Third Circuit disposition — 03-3945

PRECEDENTIAL
UNITED STATES COURT
OF APPEALS FOR THE
THIRD CIRCUIT
No. 03-3945
IN RE: ADAMS GOLF, INC.
SECURITIES LITIGATION
F. KENNETH SHOCKLEY, M.D.;
DAVID SHOCKLEY;
TODD TONORE;
ZANE BIANACCI;
PATRICIA CRAUS;
TERRY LINVILLE;
LARRY PRICE;
FEDERATED NATIONAL
INSURANCE COMPANY, on behalf
of all others similarly situated,
Appellants
Appeal from the United States
District Court for the
District of Delaware
(D.C. Civil Nos. 99-cv-0371,
99-cv-0397, 99-cv-0421,
99-cv-0469, 99-cv-0498,
99-cv0-511, 99-cv-0618)
District Judge: Honorable Kent Jordan
Argued May 25, 2004
Before: SCIRICA, Chief Judge,
RENDELL and ALARCÓN*,
Circuit Judges.
(Filed: August 25, 2004)
Elizabeth W. Fox
Todd S. Collins [ARGUED]
Berger & Montague
1622 Locust Street
Philadelphia, PA 19103
Counsel for Appellants
Kevin G. Abrams
Richards, Layton & Finger
One Rodney Square
P.O. Box 551
Wilmington, DE 19899
Michael J. Biles
Jennifer R. Brannen
Jesse Z. Weiss
Paul R. Bessette [ARGUED]
Kevin G. Abrams
Akin, Gump, Strauss, Hauer & Feld
300 West Sixth Street, Suite 2100
Austin, TX 78701
Counsel for Appellees Adams Golf Inc.,
B.H. Adams, Richard H. Murtland,
Darl P. Hatfield, Paul F. Brown, Jr.
Roland E. Casati, Finis F. Conner,
and Stephen R. Patchin
Robert K. Payson
Potter, Anderson & Corroon
1313 North Market Street
6th Floor, P.O. Box 951
Wilmington, DE 19801
*Honorable Arthur L. Alarcón, Senior
Judge, United States Court of Appeals for
the Ninth Circuit, sitting by designation.

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2
Michael J. Chepiga [ARGUED]
Simpson, Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Counsel for Appellees Lehman Bros.
Holdings, Banc of America Securities
LLC, and Ferris Baker Watts
OPINION OF THE COURT
RENDELL, Circuit Judge.
In this securities case, plaintiff-
shareholders brought an action under the
Securities Act of 1933 against Adams
Golf, Inc., a manufacturer of golf
equipment, and certain of its officers and
underwriters. The plaintiffs contended
that the Company’s registration statement
and prospectus contained materially false
or misleading statements in violation of
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
equipment exclusively to authorized
retailers and that the golf industry was
flourishing. In their complaint, the
plaintiffs alleged that Adams Golf omitted
i n f o r m a t i o n c o n t r a ry to t h e s e
representations, i.e., that unauthorized
retailers were selling Adams Golf’s golf
clubs, and that retailers industry-wide were
carrying an oversupply of golf equipment.
Finding that neither the unauthorized retail
nor the oversupply allegations stated a
claim upon which relief could be granted,
the District Court dismissed the action
under Fed. R. Civ. P. 12(b)(6). In re
Adams Golf, Inc. Sec. Litig., 176 F. Supp.
2d 216 (D. Del. 2001). For the reasons
that follow, we will affirm in part and
reverse in part.
I
A
When Barney Adams founded
Adams Golf in 1987, the Company was a
golfing components supplier and a contract
manufacturer. Over the years, it grew to
become a designer and manufacturer of its
own custom-fit golf clubs. After having
much success by introducing a high-end
golf club, called Tight Lies, the Company
offered its shares to the public. On July
10, 1998, an Initial Public Offering
(“IPO”) of 5,575,000 shares of the
Company’s common stock was made at
$16 per share, accompanied by the
requisite registration statement and
prospectus.1
1Originally, the plaintiffs in this action
consisted of those who purchased directly
from the defendant-underwriters during
the IPO and those who purchased their
shares from the secondary market soon
after the IPO. Citing to Gustafson v.
Alloyd Co., 513 U.S. 561 (1995) and
Ballay v. Legg Mason Wood Walker, Inc.,
925 F.2d 682 (3d Cir. 1991), the District
Court held that the plaintiffs who
purchased Adams Golf shares on the
public market did not have a private right
of action under section 12(a)(2) of the

