381 F.3d 267 | 3rd Cir. | 2004
Before: SCIRICA, Chief Judge, Judge, United States Court of Appeals for
RENDELL and ALARCÓN*, the Ninth Circuit, sitting by designation. Circuit Judges. Michael J. Chepiga [ARGUED] the District Court dismissed the action Simpson, Thacher & Bartlett under Fed. R. Civ. P. 12(b)(6). In re 425 Lexington Avenue Adams Golf, Inc. Sec. Litig. , 176 F. Supp. New York, NY 10017 2d 216 (D. Del. 2001). For the reasons Counsel for Appellees Lehman Bros. that follow, we will affirm in part and Holdings, Banc of America Securities reverse in part. LLC, and Ferris Baker Watts
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OPINION OF THE COURT When Barney Adams founded Adams Golf in 1987, the Company was a golfing components supplier and a contract
RENDELL, Circuit Judge. manufacturer. Over the years, it grew to become a designer and manufacturer of its In this securities case, plaintiff- own custom-fit golf clubs. After having shareholders brought an action under the much success by introducing a high-end Securities Act of 1933 against Adams golf club, called Tight Lies, the Company Golf, Inc., a manufacturer of golf offered its shares to the public. On July equipment, and certain of its officers and 10, 1998, an Initial Public Offering underwriters. The plaintiffs contended (“IPO”) of 5,575,000 shares of the that the Company’s registration statement Company’s common stock was made at and prospectus contained materially false $16 per share, accompanied by the or misleading statements in violation of requisite registration statement and prospectus. [1] sections 11, 12(a)(2), and 15 of the Securities Act. Among other things, Adams Golf’s public offering materials indicated that the Company sold its golf [1] Originally, the plaintiffs in this action equipment exclusively to authorized consisted of those who purchased directly retailers and that the golf industry was from the defendant-underwriters during flourishing. In their complaint, the the IPO and those who purchased their plaintiffs alleged that Adams Golf omitted shares from the secondary market soon i n f o r m a t i o n c o n t r a ry t o t h e s e after the IPO. Citing to Gustafson v. representations, i.e., that unauthorized Alloyd Co. , 513 U.S. 561 (1995) and retailers were selling Adams Golf’s golf Ballay v. Legg Mason Wood Walker, Inc. , clubs, and that retailers industry-wide were 925 F.2d 682 (3d Cir. 1991), the District carrying an oversupply of golf equipment. Court held that the plaintiffs who Finding that neither the unauthorized retail purchased Adams Golf shares on the nor the oversupply allegations stated a public market did not have a private right claim upon which relief could be granted, of action under section 12(a)(2) of the In their complaint, the plaintiffs profitable margins and contend that the defendants misrepresented maximize sales of Adams’ and omitted material facts in the products. registration statement and prospectus. First, the plaintiffs argue that the The registration statement made clear that, defendants failed to disclose that its as part of its limited distribution revenues were artificially inflated by a arrangement, the Company “does not sell “gray market” distribution of Adams Golf its products through price sensitive general golf clubs. Second, the plaintiffs argue discount warehouses, department stores or that the defendants failed to disclose the membership clubs.” existence of an industry-wide oversupply of golf equipment. The facts with respect Prior to the IPO, however, Adams to these two sets of allegations will be Golf had learned that Tight Lies golf clubs explored in more detail. were being sold by Costco, a discount
warehouse. On June 9, 1998, one month 1 before the reg istration statement’s effective date, the Company issued a press Adams Golf sold its golf clubs only release in which it acknowledged that an to authorized dealers. As its registration unauthorized dealer was selling its statement explained: signature product. Indeed, the plaintiffs
To preserve the integrity of alleged that prior to the IPO, Costco its image and reputation, the possessed over 5,000 Tight Lies clubs in C o m p a n y l i m i t s i t s its inventory. In the press release, Adams distribution to retailers that Golf stated it was “concerned” about market premium quality golf Costco’s sale of the golf clubs “because equipment and provide a Costco [w as] no t an authorized high level of customer distributor.” Concerned enough that, s e r v ic e a n d tec hn ic a l according to the press release, Adams Golf expertise. . . . The Company initiated legal proceedings, by filing a bill believes its selective retail of discovery against Costco, to determine d i s tr i b ut i o n h e l p s its “whether Costco’s claims that they had r e t a il e r s t o m a i n ta i n properly acquired Adams’ Tight Lies
fairway woods for resale were accurate.” The plaintiffs further alleged that the unauthorized distribution was not limited
1933 Act. However, the District Court to Costco and included “sales by other ruled that those secondary market unauthorized discount retailers and purchasers could sue under section 11 of international gray market distributors.” the Act. These determinations have not been challenged by the parties and so we
