Court Opinion

ID: 3216112
Source: CourtListenerOpinion
Date Created: 2016-06-22 20:01:12.209503+00
Date Added: 2024-06-11T07:39:39.701420
License: Public Domain

FILED
                            NOT FOR PUBLICATION
                                                                             JUN 22 2016
                    UNITED STATES COURT OF APPEALS                       MOLLY C. DWYER, CLERK
                                                                          U.S. COURT OF APPEALS

                            FOR THE NINTH CIRCUIT

BUTTONWOOD TREE VALUE                            No. 14-56267
PARTNERS, L.P.; JOHN SORRELLS, on
behalf of themselves and all others              D.C. No. 8:10-cv-00537-CJC-
similarly situated,                              MLG

              Plaintiffs - Appellants,
                                                 MEMORANDUM*
 v.

JACK A. SWEENEY; STEVEN J.
SWEENEY; MARILYN J. SWEENEY;
GARY M. HORGAN; H. ANTHONY
GARTSHORE; ELIZABETH
THOMPSON; FRED M. EDWARDS;
THOMAS E. MCCULLOGH; RICHARD
SCHRIEBER; LAWRENCE J.
SHERMAN,

              Defendants,

  and

DELOITTE & TOUCHE LLP,

              Defendant - Appellee.

                    Appeal from the United States District Court

        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
                       for the Central District of California
                    Cormac J. Carney, District Judge, Presiding

                         Argued and Submitted June 8, 2016
                               Pasadena, California

Before: KOZINSKI, GOULD, and HURWITZ, Circuit Judges.

      Plaintiffs appeal the district court’s Federal Rule of Civil Procedure 12(b)(6)

dismissal of their third amended class action complaint against Deloitte & Touche

(“Deloitte”) under Section 10(b) of the Securities Exchange Act of 1934. We

affirm.

      In pleading securities fraud against an outside auditor, a plaintiff must allege

that the auditor acted with scienter. Stoneridge Inv. Partners, LLC v. Scientific-

Atlanta, Inc., 552 U.S. 148, 157 (2008). This requires a plaintiff to allege that the

“accounting practices were so deficient that the audit amounted to no audit at all,

or an egregious refusal to see the obvious . . . .” In re Software Toolworks Inc., 50
F.3d 615, 628 (9th Cir. 1994). Also, the Private Securities Litigation Reform Act

requires the court to engage in a “comparative evaluation” and consider

“competing inferences rationally drawn from the facts alleged.” Tellabs, Inc. v.

Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007). Doing so, we conclude

that the inference that Deloitte’s audits showed deliberate recklessness or

conscious misconduct is not as “compelling as any opposing inference of

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nonfraudulent intent.” Id. The district court did not err by dismissing for failure to

plead scienter. Because the scienter issue is dispositive, we do not reach parties’

arguments about subjective falsity.

      AFFIRMED.

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