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3
In their complaint, the plaintiffs
contend that the defendants misrepresented
and omitted material facts in the
registration statement and prospectus.
First, the plaintiffs argue that the
defendants failed to disclose that its
revenues were artificially inflated by a
“gray market” distribution of Adams Golf
golf clubs. Second, the plaintiffs argue
that the defendants failed to disclose the
existence of an industry-wide oversupply
of golf equipment. The facts with respect
to these two sets of allegations will be
explored in more detail.
1
Adams Golf sold its golf clubs only
to authorized dealers. As its registration
statement explained:
To preserve the integrity of
its image and reputation, the
C o m p a n y l i m i t s i t s
distribution to retailers that
market premium quality golf
equipment and provide a
high level of customer
s e r v ic e a n d technic a l
expertise. . . . The Company
believes its selective retail
d i s tr i b ut i o n h e l p s its
r e t a il e r s t o m a i n ta i n
profitable margins and
maximize sales of Adams’
products.
The registration statement made clear that,
as part of its limited distribution
arrangement, the Company “does not sell
its products through price sensitive general
discount warehouses, department stores or
membership clubs.”
Prior to the IPO, however, Adams
Golf had learned that Tight Lies golf clubs
were being sold by Costco, a discount
warehouse. On June 9, 1998, one month
before the reg istration statement’s
effective date, the Company issued a press
release in which it acknowledged that an
unauthorized dealer was selling its
signature product. Indeed, the plaintiffs
alleged that prior to the IPO, Costco
possessed over 5,000 Tight Lies clubs in
its inventory. In the press release, Adams
Golf stated it was “concerned” about
Costco’s sale of the golf clubs “because
Costco [w as] no t an authorized
distributor.” Concerned enough that,
according to the press release, Adams Golf
initiated legal proceedings, by filing a bill
of discovery against Costco, to determine
“whether Costco’s claims that they had
properly acquired Adams’ Tight Lies
fairway woods for resale were accurate.”
The plaintiffs further alleged that the
unauthorized distribution was not limited
to Costco and included “sales by other
unauthorized discount retailers and
international gray market distributors.”
This unauthorized inventory created
1933 Act. However, the District Court
ruled that those secondary market
purchasers could sue under section 11 of
the Act. These determinations have not
been challenged by the parties and so we
do not pass upon them.

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4
a “gray market,” according to the
plaintiffs. The complaint defines “gray
market” to sim ply refer to “the
unauthorized distributi o n of th e
Company’s products to discount retailers.”
The complaint sets out the several
ostensible consequences of this gray
market. The plaintiffs alleged that the
Company initially experienced a rise in
sales as products were diverted to the
unauthorized distributors. According to
their complaint, “[t]he short-term income
generated by sales to the gray market also
skewed the Company’s overall financial
appearance, creating the false impression
of heightened sales and profitability at the
time of the IPO, according to the historical
financial statements contained in the
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
Prospectus.” Seeking a better deal,
consumers bought their Tight Lies clubs
from cheaper, unauthorized sources. With
their sales diminished, authorized dealers
then reduced their orders for Adams Golf
equipment. In time, the ultimate result for
the Company was an overall drop in
revenue.
About five months after the IPO, on
January 7, 1999, Adams Golf issued a
press release anticipating disappointing
fourth quarter 1998 results. The Company
stated that sales would continue to suffer
as a result of the “gray market distribution
of its products to a membership warehouse
club.” Further, according to the plaintiffs’
complaint, Adams Golf acknowledged, in
its Form 10-K filed in March of 1999, that
despite its best efforts, a membership
warehouse club had possession of its golf
clubs, and that the Company “does not
believe that the gray marketing of its
product can be totally eliminated.”
2
The complaint also states that by
omitting any mention of an industry-wide
glut of golf equipment carried by retailers,
certain passages in Adams Golf’s
registration statement were materially
misleading. Specifically, the plaintiffs
refer to the statement that “[t]he Company
believes its prompt delivery of products
enables its retail accounts to maintain
smaller quantities of inventory than may
be required with other golf equipment
manufacturers.” Further, the plaintiffs
argue that forward-looking statements
contained in the offering materials,
including the belief that “a number of
trends are likely to increase the demand for
Adams’ products” painted too rosy a
picture of the golf industry, particularly in
light of the problem of retail oversupply.2
2In particular, the offering materials
indicated that:
In 1997, wholesale sales of golf
equipment in the U.S. reached an
estimated $2.4 billion. Wholesale
sales of golf clubs increased at an
estimated compound annual growth
rate of approximately 13% over the
5-year period from 1992-1997. The
Company believes that a number of
trends are likely to further increase
the demand for Adams' products.
These trends include: (i) significant

