Segal McCambridge Legal Blog

The U.S. Supreme Court has weighed in on the issue of statistical significance in case reports, opining that the idea that such significance be present in order to establish causation is "flawed." Matrixx Initiatives Inc., et al., No. 09-1156 (U.S. Sup. Ct.).

In the March 22 unanimous decision written by Associate Justice Sonia Sotomayor, the Supreme Court found that an intermediate appellate court was correct in reversing a ruling in favor of defendant Matrixx Initiatives Inc., since a "reasonable investor" would have relied on any information of adverse reports relating to the defendant's product.

The underlying action was filed by James Siracusano, who alleged that Matrixx Initiatives Inc. had violated the Securities Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5 when it did not disclose evidence of a potential link between Zicam Cold Remedy and the loss of smell.

Matrixx filed to dismiss the lawsuit on grounds that the plaintiff had not "pleaded the element of a material misstatement or omission and the element of scienter." While the District Court overseeing the case granted the motion, the U.S. 9th Circuit Court of Appeals reversed, leading to the instant appeal.

On appeal, Matrixx urged the Supreme Court to reverse the 9th Circuit's ruling, arguing that the reports it received regarding Zicam and the loss of smell were not based on statistically significant evidence.

In reversing the decision, however, the Supreme Court cited Basic Inc. v. Levinson, in which it states that the "materiality requirement is satisfied when there is "'a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available.'"

In the instant circumstances, adopting Matrixx's position would effectively exclude information that "would otherwise be considered significant to [a reasonable investor's] trading decision," the Supreme Court opined in its headnote. "Matrixx's premise that statistical significance is only reliable indication of causation is flawed," the Supreme Court said.

"Both medical experts and the Food and Drug Administration rely on evidence other than statistically significant data to establish an inference of causation. It thus stands to reason that reasonable investors would act on such evidence. Because adverse reports can take many forms, assessing their materiality is a fact-specific inquiry, requiring consideration of their source, content, and context.... Something more than the mere existence of adverse event reports is needed to satisfy that standard, but that something more is not limited to statistical significance and can come from the source, content, and context of the reports."

As such, the Supreme Court upheld the 9th Circuit's decision and found that "the complaint's allegations, 'taken collective,' give rise to a 'cogent and compelling' inference that Matrixx elected not to disclose adverse event reports not because it believed they were meaningless but because it understood their likely effect on the market."

SCOTUSBlog.com has a write-up which can be found here

The Supreme Court slip opinion can be found here

Taken in part from the Wall Street Journal
WASHINGTON—On April 27, 2011, the Supreme Court handed business a powerful shield against consumer class actions, ruling that state laws can’t override contract clauses requiring customers to present complaints individually to a private arbitrator.

In a 5-4 ruling, split along its usual conservative-liberal divide, the court held that a “national policy favoring arbitration” pre-empted California law intended to protect consumers from widespread fraud.

California consumers had sued AT&T Inc. for allegedly defrauding them by charging $30.22 in sales tax on cellphones it advertised as free.

AT&T invoked the arbitration clause of its form contract, which required complaints to be resolved through private arbitration in an “individual capacity” and barred “any purported class or representative proceeding.”

California courts had found such provisions “unconscionable,” legal parlance for a contract term so unfair it is void. In a 2005 opinion, the California Supreme Court said that when a company schemes “to deliberately cheat large numbers of consumers out of individually small sums of money,” class actions may be the only effective form of redress. While the fraud might reap a windfall, the court’s reasoning went, each individual’s loss would be too small to dispute unless grouped into a single claim.

The 1925 Federal Arbitration Act, adopted to force states to honor arbitration clauses, says arbitration clauses can’t be set aside unless they violate the laws governing contracts in general. The question before the Supreme Court was whether the California rule simply applied general fairness principles to arbitration clauses or specifically targeted arbitration.

Writing for the majority, Justice Antonin Scalia said that class actions inherently conflicted with arbitration’s goals of speed and efficiency.

“The switch from bilateral to class arbitration sacrifices the principal advantage of arbitration—its informality—and makes the process slower, more costly, and more likely to generate procedural morass than final judgment,” he wrote in an opinion joined by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas and Samuel Alito.

Justice Scalia cited statistics showing that the average individual arbitration was resolved in six months or less, while class arbitrations could drag on for years. Moreover, “class arbitration greatly increases risks” for business, he wrote. “Faced with even a small chance of a devastating loss, defendants will be pressured into settling questionable claims.”

In a dissent joined by Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena Kagan, Justice Stephen Breyer wrote that since the California rule applied equally to class litigation and class arbitration, it can’t “fairly be characterized as a targeted attack on arbitration.”

