"The Supreme Court rejected an opportunity to adopt a bright line test of materiality in favor of its traditional "total mix" standard in Matrixx Initiatives, Inc., v. Siracusano, Case No. 09-1156, 131 S. Ct. 1309; 179 L. Ed. 2d 398; 2011 U.S. LEXIS 2416 (March 22, 2011) [enhanced version available to lexis.com subscribers / unenhanced version available from lexisONE Free Case Law]," writes Thomas Gorman. "In a unanimous opinion written by Justice Sotomayor the Court rejected Petitioner's contention that in pharmaceutical cases adverse test results need not be disclosed unless they are statistically significant. In reaching its conclusion the Court emphasized a standard that will not be labeled 'pro-business.'"
"The shareholder complaint claimed that the company made false statements about its key product Zicam, a cold remedy nasal spray. Zicam is the primary product of Matrixx Initiatives, accounting for about 70% of its sales at one point," reports the author. "Respondents claimed that statements made by the company about the product were false because they failed to disclose certain adverse information. Specifically, there were test results and consumer information demonstrating that the product caused a loss of the sense of smell. Beginning as early as 1999 there were test results supporting this fact. In 2002 and 2003 the company received additional clinical reports which were followed by the commencement of product liability suits alleging that Zicam caused a loss of smell. The negative test results were few in number."
"The district court dismissed the complaint, concluding that the adverse product reports were not material. In reaching this conclusion the court relied on the Second Circuit's decision in In re Carter-Wallace, Inc., Securities Litigation, 220 F. 3d 36 (2nd Cir 2000) [enhanced version]," explains Gorman. "Following this decision the district court held that plaintiffs had not alleged a statistically significant correlation between the use of Zicam and a loss of smell. Accordingly, the excluded statements were not material. The court also held that plaintiffs had failed to plead facts which gave rise to a strong inference of scienter. The Ninth Circuit reversed, Siracusano v. Matrixx Initiatives, Inc. 585 F. 3d 1167 (9th Cir. 2009) [enhanced version / unenhanced version]. The question here is one of omission the court noted. Specifically, plaintiffs claim that material facts were omitted. The question of whether an omitted fact is material turns on whether there is a substantial likelihood that a reasonable shareholder would consider it important in how to vote the court stated."
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