Nelson v. Quimby Island Reclamation Dist.

Decision Date23 January 1980
Docket NumberNo. C-77-0784 SC.,C-77-0784 SC.
Citation491 F. Supp. 1364
PartiesJohanna W. NELSON, Individually and as representative of a class; Stephen J. Bild, Jr., Esther de la Parra, Louis G. Hermann, and Mary L. Steinmetz, Individually, and as representatives of the intervenor noteholder class, Plaintiffs, v. QUIMBY ISLAND RECLAMATION DISTRICT FACILITIES CORPORATION et al., Defendants, and related cross-actions and third-party actions.
CourtU.S. District Court — Northern District of California


R. Alan Stotsenburg, Stotsenburg & Donohue, P. C., New York City, Robert J. Heil, Ferguson, Hoffman, Henn, Mandel & Heil, Inc., San Francisco, Cal., Black & Deitrick, Walnut Creek, Cal., Toll & Leavitt, Los Angeles, Cal., for plaintiff Johanna W. Nelson and the bondholder class.

Terrance L. Stinnett, Goldberg, Stinnett & MacDonald, San Francisco, Cal., James J. Farley, Scottsdale, Ariz., for intervenors-plaintiffs Bild, de la Parra, Hermann & Steinmetz.

Max H. Mortensen, John B. Schoenfeld, DDS, Robert D. Lewis, DDS and Lowell C. Lundell, DDS, in pro. per.

Theodore W. Phillips, Phillips, Cohn & Greenberg, San Francisco, Cal., for defendant Urban J. Schreiner.

Charles S. Kenady, Jr., E. Garth Black, Cooper, White & Cooper, San Francisco, Cal., for defendant Harold E. Rogers.

Bruce D. Wagner, Michael J. Brady, Ropers, Majeski, Kohn, Bentley & Wagner, Redwood City, Cal., for defendants Nichols, Rogers & Schreiner, P. C. and Rogers & Schreiner.

Richard B. Schreiber, Thomas G. Wood, Severson, Werson, Berke & Melchior, San Francisco, Cal., for defendant Union Bank.

Daniel A. Weber, Mitchell, Silberberg & Knupp, Los Angeles, Cal., for defendants Municicorp of California, Inc., Kenneth W. Rogers & Alan M. Stahl.

James Goldman, Kadison, Pfaelzer, Woodward, Quinn & Rossi, Los Angeles, Cal., for defendants Gibralco, Inc. & Charles L. Gunther.

Richard C. Brautigam, Philip R. Rotner, McCutchen, Doyle, Brown & Enersen, San Francisco, Cal., for defendant Alan H. Nichols.

Jock Patton, Streich, Lang, Weeks & Cardon, Phoenix, Ariz., Bronson, Bronson & McKinnon, San Francisco, Cal., for third-party defendants Oxford Life Insurance Company and Theodore D. Wilkins.

Cambridge Insurance Services Corp. and Jack D. Milligan, in pro. per.

Peter Taft, Munger, Tolles & Rickerhauser, Los Angeles, Cal., for third-party defendants Marshall Cornblum, Raymond Bolton, Thiel, Bolton & Cornblum.

Ronald D. Packard, Packard & Packard, Palo Alto, Cal., for third-party defendants Packards & Prahm.

Richard Marx, Blumenfeld, Mars, Tureen & Paster, P. C., Clayton, Mo., Richard M. Kaplan, Kaplan, Levy, Samrick & Bernard, San Francisco, Cal., for third-party defendant Stix & Co.

John Charron, Charron & Whitaker, St. Louis, Mo., John Vasil, Petris Vasil & Bradley, Campbell, Cal., for third-party defendant Harry F. Mayfield.

Robert D. Carrow, Carrow, Forrest & Jordan, Novato, Cal., for third-party defendant Harvey Sullivan.

M. Laurence Popofsky, Charles N. Freiberg, Heller, Ehrman, White & McAuliffe, San Francisco, Cal., for third-party defendant Jeffrey Crews.

Charles A. Wood, Jr., Tinning & DeLap, Walnut Creek, Cal., for third-party defendant Martin V. Lyle.

Marvin Smith, Santa Rosa, Cal., in pro. per.

Robert Reeser, Oakland, Cal., for third-party defendants Aquatic Innovations, Inc., L. Mortensen and Chris Mortensen.

Patrick E. Catalano, James A. DuCharme, Law Offices of Patrick E. Catalano, San Francisco, Cal., Donald R. Wild, Wilson, Elser, Edelman & Dicker, San Francisco, Cal., for third-party defendants Frank Lee Crist, Jr., Crist, Crist, Griffiths, Bryant, Schulz and Biorn, P. C.


CONTI, District Judge.

This is a securities fraud class action brought by the purchasers of bonds and notes issued by the Quimby Island Reclamation District Facilities Corporation (hereinafter Facilities Corporation). This case is before the court on eleven separate motions, which will be examined in turn.


