixx, the Supreme Court emphasized that courts
must “review all the allegations holistically” when
determining whether scienter has been sufficiently pled.
Matrixx, 131 S. Ct. at 1324 (quoting Tellabs, 551 U.S. at 326)
(internal quotation marks omitted).           First, the court
determines whether any of the allegations, standing alone, are
sufficient to create a strong inference of scienter. Tellabs,
551 U.S. at 322–23; N.M. State Inv. Council, 641 F.3d at
1095. “[S]econd, if no individual allegation is sufficient, the
court is to conduct a ‘holistic’ review of the same allegations
to determine whether the insufficient allegations combine to
                      REESE V. MALONE                         41

create a strong inference of intentional conduct or deliberate
recklessness. N.M. State Inv. Council, 641 F.3d at 1095.

    After finding that none of the individual allegations was
sufficient to plead scienter, the district court conducted the
holistic analysis and found that it “yields the same result,
because in every case the strength of the inferences that
plaintiffs ask the Court to draw is exceeded by plausible,
nonculpable explanations for [defendants’] conduct.” The
relevant inquiry is “whether all of the facts alleged, taken
collectively, give rise to a strong inference of scienter, not
whether any individual allegation, scrutinized in isolation,
meets the standard.” Tellabs, 551 U.S. at 323 (emphasis in
original); N.M. State Inv. Council, 641 F.3d at 1095.

    The district court also concluded that “[a]t all periods, the
statements and conduct that plaintiffs allege more closely
resembles simple corporate mismanagement than actionable
securities fraud.” While we agree that BP’s actions
exemplify corporate mismanagement, the pleadings also
charge that BP is a company that has publicly shirked
responsibility for its role in causing the Prudhoe Bay spills at
every step of the way. And while there may not be enough in
the complaint to establish scienter with respect to CEO John
Browne’s statement on April 25, 2006, it gives us pause that
only weeks after a devastating oil spill, BP’s CEO was
willing to make a public statement that the spill occurred “in
spite of the fact that [BP has] world class corrosion
monitoring and leak detection systems, both being applied
within regulations set by the Alaskan authorities.” According
to the allegations in the complaint, as well as BP’s later
admissions, this statement had no basis in reality.
42                    REESE V. MALONE

    To some extent, corporate mismanagement would be a
plausible explanation for how misinformation travels to the
corporate suite. But in this case, facts alleged in the
complaint support the conclusion that BP had been aware of
corrosive conditions for over a decade, and yet chose not to
address them. The complaint also alleges that BP
intentionally adopted corrosion monitoring practices that
deviated from industry standards in an effort to cut costs.
And it suggests that BP had every reason to know, at the very
least, that they did not have accurate information regarding
the condition of the Prudhoe Bay pipelines. When we
consider the allegations holistically and accept them to be
true, as we must, the inference that BP was, at the very least,
deliberately reckless as to the false or misleading nature of
their public statements is “at least as compelling as any
opposing inference.” Matrixx, 131 S. Ct. at 1324 (citing
Tellabs, 551 U.S. at 324).

                      CONCLUSION

     In the end, we conclude that after six years of preliminary
litigation, the allegations should now be tested on the merits.
We return the matter to the district court for that purpose. For
the foregoing reasons, the judgment of the district court is
REVERSED IN PART and AFFIRMED IN PART. Each
party shall bear their own costs.
