RESPONDENT: James Siracusano, et al.
LOCATION: U.S. Court of Appeals for the Ninth Circuit
DOCKET NO.: 09-1156
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Ninth Circuit
CITATION: 563 US 27 (2011)
GRANTED: Jun 14, 2010
ARGUED: Jan 10, 2011
DECIDED: Mar 22, 2011
David C. Frederick - for the respondents
Jonathan Hacker - for the petitioners
Pratik A. Shah - Assistant to the Solicitor General, Department of Justice, for the United States as amicus curiae, supporting the respondents
Facts of the case
Investors in Matrixx Inititiatives, Inc. ("Matrixx") filed suit against the company in an Arizona federal district court for violations of federal securities laws. The investors alleged that Matrixx failed to disclose that one of its products, Zicam nasal spray/gel, caused anosmia (the loss of the sense of smell) in numerous customers. The district court dismissed the case holding that the investors failed to alleged "materiality" in their claim because their evidence was not "statistically significant."
The U.S. Court of Appeals for the Ninth Circuit reversed, holding that the investors had pled sufficient facts going to the issue of materiality in order to avoid dismissal. The court reasoned that whether facts are statistically significant, and thus, material, is a question of fact that should ordinarily be left to the trier of fact – usually the jury. Here, the district court erred when it took liberties in making that determination on its own.
Can a plaintiff state a claim under the Securities Exchange Act based on a pharmaceutical company's non-disclosure of adverse event reports even though the reports are not alleged to be statistically significant?
Media for Matrixx Initiatives, Inc. v. SiracusanoAudio Transcription for Oral Argument - January 10, 2011 in Matrixx Initiatives, Inc. v. Siracusano
Audio Transcription for Opinion Announcement - March 22, 2011 in Matrixx Initiatives, Inc. v. Siracusano
Respondents, plaintiffs in this securities fraud class action alleged that petitioner Matrixx Initiatives, Inc. made statements that were misleading in light of reports that Matrixx had received from medical professionals about patients who had lost their sense of smell after using Matrixx's leading product, a zinc-based remedy called “Zicam Cold Remedy”.
According to the complaint, the professionals drew Matrixx attention to studies that had demonstrated a link between inter-nasal application of zinc and loss of smell.
Respondents claimed that Matrixx made a series of public statements regarding revenues and product safety during the class period that were misleading in light of this information.
Matrixx argues that respondents have not adequately alleged that Matrixx made a material misrepresentation or omission.
In Basic, Inc. versus Levinson, we held that the materiality requirement is satisfied when there is, “A substantial likelihood that the disclosure of the omitted fact would've been viewed by the reasonable investor as having significantly altered the total mix of information made available”.
Matrixx proposes a bright-line rule that reports of adverse events associated with a pharmaceutical company's products cannot be material, absent a sufficient number of such reports to establish a statistically significant risk that the product is causing the events.
We reject this rule.
Medical experts and the Food and Drug Administration rely on evidence other than statistically insignificant data establish an inference of causation.
Given that medical professionals and regulators act on the basis of evidence of causation that is not statistically significant, it stands to reason that in certain cases reasonable investors would as well.
Assessing the materiality of adverse event reports is a fact specific inquiry that requires consideration of the source, content, and content of the reports.
The mere existence of reports of adverse events will not be material information.
Something more is needed, but that something more is not limited to statistical significance and can come from “the source, content, and context of the reports.
We conclude that respondents have adequately pled materiality in this case.Assuming the complaint's allegations to be true, Matrixx received information that plausibly indicated a reliable causal link between its product and loss of smell.
In light of all the complaint's allegations, it is substantially likely that a reasonable investor would have viewed this information as having significantly altered the total mix of information made available.
Matrixx also argues that respondents have not adequately alleged that Matrixx acted with the required state of mind.
Under the Private Securities Litigation Reform Act, a plaintiff must state with particularity facts or giving rise to those strong inference that the defendant acted with the required state of mind.
We have explained that a complaint satisfies the standard only if a reasonable person would deem the inference of scienter, cogent and at least is compelling as any opposing inference one could draw from the facts alleged.
The complaint's allegations give rise to a cogent inference that Matrixx elected not to disclose the reports, not because it believed they were meaningless but because it understood their likely harmful effect on the market.
This inference is at least as compelling as any opposing inference.
We conclude that respondents have adequately pled that Matrixx acted with the required state of mind.
For these reasons, the judgment of the Court of Appeals for the Ninth Circuit is affirmed.
The decision of the Court is unanimous.