434 F.2d 871 (5th Cir. 1970), 29348, Investors Syndicate of America, Inc. v. City of Indian Rocks Beach, Florida
|Citation:||434 F.2d 871|
|Party Name:||INVESTORS SYNDICATE OF AMERICA, INC., Plaintiff-Appellant, v. The CITY OF INDIAN ROCKS BEACH, FLORIDA, et al., Defendants-Appellees.|
|Case Date:||November 12, 1970|
|Court:||United States Courts of Appeals, Court of Appeals for the Fifth Circuit|
Peter J. Winders, Tampa, Fla., for plaintiff-appellant.
Owen S. Allbritton, III, Charles F. Barber, Clearwater, Fla., R. Clark Robinson, St. Petersburg, Fla., for defendants-appellees.
Before BELL, THORNBERRY and CLARK, Circuit Judges.
CLARK, Circuit Judge:
Investors Syndicate of America, Inc. (Investors), the holder of municipal revenue bonds, sought declaratory and injunctive relief against the issuing city and the bank having depositary custody of accumulated sinking fund monies, to secure the pre-maturity redemption or purchase of a portion of said revenue bonds. On the bare bones of the complaint and the motion of the city, the trial court dismissed the entire complaint for failure to state a claim upon which relief could be granted. We reverse.
By adoption of its Ordinance No. 73, the City of Indian Rocks Beach, Florida (City) formalized its determination to construct and maintain a municipal sewage collection system to be funded by special assessments and certain increases in excise taxes. In order to obtain the
immediate funds necessary to construct the system, the ordinance authorized the issuance of 950,000 dollars worth of sewer revenue certificates (bonds) in denominations of 1,000 dollars each-- 200,000 dollars in face value of such bonds, numbered 1-200, bore a final maturity date in 1984 and all of the remaining bonds, numbered 201-950, with a total face value of 750,000 dollars, bore a final maturity date of January 1, 1989. As required by the ordinance, the City entered into a Trust Agreement with the Union Trust National Bank of St. Petersburg, Florida (Bank) under the terms of which the Bank became the trustee of monies required to be collected and retained by the City for bond holders.
The complaint filed by Investors contained three counts. Count I was based upon the contractual terms of the bond and Ordinance No. 73. Count II asserted breach of trust. Count III alleged estoppel. A copy of Ordinance No. 73 with all amendments, a sample sewer revenue bond, the Trust Agreement between the City and the depositary bank, the Official Statement covering the offer of these bonds and a letter from the City's bond-approving attorneys were made exhibits to the complaint.
The complaint averred the facts to be these. On June 30, 1969, the Sinking Fund established in accordance with Ordinance No. 73 contained more than 540,000 dollars over and above the amounts in the Reserve Fund and the Renewal and Replacement Fund. This sinking fund balance had resulted from pre-payments of assessments by the City's property owners. Investors is, and has been since the Trust Agreement between the City and the Bank was established, the owner and holder in due course of all certificates numbered 201-950, being all certificates bearing a final maturity date of January 1, 1989 which were issued under the terms of said Ordinance No. 73. The funds presently held by the Bank are sufficient to retire a substantial portion of Investors' certificates without in any way impairing the security of the remaining outstanding certificates. The City contends that it is vested with discretion to keep and maintain all sinking funds and to make permitted investments with said funds, which would ultimately inure to the profit of the City, until the final maturity date of 1989 specified in the bonds. Investors has demanded that the City and the Bank apply the surplus funds now in the sinking fund to the retirement of the bonds it holds, but the City and the Bank have refused to either redeem or purchase any part of those bonds. In connection with the offer to sell these bonds, the City published a prospectus entitled Official Statement which it distributed to prospective purchasers during January of 1965 prior to the sale of any of the bonds. This statement represented to all prospective investors that a portion of the bonds with maturity dates in 1989 would be redeemed or purchased beginning January 1, 1969 out of funds predicted to be available in the Sinking Fund. By a letter dated February 25, 1965, the firm of attorneys who had been employed as bond-approving attorneys by the City expressed the written opinion that if surplus monies were to become available in the Sinking Fund, they 'must be used annually to redeem the certificates once the call date (January 1, 1969) has become applicable.' The representations in the Official Statement and in the opinion letter of the City's bond-approving attorneys were furnished by the City to Investors with the intent that it rely thereon, and Investors did rely thereon in purchasing 750,000 dollars worth of these revenue bonds.
