9th Circuit Rejects "Statistical Significance" Materiality Argument

A 9th Circuit panel rejected claims by the maker of Zicam Cold Remedy, an over-the-counter product, that the number of users who suffered from a loss of smell (anosmia) was statistically insignificant, and therefore immaterial as a matter of law (Siracusano v. Matrixx Initiatives). The court below concluded that the allegations of a phone conversation between a company vice-president and a University of Colorado researcher discussing one anosmia complaint, as well as studies, including a University of Colorado study citing 11 cases of anosmia in Zicam Cold users were not statistically significant.

The appellate court stated that "in relying on the statistical significance standard to determine materiality, the district court made a decision that should have been left to the trier of fact." The court could not determine as a matter of law whether the links between the harm to consumers and product use were statistically insignificant on the pleadings.

With regard to scienter, the panel found that the claims sufficiently alleged that the issuer failed to disclose known or reasonably suspected risks associated with the use of Zicam nasal products. Significantly, the court noted that the individual defendants may not have engaged in unusual or suspicious stock sales at the same time that they were attempting to downplay the reports of anosmia. While recognizing that motive can be a relevant consideration, the 9th Circuit concluded that "the absence of a motive allegation is not fatal.”

.