This unauthorized inventory created do not pass upon them. a “gray market,” according to the clubs, and that the Company “does not plaintiffs. The complaint defines “gray believe that the gray marketing of its market” to sim ply refer to “the product can be totally eliminated.” unauthor ize d distribu ti o n of th e Company’s products to discount retailers.” 2 The complaint sets out the several ostensible consequences of this gray The complaint also states that by market. The plaintiffs alleged that the omitting any mention of an industry-wide Company initially experienced a rise in glut of golf equipment carried by retailers, sales as products were diverted to the certain passages in Adams Golf’s unauthorized distributors. According to registration statement were materially their complaint, “[t]he short-term income misleading. Specifically, the plaintiffs generated by sales to the gray market also refer to the statement that “[t]he Company skewed the Company’s overall financial believes its prompt delivery of products appearance, creating the false impression enables its retail accounts to maintain of heightened sales and profitability at the smaller quantities of inventory than may time of the IPO, according to the historical be required with other golf equipment financial statements contained in the manufacturers.” Further, the plaintiffs R e g i s tr a t io n S t a t e m e n t a n d t h e argue that forward-looking statements Prospectus.” Seeking a better deal, contained in the offering materials, consumers bought their Tight Lies clubs including the belief that “a number of from cheaper, unauthorized sources. With trends are likely to increase the demand for their sales diminished, authorized dealers Adams’ products” painted too rosy a then reduced their orders for Adams Golf picture of the golf industry, particularly in light of the problem of retail oversupply. [2] equipment. In time, the ultimate result for the Company was an overall drop in revenue.
The record indicates that 238. The Court ruled as to both the gray oversupply did eventually come to market and the retail oversupply claims adversely affect Adams Golf’s bottom line. that Adams Golf’s registration statement Indeed, the first quarter report for 1999 contained neither false, nor misleading indicated that the Company had suffered statements, nor any material omissions. In disappointing financial results, partly response, the plaintiffs filed a motion to owing to an “oversupply of inventory at amend its complaint pursuant to Fed. R. the retail level, a condition that weakened Civ. P. 59(e) and 15, which the District club sales industry wide over the last 12 Court denied in a subsequent order. The months, [and] has resulted in substantial plaintiffs timely appealed both rulings of reductions in retailer purchases.” the District Court. We have jurisdiction to
consider this appeal pursuant to 28 U.S.C. B § 1291. The District Court granted the II defendants’ motion to dismiss for failure to state a claim upon which relief may be This Court reviews Rule 12(b)(6) granted. Adams Golf , 176 F. Supp. 2d at dismissals de novo , accepting all well-
pleaded allegations as true and drawing all reasonable inferences in favor of plaintiffs. Anthony v. Council , 316 F.3d 412, 416 (3d
growth in the number of Cir. 2003). We may not affirm unless we golf courses; (ii) increasing are certain that no relief could be granted interest in golf from women, under any set of facts which could be junior, and minority golfers; proven. Id. The District Court concluded (iii) the large numbers of that the plaintiffs’ complaint was golfers entering their 40s insufficient to state a claim against the and 50s, the age when most defendants under sections 11 and 12(a)(2) golfers begin to play more of the 1933 Act. [3] often and increase their spending on the sport; (iv) the correspondingly large
The 1933 Act creates federal duties, establish his prima facie case.”); Shapiro particularly involving registration and v. UJB Fin. Corp. , 964 F.2d 272, 286 (3d Cir. 1992). [5] To state a claim under section disclosure, in connection with the public offering of securities. Sections 11 and 12(a)(2), plaintiffs must allege that they 12(a)(2) impose civil liability for the purchased securities pursuant to a making of materially false or misleading materially false or misleading “prospectus
or oral communication.” [6] The plaintiffs statements in registration statements and prospectuses. See 15 U.S.C. §§ 77k, 77 l (a)(2). In particular, section 11 [5] The requirements under section 11 involves material misstatements or stand in stark contrast to those of the omissions in registration statements, while Securities Exchange Act of 1934 (the section 12(a)(2) involves prospectuses and “1934 Act”), which include a showing of other solicitation materials. reasonable reliance and scienter. Further, unlike claims brought under the anti-fraud
