By Reed R. Kathrein

A critical legal battle is currently unfolding in the Ninth Circuit Court of Appeals—one that strikes at the heart of investor protection under the Securities Act of 1933. In Hunt v. PricewaterhouseCoopers LLP (PwC), No. 24-3568, investors have brought suit against PwC, the auditor of Bloom Energy, alleging that the firm certified financial statements that contained material errors and ultimately required restatement.

A recent Ninth Circuit panel decision affirmed the dismissal of this lawsuit, creating a ruling that, if left unchallenged, could make it nearly impossible to hold expert auditors accountable when they certify false financial statements in an IPO.

We are fighting this ruling with a petition for panel rehearing and rehearing en banc. As a sophisticated investor, here is what you need to know about why this case is so important and how it risks dismantling decades of investor protection law.

1. The Audit Shield: Misapplying Omnicare to Financial Facts

At the core of this dispute is a dangerous expansion of the protections afforded to auditors, driven by a controversial application of the 2015 Supreme Court ruling, Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175 (2015).

Omnicare addressed when a statement of opinion can be considered "false" under Section 11. The ruling provided two pathways to liability:

• The speaker did not sincerely believe the opinion.
• The opinion omitted embedded facts necessary to make the statement not misleading.

The Ninth Circuit panel, however, misapplied this standard by treating fundamental financial metrics—like a company's revenue and net loss—as "pure opinions" rather than statements of fact.

The Problem with Calling Revenue an "Opinion"

In the Bloom Energy case, the company's financial statements were restated because the initial accounting treatment of its Managed Service Agreements (MSAs) was admittedly erroneous and inconsistent with Generally Accepted Accounting Principles (GAAP). The restatement revealed the 2017 financial statements overstated revenue by over $10 million and understated net loss by $13.7 million.

The panel decided that because applying GAAP rules to these complex contracts involved accounting judgment, the resulting revenue figures were merely PwC's opinion.

This conclusion creates a radical and harmful legal shift:

• Precedent Ignored: The ruling conflicts with established Ninth Circuit law. In In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1418 (9th Cir. 1994), the court correctly held that a company that "substantially overstate[s] its revenues... mak[es] false or misleading statements of material fact." The panel's opinion failed to address this contrary authority.
• A "Get Out of Jail Free" Card: By classifying unqualified historical financial metrics as "pure opinions," the panel essentially forces the investor to plead facts showing and prove the auditor knew the figures were false or didn't sincerely believe in their methodology. This is a requirement of fraud (scienter), not the negligence standard established for experts under Section 11.
• The Conflict: The petition highlights that the panel’s holding conflicts with other circuits, such as the Second Circuit's decision in New England Carpenters Guaranteed Annuity & Pension Funds v. DeCarlo, 122 F.4th 28 (2d Cir. 2024), which upheld claims involving misrepresentations in financial statements subject to GAAP.

Financial figures are representations of historical economic reality. The fact that Bloom Energy's original accounting was not permitted under GAAP, as conceded by the subsequent restatement, strongly supports the claim that the embedded factual assertion of GAAP compliance was untrue. The panel's holding risks granting auditors near-total immunity for expert negligence.

2. Section 11's Statutory Shield is Under Attack: The Burden Shift

The second, and most devastating, error in the panel ruling involves the statutory burden of proof under Section 11 of the 1933 Act.

Section 11, 15 U.S.C. § 77k(a), imposes liability against certain defendants, including the certifying accountant, for material misstatements in a registration statement. The law sets up a clear allocation of responsibility:
 

The Panel’s Error: Shifting the Burden

The accountant may avoid liability by meeting its burden to prove it acted with reasonable care (due diligence). This due diligence is an affirmative defense on which the accountant bears the burden of proof.

By dismissing the complaint, the Ninth Circuit panel required the plaintiffs to plead facts demonstrating that PwC "did not have a reasonable ground to believe" its audit opinion was true.

• Procedural and Statutory Conflict: It is well-established that a plaintiff is not required to plead facts to avoid a potential affirmative defense. The Supreme Court, in Herman & MacLean v. Huddleston, 459 U.S. 375, 382 (1983), confirmed that the accountant bears the burden of proving due diligence.
• Diluting Investor Protection: By requiring the investor to plead lack of reasonable belief, the panel improperly shifted the burden from the auditor to the investor. This conflicts with the explicit congressional intention to place a "minimal burden" on the plaintiff under Section 11.

The panel’s decision effectively flips the statutory burden, transforming Section 11 from a powerful negligence-based investor protection law into one that demands proof of the auditor’s subjective state of mind, which is the standard for fraud.

Conclusion: The Threat to IPO Integrity

If this ruling stands, it severely weakens the specific, negligence-based protections built into the 1933 Act to ensure due diligence in IPOs. Auditors could simply claim that complex judgments (like revenue recognition) are merely "opinions," forcing investors to prove fraud where the law intended to hold experts to a negligence standard for the financial facts they certified.

The importance of the case is further illustrated by the fact that both the Chamber of Commerce of the United States of America and the Securities Industry and Financial Markets Association (two industry associations seeking to limit liability of corporate wrongdoers and auditors) filed briefs in support of PwC.

We are pursuing a panel rehearing and a rehearing en banc review—a hearing before a larger group of judges on the Ninth Circuit—to correct these fundamental errors. We are confident that the full court will recognize the danger this decision poses to the integrity of our capital markets and the rights of millions of investors.

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Hagens Berman is a nationally recognized securities litigation firm with a proven track record in recovering hundreds of millions of dollars for investors harmed by alleged unscrupulous management of publicly held corporations. Many securities firms settle early for a very small percentage of investors’ losses. Hagens Berman prosecutes cases with the goal of obtaining the greatest recovery possible while forcing corporate officers, directors and fund managers to answer to their investors.