The Federal Arbitration Act, Justice Breyer wrote, intended to preserve the states’ traditional authority over contract law, insisting only that arbitration receive equal footing with other contracts.

“California is free to define unconscionability as it sees fit, and its common law is of no federal concern so long as the state does not adopt a special rule that disfavors arbitration,” he added.

Wednesday’s decision was the latest in a series that has given arbitration clauses nearly ironclad protection.

In a statement, AT&T said that individual arbitration “often benefits consumers” because claims can be resolved faster than a more complicated class action. “We value our customers, and AT&T’s arbitration program is free, fair, fast, easy to use, and consumer friendly,” the company said.

Some lawmakers, however, say consumers are powerless when banks, software makers and others condition their products on form contracts whose fine print locks them into arbitration.

“In arbitration, there is no transparency, nor is there an independent arbitrator,” said Senate Judiciary Committee Chairman Patrick Leahy, a Vermont Democrat who has held hearings on consumer arbitration.

After Wednesday’s decision, “Congress needs to respond with legislation to clarify the original intent of the Federal Arbitration Act,” Mr. Leahy said.

The full Wall Street Journal article is here

The Wall Street Journal Law Blog post, “After AT&T Ruling, Should We Say Goodbye to Consumer Class Actions?” can be found here

The SCOTUS opinion, AT&T MOBILITY LLC v. CONCEPCION ET UX, 09-893 can be found here

In an unanimous opinion, authored by Justice Breyer, SCOTUS reversed a decision of the California Court of Appeal, holding that state tort suits alleging that car manufacturers should have installed lap-and-shoulder belts, rather than simply lap belts, on rear inner seats were not preempted by federal auto safety standards.

From the opinion:

The question presented here is whether this federal regulation preempts a state tort suit that, if successful,would deny manufacturers a choice of belts for rear inner seats by imposing tort liability upon those who choose to install a simple lap belt. We conclude that providing manufacturers with this seatbelt choice is not a significant objective of the federal regulation. Consequently, the regulation does not preempt the state tort suit.

Justice Sotomayor filed a concurring opinion, while Justice Thomas filed an opinion concurring in the judgment. Justice Kagan recused herself.

Here is the Williamson v. Mazda Motor of America, Inc. opinion

The Supreme Court of the United States (“SCOTUS”) has issued an opinion in Brusewitz v. Wyeth LLC, holding that a 1986 federal law setting up a program to compensate for injuries due to administration of vaccines preempts all design defect claims against vaccine manufacturers by individuals seeking compensation for injury or death.

The opinion was written by Justice Scalia in a 6-2 decision which affirmed the Third Circuit. Justice Breyer filed a concurring opinion. Justice Sotomayor dissents joined by Justice Ginsburg. Justice Kagan took no part.

Here is the SCOTUS opinion in Brusewitz v. Wyeth LLC

Here is a New York Times article on the decision

In a recent opinion dealing with claims of “qualified immunity” in a Section 1983 case, the Supreme Court of the United States (“SCOTUS”) held that a party in a federal civil case may not appeal a denial of a motion for summary judgment after a District Court has conducted a full trial on the merits. Justice Thomas concurs in judgment only, joined by Justice Scalia and Justice Kennedy.

In Ortiz v. Jordan, et al., Petitioner Michelle Ortiz was sexually assaulted by a corrections officer while serving a one-year prison sentence. Ortiz reported the assault, but was then assaulted again the next night. Further, in retaliation for reporting the incidents, Ortiz was shackled and placed into solitary confinement. She filed a Section 1983 claim against respondent Paula Jordan, who was a case manager at the prison, claiming that Jordan failed to take adequate steps to protect her; Ortiz also filed a claim against respondent Rebecca Bright, who was responsible for her time in solitary confinement.

Defendants Jordan and Bright filed a motion for summary judgment, arguing that they were entitled to qualified immunity, which was denied by the District Court. Following the denial, neither Jordan nor Bright sought interlocutory appeal of the denial of the MSJ and the case proceeded to a trial on the merits — which resulted in a jury award of more than six hundred thousand dollars. After the trial on the merits, Jordan and Bright appealed the judgment and the district court's order denying summary judgment to the Sixth Circuit, which reversed the denial of summary judgment.

