For the second time in less than a month, the U.S. Chamber of Commerce has learned that its extremism can sometimes be too much for even one member of the notoriously pro-corporate Roberts Court to swallow.
Yesterday, a unanimous Supreme Court released its opinion in Matrixx Initiatives v. Siracusano. At issue was whether a publicly traded company can be held accountable when it withholds from investors the fact that its main product has been linked to significant, negative health consequences, but not so often as to be statistically significant. (The Chamber submitted an amicus brief supporting the company.)
Matrixx is a pharmaceutical company that makes a product called Zicam Cold Remedy. It submitted a filing to the Securities and Exchange Commission that omitted certain negative information about Zicam. Matrixx had been told independently by three medical researchers and physicians that some users of Zicam had lost their sense of smell. The company was also being sued by two people claiming to have lost their sense of smell due to Zicam. Matrixx’s SEC filing did not mention any of these facts.
When the facts about Zicam became known, a pension fund initiated a class-action suit against Matrixx on behalf of investors.
Federal securities laws prohibit companies from making "material" omissions – omissions that an average shareholder would consider important – in connection with the buying and selling of shares. In 2004, when Good Morning America aired a story about a possible link between Zicam and the loss of the sense of smell, the company’s share price dropped by 23.8% in just one day, suggesting that this just might have possibly been material information for investors.
Nevertheless, the district court dismissed the case because the number of reports was not statistically significant. The Ninth Circuit reversed that decision and, in a refreshing display of common sense, has now been upheld by a unanimous Supreme Court in an opinion written by Justice Sotomayor: Just because the number of negative incidents isn’t statistically significant doesn’t mean you automatically can hide it from investors.
Congress enacted the securities laws during the New Deal, in response to widespread abuses in the securities industry – a scenario all too familiar to Americans today. The intent was to replace a system of caveat emptor with an honest market. Congressional intent was clear: If the average shareholder would consider something important, then it must be disclosed.
Big Business was paying attention to this case: The U.S. Chamber of Commerce filed an amicus brief urging the Court to rule for Matrixx – which would have made it harder to hold publicly traded corporations accountable when they choose to omit important information affecting Americans’ investments. The Chamber was hoping the conservative Justices would once again throw common sense and legal precedent out the window in order to achieve a corporate-friendly result.
But this time, the Chamber’s extremism was too much for even one Justice on the Supreme Court to swallow.