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Zicam Case Survives Motion to Dismiss
(April 2011) By Colleen K. O’Brien
For more information, contact Paul
Farquharson.
Matrixx Initiatives v. Siracusano,
No. 09-1156 (U.S. Supreme Court, Mar. 22, 2011) |
View pdf
A recent decision delivered by the Hon. Sonia Sotomayor,
writing for a unanimous Court, calls the heightened pleading requirements of
Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal into
question. To review, Twombly and Iqbal raised the standard for pleading in the
federal courts from mere “notice pleading” to “plausibility pleading.” To
prevail at the motion to dismiss stage, a Plaintiff’s Complaint must state
enough facts to state a “plausible” claim. Although this case dealt with
securities fraud, it will likely have repercussions in other areas of
jurisprudence, particularly in product liability, as the case dealt with the
issue of scientific reporting.
In the case, investors filed a securities fraud class
action against Matrixx, the maker of the Zicam cold remedy. The suit was based
on Matrixx’s alleged failure to disclose reports of a possible link between
Zicam and the loss of smell. When the reports later surfaced in the media, the
stock value of the product fell, and the investors brought suit against Matrixx
for failing to disclose adverse event reports when they were considering
investment in the company.
Matrixx moved to dismiss the Complaint, arguing that
the investors had not sufficiently pled the necessary elements of material
misstatement. Matrixx argued that the adverse event reports were not
material because they did not establish a “statistically significant” risk
that Zicam caused loss of smell. The Court disagreed, and concluded that the
Complaint adequately alleged information linking Zicam to loss of smell,
which would have been significant to a reasonable investor. Assuming the
allegations of the Complaint to be true, as the Court must do at the motion
to dismiss stage, the adverse event reports plausibly indicated a reliable
causal link between Zicam and loss of smell, which allowed the claim to
survive. The fact that the reports did not establish a statistical
significance between Zicam and loss of smell was of no moment to the Court.
It is possible that the holding from this case may make
it easier for plaintiffs in product liability cases to survive a motion to
dismiss. However, strong scientific evidence will still be required in later
stages of litigation, such as in a motion for summary judgment, or at trial.
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