By Robert Barnes
Washington Post Staff Writer
Monday, January 10, 2011; 8:05 PM
Satan made a sustained appearance Monday at the Supreme Court's oral arguments. Not surprisingly, he complicated everything.
The case was about a company's duty to inform stockholders of a problem with its product that would likely cause stock prices to fall. The wide-ranging argument meandered into whether a company had a duty to disclose even irrational complaints, such as whether it was somehow tied to satanism.
The case centers on Matrixx Initiatives, and stockholders allege the company failed to disclose claims that in some users its nasal spray Zicam caused anosmia, the loss of the sense of smell.
When a doctor made such an allegation on ABC's "Good Morning America" on Feb. 6, 2004, the stock price dropped to $9.94 from $13.04.
Stockholders said Matrixx had been warned about such a possibility since 1999, but even after lawsuits were filed the company had issued statements saying such allegations were "completely unfounded and misleading."
Even though the product is now off the market, Matrixx said there was no attempt to deceive investors. The number of complaints about the product was "statistically insignificant" compared with the number of times it was used successfuly, the company said, and thus the information did not have to be disclosed.
"All drug companies receive on an almost daily basis anecdotal hearsay reports about alleged adverse health events following the use of their products," Washington lawyer Jonathan D. Hacker, representing Matrixx, told the court. In this case, there were but a "handful" of cases.
But Justice Ruth Bader Ginsburg said plaintiffs had not discovered more because a federal judge dismissed the case. And several justices took issue with Hacker's declaration that the number of incidents had to be statistically significant before the company had a duty to disclose.
Justice Elena Kagan offered the hypothetical example of a contact lens solution that was fine for hundreds of thousands of users but had caused blindness in 10 people. That would not be statistically significant, Kagan said.
"I'd stop using the product, and if I were holding stock in that company, I would sell the stock," she said.
But the justices struggled to decide what test should govern when a company must disclose information, scientific or not, that might cause a stockholder to reconsider his investment.
Washington lawyer David C. Frederick, representing the stockholders, said the court has decided it is a "mix" of available information that is important, and even the effects of irrational investors should be taken into account.
That's where Satan entered the picture.
Frederick offered that even if there were an "irrational" claim that there were satanic influences on a company, "a cautious, reasonably prudent investor might want to know that on the basis of that information that most of us would regard as irrational, might affect the stock price."
That led to a long back-and-forth among Frederick, Chief Justice John G. Roberts Jr. and Justice Antonin Scalia. Scalia said he thought it was "ridiculous" to hold companies to standards of what irrational investors might find important.
When Assistant Solicitor General Pratik A. Shah made his way to the podium - the government supports the right of stockholders to bring their claims against Matrixx - the first question from Scalia was:
"Mr. Shah, what do you think about Satan?"
He said it depends. If the company had a lone complaint that it was somehow linked to satanism, Shah said no. But if the company was telling investors it was poised for rapid growth but knew there was a boycott brewing among irrational people who believed the satanism claim, that would be a problem.
The case is Matrixx Initiatives v. Siracusano.
Body armor law appeal
The court declined to hear a challenge to a 2002 federal law that makes it a crime for a violent felon to have body armor or a bulletproof vest.
The court's decision is being scrutinized less for issues about body armor and more for what it might signify about the justices' views on Congress's regulatory power under the Commerce Clause. Opponents of President Obama's health-care legislation say the Commerce Clause restricts Congress's power to enact such sweeping legislation.
The majority gave no reason for not taking the case, brought by a Seattle man who said that possession of body armor did not bring into play the kind of interstate commerce that the Commerce Clause gives Congress the ability to regulate.
Justices Clarence Thomas and Scalia issued a sharp dissent to the majority's decision to decline the case, saying it presents exactly the kind of constitutional questions the court should decide.
"Today the court tacitly accepts the nullification of our recent Commerce Clause jurisprudence," Thomas wrote. He was speaking of decisions that struck a federal ban on firearm possession near a school, and parts of the Violence Against Women Act. In both, the court said, Congress had overstepped its power.
The U.S. Court of Appeals for the 9th Circuit cited a different court precedent in affirming the body armor ban. Allowing that decision to stand, Thomas said, "threatens the proper limits on Congress' commerce power and may allow Congress to exercise police powers that our Constitution reserves to the states."
Lower courts have split over whether the health-care law violates the Commerce Clause. The issue is expected to eventually reach the high court.
Thomas and Scalia are the court's biggest critics of expansive congressional regulatory power. They were the lone dissenters last term when the court decided the government had the power to hold sex offenders in prison even after their terms had run out.
The case the court declined Monday is Alderman v. U.S.