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5
The record indicates that
oversupply did eventually come to
adversely affect Adams Golf’s bottom line.
Indeed, the first quarter report for 1999
indicated that the Company had suffered
disappointing financial results, partly
owing to an “oversupply of inventory at
the retail level, a condition that weakened
club sales industry wide over the last 12
months, [and] has resulted in substantial
reductions in retailer purchases.”
B
The District Court granted the
defendants’ motion to dismiss for failure
to state a claim upon which relief may be
granted. Adams Golf, 176 F. Supp. 2d at
238. The Court ruled as to both the gray
market and the retail oversupply claims
that Adams Golf’s registration statement
contained neither false, nor misleading
statements, nor any material omissions. In
response, the plaintiffs filed a motion to
amend its complaint pursuant to Fed. R.
Civ. P. 59(e) and 15, which the District
Court denied in a subsequent order. The
plaintiffs timely appealed both rulings of
the District Court. We have jurisdiction to
consider this appeal pursuant to 28 U.S.C.
§ 1291.
II
This Court reviews Rule 12(b)(6)
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
Cir. 2003). We may not affirm unless we
are certain that no relief could be granted
under any set of facts which could be
proven. Id. The District Court concluded
that the plaintiffs’ complaint was
insufficient to state a claim against the
defendants under sections 11 and 12(a)(2)
of the 1933 Act.3
growth in the number of
golf courses; (ii) increasing
interest in golf from women,
junior, and minority golfers;
(iii) the large numbers of
golfers entering their 40s
and 50s, the age when most
golfers begin to play more
often and increase their
spending on the sport; (iv)
the correspondingly large
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
beginning to enter their 20s,
the age of when golfers
generally take up the sport;
and (v) the rapid evolution
of golf club designs and
materials.
3Plaintiffs also brought claims under
section 15 of the 1933 Act. A form of
derivative liability, section 15 permits
investors to recover, on a joint and several
basis, from “control persons” who would
be otherwise liable under sections 11 and
12(a)(2). 15 U.S.C. § 77o. But because
the District Court dismissed the sections
11 and 12(a)(2) claims, it did not, nor need

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6
The 1933 Act creates federal duties,
particularly involving registration and
disclosure, in connection with the public
offering of securities. Sections 11 and
12(a)(2) impose civil liability for the
making of materially false or misleading
statements in registration statements and
prospectuses. See 15 U.S.C. §§ 77k,
77l(a)(2). In particular, section 11
involves material misstatements or
omissions in registration statements, while
section 12(a)(2) involves prospectuses and
other solicitation materials.
To state a claim under section 11,
plaintiffs must allege that they purchased
securities pursuant to a materially false or
misleading registration statem ent.4
Herman & MacLean v. Huddleston, 459
U.S. 375, 382 (1983) (“If a plaintiff
purchased a security issued pursuant to a
registration statement, he need only show
a material misstatement or omission to
establish his prima facie case.”); Shapiro
v. UJB Fin. Corp., 964 F.2d 272, 286 (3d
Cir. 1992).5 To state a claim under section
12(a)(2), plaintiffs must allege that they
purchased securities pursuant to a
materially false or misleading “prospectus
or oral communication.”6 The plaintiffs
we, consider any issues related to control
person liability.
4Section 11 provides a right of action to
purchasers:
In case any part of the
registration statement, when
such part became effective,
c o n t a in e d a n u n t r u e
statement of a material fact
or omitted to state a material
fact required to be stated
therein or necessary to make
the statements therein not
misleading . . . .
15 U.S.C. § 77k(a).
5The requirements under section 11
stand in stark contrast to those of the
Securities Exchange Act of 1934 (the
“1934 Act”), which include a showing of
reasonable reliance and scienter. Further,
unlike claims brought under the anti-fraud
provisions of the 1934 Act, claims under
the 1933 Act that do not sound in fraud are
not held to the heightened pleading
requirements of Fed. R. Civ. P. 9(b).
Shapiro, 964 F.2d at 288. Applying
Shapiro, the District Court determined that
the plaintiffs’ complaint did not sound in
fraud, a ruling that has not been cross-
appealed by the defendants. Additionally,
the District Court observed that the
stringent pleading requirements imposed
by Congress in the Private Securities
Litigation Reform Act of 1995 apply to the
1934 Act alone. The District Court
accordingly ruled that the plaintiffs’
complaint was subject only to the liberal
notice pleading standard of Fed. R. Civ. P.
8.
6Section 12(a)(2) provides that any
defendant who:
offers or sells a security . . . by
means of a prospectus or oral
communication, which includes an
untrue statement of a material fact
or omits to state a material fact