From the opinion:

Held: A party may not appeal a denial of summary judgment after a district court has conducted a full trial on the merits. A qualified immunity plea, not upheld at the summary judgment stage, may be pursued at trial, but at that stage, the plea must be evaluated in light of the character and quality of the evidence received in court. Ordinarily, orders denying summary judgment are interlocutory and do not qualify as "final decisions" subject to appeal under 28 U. S. C. §1291. Because a qualified immunity plea can spare an official not only from liability but from trial, this Court has recognized a limited exception to the categorization of summary judgment denials as non-appealable orders. Mitchell v. Forsyth, 472 U. S. 511, 525—526. The exception permits an immediate appeal when summary judgment is denied to a defendant who urges that qualified immunity shelters her from suit. Id., at 527. Such an immediate appeal is not available,however, when the district court determines that factual issues genuinely in dispute preclude summary adjudication. Johnson v. Jones, 515 U. S. 304, 313. Here, Jordan and Bright sought no immediate appeal from the denial of their summary judgment motion. Nor did they avail themselves of Rule 50(b), which permits the entry of judgment, post verdict, for the verdict loser if the court finds the evidence legally insufficient to sustain the verdict. Absent such a motion, an appellate court is "powerless" to review the sufficiency of the evidence after trial. Unitherm Food Systems, Inc. v. Swift-Eckrich, Inc., 546
U. S. 394, 405.

Here is the Supreme Court Opinion in Ortiz v. Jordan

Whether a foreign corporation is subject to general personal jurisdiction, on causes of action not arising out of or related to any contacts between it and the forum state, merely because other entities distribute in the forum state products placed in the stream of commerce by the defendant? (in other words, is a foreign company subject to suit in the United States solely because another entity sells that foreign company's products in the United States?)

That is the issue before SCOTUS in the Goodyear Dunlop Tires Operations, S.A., et al., Petitioners v. Edgar D. Brown, et ux., Co-Administrators of the Estate of Julian David Brown, et al. matter. The SCOTUS docket entry can be found here

As summarized by Forbes.com On the Docket:

The lawsuit centers on an allegedly defective tire manufactured in Turkey and involved in an auto accident in France. None of the events giving rise to the accident occurred in the United States, and none of the defendants—three tire manufacturers operating in Luxembourg, Turkey, and France—are citizens or residents of the United States. These tire manufacturers took no affirmative action to cause their tires to be distributed in North America, and the type of tire involved in the accident is not distributed in the United States. Yet, despite the absence of any meaningful connection between the three foreign tire companies and the United States, plaintiffs sought to hale each of them into a North Carolina state court.

The case raises important issues about the continued viability of the Supreme Court's longstanding protections against the exercise of personal jurisdiction by U.S. courts over foreign corporations.

The entire Forbes.com On The Docket article can be found here

Justice Scalia authored an opinion (5-4 with Justice Stevens in dissent) that relied principally on a 1967 decision called Prima Paint Corp. v. Flood & Concklin Mfg., Co., the Court held that if the employee had raised a challenge that was specific to the second part alone — that is, to the agreement to arbitrate validity — then a court would have had to decide the challenge. But because the employee's grounds for unconscionability applied equally to the initial agreement to arbitrate all employment disputes, the general unconscionability question should be decided by an arbitrator.

This is a new rule for determining who decides challenges to the validity of an agreement to arbitrate the validity of an arbitration agreement. The Court held that, depending on what kind of challenge to the arbitration agreement is made, that determines who (e.g. either the judge or an arbitrator) can hear the question. If the party resisting arbitration does so on grounds that go to the validity of the entire agreement, then the validity question goes to the arbitrator. But if the challenge is specific to the arbitration provision at issue in the case, then a court must decide that challenge.

The SCOTUS wiki page for his case is here
The SCOTUS opinion is here

Credit to the ABAJournal

The U.S. Supreme Court has left intact a federal appeals court decision narrowing work product protections for lawyer materials.

SCOTUS declined cert today in the case of Textron v. United States. For more information see SCOTUSblog.

The refusal lets stand a ruling that allows the Internal Revenue Service to access documents that considered how much money the defense contractor Textron Inc. should set aside for possible tax liabilities.

The ruling by the en banc 1st U.S. Circuit Court of Appeals based in Boston had said the documents weren't protected by the work-product doctrine because they weren't prepared specifically for use in litigation. The court also found the documents had lost their attorney-client privilege because they were shown to outside accountants.

Frederick Krebs, president of the Association of Corporate Counsel, had said at the time of the 1st Circuit ruling that it “eviscerates the work-product doctrine."

There is a split in the federal circuits on whether the work-product privilege applies to documents that are prepared both in the ordinary course of business and in anticipation of litigation.

UPDATE
Cory Andrews has an article in Forbes that has more on this case here