From time to time, the AICPAs Office of General Counsel files amicus curiae (friend of the court) briefs in matters that could affect the profession. I would like to inform you of two such recent filings. The first was to the U.S. Supreme Court; the other was to the New York Court of Appeals, that state's highest court.
In January 2007, the U.S. Supreme Court agreed to hear a case out of the Seventh Circuit, Tellabs v Makor & Rights, Ltd., 437 F.3d 588 (7th Cir., 2006), to address an important and recurring issue in securities litigation:
Whether, and to what extent, a court must consider or weigh
competing inferences in determining whether a complaint
asserting a claim of securities fraud has alleged facts sufficient
to establish a "strong reference" that the defendant acted with
scienter (knowing fraud or recklessness), as required under
the Private Securities Litigation Reform Act of 1995.
While the various circuits have adopted somewhat different views of the proper standard, all but the Seventh Circuit required the trial court to consider all inferences that could arise from the facts pleaded by plaintiffs--that is, those that are supportive of a finding of scienter and those that support benign explanations of the allegedly fraudulent conduct and tend to negate scienter. Indeed, some courts have held, for example, that the inference of fraudulent conduct had to be the "most plausible" reference from the facts in order for such inference to be "strong."
Although this case did not involve an accounting firm, the AICPA, along with six accounting firms, realized the potential importance of the issue to the profession, and collectively filed a friend of the court brief. The brief argues that the plain language of the law requires that facts be pleaded in the complaint that are sufficient to give rise to a strong inference that the defendant acted with the required state of mind, and it follows that when the facts pleaded can give rise to an inference of innocent or even negligent conduct, those same facts cannot constitute a strong inference of scienter.
Numerous amicus briefs have been filed in support of the position advanced by the profession, including a brief filed by the United States which, like our brief, urged rejection of the standard adopted by the Seventh Circuit and the adoption of a very high pleading standard. The Supreme Court is expected to hear oral arguments on March 28 and a decision is anticipated by the end of June.
This brief was drafted on our behalf by Gibson, Dunn & Crutcher LLP--Theodore B. Olson, counsel of record, Scott A. Fink, Douglas R. Cox, Mark A. Perry and Minodora D. Vancea on the brief.
On Feb. 5, the AICPA and the New York State Society of CPAs moved the New York Court of Appeals for permission to file a friend of the court brief in Williamson v. PricewaterhouseCoopers LLP (Index No. 602106/04). We wanted to participate in this case because it involved applying the continuous representation doctrine to toll the three-year statute of limitations governing audit malpractice claims. …