Ordinance No. 73 of the City contained the following pertinent provisions.
'SECTION 3. In consideration of the acceptance of the Certificates authorized to be issued hereunder by those who shall hold the same from time to time, this Ordinance shall be deemed to be and shall constitute a contract between the City and the Certificate Holders.
SECTION 11. The Certificates maturing in the year 1989 shall, at the option of the City, be redeemable in whole or in part from Sinking Fund moneys only, on January 1, 1969, or on any interest payment date thereafter, at the price of par and accrued interest plus a premium equal to 3% Of the par value of such Certificates.
The Certificates maturing in the years 1984 and 1989 shall, at the option of the City, be redeemable in whole or in part from any funds legally available for such purpose on January 1, 1974, or any interest payment date thereafter at the price of par and accrued interest plus a premium equal to 3% Of the par value of such Certificates.
Such Certificates, if less than all, shall be redeemable in the inverse order of
(This is as amended January 18, 1965.) (Note: Section 12 is pertinent but is not reproduced here. It set out the exact and full text of the certificates.)
SECTION 13. Neither the Certificates nor coupons shall be or constitute general obligations or indebtedness of the City as bonds within the meaning of Section 6, Aricle IX, of the Constitution of Florida, but shall be payable solely from and secured by a lien upon and a pledge of the special funds as herein provided.
SECTION 15. * * * the City covenants with the holders of any and all of the Certificates issued pursuant to this Ordinance as follows:
A. The entire gross revenues derived from the operation of the system shall be deposited into a special fund which is hereby created and designated 'Sewer System Revenue Fund' (hereinafter sometimes called the 'Revenue Fund'). All moneys in the Revenue Fund shall be held in trust and applied as hereinafter provided in subsection B of this Section 15.
B. All moneys at any time on deposit in the Revenue Fund shall be disposed of only in the following manner and order of priority:
(1) The moneys shall first be used for the deposit into a fund to be known as the 'Operation and Maintenance Fund' which is hereby created, of such sums as are necessary for current monthly operating expenses.
(2) All remaining moneys in the Revenue Fund after payments into Operation and Maintenance Fund will be withdrawn and deposited in a fund known as the 'Sewer System Revenue Certificates Sinking Fund', (hereinafter referred to as the 'Sinking Fund'), hereby created.
Moneys in the Sinking Fund shall be used first to pay maturing interest on the Certificates when due.
Moneys remaining in the Sinking Fund will next be used to pay * * * the amount of $35,000.00. * * *
There shall also be deposited in the Reserve Account the amount of $30,000.00 from the proceeds of the sale of the Certificates. The aggregate amount equal to $65,000.00 shall remain on deposit * * * until January 1, 1974. * * * Moneys in the Reserve Account will be used to pay maturing principal and interest whenever moneys in the Sinking Fund are insufficient therefor. * * *
(3) Commencing no later than 36 months after delivery of the Certificates, moneys remaining in the Sinking Fund will be withdrawn and deposited in the Renewal Replacement Fund * * * in an amount equal to 1/12 of 20% Of $15,000.00. * * *
The moneys in the Renewal and Replacement Fund shall be used only to cover the cost of the renewal and replacement of the properties and assets of said Sewer System, or for extraordinary repairs * * *
(4) Any moneys remaining on deposit in the Sinking Fund after the payments above in subparagraph (1), (2) and (3) have been made shall be used to redeem Certificates as provided or to buy Certificates as long as the purchase price is
equal to or less than the redemption price, but only to the extent that there remain on deposit in the Sinking Fund an amount at least equal to the amount required to pay the principal and interest maturing on the outstanding Certificates for the next twelve months.
(8) * * * the Sinking Fund * * * established, maintained and created by this Ordinance shall constitute trust funds for the purpose provided herein for such funds. * * * Moneys in the Sinking Fund may be invested in direct obligations of the United States maturing not later than the next succeeding date on which the Certificates are required to be redeemed or purchased from the moneys on credit to such account but only to the extent that these moneys on credit to such account but only to the extent that these moneys exceed the next maturing 12 months interest. Any and all income received by the City from such investments shall be deposited into the Sinking Fund.'
The following language from the exhibited Trust Agreement should also be noted.
Section 3. That there is annexed hereto as Exhibit 'A' and incorporated...
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