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7
argue that both their claims concerning the
gray market distribution and the existence
of a retail oversupply meet the above
pleading minima. Further, they contend
that the District Court improperly denied
their motion to amend the complaint,
which they filed pursuant to Fed. R. Civ.
P. 59(e) (motion to amend or alter the
judgment) and Fed. R. Civ. P. 15 (motion
to amend the pleadings). We consider
each set of claims in turn.
A
The plaintiffs alleged that by
omitting any mention of what they
characterize as a gray market problem,
Adams Golf rendered the registration
statement false or misleading, specifically
those claims concerning the Company’s
reliance on a network of authorized
distributors. The District Court found that
Costco’s unauthorized possession of golf
clubs did not constitute a material
omission.7 Adams Golf, 176 F. Supp. 2d at
necessary in order to make
the statements, in the light
of the circumstances under
which they were made, not
misleading (the purchaser
not knowing of such untruth
or omission), and who shall
not sustain the burden of
proof that he did not know,
and in the exercise of
reasonable care could not
have known, of such untruth
or omission, shall be liable .
. . to the person purchasing
such security from him . . . .
15 U.S.C. § 77l.
7In addition to materiality, the District
Court required the plaintiffs to show that
an omission or misstatement was known to
the Company at the time of the IPO.
Adams Golf, 176 F. Supp. 2d at 233
(“While the plaintiffs build their case
around Adams Golf statements appearing
after the IPO date, in order to state a claim
for material omission, the plaintiffs [sic]
allegations must identify that this alleged
undisclosed material risk was known and
material at the time of the IPO.” (emphasis
supplied)). This is not correct. Sections
11 and 12(a)(2) are virtually absolute
liability provisions, which do not require
plaintiffs to allege that defendants
possessed any scienter. Huddleston, 459
U.S. at 382. As this Court has held:
There are substantial differences
between the elements a plaintiff
must establish under § 10 and Rule
10b-5 of the Securities Exchange
Act of 1934 and under §§ 11 and
12(2) of the Securities Act of 1933.
Under the former, the plaintiffs
must plead not only that the
d e f e n d a n t s m a d e m a t e r i a l
o m i s s i o n s a n d / o r
misrepresentations, but also that
they reasonably relied on them and
that the defendants acted with
knowledge or recklessness. In
contrast, §§ 11 and 12(2) impose no
such requirements.
In re Donald J. Trump Casino Sec.

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8
234 (“In sum, plaintiffs have not alleged
support for their proposition that the fact
that an unauthorized discount retailer had
illegally obtained a number of Adams Golf
clubs constituted a material risk at the time
of the IPO, or a ‘known trend’ threatening
the Company’s future sales, that should
have been disclosed.”). Further, the Court
determined that, in any event, the omission
of any information regarding the gray
market did not render the registration
statement and prospectus false or
misleading.
Materiality is ordinarily an issue left
to the factfinder and is therefore not
typically a matter for Rule 12(b)(6)
dismissal.8 Weiner v. Quaker Oats Co.,
129 F.3d 310, 317 (3d Cir. 1997) (“[T]he
emphasis on a fact-specific determination
of materiality militates against a dismissal
on the pleadings.”). “Only if the alleged
misrepresentations or omissions are so
obviously unimportant to an investor that
reasonable minds cannot differ on the
question of materiality is it appropriate for
the district court to rule that the allegations
are inactionable as a matter of law.”
Shapiro, 964 F.2d at 281 n.11 (citing TSC
Indus., 426 U.S. at 450) (emphasis added).
Although the District Court did not
expressly reference this standard, its
dismissal for failure to state a claim was
proper only if the gray market and retail
o v e r s u p p l y i s s u e s w e r e p l a in ly
unimportant to a reasonable investor.
To support its determination that
the gray market claim lacked materiality,
the District Court observed that Costco
possessed what it considered a “limited
number” of golf clubs at the time of the
IPO. The defendants explain that these
were 5,000 golf clubs out of 235,000, or
roughly two percent of the golf clubs sold
by Adams Golf that fiscal quarter. By
itself, however, this figure does not
persuade us that the fact was plainly
immaterial. Were Costco to have had
more than ten percent of the Company’s
golf clubs in its inventory, we might agree
that the unauthorized inventory would be
undoubtedly material. To illustrate the
other extreme, if a discount retailer had
just a handful of golf clubs, we might
conclude that a few errant fairway woods
would be obviously immaterial to a
reasonable investor. In contrast, the
materiality of Costco’s unauthorized
inventory of several thousand Adams Golf
golf clubs cannot be so easily divined. In
order to make the “delicate assessments”
involved in a materiality determination,
Shapiro, 964 F.2d at 281 n.11, we would
Litig.-Taj Mahal Litig., 7 F.3d 357, 369
n.10 (3d Cir. 1993) (internal citations
omitted).
8The standard test in securities law to
determine the materiality of an omission is
“whether 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.’” In re NAHC, Inc. Sec. Litig.,
306 F.3d 1314, 1331 (3d Cir. 2002)
(quoting TSC Indus., Inc. v. Northway,
Inc., 426 U.S. 438, 449 (1976)).

