[JURIST] The US Supreme Court [official website; JURIST news archive] heard oral arguments [day call, PDF; merit briefs] Monday in Matrixx v. Siracusano [oral arguments transcript, PDF; JURIST report] on a pharmaceutical company’s obligation under §10(b) of the Securities Exchange Act and SEC Rule 10b-5 [texts] to disclose reports of patients’ adverse reactions when the number of incidents is statistically insignificant. The US Court of Appeals for the Ninth Circuit [official website] held [opinion, PDF] that the inference that Matrixx withheld reports of patients’ adverse reactions intentionally or with deliberate recklessness was as compelling as if they withheld the information innocently, and therefore the plaintiff had met the scienter pleading requirement of Rule 10b-5. Counsel for the petitioner argued that the reports do not establish any reliable facts about the drug, and that a duty to report these results would unfairly affect the company:

A securities fraud claim requires both materiality and scienter, and neither of those is established unless the company has knowledge of facts establishing a reliable basis for inferring that the drug itself is the cause of the reported event. Absent information like that, there is neither materiality nor scienter under the securities laws, until there’s reliable evidence of a causal link between the product and the event…We have to be very careful about creating a rule through our interpretation of materiality that would require companies in advance to disclose the fact that a baseless, false allegation about the company is going to come out.

Counsel for the respondent argued that there is an analytical distinction between the importance of information and the intent to deceive. “The information might be important for investors, but it could very well be that the people making the disclosures don’t have the requisite scienter because there is an absence of any plausible relationship.” The respondent further noted that materiality is determined by the totality of the information available to investors.

In Montana v. Wyoming and North Dakota [oral arguments transcript, PDF; JURIST report], the court heard arguments on whether Wyoming officials breached an agreement between the states by failing to keep consumption of water from the Tongue and Powder rivers within the agreement’s limits. Montana and North Dakota contend that Wyoming violated the Yellowstone River Compact [text, DOC; materials], which allocates water rights to the two tributaries of the Yellowstone River, by allowing the construction of water storage facilities and the expansion of irrigation. In 2008, the court appointed [order, PDF; JURIST report] a special master [Cornell LII backgrounder] to investigate and oversee the lawsuit, which was filed directly in the Supreme Court as it has original jurisdiction [Article III, Section 2 text] and exclusive jurisdiction [28 USC 1251 text] over cases in which a state is a party. Counsel for Montana argued that:

First, the plain language of the compact preserves the water supply each State was receiving as of 1950. Second, contrary to the compact’s purposes, the master’s interpretation would allow individual water users to alter those amounts. And third, the master’s policy determinations about efficiency add ambiguity to the principles underlying a century of western water law.

Counsel for Wyoming argued that the state has a classic water right to divert water for the purpose of irrigation, as “the irrigation right is a general right.”