Union County v. Piper Jaffray & Co. Inc., No. 4:06–cv–374.

CourtUnited States District Courts. 8th Circuit. United States State District Court of Southern District of Iowa
Writing for the CourtMEMORANDUM OPINION AND ORDER
Citation741 F.Supp.2d 1064
PartiesUNION COUNTY, IOWA, Plaintiff,v.PIPER JAFFRAY & CO., INC., Defendant.
Decision Date29 September 2010
Docket NumberNo. 4:06–cv–374.

741 F.Supp.2d 1064

UNION COUNTY, IOWA, Plaintiff,
v.
PIPER JAFFRAY & CO., INC., Defendant.

No. 4:06–cv–374.

United States District Court, S.D. Iowa, Central Division.

Sept. 29, 2010.


[741 F.Supp.2d 1069]

Terri L. Combs, Michael A. Giudicessi, Jesse Linebaugh, Nicole N. Nayima, Faegre & Benson LLP, Des Moines, IA, Jerome A. Miranowski, Faegre & Benson LLP, Minneapolis, MN, for Defendant.

[741 F.Supp.2d 1070]

Kimberly Holst Blankenship, Timothy J. Hill, Bradley & Riley, Cedar Rapids, IA, Adam S. Tarr, Bradley & Riley PC, Iowa City, IA, for Plaintiff.

MEMORANDUM OPINION AND ORDER
ROBERT W. PRATT, Chief Judge.

Before the Court is a Motion for Summary Judgment filed by Defendant, Piper Jaffray & Co. Inc. (“Piper”). Clerk's No. 127. Plaintiff, Union County, Iowa (“Union County” or the “County”) filed a resistance to the Motion (Clerk's Nos. 133–144),1 Piper replied (Clerk's No. 154), and the County filed a surreply (Clerk's No. 159). The Court held a hearing on the Motion on April 9, 2010. Clerk's No. 166. The matter is fully submitted.

I. FACTS

Union County is a political subdivision of the State of Iowa, with an approximate population of 12,000–13,000 persons between the years 1990 and 2008. Def.'s Statement of Undisputed Material Facts (hereinafter “Def.'s Facts”) ¶ 1; Def.'s App. at 1898. The Union County Board of Supervisors (the “County Board”) makes decisions for Union County and operates on its behalf. Def.'s Facts ¶ 2 (citing Iowa code § 331.301). The Board consists of five members, elected to staggered four-year terms. Id. ¶ 3. From 1995 to 1998, the Board was comprised of Michael King (“King”), Michael Reasoner (“Reasoner”), Gerald McLain (“McLain”), Robert Brown (“Brown”), and JoAnn Bradley (“Bradley”). Id. ¶¶ 6–9. Bradley served as the County Board Chair in 1995 and 1996, while Reasoner served as the County Board Chair in 1997 and 1998. Id. Additional relevant county officials include Don Krings (“Krings”), Union County Auditor; Tim Kenyon (“Tim Kenyon”), Union County Attorney; and Audrey Paxton (“Paxton”), Union County Assessor. Id.

The City of Creston (“Creston” or the “City”) is located in Union County, and had a total approximate population of between 7,500 and 8,000 persons between 1990 and 2008. Def.'s App. at 1899. Creston is the county seat of Union County, and Creston's City Hall is located approximately three blocks away from Union County Courthouse and from the County Board's offices. Def.'s Facts ¶ 5. Arnold “Skip” Kenyon (“Skip Kenyon”), the brother of Tim Kenyon, was the Creston City Attorney during the events giving rise to this case. Id. ¶ 10. Larry Wynn (“Wynn”) was Creston's Mayor, and Joe Parker (“Parker”) was the City Finance Officer. Id. ¶ 11.

Crestland Cooperative (“Crestland”) is an Iowa cooperative association located primarily in Union County, with approximately 2,225 members, all of whom were entitled to receive annual financial reports regarding Crestland.2 Id. ¶ 12. Relevant

[741 F.Supp.2d 1071]

Crestland officials during the time frame of the events giving rise to this lawsuit included Crestland's Chief Executive Officer (“CEO”) and General Manager, Larry Crosser (“Crosser”), and Crestland's Chief Financial Officer (“CFO”), Doug Elliot (“Elliot”). Id. ¶ 13.

Piper is a Delaware corporation headquartered in Minneapolis, Minnesota, with an office in Des Moines, Iowa. Id. ¶ 14. Piper is a registered securities broker-dealer and investment banker that serves, among other things, as an underwriter in municipal securities offerings. Id. ¶ 15. Union County notes that Piper also serves as a Financial Advisor to many of its clients and that financial advisory services are among the services offered and provided by Piper. Pl.'s Resp. to Def.'s Facts ¶ 15. Timothy Oswald (“Oswald”), the managing director of Piper's Des Moines office, served as Piper's lead representative in relation to the events underlying the present action. Def.'s Facts ¶ 16.

