california bank between two thousand and six and two thousand and eight inclusive in two thousand and ten the bank was seized by its regulators and shut down the threshold question is what is the requisite state of mind that applies to claims under section ten b of the exchange act against an independent auditor the district court held that the plaintiff must make a showing of subjective falsity in other words that the auditor knew subjective falsity tell me what you think scienter requires and the circumstances well this court's decision then the new mexico state investment council case lays out the standard it's you know it's the same standard that's applicable or an egregious refusal to see the obvious or to investigate the doubtful or that accounting judgments which were made were such that no reasonable account would have made the same decisions of confronted with the same facts and that's what this court laid out in new mexico state investment c the subject to no wanted at all and did they do in order that yes they sample loans here and there but that what they did was enough to realize that the company's constituting a choice between two things which you laid out and you picked the thing you said a complaint is that this cut this bank issued financial results for two thousand and six and two thousand and seven that were its most profitable years of her thirty eight million dollars and thirty three million dollars in profits respectively and in two thousand and eight which was a horrible year for the banking industry people we're bit bad bankers one of the two we know they go under your suit is against the accountants for making a misrepresentation that's right and so tell me what tell me what you have to show that in making that representation starting in two thousand five in two thousand and six the regulators were telling the bank and the like noted this and it's work papers that the company has all the concentrated in real estate loans and also that it had in fact adequate underwriting practices and generally internal controls and starting in two thousand and six and it gets worse in two thousand and seven and two thousand and eight the what does some sampling of loans but the samplings were revealed terrible underwriting problems and it doesn't even book  this of the world's worst orders you have shown words you can't be that bad which is another big four accounting firm found that the regulators lost eight hundred million dollars or the taxpayers l respond to me your allegations in this case as i read the complaint are these guys were really terrible orders a bunch of stuff they should have seen and since they didn't see it we should be able to for the requisite lose their license is my question is what allegations here make this such that it rises to the level of c enter as if there were no wanted at all and egregious or whatever what would ever the choices judge kozinski gave you what allegations bring it to that level well then i'm looking at a sample of loans finding a grievous underwriting problems finding the impairment of collateral and questionable appraisals and then not making the client do anything and saying this is all ok we're going to sign off on the financial statement and give you a clean opinion for three years in iraq and what happens at the end of that is the f c c and the f b i see you have to mop everything up and then looking from the outside they don't have all the information the lord has learnt on the inside they're looking at these horrible loan files a bank the light expressed our opinions on three year end financial statements two thousand and six two thousand and seven two thousand and eight and set forth on page fourteen of the of our brief on appeal the allowance provided twenty two years of coverage at year end two thousand and six something like thirty five years of coverage at year end two thousand and seven this was beyond a robust allowance and please bear in mind under the accounting literature of the allowance is not to be used as a cushion or a safety net for future losses it is only permitted to be booked for losses that have actually been incurred as of the balance sheet date it may not have manifested yet you're making an argument that there with respect to the evidence that we have in evaluating his argument about our c enter what we know is that the year end financial statements a year end allowance was never restated that there were five joint examinations conducted by the feds by the by the afghan c m by the state examiners that in the course of doing that they of course looked at the allowance that they did not require any restatements of the year and allowance but we could again fuck for me it's not helpful to say why they couldn't prove their case we're looking at the plead your pleading say you made a number of the greatest mistakes that may or may not be accurate and because of those mistakes we ought to assume that you had the requisite auditor who far from sticking its head in the sand reported significant deficiencies to the company and to the audit committee in two thousand and six two thousand and seven and two thousand and eight in light of those found significant point to one one and eight million dollar loan and they say that the deloitte work paper said that there might this is on a two billion dollars portfolio so there's no showing that it's material at all but even with respect to the loan that they choose and it's the only one that they choose  he million dollar loan the most that they say is that oil pipe or paper say they might take a haircut when they go to sell the property that doesn't bear on the question of whether the bank is going to suffer a loss tell me more about will how big is going here what kind it doesn't mean that there will be a loss there are individual borrowers who are still responsible for the loan no indication whatsoever that there's going to be a loss on that loan and certainly not any kind of a loss that suggests that the allowance on a two billion dollars portfolio is somehow misstated or fraudulent we misstated it's the opposite of burying your head in the sand in two thousand and seven don't know eight found in the cheerio witness which is a serious finding they go to head in the sand and other decisions of this court and other courts have said how can you claim that the auditor has no audited all or in the greediest refusal to see the doubtful when they go to the audit committee and they report a material weakness so yes little for quick question just tell them spare on this case i think it does judge gould i think tellabs as the district court found require the district court to weigh competing inferences alleged fraud joint and non culpable inferences and the court looking at the facts which have been alleged in the thirty minute complaint judge gould and that i was just discussing with judge her  concluded on the basis of the additional testing that the allowance was properly stated for the three year rennes two thousand sixty thousand seven in two thousand and eight for which it was responsible and again in doing so made a finding that was completely consistent with what the regulators themselves found the restatement that my opponent refers to was in june of two thousand and nine after the audited financial statements year and two thousand and eight it did not pertain to those financial statements way in our submission as you know from our brief we believe as judge carney found that subjective falsity is a independent basis for a firm and by this court in frankly the court could affirm without reaching the scien you if the representations are you don't believe them there's to representations to be false the test for saying or in braces both conscious conduct and deliberate risk disregard or reckless kind to the question that i was trying to focus on but doesn't the test for subjective falsity also focus not only on actual knowledge but recklessness in ignoring facts and that's what i have the same judge here which is a great question that is the great outstanding question in our submission post on the care where the claim is that there is an affirmative misstatement of an opinion statement that the supreme court has made clear that the plaintiffs needs to allege facts that would show that the belief was not sincerely held which you know  submission means that you would need to show consciously that you you know you are stating an opinion that you yourself do not believe that is certainly if i'm right about that that is a higher standard than a recklessness controlled by the way by western versus locky when one nine hundred eighty nine decision authored by judge thompson where judge carney found an independent basis to refer to to dismiss the case on subjective falsity the other side has not appeal and under weston in our view this court doesn't need to reach something in or should a firm on the basis of an independent ground that was ruled on by the district court and not appealed in this case so yes we believe that it absolutely provides an independent grounds or is understand your position is that they never separately challenge the district court's finding that they haven't adequately treated subjective falsity because they think it's bound up question when when counsel stood up here he once again conflated subjective falsity with science or they aren't the same some panel of this court probably at some point will need to dissect what the relationship is between subjective they never appealed the misrepresentation slash subjective falsity holding and that is an independent basis as this court said in less than in west and they didn't appeal the state secret doctrine wasn't a two page decision judge quote the substantive question is whether subjective falsity standard applies to an auditor certified financial statements so this court has never held that it does the district court relied on rocky rocky concern to fairness attention to fairness opinions and legal opinions are governed by