To state a claim under section 11, provisions of the 1934 Act, claims under plaintiffs must allege that they purchased the 1933 Act that do not sound in fraud are securities pursuant to a materially false or not held to the heightened pleading registration statem ent. [4] misleading requirements of Fed. R. Civ. P. 9(b). Herman & MacLean v. Huddleston , 459 Shapiro , 964 F.2d at 288. Applying U.S. 375, 382 (1983) (“If a plaintiff Shapiro , the District Court determined that purchased a security issued pursuant to a the plaintiffs’ complaint did not sound in registration statement, he need only show fraud, a ruling that has not been cross- a material misstatement or omission to appealed by the defendants. Additionally, the District Court observed that the we, consider any issues related to control stringent pleading requirements imposed person liability. by Congress in the Private Securities
Litigation Reform Act of 1995 apply to the [4] Section 11 provides a right of action to 1934 Act alone. The District Court purchasers: accordingly ruled that the plaintiffs’ In case any part of the complaint was subject only to the liberal registration statement, when notice pleading standard of Fed. R. Civ. P. such part became effective, 8. c o n t a in e d a n u n t r u e [6] Section 12(a)(2) provides that any statement of a material fact or omitted to state a material defendant who: fact required to be stated offers or sells a security . . . by therein or necessary to make means of a prospectus or oral the statements therein not communication, which includes an misleading . . . . untrue statement of a material fact
15 U.S.C. § 77k(a). or omits to state a material fact argue that both their claims concerning the Costco’s unauthorized possession of golf gray market distribution and the existence clubs did not constitute a material omission. [7] Adams Golf, 176 F. Supp. 2d at of a retail oversupply meet the above pleading minima. Further, they contend that the District Court improperly denied their motion to amend the complaint, [7] In addition to materiality, the District which they filed pursuant to Fed. R. Civ. Court required the plaintiffs to show that P. 59(e) (motion to amend or alter the an omission or misstatement was known to judgment) and Fed. R. Civ. P. 15 (motion the Company at the time of the IPO. to amend the pleadings). We consider Adams Golf , 176 F. Supp. 2d at 233 each set of claims in turn. (“While the plaintiffs build their case around Adams Golf statements appearing
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after the IPO date, in order to state a claim for material omission, the plaintiffs [sic]
The plaintiffs alleged that by allegations must identify that this alleged omitting any mention of what they undisclosed material risk was known and characterize as a gray market problem, material at the time of the IPO.” (emphasis Adams Golf rendered the registration supplied)). This is not correct. Sections statement false or misleading, specifically 11 and 12(a)(2) are virtually absolute those claims concerning the Company’s liability provisions, which do not require reliance on a network of authorized plaintiffs to allege that defendants distributors. The District Court found that possessed any scienter. Huddleston , 459 U.S. at 382. As this Court has held: There are substantial differences
necessary in order to make between the elements a plaintiff the statements, in the light must establish under § 10 and Rule of the circumstances under 10b-5 of the Securities Exchange which they were made, not Act of 1934 and under §§ 11 and misleading (the purchaser 12(2) of the Securities Act of 1933. not knowing of such untruth Under the former, the plaintiffs or omission), and who shall must plead not only that the not sustain the burden of d e f e n d a n t s m a d e m a t e r i a l proof that he did not know, o m i s s i o n s a n d / o r and in the exercise of misrepresentations, but also that reasonable care could not they reasonably relied on them and have known, of such untruth that the defendants acted with or omission, shall be liable . knowledge or recklessness. In . . to the person purchasing contrast, §§ 11 and 12(2) impose no such security from him . . . . such requirements.
15 U.S.C. § 77 l . In re Donald J. Trump Casino Sec. 234 (“In sum, plaintiffs have not alleged reasonable minds cannot differ on the support for their proposition that the fact question of materiality is it appropriate for that an unauthorized discount retailer had the district court to rule that the allegations illegally obtained a number of Adams Golf are inactionable as a matter of law.” clubs constituted a material risk at the time Shapiro , 964 F.2d at 281 n.11 (citing TSC of the IPO, or a ‘known trend’ threatening Indus. , 426 U.S. at 450) (emphasis added). the Company’s future sales, that should Although the District Court did not have been disclosed.”). Further, the Court expressly reference this standard, its determined that, in any event, the omission dismissal for failure to state a claim was of any information regarding the gray proper only if the gray market and retail market did not render the registration o v e r s u p p l y i s s u e s w e r e p l a in l y statement and prospectus false or unimportant to a reasonable investor. misleading.
