Matrixx Initiatives, Inc. v. Siracusano
Encyclopedia
Matrixx Initiatives, Inc. v. Siracusano was a case decided by the Supreme Court of the United States
on March 22, 2011. The case considered whether a plaintiff can state a claim for securities fraud
under §10(b) of the Securities Exchange Act of 1934
, as amended, 15 U.S.C.
§78j(b), and Securities and Exchange Commission Rule 10b-5, 17 CFR
§240.10b-5 (2010), based on a pharmaceutical company's failure to disclose reports of adverse events associated with a product if the reports do not find statistically significant
evidence that the adverse effects may be caused by the use of the product. In a 9–0 decision delivered by Justice Sonia Sotomayor
, the Court affirmed the Court of Appeals for the Ninth Circuit's ruling that the respondents, plaintiffs in a securities fraud class action against Matrixx Initiatives, Inc., and three Matrixx executives, have stated a claim under §10(b) and Rule 10b-5.
(Zicam), which is produced in the form of a nasal spray or gel containing the active ingredient zinc gluconate
. On April 27, 2004, respondents brought a class action suit against petitioners, alleging that petitioners violated §10(b) of the Securities Exchange Act and SEC Rule 10b-5 by failing to disclose reports that Zicam could cause anosmia
, or loss of the sense of smell. Petitioners filed a motion to dismiss respondents' complaint for failure to state a claim. The District Court for the District of Arizona
granted the motion without prejudice, reasoning that the allegation of user complaints were neither material nor statistically significant, and that respondents failed to allege scienter
. Respondents appealed to the Court of Appeals for the Ninth Circuit, which issued a decision on October 28, 2009, to reverse and remand the judgement of the District Court. On March 23, 2010, petitioners filed their petition for a writ of certiorari to the Ninth Circuit with the United States Supreme Court.
appearing in the Wall Street Journal on April 2, 2011, reported:
Erik Olson, a partner at the Morrison & Foerster law firm in San Francisco which filed an amicus brief on behalf of BayBio, said that the court's ruling risks leaving companies without a clear guideline for deciding when they need to disclose adverse events. Olson, Stephen Thau, and Stefan Szpajda wrote a press release stating:
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
on March 22, 2011. The case considered whether a plaintiff can state a claim for securities fraud
Securities fraud
Securities fraud, also known as stock fraud and investment fraud, is a practice that induces investors to make purchase or sale decisions on the basis of false information, frequently resulting in losses, in violation of the securities laws....
under §10(b) of the Securities Exchange Act of 1934
Securities Exchange Act of 1934
The Securities Exchange Act of 1934 , , codified at et seq., is a law governing the secondary trading of securities in the United States of America. It was a sweeping piece of legislation...
, as amended, 15 U.S.C.
Title 15 of the United States Code
Title 15 of the United States Code outlines the role of the commerce and trade in the United States Code.Notable legislation in the title includes the Federal Trade Commission Act, the Clayton Antitrust Act, the Sherman Antitrust Act, the Securities Exchange Act of 1934, the Consumer Product Safety...
§78j(b), and Securities and Exchange Commission Rule 10b-5, 17 CFR
Code of Federal Regulations
The Code of Federal Regulations is the codification of the general and permanent rules and regulations published in the Federal Register by the executive departments and agencies of the Federal Government of the United States.The CFR is published by the Office of the Federal Register, an agency...
§240.10b-5 (2010), based on a pharmaceutical company's failure to disclose reports of adverse events associated with a product if the reports do not find statistically significant
Statistical significance
In statistics, a result is called statistically significant if it is unlikely to have occurred by chance. The phrase test of significance was coined by Ronald Fisher....
evidence that the adverse effects may be caused by the use of the product. In a 9–0 decision delivered by Justice Sonia Sotomayor
Sonia Sotomayor
Sonia Maria Sotomayor is an Associate Justice of the Supreme Court of the United States, serving since August 2009. Sotomayor is the Court's 111th justice, its first Hispanic justice, and its third female justice....
, the Court affirmed the Court of Appeals for the Ninth Circuit's ruling that the respondents, plaintiffs in a securities fraud class action against Matrixx Initiatives, Inc., and three Matrixx executives, have stated a claim under §10(b) and Rule 10b-5.
Parties
- Petitioners: Matrixx Initiatives, Inc., Carl Johnson, William Hemelt, and Timothy Clarot (collectively "Matrixx")
- Respondents: James Siracusano and NECANational Electrical Contractors AssociationThe National Electrical Contractors Association, or NECA, is a trade association in the United States that represents the $130 billion/year electrical contracting industry. NECA supports the businesses that bring power, light, and communication technology to buildings and communities...
