Buttonwood Tree Value Partners v. Deloitte & Touche

MEMORANDUM

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 (“De-loitte”) 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 , 128 S.Ct. 761 , 169 L.Ed.2d 627 (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 , 127 S.Ct. 2499 , 168 L.Ed.2d 179 (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…