The parties and the court are well aware that before a summary judgment may be granted under F.R.Civ.P. 56, the pleadings, depositions, answers to interrogatories, admissions on file, and the accompanying affidavits must "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." F.R.Civ.P. 56(c); MGM Grand Hotel, Inc. v. Imperial Glass Co., 533 F.2d 486, 488 (9th Cir.), cert. denied, 429 U.S. 887, 97 S.Ct. 239, 50 L.Ed.2d 168 (1976) (quoting Radobenko v. Automated Equip. Corp., 520 F.2d 540, 543 (9th Cir. 1975)).

The party moving for summary judgment has the burden of clearly establishing the lack of any triable issue of material fact. It is not the function of the trial court at the summary judgment hearing to resolve any genuine factual issue, including credibility; and for purposes of ruling on the motion, all factual inferences are to be taken against the moving party and in favor of the opposing party. Discretion plays no real role in the granting of summary judgment. See 6 Moore's Federal Practice ? 56.158, at XX-XXX-XXX.


Defendant Union Bank is a party because it entered the bond indenture and thereby became a trustee on the express trusts created by the indenture.1 As a trustee, it executed a certificate of authentication (hereinafter certificate) which stated:

This bond is one of the bonds issued pursuant to and under the provisions of the within mentioned Indenture.

Union Bank as trustee By _____________ Authorized Officer

Under Section 204 of the bond indenture, a bond was invalid unless it was endorsed with the certificate issued by the trustee. Before a bond could be authenticated, however several papers had to be delivered to the trustee,2 including:

1. A copy of the resolution adopted by the Board of Directors of the Facilities Corporation,3 certified by its Secretary, authorizing the issuance of the bonds and directing the authentication and delivery of such bonds to the named purchasers upon payment of the purchase price; and 2. Bond counsel's opinion to the effect that the indenture had been duly and lawfully authorized, executed, and delivered by the Facilities Corporation, that it was in full force and effect, and that it was valid and binding upon the Facilities Corporation in accordance with its terms, and that the bonds were valid, binding, and direct obligations of the Facilities Corporation, in accordance with their terms and the terms of the indenture, and that the bonds had been duly and validly authorized and issued in accordance with law and the indenture.

Section 207. The purchase price also had to be paid upon delivery. Finally, the bond indenture provided that the bonds could "be authenticated, delivered, and paid for in amounts of less than the total authorized principal amount, from time to time, as the Facilities Corporation" directed upon written order to the trustee. The agreement thus provided for multiple transactions.

Union Bank's liability as trustee under the indenture was limited. Section 902 provided, in pertinent part, that:

the Trustee shall not have any responsibility in respect of the validity or sufficiency of this Indenture or the due execution or acknowledgment thereof by the Corporation, or in respect of the validity of any Bonds authenticated and delivered by the Trustee in accordance with the provisions of this Indenture, or of the coupons appertaining thereto. The recitals, statements and representations contained herein the Indenture and in the Bonds (excluding the Trustee's certificate on the Bonds) shall be taken and construed as made by and on the part of the Corporation and not by the Trustee and the Trustee does not assume nor shall it be under any responsibility for the correctness of the same. (Emphasis added.)

The trustee was liable under Section 906, however, for its own negligent actions, or its negligent failure to act, as well as its own wilfull misconduct.

Plaintiffs' primary allegation is that the Union Bank, in its position as trustee, participated with other defendants in a fraudulent scheme or course of conduct to sell worthless bonds and notes to the investing public. In addition, plaintiffs maintain that Union Bank served as a statutory underwriter in the bond and note issuances. Finally, plaintiffs contend that Union Bank failed to comply with certain provisions of the trust indenture and thereby issued a certificate which was false. By conducting its operations in this way, defendant is alleged to have violated various state and federal securities laws. Those statutes which are relevant to this motion will be explicitly set forth in subsequent pages of this order.


Union Bank moves for summary judgment on the following grounds:

(1) Union Bank made no misrepresentations in the trustee's certificate which appeared on the bonds and notes;

(2) The fact that the bonds were "authenticated, delivered, and paid for" over a period of time, rather than in a single transaction, does not render Union Bank a "statutory underwriter" within the meaning of the Securities Act of 1933, ? 2(11), 15 U.S.C. ? 77b(11) (3) Plaintiffs' miscellaneous allegations regarding the so-called "scheme" (a) attempt to impose duties upon Union Bank that it never assumed, (b) do not state a claim for securities fraud, and (c) attempt to re-inject into this litigation issues and claims that the court has previously eliminated from the case.

1. Certificate of Authentication

Plaintiffs' assertion that defendant Union Bank issued a false certificate is based on the following allegations:

(1) The Board of Directors of the Facilities Corporation never adopted a resolution authorizing the issuance of any bonds and directing the authentication and delivery of such bonds so that defendant trustee did not have a copy of any resolution when it issued the certificate;

(2) Union Bank failed to...

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