To support its determination that Materiality is ordinarily an issue left the gray market claim lacked materiality, to the factfinder and is therefore not the District Court observed that Costco typically a matter for Rule 12(b)(6) possessed what it considered a “limited dismissal. [8] Weiner v. Quaker Oats Co. , number” of golf clubs at the time of the 129 F.3d 310, 317 (3d Cir. 1997) (“[T]he IPO. The defendants explain that these emphasis on a fact-specific determination were 5,000 golf clubs out of 235,000, or of materiality militates against a dismissal roughly two percent of the golf clubs sold on the pleadings.”). “Only if the alleged by Adams Golf that fiscal quarter. By misrepresentations or omissions are so itself, however, this figure does not obviously unimportant to an investor that persuade us that the fact was plainly
immaterial. Were Costco to have had more than ten percent of the Company’s
Litig.-Taj Mahal Litig. , 7 F.3d 357, 369 golf clubs in its inventory, we might agree n.10 (3d Cir. 1993) (internal citations that the unauthorized inventory would be omitted). undoubtedly material. To illustrate the other extreme, if a discount retailer had [8] The standard test in securities law to just a handful of golf clubs, we might determine the materiality of an omission is conclude that a few errant fairway woods “whether there is a ‘substantial likelihood would be obviously immaterial to a that the disclosure of the omitted fact reasonable investor. In contrast, the would have been viewed by the reasonable materiality of Costco’s unauthorized investor as having significantly altered the inventory of several thousand Adams Golf ‘total mix’ of information made golf clubs cannot be so easily divined. In available.’” In re NAHC, Inc. Sec. Litig. , order to make the “delicate assessments” 306 F.3d 1314, 1331 (3d Cir. 2002) involved in a materiality determination, (quoting TSC Indus., Inc. v. Northway, Shapiro , 964 F.2d at 281 n.11, we would Inc. , 426 U.S. 438, 449 (1976)). need more information regarding, for rela tionships wit h its authorized example, the importance of the limited distributors, and signaled trouble that distribution arrangement to Adams Golf’s might be difficult to overcome. business model and, perhaps, the nature of the golf club industry more generally. In a Perhaps animated by this concern, t i g h t l y c o m p e t i ti v e m a r k e t , t h e the Company issued a press release on maintenance of exclusivity among Adams June 9, 1998, one month prior to going Golf’s network of authorized dealers may public, noting that it had filed an equitable have been vital, and the Company’s bill of discovery to investigate the touting this mode of distribution seems to unauthorized inventory. According to the imply that it is. Indeed, in its registration press release, “Adams Golf became statement, the Company indicated that its concerned when it learned that Costco was distribution system allowed it “to maintain selling their Tight Lies fairway woods profits and maximize sales of Adams Golf because Costco is not an authorized products.” In light of such considerations, distributor.” While not all company press the possession of 5,000 golf clubs in the releases publicize material information, we hands of a nationwide, discount retailer recognize that a company often chooses to may have been material, since it may have issue an extraordinary press release when “altered the ‘total mix’ of information” it needs to disseminate important available to a reasonable investor. NAHC , information to its investors. In light of this 306 F.3d at 1331. But without further p u b l i c a c k n o w l e d g m e n t o f th e factual development, the answer to this u n a u t h o r iz e d i n v e n t o r y a n d i t s materiality inquiry is far from plain. announcement of legal action, and our
obligation to draw all reasonable The District Court also reasoned inferences in favor of the plaintiffs, we are that the gray market problem was hard pressed to see how the existence of immaterial because it was an “isolated 5,000 golf clubs for sale at a discounter, incident” and not part of a “known trend.” outside the protected distribution network, Adams Golf , 176 F. Supp. 2d at 234. But was unquestionably immaterial to a reasonable investor. [9] a fact need not be part of a pattern to be material. Even isolated incidents can result in immediate and negative consequences for a company. An aberrant [9] The District Court found that the “Bill event such as an oil tanker crash may of Discovery and the issuing of the press nevertheless be material in the eyes of a release [prior to the IPO] are consistent reasonable investor in the unlucky oil with the defendants [sic] contentions that company. Analogously, even if the it was in fact Adams Golf’s policy not to unauthorized inventory of golf clubs was a authorize ‘distribution of the Company’s one-time occurrence, it may have posed products to discount retailers.’” 176 F. significant consequences for Adams Golf’s Supp. 2d at 233. Yet such “consistency” is On appeal, the defendants contend that the fact that the gray market was not material is reflected by the absence of any