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9
need more information regarding, for
example, the importance of the limited
distribution arrangement to Adams Golf’s
business model and, perhaps, the nature of
the golf club industry more generally. In a
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
maintenance of exclusivity among Adams
Golf’s network of authorized dealers may
have been vital, and the Company’s
touting this mode of distribution seems to
imply that it is. Indeed, in its registration
statement, the Company indicated that its
distribution system allowed it “to maintain
profits and maximize sales of Adams Golf
products.” In light of such considerations,
the possession of 5,000 golf clubs in the
hands of a nationwide, discount retailer
may have been material, since it may have
“altered the ‘total mix’ of information”
available to a reasonable investor. NAHC,
306 F.3d at 1331. But without further
factual development, the answer to this
materiality inquiry is far from plain.
The District Court also reasoned
that the gray market problem was
immaterial because it was an “isolated
incident” and not part of a “known trend.”
Adams Golf, 176 F. Supp. 2d at 234. But
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
event such as an oil tanker crash may
nevertheless be material in the eyes of a
reasonable investor in the unlucky oil
company. Analogously, even if the
unauthorized inventory of golf clubs was a
one-time occurrence, it may have posed
significant consequences for Adams Golf’s
relationships wit h its authorized
distributors, and signaled trouble that
might be difficult to overcome.
Perhaps animated by this concern,
the Company issued a press release on
June 9, 1998, one month prior to going
public, noting that it had filed an equitable
bill of discovery to investigate the
unauthorized inventory. According to the
press release, “Adams Golf became
concerned when it learned that Costco was
selling their Tight Lies fairway woods
because Costco is not an authorized
distributor.” While not all company press
releases publicize material information, we
recognize that a company often chooses to
issue an extraordinary press release when
it needs to disseminate important
information to its investors. In light of this
p u b l i c a c k n o w l e d g m e n t o f th e
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
announcement of legal action, and our
obligation to draw all reasonable
inferences in favor of the plaintiffs, we are
hard pressed to see how the existence of
5,000 golf clubs for sale at a discounter,
outside the protected distribution network,
was unquestionably immaterial to a
reasonable investor.9
9The District Court found that the “Bill
of Discovery and the issuing of the press
release [prior to the IPO] are consistent
with the defendants [sic] contentions that
it was in fact Adams Golf’s policy not to
authorize ‘distribution of the Company’s
products to discount retailers.’” 176 F.
Supp. 2d at 233. Yet such “consistency” is

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10
On appeal, the defendants contend
that the fact that the gray market was not
material is reflected by the absence of any
decline in share value when the market
learned of it in the January 7, 1999 press
release.10 They rely on In re Burlington
not salient to a materiality inquiry. Adams
Golf may have been working resolutely, in
conformance with its stated policy, to
solve its unauthorized inventory situation.
But a company’s effort to manage a
problem does not by itself discharge its
obligation to inform investors of that
problem; if an event is material, the
securities laws may require disclosure,
notwithstanding the type of consistency
identified by the District Court. If it were
otherwise, companies could justify
keeping quiet about significant corporate
crises by simply noting that they were
handling the situation in accordance with
some previously stated management
policy.
10The defendants also argue that the
June 9, 1998 pre-IPO press release
sufficed to inform the public of Costco’s
unauthorized inventory of Tight Lies
clubs. They argue that if information
regarding any gray market problem was
placed in the public domain through its
pre-IPO press release, the Company would
have had no obligation to mention it in
their offering materials. First, this
contention of course contradicts the
defendants’ claim that the stock price did
not drop after the investing public first
learned of the gray market problem on
January 7, 1999. Second, the cases relied
upon by the defendants are inapposite. See
Acme Propane, Inc. v. Tenexco, Inc., 844
F.2d 1317, 1323 (7th Cir. 1988) (no
obligation to disclose information on
relevant state laws as statutes are in the
public domain); Rodman v. Grant Found.,
608 F.2d 64, 70 (2d Cir. 1979) (no
obligation to disclose motivation of
corporate officers to maintain corporate
control and prevent hostile takeovers as
such intentions are “universal.”); Seibert v.
Sperry Rand Corp., 586 F.2d 949, 952 (2d
Cir. 1978) (no obligation to disclose labor
difficulties when those problems were
“reported countrywide in the press and on
radio and television, were discussed in
Congress, and were analyzed in published
administrative and judicial opinions.”).
Costco ’s u n a u t h o rized inventory,
announced in a single press release before
the Company went public, was simply
unlike the publicly known or available
facts in the above cases.
Further, we find that the
defendants’ citation to this Court’s
decision in Klein v. General Nutrition Co.,
186 F.3d 338 (3d Cir. 1999), to be even
further afield. Klein involved securities
traded on the secondary market. We held
that the market “promptly digested current
information regarding GNC from all
publicly-available sources and reflected
that information in GNC’s stock price.”
Id. at 338. But there is no indication that
there was any such efficient market in
Adams Golf shares prior to the IPO.
Accordingly, we cannot conclude that the
pre-IPO press release in this case, issued a

