In re Allstate Life Ins. Co.

• Decision Date: 13 September 2013
• Docket Number: Case Nos. CV–09–08162–PCT–GMS, CV–09–8174–PCT–GMS.
• Citation: 971 F.Supp.2d 930
• Parties: In re ALLSTATE LIFE INSURANCE COMPANY LITIGATION.
• Court: U.S. District Court — District of Arizona

971 F.Supp.2d 930

In re ALLSTATE LIFE INSURANCE COMPANY LITIGATION.

Case Nos. CV–09–08162–PCT–GMS, CV–09–8174–PCT–GMS.

United States District Court,

D. Arizona.

Sept. 13, 2013.

Matthew K. LaVelle, Michael Joseph LaVelle, LaVelle & LaVelle PLC, Phoenix, AZ, Michael Patrick Cillo, Michael P. Murray, Patrick J. Kanouff, Scott Warren Wilkinson, Valeri Susan Pappas, Davis & Ceriani PC, Denver, CO, Paul B. Civello, Alain M. Baudry, Jonathan S. Parritz, Maslon Edelman Borman & Brand LLP, Minneapolis, MN, for Plaintiffs.

Christopher J. Barber, Darren Bernens Kinkead, Donald F. Brosnan, Jonathan D. Miller, Joshua M. Wiersma, Peter J. Meyer, Steptoe & Johnson LLP, Chicago, IL, David Jeremy Bodney, James Christopher Moeser, Steptoe & Johnson LLP, Shawn Keith Aiken, William Henry Knight, Aiken Schenk Hawkins & Ricciardi PC, David J. Ouimette, Gary L. Birnbaum, Scot L. Claus, Dickinson Wright/Mariscal Weeks, Emily Heath Mann, Stockton D. Banfield, Daxton Reese Watson, Mack Watson & Stratman PLC, John E. DeWulf, Pamela Lynn Judd, Roshka DeWulf & Patten, PLC, Kevin E. O‘Malley, Mark Andrew Fuller, Gallagher & Kennedy PA, Michael J. O'Connor, Paul G. Johnson, Jennings Strouss & Salmon PLC, Laura Michelle Kam, Mark A. Nadeau, DLA Piper LLP, Phoenix, AZ, Abby Risner, David M. Harris, Wendy S. Menghini, Greensfelder Hemker & Gale PC, St. Louis, MO, Steven G. Zraick, Town of Prescott Valley, Prescott Valley, AZ, Brian Condon, Elizabeth St. John, Matthew T. Heartney, Ryan M. Nishimoto, Arnold & Porter LLP, Los Angeles, CA, for Defendants.

ORDER

G. MURRAY SNOW, District Judge.

Pending before the Court are Defendants' Joint Motion for Summary Judgment Dismissing the Claims of Non–Party Bondholders (Doc. 644) and the Underwriters' Motion to Exclude the Report and Testimony of Robert M. Smith (Doc. 774). For the reasons discussed below, the Motion for Summary Judgment is granted in part and denied in part, and the Motion to Exclude is denied without prejudice.

BACKGROUND

This suit involves the offering and sale of $35 million in revenue bonds (the “Bonds”) used to finance the construction of a 5,000–seat Event Center in the Town of Prescott Valley, Arizona. The claims subject to this Motion are those of a number of individual Bondholders whose interests are represented by the Indenture Trustee of the Bonds, Wells Fargo. The Defendants in this case are numerous. They include the underwriters for the Bonds, attorneys for the underwriters, and the various entities that received the proceeds for the Bonds and built the Event Center.¹

The suit is based on a number of purported misstatements made by the Defendants. These misstatements allegedly were made in the Preliminary Official Statement and the Official Statement, collectively referred to as the Official Statements (“OS”). The OS provided two sources for paying debt service on the Bonds: (1) the net operating income from the Event Center and (2) Transaction Privilege Tax Revenues (“TPT Revenues”), allegedly pledged by the Town, consisting of sales taxes generated by the Event Center and certain areas near the Event Center. The alleged misstatements pertained to (1) the annual attendance and profitability of the Event Center and (2) the existence of a lien or other security device on the TPT Revenues for the benefit of the Bondholders. Wells Fargo claims that the above misstatements caused Fitch, a bond rating agency, to issue the Bonds an investment grade rating of “A-.” It asserts that the Bondholders directly or indirectly relied on either the misrepresentations or the investment grade rating in making the decision to purchase the Bonds. The Event Center has failed to realize net operating revenues in the amounts projected by the OS, and while the Town has made TPT Revenue payments, Plaintiffs allege that it reserves the right to stop making those payments at any time.