-IBEWInternational Brotherhood of Electrical WorkersThe International Brotherhood of Electrical Workers is a labor union which represents workers in the electrical industry in the United States, Canada, Panama and several Caribbean island nations; particularly electricians, or Inside Wiremen, in the construction industry and linemen and other...
Pension Fund, on behalf of themselves and all others similarly situated who purchased Matrixx securities between October 22, 2003, and February 6, 2004
Background
Petitioner Matrixx Initiatives, Inc., is a pharmaceutical company that sells cold remedy products through its wholly owned subsidiary Zicam, LLC. One of Zicam's main products is Zicam Cold RemedyZicam
Zicam is a branded series of products marketed for cold and allergy relief whose original formulations included the element zinc. The Zicam name is derived from a combination of the words "zinc" and "ICAM-1" . It is marketed as an "unapproved homeopathic" product.Zicam was invented by Charles B...
(Zicam), which is produced in the form of a nasal spray or gel containing the active ingredient zinc gluconate
Zinc gluconate
Zinc gluconate is the zinc salt of gluconic acid. It is an ionic compound consisting of two moles of gluconate for each mole of zinc...
. On April 27, 2004, respondents brought a class action suit against petitioners, alleging that petitioners violated §10(b) of the Securities Exchange Act and SEC Rule 10b-5 by failing to disclose reports that Zicam could cause anosmia
Anosmia
Anosmia is a lack of functioning olfaction, or in other words, an inability to perceive odors. Anosmia may be either temporary or permanent. A related term, hyposmia, refers to a decreased ability to smell, while hyperosmia refers to an increased ability to smell. Some people may be anosmic for one...
, or loss of the sense of smell. Petitioners filed a motion to dismiss respondents' complaint for failure to state a claim. The District Court for the District of Arizona
United States District Court for the District of Arizona
The United States District Court for the District of Arizona is the federal district court whose jurisdiction is the state of Arizona. Court is held in the cities of Phoenix, Tucson, Flagstaff, Yuma, and Prescott. The district was created on June 20, 1910, by 36 Stat. 557...
granted the motion without prejudice, reasoning that the allegation of user complaints were neither material nor statistically significant, and that respondents failed to allege scienter
Scienter
Scienter is a legal term that refers to intent or knowledge of wrongdoing. This means that an offending party has knowledge of the "wrongness" of an act or event prior to committing it. For example, if a man sells a car to his friend with brakes that do not work, and he does not know about the...
. Respondents appealed to the Court of Appeals for the Ninth Circuit, which issued a decision on October 28, 2009, to reverse and remand the judgement of the District Court. On March 23, 2010, petitioners filed their petition for a writ of certiorari to the Ninth Circuit with the United States Supreme Court.
Decision
On March 22, 2011, Justice Sotomayor delivered the 9–0 opinion that held "[r]espondents have stated a claim under §10(b) and Rule 10b-5", affirming 585 F.3d 1167.Reactions to the decision
An article by Carl BialikCarl Bialik
Carl Bialik is an American journalist, best known for his work for The Wall Street Journal's web site, and the paper itself. He is also a co-founder of the growing online-only Gelf Magazine....
appearing in the Wall Street Journal on April 2, 2011, reported:
In [the] opinion, the justices said companies can't only rely on statistical significance when deciding what they need to disclose to investors.
Amen, say several statisticians who have long argued that the concept of statistical significance has unjustly overtaken other barometers used to determine which experimental results are valid and warrant public distribution. "Statistical significance doesn't tell you everything about the truth of the hypothesis you're exploring," says Steven Goodman, an epidemiologist and biostatistician at the Johns Hopkins Bloomberg School of Public Health
Johns Hopkins Bloomberg School of Public HealthThe Johns Hopkins Bloomberg School of Public Health is part of Johns Hopkins University in Baltimore, Maryland, United States...
.
Erik Olson, a partner at the Morrison & Foerster law firm in San Francisco which filed an amicus brief on behalf of BayBio, said that the court's ruling risks leaving companies without a clear guideline for deciding when they need to disclose adverse events. Olson, Stephen Thau, and Stefan Szpajda wrote a press release stating:
Life sciences companies and other public companies can learn at least two lessons from the decision. First and foremost, be careful what you say. As the Court emphasized, the securities laws focus on false or misleading speech. "[C]ompanies can control what they have to disclose under these provisions by controlling what they say to the market." (Slip Op. at 16). Rash or categorical comments are far more likely to form the basis for a lawsuit than measured, careful statements about the facts.
Second, life sciences companies should consult carefully with lawyers regarding specific disclosures and policies and practices for disclosing adverse events.