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Matrixx Initiatives v. Siracusano

United States Supreme Court
131 S.Ct. 1309 (2011)


Facts

Matrixx Initiatives, Inc. (Matrixx) (defendant) manufactures and sells the product Zicam, a nasal spray and gel designed to combat the common cold. Beginning in 1999, Zicam received reports of a possible link between Zicam nasal spray and anosmia, which is the loss of the sense of smell. By September 2002, Matrixx had received several complaints from Zicam consumers who developed anosmia, and had hired a consultant to look into the issue. Matrixx also received case studies of Zicam consumers suffering from anosmia. In late 2003, Matrixx was sued by plaintiffs who alleged they lost their sense of smell after using Zicam. During the relevant period, Matrixx issued a series of statements indicating that Zicam would have high earnings. At no time did Matrixx disclose the adverse reports of anosmia or the existence of anosmia-related lawsuits. In response to publicity about the possible link between Zicam and anosmia, Matrixx called such allegations unfounded. A class of Matrixx investors who purchased stock between October 22, 2003, and February 6, 2004 sued Matrixx, claiming that Matrixx made misleading statements by failing to disclose reports that users of Zicam nasal spray suffered from anosmia. The District Court dismissed the complaint, reasoning that the plaintiffs failed to show that Matrixx had received a statistically significant number of adverse reports, such that Matrixx would have been required to disclose them. The District Court also held that the plaintiffs did not allege facts that led to a strong inference of scienter. The Court of Appeals for the Ninth Circuit reversed, stating that statistical significance was not required. It also found that Matrixx’s withholding of adverse reports gave rise to a strong inference of scienter. This Court granted certiorari.

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