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SUPREME COURT DOCKET REPORT

Mayer Brown's Supreme Court and Appellate Practice Group distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community. We also email the Docket Report to our subscribed members and if you don't already subscribe to the Docket Report and would like to, please click here.

October Term 2009 - June 14, 2010

Today the Supreme Court granted certiorari in two cases of interest to the business community:


Securities Exchange Act—Materiality

Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5 provide that a business may be held liable for failure to disclose any material fact in connection with the purchase or sale of its securities. For pharmaceutical companies, these facts may include so-called “adverse event reports” that are received when the users of a drug experience adverse side-effects. The Supreme Court granted certiorari today in Matrixx Initiatives, Inc. v. Siracusano, No. 09-1156, to determine whether a drug company can be held liable for failure to disclose adverse-event reports if the undisclosed reports do not constitute statistically significant evidence that the drug caused the adverse events.

This case is important not only to pharmaceutical companies, but to any public company subject to liability under SEC Rule 10b-5. The Court’s decision will likely clarify when a company has a duty to disclose potential adverse information to the public, and it may also affect which securities fraud claims are subject to summary dismissal and which will get to a jury.

The petitioner in this case manufactures Zicam Cold Remedy. Between 1999 and 2004, petitioner received 12 reports of Zicam users experiencing anosmia, or the loss of the sense of smell. Respondents filed this class-action lawsuit alleging that petitioner committed securities fraud by failing to disclose these reports. The First, Second, and Third Circuits would have dismissed the lawsuit because the complaint did not allege that the number of known reports of anosmia was statistically significant. In the decision below, however, the Ninth Circuit rejected any rigid statistical-significance requirement and instead held that it should be left to the trier of fact to determine whether the nature and number of adverse-event reports rise to the level of material information.

Absent extensions, which are likely, amicus briefs in support of the petitioners will be due on August 5, 2010, and amicus briefs in support of the respondent will be due on September 7, 2010. Any questions about this case should be directed to Dan Himmelfarb (+ 202 263 3035) in our Washington, DC office.


Railroad Revitalization and Regulatory Reform Act—Discriminatory State Taxation

The Railroad Revitalization and Regulatory Reform Act of 1976 (the “4-R Act”) authorizes federal courts to enjoin certain forms of discriminatory state taxation in the rail industry notwithstanding the Tax Injunction Act. One provision of the 4-R Act, codified at 49 U.S.C. § 11501(b)(4), prohibits states from imposing a “tax that discriminates against a rail carrier.”

Today the Supreme Court granted certiorari in CSX Transportation v. Alabama Department of Revenue, No. 09-520, to decide whether a state’s exemption of rail carrier competitors, but not rail carriers, from generally applicable sales and use taxes on fuel subjects those taxes to challenge under the 4-R Act. The Supreme Court’s resolution of this question will be of significant interest to the rail industry, since it will clarify the kinds of taxes that states can impose on railroads.

The Court’s last word on Subsection (b)(4) of the 4-R Act was Department of Revenue v. ACF Industries, Inc., 510 U.S. 332 (1994). There, the Court rejected a railroad’s challenge to Oregon’s decision to exempt certain classes of non-railroad property from a property tax. The Court held that a state could “grant exemptions from a generally applicable ad valorem property tax without exposing the taxation of railroad property to invalidation under [S]ubsection (b)(4).” Id. at 340 (emphasis added). It reached this conclusion based on an analysis of the structure of the 4-R Act—in particular, Subsections (b)(1)-(3), which prohibit states from imposing a tax rate or assessment ratio on railroads that exceeds the rate or ratio applied to other “commercial and industrial property.” Id. at 341-42. The 4-R Act’s definition of “commercial and industrial property” excludes property that is not “subject to a property tax levy.” 49 U.S.C. § 11501(a)(4). From this, the Court inferred that the states necessarily retained the power to wholly exempt non-railroad property from a property tax levy.

In the decision below, the Eleventh Circuit applied its recent holding in Norfolk Southern Railway Co. v. Alabama Department of Revenue, 550 F.3d 1306 (11th Cir. 2008), to hold that Alabama’s scheme of sales and use taxes on diesel fuel—a non-property tax—was not subject to challenge under the 4-R Act. Alabama law exempts fuel used by vessels engaged in interstate commerce and by motor carriers—i.e., rail carrier competitors—from these sales and use taxes. The Eleventh Circuit recognized that ACF involved property taxes, rather than sale and use taxes, but was of the view that the Court’s analysis in ACF was equally applicable in both contexts.

Absent extensions, which are likely, amicus briefs in support of the petitioner will be due on August 5, 2010, and amicus briefs in support of the respondents will be due on September 7, 2010. Any questions about this case should be directed to Andrew Tauber (+ 202 263 3324) in our Washington, DC office.


Mayer Brown's Supreme Court & Appellate practice distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community and distributes a Docket Report-Decision Alert whenever the Court decides such a case. We hope you find the Docket Reports and Decision Alerts useful, and welcome feedback on them (which should be addressed to Andrew Tauber, their general editor, at atauber@mayerbrown.com or +1 202 263 3324).
Feel free to forward this message to anyone who you believe might be interested in the Docket Report.

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Mayer Brown's Supreme Court & Appellate practice distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community and distributes a Docket Report-Decision Alert whenever the Court decides such a case. We hope you find the Docket Reports and Decision Alerts useful, and welcome feedback on them (which should be addressed to Andrew Tauber, their general editor, at atauber@mayerbrown.com or +1 202 263 3324).

Mayer Brown Supreme Court Docket Reports provide information and comments on legal issues and developments of interest to our clients and friends. They are not a comprehensive treatment of the subject matter covered and are not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed. 



 
 
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