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Claim of Material Misstatement Regarding Gray Marketing Survives Motion for Summary Judgment

Posted In Securities

In re Adams Golf, Inc., Secs. Litig., C.A. No. 99-371-GMS (D. Del. May 26, 2009)

Chief District Judge Gregory M. Sleet rejected the defendants' motion for summary judgment, finding remaining issues of material fact concerning disclosures of gray marketing (marketing that legally circumvents authorized channels of distribution to sell goods at prices lower than those intended by the manufacturer).  The Court found factual disputes as to: (1) whether the defendants had a duty to disclose the risk of gray marketing and (2) whether the gray marketing risk was material.  The defendants argued that gray marketing was not a “known trend or uncertainty” that must be disclosed under Item 303(a)(3)(ii) of Regulation S-K.  The court concluded, however, that a jury could reasonably conclude that the risk of gray marketing was a known trend or uncertainty likely to have a material impact on future revenue or that such knowledge rendered the statements false and misleading.  The Court also could not find as a matter of law that gray marketing risks were obviously unimportant to an investor.

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