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11
Coat Factory Sec. Litig., Inc., 114 F.3d
1410 (3d Cir. 1997), in which we observed
that “to the extent that information is not
important to reasonable investors, it
follows that its release will have a
negligible effect on the stock price.” Id. at
1425. But Burlington Coat Factory was a
Rule 10b-5 case brought under the 1934
Act, which requires that plaintiffs plead
loss causation, i.e., allege that the material
misstatement or omission caused a drop in
the stock price. Actions brought under the
1933 Act are, however, critically different.
Under sections 11 and 12(a)(2), plaintiffs
do not bear the burden of proving
causation. It is the defendants who may
assert, as an affirmative defense, that a
lower share value did not result from any
nondisclosure or false statement. See 15
U.S.C. §§ 77k(e), 77l(b). While a
defendant may be able to prove this
“negative causation” theory, an affirmative
defense may not be used to dismiss a
plaintiff’s complaint under Rule 12(b)(6).11
Doe v. GTE Corp., 347 F.3d 655, 657 (7th
Cir. 2003) (“[L]itigants need not try to
plead around defenses.”).
Mindful of this Court’s dismissal
standard for immateriality, and our
obligation to draw reasonable inferences in
the plaintiffs’ favor, we cannot agree with
the District Court’s conclusion that the
gray market issue was obviously
unimportant to a reasonable investor. Of
course, ultimately, Costco’s inventory of
Tight Lies golf clubs may be found to be
immaterial, but that is for a factfinder to
determine in light of a developed record.
A determination that information
missing from a registration statement and
prospectus is material does not end our
analysis. We must also decide whether the
issuer had the duty to disclose that material
fact such that its omission made the
statement misleading. See Zucker v.
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
required to disclose all known information,
but only information that is ‘necessary to
make other statements not misleading.’”
(quoting Craftmatic Sec. Litig. v.
Kraftsow, 890 F.2d 628, 640 n.16 (3d Cir.
1989))). In order to make out prima facie
violations of sections 11 and 12(a)(2),
plaintiffs must allege that an omitted
material fact was required to be included
by the securities laws or that its absence
rendered statements in the prospectus
misleading. See 15 U.S.C. § 77k(a)
(referring to “an untrue statement of a
material fact or omitted to state a material
month before the offering materials were
filed, was sufficient to inform the
investing public of a gray market in
Adams Golf equipment.
11In any event, while there was no effect
to the stock in Burlington Coat Factory,
here, after disclosure of the gray market in
the January 7, 1999 press release, the
number of Adams Golf shares traded
jumped from 58,000 to 1.2 million, and
resulted in a 17 percent decline in the
stock price, though in absolute terms, this
just represented a drop from $4.63 to
$3.88.

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12
fact required to be stated therein or
necessary to make the statements therein
not misleading”); § 77l (referring to “an
untrue statement of a material fact or omits
to state a material fact necessary in order
to make the statements, in the light of the
circumstances under which they were
made, not misleading”). As noted above,
the plaintiffs allege that the Company’s
statements touting its limited distribution
arrangements were false or misleading in
light of the omitted gray market problem.
While we agree with the District Court that
none of these statements in the registration
statement was technically false, we
disagree with the Court’s conclusion that
the statements were obviously not
misleading.
The relevant statements in the
offering materials indicated that
distribution was limited to certain retailers
and that the Company “does not sell its
products through price sensitive general
discount warehouses.” The District Court
properly found that Costco’s unauthorized
possession of Adams Golf clubs could not
be reasonably taken to make those
statements false, for there was no
allegation that Adams Golf itself sold golf
clubs to unauthorized retailers. But while
technically true, those statements may have
nevertheless led a reasonable investor to
conclude that the selective distribution
model was functioning properly, i.e., that
this method was exclusive, and therefore
that unauthorized retailers were not selling
significant quantities of its Adams Golf
merchandise. Reasonable minds could
disagree as to whether the omitted fact of
Costco’s unauthorized possession, in
addition to the alleged “sales by other
unauthorized discount retailers and
international gray market distributors,”
were necessary to make the statements
regarding the Com pany’s limited
distribution not misleading. Accordingly,
we will reverse the District Court’s
dismissal of the plaintiffs’ gray market
claims.
B
We next turn to the plaintiffs’
claims regarding an oversupply of golf
equipment among retailers. As noted
above, the plaintiffs contend that the
omission of this oversupply rendered two
sets of statements in the offering materials
materially misleading: 1) the specific
representation that “[t]he Company
believes its prompt delivery of products
enables its retail accounts to maintain
smaller quantities of inventory than may
be required with other golf equipment
manufacturers”; and 2) the general
forward-looking statements concerning the
trends “likely to increase the demand” for
Adams Golf products. We agree with the
District Court that neither of these
statements were materially misleading by
the omission of these industry conditions.
Adams Golf’s specific claims to
nimble delivery and relatively smaller
inventory were not rendered false or
misleading in light of any alleged industry-
wide oversupply of golf equipment. The
offering materials merely indicated that
stores had fewer Adams Golf clubs in their