upon by the defendants are inapposite. See decline in share value when the market Acme Propane, Inc. v. Tenexco, Inc. , 844 learned of it in the January 7, 1999 press F.2d 1317, 1323 (7 th Cir. 1988) (no release. [10] They rely on In re Burlington obligation to disclose information on relevant state laws as statutes are in the public domain); Rodman v. Grant Found. ,
not salient to a materiality inquiry. Adams 608 F.2d 64, 70 (2d Cir. 1979) (no Golf may have been working resolutely, in obligation to disclose motivation of conformance with its stated policy, to corporate officers to maintain corporate solve its unauthorized inventory situation. control and prevent hostile takeovers as But a company’s effort to manage a such intentions are “universal.”); Seibert v. problem does not by itself discharge its Sperry Rand Corp. , 586 F.2d 949, 952 (2d obligation to inform investors of that Cir. 1978) (no obligation to disclose labor problem; if an event is material, the difficulties when those problems were securities laws may require disclosure, “reported countrywide in the press and on notwithstanding the type of consistency radio and television, were discussed in identified by the District Court. If it were Congress, and were analyzed in published otherwise, companies could justify administrative and judicial opinions.”). keeping quiet about significant corporate Costc o ’ s u n a u t h o riz ed inve ntory, crises by simply noting that they were announced in a single press release before handling the situation in accordance with the Company went public, was simply some previously stated management unlike the publicly known or available policy. facts in the above cases. [10] The defendants also argue that the Further, we find that the June 9, 1998 pre -IPO press release defendants’ citation to this Court’s sufficed to inform the public of Costco’s decision in Klein v. General Nutrition Co. , unauthorized inventory of Tight Lies 186 F.3d 338 (3d Cir. 1999), to be even clubs. They argue that if information further afield. Klein involved securities regarding any gray market problem was traded on the secondary market. We held placed in the public domain through its that the market “promptly digested current pre-IPO press release, the Company would information regarding GNC from all have had no obligation to mention it in publicly-available sources and reflected their offering materials. First, this that information in GNC’s stock price.” contention of course contradicts the Id. at 338. But there is no indication that defendants’ claim that the stock price did there was any such efficient market in not drop after the investing public first Adams Golf shares prior to the IPO. learned of the gray market problem on Accordingly, we cannot conclude that the January 7, 1999. Second, the cases relied pre-IPO press release in this case, issued a Doe v. GTE Corp. , 347 F.3d 655, 657 (7 th Coat Factory Sec. Litig., Inc. , 114 F.3d 1410 (3d Cir. 1997), in which we observed Cir. 2003) (“[L]itigants need not try to that “to the extent that information is not plead around defenses.”). important to reasonable investors, it follows that its release will have a Mindful of this Court’s dismissal negligible effect on the stock price.” Id. at standard for immateriality, and our 1425. But Burlington Coat Factory was a obligation to draw reasonable inferences in Rule 10b-5 case brought under the 1934 the plaintiffs’ favor, we cannot agree with Act, which requires that plaintiffs plead the District Court’s conclusion that the loss causation, i.e., allege that the material gray market issue was obviously misstatement or omission caused a drop in unimportant to a reasonable investor. Of the stock price. Actions brought under the course, ultimately, Costco’s inventory of 1933 Act are, however, critically different. Tight Lies golf clubs may be found to be Under sections 11 and 12(a)(2), plaintiffs immaterial, but that is for a factfinder to do not bear the burden of proving determine in light of a developed record. causation. It is the defendants who may assert, as an affirmative defense, that a A determination that information lower share value did not result from any missing from a registration statement and nondisclosure or false statement. See 15 prospectus is material does not end our U.S.C. §§ 77k(e), 77 l (b). While a analysis. We must also decide whether the defendant may be able to prove this issuer had the duty to disclose that material “negative causation” theory, an affirmative fact such that its omission made the defense may not be used to dismiss a statement misleading. See Zucker v. plaintiff’s complaint under Rule 12(b)(6). [11]
Quasha , 891 F.Supp. 1010, 1014 (D.N.J. 1 9 9 5 ) ( “ T o a v o i d c o m m i t t i n g misrepresentation, a defendant is not
