Foreclosures and Professional Liability

The UnitedThe United States Supreme Court has used similar considerations in restricting federal securities law liability under section 10(b) of the 1934 Act (15 U.S.C. § 78; (b)) and rule 10(b)-5 of the SEC. (See Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at p. 746 [44 L.Ed.2d at p. 555].)FN 13.

The arguments cite that unsophisticated third parties who rely on audit reports are left unprotected by our decision. In our view, the argument itself poses a dilemma. If a third party possesses sufficient financial sophistication to understand and appreciate the contents of audit reports (which often include complex financial data and accounting language as well as technical terms like “Generally Accepted Accounting Principles” and “Generally Accepted Auditing Standards”), he or she should also be aware of their limitations and of the alternative ways of privately ordering the relevant risks. If, on the other hand, a third party lacks the threshold knowledge to understand the audit report and its terms, he or she has no reasonable basis for reliance. In either event, there is no sound basis to extend potentially unlimited liability based on any alleged lack of sophistication.

The United States Supreme Court has used similar considerations in restricting federal securities law liability under section 10(b) of the 1934 Act (15 U.S.C. § 78; (b)) and rule 10(b)-5 of the SEC. (See Blue Chip Stamps v. Manor Drug Stores, supra, 421 U.S. at p. 746 [44 L.Ed.2d at p. 555].)
¬FN 13.

The dissent argues that unsophisticated third parties who rely on audit reports are left unprotected by our decision. In our view, the argument itself poses a dilemma. If a third party possesses sufficient financial sophistication to understand and appreciate the contents of audit reports (which often include complex financial data and accounting language as well as technical terms like “Generally Accepted Accounting Principles” and “Generally Accepted Auditing Standards”), he or she should also be aware of their limitations and of the alternative ways of privately ordering the relevant risks. If, on the other hand, a third party lacks the threshold knowledge to understand the audit report and its terms, he or she has no reasonable basis for reliance. In either event, there is no sound basis to extend potentially unlimited liability based on any alleged lack of sophistication.

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