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13
inventories than the equipment of other
manufacturers. The statement cannot
reasonably be taken to mean that “Adams
Golf retailers were not carrying excess
inventory,” as plaintiffs allege. Those
retailers may very well have had bloated
inventories. But they may have
maintained a relatively smaller inventory
of Adams Golf equipment while carrying
a surplus of merchandise produced by
Adams Golf’s competitors. We find that
plaintiffs’ allegations concerning retailers’
excess supplies of other companies’
equipment simply cannot render false or
misleading that portion of the registration
statement concerning the retailers’ smaller
inventory of Adams Golf products.
While the plaintiffs may be able to
prove their allegations that Adams Golf’s
rivals were suffering from retail
oversupply and were taking “corrective
action to address the industry-wide
oversupply” problem at the time of Adams
Golf’s IPO, these allegations are of no
moment. Whatever financial problems
other manufacturers and retailers may have
struggled with, the securities laws
obligated Adams Golf to disclose material
information concerning its own business
and not necessarily the details relating to
its competitors. See Trump Casino, 7 F.3d
at 375 (holding that “the issuer of a
security [need not] compare itself in
myriad ways to its competitors, whether
favorably or unfavorably. . . .”); Wielgos v.
Commonwealth Edison Co., 892 F.2d 509,
517 (7th Cir. 1989) (“Issues or securities
must reveal firm-specific information.”
(emphasis added)).
Further, the plaintiffs make much of
the Company’s April 12, 1999 press
release, announcing financial results for
the first quarter of 1999, in which,
according to their complaint, “defendants
d i s closed that fo r at least 1 2
months—since we ll prior to the
IPO— there had been an ‘oversupply of
inventory at the retail level’ on an
industry-wide basis.” Initially, we observe
that Adams Golf was not duty-bound to
disclose general industry-wide trends
easily discernable from information
already available in the public domain.
See Klein, 186 F.3d at 342 (determination
of materiality takes into account
“availability [of information] in the public
domain”); Whirlpool Fin. Corp. v. GN
Holdings, Inc., 67 F.3d 605, 609 (7th Cir.
1995) (“The nondisclosure of . . . industry-
wide trends is not a basis for a securities
fraud claim.”); Tenexco, 844 F.2d 1317,
1323–24 (“The securities laws require the
disclosure of information that is otherwise
not in the public domain.”). Moreover, all
the April 12, 1999 press release seemed to
acknowledge was that retailers of golf
equipment had experienced generally
sluggish sales for over a year. As
discussed above, however, there is nothing
contradictory or inconsistent about
retailers with excess inventories in general
and the Company’s representation that
those same retailers kept a smaller
inventory of Adams Golf clubs in
particular. Accordingly, we find that
Adams Golf’s representation of prompt
delivery and relatively smaller retail
inventories was not materially false or
misleading. Moreover, the fact that

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14
looking backward, one perceives a trend
does not necessarily mean that conditions
were such that one year earlier the
situation was sufficiently obvious or
noteworthy.
The plaintiffs also alleged that the
retail oversupply affecting golf industry
retailers also rendered misleading the
forward-looking statements made in the
registration statement. In particular, the
plaintiffs argued that those forecasts were
“misleading with respect to the prospects
for growth in the golf industry.” Those
statements included sanguine prospects for
the golf industry and the rising popularity
of the sport more generally. But we have
firmly held that “[c]laims that these kinds
of vague expressions of hope by corporate
managers could dupe the market have been
almost uniformly rejected by the courts.”
Burlington Coat Factory, 114 F.3d at
1427.
Moreover, Adams Golf was not
entirely upbeat about its future. The
registration statement referred to a series
of risks facing an investor, including the
prospects of lagging demand for the
Company’s products, competitive products
from rivals, unseasonable weather patterns
that could diminish the amount of golf
played, and an overall decline in
discretionary consumer spending.
Applying the “bespeaks caution” doctrine,
this Court has held that meaningfully
cautionary statements can render the
alleged omissions or misrepresentations of
forward-looking statements immaterial as
a matter of law. EP Medsystems, Inc. v.
EchoCath, Inc., 235 F.3d 865, 873–75 (3d
Cir. 2000) (collecting cases). And here the
cautionary statements relate directly to the
claim on which plaintiffs allegedly relied;
the general representations of better
business ahead were mitigated by the
discussion of the several factors that could
have caused poor financial results.
Accordingly, we agree with the District
Court that plaintiffs’ allegations regarding
the forward-looking statements must also
succumb to the motion to dismiss.
We conclude that the plaintiffs can
prove no set of facts that would
demonstrate that either the specific
representation as to prompt delivery and
retailers’ inventory of Adams Golf
equipment or the general forward-looking
statements was materially misleading. As
reasonable minds could not disagree on
this issue, we affirm the District Court’s
dismissal of the plaintiffs’ retail
oversupply claims as a matter of law.
C
After the dismissal of their
complaint, plaintiffs filed a motion under
Fed. R. Civ. P. 59(e) to amend or alter the
judgment so as to add new allegations by
virtue of Fed. R. Civ. P. 15.12 They sought
12The plaintiffs had already amended
their complaint once before. After filing
their original complaint on June 11, 1999,
the plaintiffs amended their complaint on
May 17, 2000, the “Consolidated and
Amended Class Action” complaint. It was

