In re Allstate Life Ins. Co. Litig.
| Decision Date | 13 September 2013 |
| Docket Number | C/w No. CV-09-8174-PCT-GMS,Lead Case No. CV-09-08162-PCT-GMS |
| Parties | In Re: Allstate Life Insurance Company Litigation |
| Court | U.S. District Court — District of Arizona |
Pending before the Court are twelve motions. Defendants have filed multiple Motions for Summary Judgments on Plaintiffs' claims against them. (Docs. 681, 704, 712, 717, 718, 751, 783.)1 Plaintiff Allstate has also filed a Motion for Determination as a Matter of Law. (Doc. 706.) Finally, Defendants have filed multiple Motions in Limine to exclude reports and testimony by several of Plaintiffs' witnesses. (Docs. 679, 709, 713, 774.) For the reasons set out below, Defendants' Motions for Summary Judgment are granted in part and denied in part. Allstate's Motion for Determination as a Matter of Law is also granted in part and denied in part. Defendants' Motion in Limine to Exclude the Testimony and Report of William Rhoda is denied; the remainder of their Motions in Limine are denied as moot and without prejudice.
As discussed in previous Orders, this lawsuit stems from the offer and sale of $35 million in revenue Bonds used to finance the construction of a 5,000-seat Event Center in the Town of Prescott Valley. The Bonds were sold pursuant to a Preliminary Official Statement ("POS") and Official Statement, together referred to as the Official Statements ("OS"). These documents, circulated to some of the Plaintiffs who purchased the Bonds, contained information and disclosures pertaining to the purchase, redemption, financing, debt servicing, and security of the Bonds. The multiple parties involved in this litigation have been described in detail in previous Orders. (See, e.g., Doc. 212 at 2-3.) Plaintiffs allege that the OS contained misrepresentations and omissions which led to a decrease in the value of their Bonds. The misrepresentations and omissions involve primarily two allegations: (1) inflated projections regarding the Event Center's future performance, and (2) misleading statements regarding the existence of a security interest on the Event Center's net operating income ("NOI") and other funds pledged to ensure debt service payments on the Bonds. The specifics of the alleged misrepresentations and omissions are set out in the Court's earlier Order of November 2010. (Doc. 212 at 4-9.) Only a brief summary of the Bonds' history and structure is set out here to supplement the information covered in previous Orders.
The idea of building an Event Center in the Town of Prescott Valley was proposed to the Town by private developers—Global and Fain Signature Group ("FSG")—in 2004. The Town agreed with those parties to obtain a feasibility study on the proposed center from Economic Research Associates ("ERA") (also known as SFCERA). A previous feasibility study, prepared in 2001, regarding the feasibility of an event center in the neighboring town of Prescott (the "2001 Report"), was in the possession of some parties. After the final version of the ERA study (the "2005 Report") was issued in February 2005, the Town approved of the project at a Town Council meeting. Subsequently, Global, FSG, and the Town executed a Development Agreement in May 2005 in which the Town promised to provide support for the Event Center in the form of a percentage ofsales taxes ("TPT Revenues") collected from the Event Center, a neighboring Entertainment District, and Secondary Credit Support Area ("SCSA"). After entering into the Development Agreement, the Town withdrew from the process of financing the Event Center.
The Defendant parties still involved in the financing determined that the Event Center would be funded by the sale of municipal Bonds issued by the Yavapai Industrial Development Authority (the "Issuer"). The Issuer hired Kutak Rock as bond counsel to draft certain of the documents associated with the Bond offering. The Issuer was to issue the Bonds as a conduit, meaning that it was not issuing the Bonds for its own use, but rather as a vehicle for the Borrower, Prescott Valley Entertainment Center ("PVEC"). Thus, the Issuer loaned the proceeds from the sale of the Bonds to PVEC as set out in the Loan Agreement. PVEC signed a Promissory Note to pay the $35,000,000 back to the Issuer, presumably with the income generated by the Event Center. The Issuer then granted a lien to Wells Fargo, the Bondholders' Trustee, over all Pledged Revenues, including the Event Center's net operating income and the Town's pledge of TPT Revenues in the event of a shortfall. The Issuer also endorsed the Promissory Note over to the Trustee. The Trustee was charged with using the funds it received to make debt service payments to the Bondholders.
Defendants subsequently drafted a POS for the sale of the Bonds which contained projections for the Event Center's operating results, including projections for attendance and number of events. The POS also set out actual and projected sales taxes for how much the Town could gather in TPT Revenues. The POS further stated that a lien existed on the Event Center's net operating income and the pledged TPT Revenues in favor of the Bondholders. Defendants asked Fitch Ratings to issue a rating for the Bonds. Fitch reviewed the POS and the underlying Bond Documents and issued a rating of A-. The Bonds were issued in November 2005 pursuant to a final version of the OS.
Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, demonstrates "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). Substantive law determines which facts are material and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "A fact issue is genuine 'if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.'" Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving party must show that the genuine factual issues "'can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party.'" Cal. Architectural Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (quoting Anderson, 477 U.S. at 250). Because "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, . . . [t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor" at the summary judgment stage. Anderson, 477 U.S. at 255 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970)); Harris v. Itzhaki, 183 F.3d 1043, 1051 (9th Cir. 1999) () (citations omitted).
Furthermore, the party opposing summary judgment "may not rest upon the mere allegations or denials of [the party's] pleadings, but . . . must set forth specific facts showing that there is a genuine issue for trial." Fed. R. Civ. P. 56(e); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986); Brinson v. Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995); Taylor v. List, 880 F.2d 1040, 1045 (9th Cir. 1989); see also L.R.Civ. 1.10(l)(1) ().
The Plaintiffs assert Rule 10b-5 claims against PVEC (the Borrower), Global (part-owner of PVEC), Kozuback (CEO of Global), Hocking (Global's financial advisor), PVSE (part-owner of PVEC), FSG (owner of PVSE) and Stern (the original underwriter of the Bonds). The elements of a 10b-5 private cause of action are: (1) a material misrepresentation or omission by the defendant, (2) scienter, (3) a connection between the misrepresentation and the purchase or sale of a security, (4) reliance upon the misrepresentation or omission, (5) economic loss, and (6) loss causation. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 U.S. 148, 157 (2008). They also assert Rule 20(a) control person claims against Global, Kozuback, FSG, and PVSE based on the above Defendants' primary Rule 10b-5 violation.
Loss causation requires the plaintiff to show that the misrepresentations or omissions caused the plaintiff's harm. In re Daou Sys., Inc., 411 F.3d 1006, 1025 (9th Cir. 2005). Such loss causation is established "if the market learns of a defendant's fraudulent act or practice, the market reacts to the fraudulent act or practice, and a plaintiff suffers a loss as a result of the market's reaction." In re Oracle Corp. Sec. Litig., 627 F.3d 376, 392 (9th Cir. 2010). The plaintiff need not show that the misrepresentation or fraudulent act "was the sole reason for the investment's decline in value," only that it was "one substantial cause." In re Daou, 411 F.3d at 1025 (internal quotations omitted) (emphasis in original). Typically, a plaintiff makes this showing by demonstrating that the value of the security declined after the true facts behind the misrepresentation or fraudulent practice become generally known. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 344 (2005).
FSG and PVSE move for summary judgment on the ground that Plaintiffs have failed to submit any evidence of diminution in Bond value after any truth became knownto the market.2 (Doc. 681 at 10-11.) Plaintiffs argue that they should not have to demonstrate a disclosure followed by market decline because the Bonds were not an efficiently traded security. (...
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