Durning v. First Boston Corp.
| Decision Date | 07 January 1986 |
| Docket Number | No. C85-1328D.,C85-1328D. |
| Citation | 627 F. Supp. 393 |
| Parties | Marvin B. DURNING and Jean C. Durning, husband and wife, on behalf of themselves and all other persons similarly situated, Plaintiffs, v. The FIRST BOSTON CORPORATION; Citibank, N.A.; First Interstate Bank of Casper, N.A.; Wyoming Community Development Authority, Defendants. |
| Court | U.S. District Court — Western District of Washington |
Dexter A. Washburn, Schweppe, Krug & Tausend, P.S., Seattle, Wash., for plaintiffs.
Bennet A. McConaughy, Paul L. Ahern, Jr., Douglas C. Ross, Roberts & Shefelman, Seattle, Wash., for all defendants except First Boston.
Hugh F. Bangasser, Preston, Thorgrimson, Ellis & Holman, Seattle, Wash., for defendant First Boston.
Defendants move to dismiss under Fed. R.Civ.P. 12(b)(6). They argue that a document attached to the complaint shows that plaintiffs have failed to state a claim upon which relief can be granted. The Court agrees and accordingly dismisses this cause of action.1
This securities fraud lawsuit arises out of the sale of a $75,000,000 issue of tax-exempt single family mortgage revenue bonds by the Wyoming Community Development Authority ("Authority"). First Interstate Bank of Casper is the trustee for the bond issue. Citibank is the paying agent. First Boston Corporation is the lead underwriter for the syndicate which marketed the bonds.
The Authority was created to provide financing for the construction of housing. In 1978, the Authority initiated the single family mortgage purchase program to enable many otherwise ineligible borrowers to obtain mortgage loan financing. The 1981 bond issue was part of that program.
The Authority was authorized to use the bond proceeds to purchase certain qualifying mortgage loans on residential real property from financial institutions. The home purchasers paid an interest rate of 13 percent for 20-year mortgages. The Authority used the homeowners' monthly mortgage payments to make interest payments to its bondholders.
In 1981, plaintiffs Marvin and Jean Durning purchased four bonds in the principal amount of $5,000 each. The bonds were offered and sold to the public pursuant to a disclosure document known as the Official Statement. Plaintiffs allege that the Official Statement was misleading because it did not inform investors that the bonds were redeemable prior to 1991. In June 1985, one of the Durnings' bonds was recalled for redemption. The Durnings allege that this resulted in the termination of interest payments of more than $4,000 through 1991. The Durnings also allege that the value of the bonds in the secondary trading market dropped immediately after the June 1985 call from 119.74 to 104.00 (100 = par).
The Durnings brought this action against the four named defendants. The Durnings moved to have this action certified as a class action on behalf of those who purchased bonds prior to the 1985 call. The Durnings assert claims under federal and state securities laws, common-law negligent misrepresentation, breach of contract, tortious breach of the covenant of good faith and fair dealing, breach of fiduciary duty, unjust enrichment, and the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. All four defendants move to dismiss under Fed.R.Civ.P. 12(b)(6).
A motion to dismiss will not be granted unless it appears to a certainty that the plaintiff would not be entitled to relief under any facts that could be proved. Halet v. Wend Investment Co., 672 F.2d 1305 (9th Cir.1982). A plaintiff's complaint will be liberally construed in his favor with the alleged facts generally accepted as true. Rosen v. Walters, 719 F.2d 1422 (9th Cir. 1983).
Plaintiffs' complaint alleges that they were mislead when buying the bonds because the Official Statement did not disclose that the bonds were redeemable before June 1, 1991. Accepting this factual assertion as being true, plaintiffs have a valid claim against the defendants.
The defendants, however, contend that plaintiffs' allegations are refuted by the Official Statement which is attached to the complaint. When the allegations of the complaint are refuted by an attached document, the Court need not accept the allegations as being true. See Ott v. Home Savings & Loan Ass'n, 265 F.2d 643, 646 n. 1 (9th Cir.1958); Interstate Natural Gas Co. v. Southern California Gas Co., 209 F.2d 380, 384 (9th Cir.1953). See also 5 C. Wright & A. Miller § 1357, nos. 84-86 (1969) and accompanying text. Thus, if the Court finds that the Official Statement explains that the bonds were recallable at any time after their issuance, then this cause of action must be dismissed.2
On the first page of the Official Statement, in the first paragraph, a sentence reads:
The Bonds will be subject to redemption prior to maturity as more fully set forth herein, including mandatory redemption at par from unexpended proceeds, prepayments and certain revenues.
This sentence immediately puts the investors on notice that the bonds are subject to redemption — including mandatory redemption.
On pages 13-14 of the Official Statement, the investor is informed of three types of redemption: (1) sinking fund redemption, (2) mandatory redemption at par, and (3) optional redemption. The sinking fund and optional redemption provisions clearly set forth when the bonds can be redeemed. There is no dispute concerning these types of redemptions. Instead, the dispute involves the mandatory redemption at par provision which provides:
The Bonds will be subject to mandatory redemption at a redemption price equal to 100% of the principal amount of the Bonds to be redeemed, plus interest accrued to the redemption date, from amounts on deposit in the Mandatory Redemption Account representing (i) Bond proceeds deposited in the Program Fund and remaining unexpended on May 1, 1983, (ii) Prepayments of Mortgage Loans, (iii) amounts withdrawn from the Bond Reserve Fund as the result of the reduction of the Bond Reserve Requirement and (iv) excess revenues, subject to the Authority's right, under certain conditions, to withdraw from the lien of the Indenture investment earnings on amounts on deposit in the Special Reserve Fund.
On page 16, the Official Statement warns investors that the Authority is unable to predict when redemption would occur:
Due to the many factors which influence economic and financial market conditions, the Authority is not able to predict with any significant degree of reliability the expected level of prepayments it will actually receive on the Mortgage Loans. To the extent that...
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Durning v. Citibank, N.A.
...Statement unambiguously informed the investors that the bonds were indeed redeemable prior to June 1, 1991. Durning v. First Boston Corp., 627 F.Supp. 393 (W.D.Wash.1986). On appeal, however, this court reversed and remanded. We held that "[t]he case at bar is not a case where the issue of ......
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Durning v. Citibank, Intern.
...the Official Statement sufficiently informed investors that the bonds were redeemable prior to June 1991. See Durning v. First Boston Corp., 627 F.Supp. 393 (W.D.Wash.1986). This court reversed, holding that the Official Statement was sufficiently ambiguous to leave open a claim that the do......
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Durning v. First Boston Corp.
...the complaint are refuted by an attached document, the Court need not accept the allegations as being true." Durning v. First Boston Corp., 627 F.Supp. 393, 395 (W.D.Wash.1986). The court held, as a matter of law, that the Official Statement is not ambiguous and informs the investors that t......
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Hudson v. Sherwood Securities Corp., 89-16259
...by an attached document, the Court need not accept the allegations as being true.' " Id. at 1266 (quoting Durning v. First Boston Corp., 627 F.Supp. 393, 395 (W.D.Wash.1986)). Because Hudson's allegations of fraud are directly contradicted by the Subscription Agreement, we conclude that the......