Wells Fargo, on behalf of the Individual Bondholders, asserts claims of negligent misrepresentation and violation of the Arizona Securities Act (“ASA”) against Defendants.² (Doc. 466 at 107–09.) However, throughout the course of litigation, Wells Fargo was less than timely in response to Defendants' discovery requests. It was not until early 2012, in light of a deadline that the Court set on June 15, 2012, that Wells Fargo sent out questionnaires to Bondholders requesting information on how to contact them and how they acquired the Bonds. ( Doc. 572 at 3.) In light of the late production of such information, the Court placed restrictions on Wells Fargo's ability to introduce certain evidence into the litigation. As such, Wells Fargo is prohibited from offering any testimony from the fifty-three Bondholders who never returned questionnaires. ( Id. at 9.) It is also prohibited from offering any testimony relating to causation or damages from twenty-seven Bondholders who responded “No,” “Do Not Recall,” or left blank the answers to questions asking if they relied on the OS or their brokers in purchasing the bonds. ( Id.) Wells Fargo is further limited to calling only the nine employees it expressly named in its June 15 disclosure and it cannot offer any documents or exhibits supporting claims on behalf of bondholders it did not expressly name prior to the June 15 deadline. ( Id.) Finally, the Court barred Wells Fargo from bringing suit on behalf of any Bondholders not named by the June 15 deadline. ( Id. at 5–6.)

Defendants now bring this Motion for Summary Judgment, arguing that Wells Fargo has not summoned sufficient evidence to support a finding in favor of the Bondholders on either claim. Defendants also move to exclude the testimony of Wells Fargo's expert Robert M. Smith, on whose report Wells Fargo relies in making its argument against summary judgment. Defendants set forth three arguments in bringing their Motion for Summary Judgment. First, they assert generally that the claims of Bondholders who cannot demonstrate “essential elements” must be dismissed, including the claims of the fifty-three and twenty-seven Bondholders who were precluded or partially precluded from testifying, as well as the claims of Bondholders who purchased in the secondary market. Second, they argue that, for a number of reasons, Wells Fargo is unable to establish the element of transaction causation for the ASA claims. Finally, they argue that Wells Fargo is unable to establish individualized reliance for each Bondholderon their negligent misrepresentation claims.

DISCUSSION

I. Legal Standard

Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows “that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c). Only disputes over facts that might affect the outcome of the suit will preclude the entry of summary judgment, and the disputed evidence must be “such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). “[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Substantive law determines which facts are material. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. 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. Id. at 255, 106 S.Ct. 2505 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158–59, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970)); Harris v. Itzhaki, 183 F.3d 1043, 1051 (9th Cir.1999) (“Issues of credibility, including questions of intent, should be left to the jury.”) (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, 106 S.Ct. 1348, 89 L.Ed.2d 538 (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 LRCiv. 1.10( l )(1) (“Any party opposing a motion for summary judgment must ... set[ ] forth the specific facts, which the opposing party asserts, including those facts which establish a genuine issue of material fact precluding summary judgment in favor of the moving party.”). If the nonmoving party's opposition fails to specifically cite to materials either in the court's record or not in the record, the court is not required to either search the entire record for evidence establishing a genuine issue of material fact or obtain the missing materials. See Carmen v. S.F. Unified Sch. Dist., 237 F.3d 1026, 1028–29 (9th Cir.2001); Forsberg v. Pac. N.W. Bell Tel. Co., 840 F.2d 1409, 1417–18 (9th Cir.1988).

II. AnalysisA. Bondholders Unable to Establish “Essential Elements” of Claims

1. Bondholders Who Did Not Return Questionnaires

Fifty-three of the Bondholders never returned the form questionnaires sent out by Wells Fargo. In its October 11 Order of last year, 2012 WL 4839933, this Court precluded Wells Fargo from offering any testimony by those Bondholders. (Doc. 572 at 9.)

Defendants first assert that they are entitled to summary judgment on the claims of these fifty-three Bondholders because Wells Fargo is unable to muster admissible evidence that these Bondholders still own their Bonds. The Indenture of Trust permits Wells Fargo to bring claims only on behalf of current...