A. The Proposed Project

At the end of the 1995 fiscal year, Crestland's financial statements indicated that Crestland and its wholly-owned subsidiary, C.C.M., Inc. (“CCM”) had $443,000 in net gains or profits. Id. ¶ 23. In part due to these successes, Crestland's CEO and General Manager, Crosser, began discussing with Farmland Industries (“Farmland”) and local leaders the idea of building a soybean crushing facility, to be known as CF Processing, adjacent to its elevator in Creston. On November 14, 1995, Farmland completed and forwarded to Crestland a feasibility study in relation to the soybean crushing plant project (hereinafter the “Development Project”). Def.'s Facts ¶ 29; Def.'s App. at 162–174. The feasibility study indicated that, to be successful, four factors were critical, namely oil marketing, meal marketing outside niche, efficient plant operations, and real crush margins. Def.'s Facts ¶ 29; Def.'s App. at 174. In regard to the crush margins, the feasibility study indicated that the soybean crushing facility would need a crush margin “average” of between $0.69 and $0.79 per bushel of soybeans to be feasible, and that the 10–year crush margin and 5–year crush margin in Union County had been $0.85 and $0.90, respectively. Def.'s Facts ¶ 29; Def.'s App. at 173–74. The study further projected that the capital cost of the project would be about $15 million, and that Farmland Industries (“Farmland”) would join in the venture and make an equity investment of approximately $3 million. Def.'s Facts ¶ 25. Creston was willing to issue tax-exempt Industrial Development Revenue bonds (“IDR Bonds”) on behalf of Crestland up to approximately $10 million to assist in financing the project. Id. ¶ 26.

B. Creston's Involvement in the Development Project

In approximately October 1995, in an effort to undertake the IDR bond issuance, Creston engaged John McKinney and Linda Kniep of Ahlers & Cooney Law Firm (“Ahlers”) as “Issuer's counsel.” 3 See Def.'s Facts ¶ 27. Piper, represented by Oswald, was engaged to act as “underwriter” for the IDR Bond issuance.4 Id. ¶ 28. On February 16, 1996, the Creston City

[741 F.Supp.2d 1072]

Council published a “Notice of Intention to Issue Industrial Development Revenue Bonds,” in the Creston News Advertiser. Def.'s App. at 459. The Notice stated that the IDR bonds would be “limited obligations and will not constitute general obligations of the issuer nor will they be payable in any manner by taxation, but the Bonds will be payable solely and only from amounts received by the Issuer under a Loan Agreement between the Issuer and the Company.” Id. The Notice further provided that a public hearing would be held on the issue on March 5, 1996. Id. On February 23, 1996, the Creston News Advertiser also published a Public Notice, recounting that the Creston City Council had “authoriz[ed] the execution of a Memorandum of Agreement with Crestland Cooperative and fixing a [hearing date] on the proposed issuance of [IDR] Bonds (Crestland Cooperative Project) and authorizing the Mayor and Clerk to execute the proper documentation.” Def.'s App. at 729. A similar “Notice of Intention to Issue [IDR] Bonds” appeared in the Creston News Advertiser on February 12, 1997, and a similar “Public Notice” appeared on March 12, 1997. Id. at 678–79, 2490–91.

On March 6, 1996, the Creston News Advertiser printed an article stating that while Creston had approved a $10 million IDR bond issuance, Farmland had not yet decided whether to invest in the project. Def.'s Facts ¶ 38.

C. The County Becomes Involved

Union County did not have a prior relationship with Piper or with Oswald prior to the transactions at issue in this case. Def.'s Facts ¶ 17. Union County had, however, participated in bond offerings, including the issuance of $500,000 in bond debt in 1982 and the refinancing and refunding of such bonds by General Obligation Notes in 1992. Id. ¶ 18. At the time of the 1992 issuance of General Obligation Notes, King, Bradley, Brown, and McLain were all on the County Board; Krings was the County Auditor, and Tim Kenyon was County Attorney. Id. ¶ 20. The 1992 General Obligation Note offering used Ruan Securities Corporation as underwriter, and Ahlers as bond counsel. Id. ¶ 19.

Despite its prior bond offerings, the Development Project was undisputably one of the largest public projects ever to take place in Union County. Id. ¶ 37. One component of the Development Project was that it created a need for improvements to infrastructure and roads surrounding the new plant. Id. ¶ 34. Such improvements could be made by employing Tax Increment Financing (“TIF”), 5 which would permit a local government to charge Crestland/CF Processing for the improvements instead of making a general levy on all taxpayers. Id. While it appears that Creston had originally intended to undertake TIF to finance the approximately $2.7 million in expected infrastructure improvements, in approximately February 1996, the City realized that TIF debt would count against its debt capacity, and would push Creston very close to, if not over, its limit in that regard. Id. ¶ 39; Def.'s App. at 705. In response to this problem, Oswald suggested that an alternative would be to let Union County sponsor and TIF the infrastructure project instead of Creston. Def.'s Facts ¶ 40.

[741 F.Supp.2d 1073]

Throughout 1996, numerous public meetings were held regarding the Development Project, its financing, and the possibility of employing TIF to aid in financing the project. Id. ¶ 42. Various Union County officials attended some of these meetings. See, e.g., Def.'s App. at 675 (evidencing that Krings attended a February 28, 1996 meeting); 676 (evidencing that Bradley attended a March 1, 1996 meeting); 677 (letter from Parker regarding a meeting to be held on September 11, 1996 with “cc” to Bradley, Kurt Greenfield (Union County Engineer), Krings, and Tim Kenyon); 708 (handwritten note from February 23, 1996 meeting indicating presence of King, Bradley, and Greenfield). Additionally, several...

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