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15
to introduce “new” factual allegations
about both the gray market and retail
oversupply claims. The District Court
denied the motion in a subsequent order,
which ruling we review for abuse of
discretion. Cureton v. Nat’l Collegiate
Athletic Ass’n, 252 F.3d 267, 272 (3d Cir.
2001).
But the purported new allegations
consist not of new information, but, rather,
information available at all times relevant
to this action and facts not necessarily
curative of the pleading problems at issue.
With respect to the gray market claim, the
plaintiffs merely furnished additional
details, such as the extent of financial
losses attributable to unauthorized
distribution, none of which would have
affected the substance of a Rule 12(b)(6)
analysis. We note that insofar as these
facts pertain to the claims concerning the
gray market, the plaintiffs would be free to
develop them on remand. With respect to
the retail oversupply claim, the plaintiffs
sought to add more detailed factual
allegations seeking to show the existence
of an industry-wide trend of excess
inventory. This is also not helpful to their
cause. In dismissing the oversupply claim,
both our analysis and that of the District
Court assumed the existence of such an
oversupply. Whether or not we were to
consider the new factual allegations, the
plaintiffs’ oversupply allegations do not
state a claim upon which relief could be
granted.
We have held that “[w]here a timely
motion to amend judgment is filed under
Rule 59(e), the Rule 15 and 59 inquiries
turn on the same factors.” Id. These
considerations include undue delay, bad
faith, prejudice, or futility. Alston v.
Parker, 363 F.3d 229, 236 (3d Cir. 2004).
The District Court found that the
plaintiffs’ motion to amend was unduly
delayed and ultimately futile. The concept
of “undue delay” includes consideration of
whether new information came to light or
was available earlier to the moving party.
Here, as the District Court observed,
plaintiffs could have introduced the
allegations in the motion to amend long
before the Court granted the motion to
dismiss, and indeed could have included
them in their original complaint filed in
1999. Plaintiffs relied at their peril on the
possibility of adding to their complaint,
but in doing so they clearly risked the
prospect of the entry of a final dismissal
order. Plaintiffs argue that they withheld
the allegations so as to comply with the
“short and plain statement” requirement of
Fed. R. Civ. P. 8, citing to cases involving
complaints in excess of 100 pages. See,
e.g., In re Westinghouse Sec. Litig., 90
F.3d 696, 703 (3d Cir. 1996). Considering
that the amendment would have added a
mere five pages of allegations to the
plaintiffs’ twenty-two page complaint, we
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
“misplaced confidence” in their original
this amended complaint that the District
Court dismissed under Rule 12(b)(6).

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16
pleading. Cureton, 252 F.3d at 274.
Moreover, as the District Court reasoned,
the proposed amendments would not have
remedied the pleading deficiencies and
would thus have been futile.
Accordingly, we find that the
District Court did not abuse its discretion
in dismissing the plaintiffs’ motion under
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
III
For the foregoing reasons, we will
affirm the District Court’s dismissal of the
plaintiffs’ claims relating to retail
oversupply and we will reverse the
dismissal of those claims relating to the
gray market and remand for further
proceedings consistent with this opinion.
13Plaintiffs 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 (11th
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
Co., 198 F.3d 815, 822 (11th Cir.1999)));
Inge v. Rock Fin. Corp., 281 F.3d 613, 625
(6th Cir.2002) (“When . . . the district
court denies the motion to amend on
grounds that the amendment would be
futile, we review denial of the motion de
novo.”); United States ex rel. Gaudineer &
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 .
Computervision Corp., 90 F.3d 617, 623
(1st Cir. 1996). Accordingly, we decline
the plaintiffs’ invitation to chart a new
course and consider the District Court’s
finding of futility for abuse of discretion.

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