month before the offering materials were required to disclose all known information, filed, was sufficient to inform the but only information that is ‘necessary to investing public of a gray market in make other statements not misleading.’” Adams Golf equipment. (quoting Craftm atic Sec. Litig. v. Kraftsow , 890 F.2d 628, 640 n.16 (3d Cir. [11] In any event, while there was no effect 1989))). In order to make out prima facie to the stock in Burlington Coat Factory , violations of sections 11 and 12(a)(2), here, after disclosure of the gray market in plaintiffs must allege that an omitted the January 7, 1999 press release, the material fact was required to be included number of Adams Golf shares traded by the securities laws or that its absence jumped from 58,000 to 1.2 million, and rendered statements in the prospectus resulted in a 17 percent decline in the misleading. See 15 U.S.C. § 77k(a) stock price, though in absolute terms, this (referring to “an untrue statement of a just represented a drop from $4.63 to material fact or omitted to state a material $3.88. fact required to be stated therein or Costco’s unauthorized possession, in necessary to make the statements therein addition to the alleged “sales by other not misleading”); § 77 l (referring to “an unauthorized discount retailers and untrue statement of a material fact or omits international gray market distributors,” to state a material fact necessary in order were necessary to make the statements to make the statements, in the light of the regarding the Com pany’s limited circumstances under which they were distribution not misleading. Accordingly, made, not misleading”). As noted above, we will reverse the District Court’s the plaintiffs allege that the Company’s dismissal of the plaintiffs’ gray market statements touting its limited distribution claims. arrangements were false or misleading in light of the omitted gray market problem. B While we agree with the District Court that none of these statements in the registration We next turn to the plaintiffs’ statement was technically false, we claims regarding an oversupply of golf disagree with the Court’s conclusion that equipment among retailers. As noted the statements were obviously not above, the plaintiffs contend that the misleading. omission of this oversupply rendered two
sets of statements in the offering materials The relevant statements in the materially misleading: 1) the specific offering mat erials indicated that representation that “[t]he Company distribution was limited to certain retailers believes its prompt delivery of products and that the Company “does not sell its enables its retail accounts to maintain products through price sensitive general smaller quantities of inventory than may discount warehouses.” The District Court be required with other golf equipment properly found that Costco’s unauthorized manufacturers”; and 2) the general possession of Adams Golf clubs could not forward-looking statements concerning the be reasonably taken to make those trends “likely to increase the demand” for statements false, for there was no Adams Golf products. We agree with the allegation that Adams Golf itself sold golf District Court that neither of these clubs to unauthorized retailers. But while statements were materially misleading by technically true, those statements may have the omission of these industry conditions. nevertheless led a reasonable investor to conclude that the selective distribution Adams Golf’s specific claims to model was functioning properly, i.e., that nimble delivery and relatively smaller this method was exclusive, and therefore inventory were not rendered false or that unauthorized retailers were not selling misleading in light of any alleged industry- significant quantities of its Adams Golf wide oversupply of golf equipment. The merchandise. Reasonable minds could offering materials merely indicated that disagree as to whether the omitted fact of stores had fewer Adams Golf clubs in their inventories than the equipment of other Further, the plaintiffs make much of manufacturers. The statement cannot the Company’s April 12, 1999 press reasonably be taken to mean that “Adams release, announcing financial results for Golf retailers were not carrying excess the first quarter of 1999, in which, inventory,” as plaintiffs allege. Those according to their complaint, “defendants retailers may very well have had bloated d i s close d that fo r at least 1 2 inventories. But they may have months—since we ll prior to the maintained a relatively smaller inventory IPO— there had been an ‘oversupply of of Adams Golf equipment while carrying inventory at the retail level’ on an a surplus of merchandise produced by industry-wide basis.” Initially, we observe Adams Golf’s competitors. We find that that Adams Golf was not duty-bound to plaintiffs’ allegations concerning retailers’ disclose general industry-wide trends excess supplies of other companies ’ easily discernable from information equipment simply cannot render false or already available in the public domain. misleading that portion of the registration See Klein , 186 F.3d at 342 (determination statement concerning the retailers’ smaller of materiality takes into account inventory of Adams Golf products. “availability [of information] in the public
domain”); Whirlpool Fin. Corp. v. GN Holdings, Inc. , 67 F.3d 605, 609 (7 th Cir. While the plaintiffs may be able to prove their allegations that Adams Golf’s 1995) (“The nondisclosure of . . . industry- rivals were suf fering from retail wide trends is not a basis for a securities oversupply and were taking “corrective fraud claim.”); Tenexco , 844 F.2d 1317, action to address the industry-wide 1323–24 (“The securities laws require the oversupply” problem at the time of Adams disclosure of information that is otherwise Golf’s IPO, these allegations are of no not in the public domain.”). Moreover, all moment. Whatever financial problems the April 12, 1999 press release seemed to other manufacturers and retailers may have acknowledge was that retailers of golf struggled with, the securities laws equipment had experienced generally obligated Adams Golf to disclose material sluggish sales for over a year. As information concerning its own business discussed above, however, there is nothing and not necessarily the details relating to contradictory or inconsistent about its competitors. See Trump Casino , 7 F.3d retailers with excess inventories in general at 375 (holding that “the issuer of a and the Company’s representation that security [need not] compare itself in those same retailers kept a smaller myriad ways to its competitors, whether inventory of Adams Golf clubs in favorably or unfavorably. . . .”); Wielgos v. particular. Accordingly, we find that Commonwealth Edison Co. , 892 F.2d 509, Adams Golf’s representation of prompt 517 (7 th Cir. 1989) (“Issues or securities
delivery and relatively smaller retail must reveal firm-specific information.” inventories was not materially false or (emphasis added)). misleading. Moreover, the fact that looking backward, one perceives a trend EchoCath, Inc. , 235 F.3d 865, 873–75 (3d does not necessarily mean that conditions Cir. 2000) (collecting cases). And here the were such that one year earlier the cautionary statements relate directly to the situation was sufficiently obvious or claim on which plaintiffs allegedly relied; noteworthy. the general representations of better
business ahead were mitigated by the The plaintiffs also alleged that the discussion of the several factors that could retail oversupply affecting golf industry have caused poor financial results. retailers also rendered misleading the Accordingly, we agree with the District forward-looking statements made in the Court that plaintiffs’ allegations regarding registration statement. In particular, the the forward-looking statements must also plaintiffs argued that those forecasts were succumb to the motion to dismiss. “misleading with respect to the prospects for growth in the golf industry.” Those We conclude that the plaintiffs can statements included sanguine prospects for prove no set of facts that would the golf industry and the rising popularity demonstrate that either the specific of the sport more generally. But we have representation as to prompt delivery and firmly held that “[c]laims that these kinds retailers’ inventory of Adams Golf of vague expressions of hope by corporate equipment or the general forward-looking managers could dupe the market have been statements was materially misleading. As almost uniformly rejected by the courts.” reasonable minds could not disagree on Burlington Coat Factory , 114 F.3d at this issue, we affirm the District Court’s 1427. dismissal of the plaintiffs’ retail
oversupply claims as a matter of law. Moreover, Adams Golf was not entirely upbeat about its future. The C registration statement referred to a series of risks facing an investor, including the After the dismissal of their prospects of lagging demand for the complaint, plaintiffs filed a motion under Company’s products, competitive products Fed. R. Civ. P. 59(e) to amend or alter the from rivals, unseasonable weather patterns judgment so as to add new allegations by
virtue of Fed. R. Civ. P. 15. [12] They sought that could diminish the amount of golf played, and an overall decline in discretionary con sumer spendin g. Applying the “bespeaks caution” doctrine, [12] The plaintiffs had already amended this Court has held that meaningfully their complaint once before. After filing cautionary statements can render the their original complaint on June 11, 1999, alleged omissions or misrepresentations of the plaintiffs amended their complaint on forward-looking statements immaterial as May 17, 2000, the “Consolidated and a matter of law. EP Medsystems, Inc. v. Amended Class Action” complaint. It was to introduce “new” factual allegations granted. about both the gray market and retail oversupply claims. The District Court We have held that “[w]here a timely denied the motion in a subsequent order, motion to amend judgment is filed under which ruling we review for abuse of Rule 59(e), the Rule 15 and 59 inquiries discretion. Cureton v. Nat’l Collegiate turn on the same factors.” Id. These Athletic Ass’n , 252 F.3d 267, 272 (3d Cir. considerations include undue delay, bad 2001). faith, prejudice, or futility. Alston v.
Parker , 363 F.3d 229, 236 (3d Cir. 2004). But the purported new allegations The District Court found that the consist not of new information, but, rather, plaintiffs’ motion to amend was unduly information available at all times relevant delayed and ultimately futile. The concept to this action and facts not necessarily of “undue delay” includes consideration of curative of the pleading problems at issue. whether new information came to light or With respect to the gray market claim, the was available earlier to the moving party. plaintiffs merely furnished additional Here, as the District Court observed, details, such as the extent of financial plaintiffs could have introduced the losses attributable to unauthorized allegations in the motion to amend long distribution, none of which would have before the Court granted the motion to affected the substance of a Rule 12(b)(6) dismiss, and indeed could have included analysis. We note that insofar as these them in their original complaint filed in facts pertain to the claims concerning the 1999. Plaintiffs relied at their peril on the gray market, the plaintiffs would be free to possibility of adding to their complaint, develop them on remand. With respect to but in doing so they clearly risked the the retail oversupply claim, the plaintiffs prospect of the entry of a final dismissal sought to add more detailed factual order. Plaintiffs argue that they withheld allegations seeking to show the existence the allegations so as to comply with the of an industry-wide trend of excess “short and plain statement” requirement of inventory. This is also not helpful to their Fed. R. Civ. P. 8, citing to cases involving cause. In dismissing the oversupply claim, complaints in excess of 100 pages. See, both our analysis and that of the District e.g., In re Westinghouse Sec. Litig. , 90 Court assumed the existence of such an F.3d 696, 703 (3d Cir. 1996). Considering oversupply. Whether or not we were to that the amendment would have added a consider the new factual allegations, the mere five pages of allegations to the plaintiffs’ oversupply allegations do not plaintiffs’ twenty-two page complaint, we state a claim upon which relief could be do not credit this argument and conclude
that the District Court did not err in refusing to open the judgment of dismissal when plaintiffs clearly relied on
this amended complaint that the District “misplaced confidence” in their original Court dismissed under Rule 12(b)(6). pleading. Cureton , 252 F.3d at 274. III Moreover, as the District Court reasoned, the proposed amendments would not have For the foregoing reasons, we will remedied the pleading deficiencies and affirm the District Court’s dismissal of the would thus have been futile. plaintiffs’ claims relating to retail
oversupply and we will reverse the Accordingly, we find that the dismissal of those claims relating to the District Court did not abuse its discretion gray market and remand for further in dismissing the plaintiffs’ motion under proceedings consistent with this opinion. Rules 59(e) and 15. Cf. Lorenz v. CSX Corp. , 1 F.3d 1406, 1414 (3d Cir. 1993) (finding that district court did not abuse its discretion in light of plaintiff’s “unreasonable delay” and futility of proposed amendments). [13]
NOTES
[2] In particular, the offering materials About five months after the IPO, on indicated that: January 7, 1999, Adams Golf issued a In 1997, wholesale sales of golf press release anticipating disappointing equipment in the U.S. reached an fourth quarter 1998 results. The Company estimated $2.4 billion. Wholesale stated that sales would continue to suffer sales of golf clubs increased at an as a result of the “gray market distribution estimated compound annual growth of its products to a membership warehouse rate of approximately 13% over the club.” Further, according to the plaintiffs’ 5-year period from 1992-1997. The complaint, Adams Golf acknowledged, in Company believes that a number of its Form 10-K filed in March of 1999, that trends are likely to further increase despite its best efforts, a membership the demand for Adams' products. warehouse club had possession of its golf These trends include: (i) significant
[3] Plaintiffs also brought claims under p o p u l a t i o n o f ‘ E c h o B o o m e r s , ’ w h o a r e section 15 of the 1933 Act. A form of beginning to enter their 20s, derivative liability, section 15 permits the age of when golfers investors to recover, on a joint and several generally take up the sport; basis, from “control persons” who would and (v) the rapid evolution be otherwise liable under sections 11 and of golf club designs and 12(a)(2). 15 U.S.C. § 77o. But because materials. the District Court dismissed the sections 11 and 12(a)(2) claims, it did not, nor need
[13] Plaintiffs contend that the applicable s t a n d a r d o f r e v i e w o f f u t i l i t y determinations is de novo , relying upon our decision in Burlington Coat Factory , 114 F.3d at 1410, as adopting the standard employed by several of our sister courts of appeals, but we do need read Burlington as having done so. See Freeman v. First Union Nat’l, 329 F.3d 1231, 1234 (11 th Cir. 2003) (“[W]hen the district court denies the plaintiff leave to amend due to futility, we review the denial de novo because it is concluding that as a matter of law an amended complaint ‘would necessarily fail.’ (quoting St. Charles Foods, Inc. v. America’s Favorite Chicken Comito, L.L.P. v. Iowa , 269 F.3d 932, 936 ( 8 t h C i r . 2 0 0 1 ) ; G l a s s m a n v . Co. , 198 F.3d 815, 822 (11th Cir.1999))); Inge v. Rock Fin. Corp. , 281 F.3d 613, 625 Computervision Corp. , 90 F.3d 617, 623 (1 st Cir. 1996). Accordingly, we decline (6th Cir.2002) (“When . . . the district court denies the motion to amend on the plaintiffs’ invitation to chart a new grounds that the amendment would be course and consider the District Court’s futile, we review denial of the motion de finding of futility for abuse of discretion. novo.”); United States ex rel. Gaudineer &
