Allstate Life Insurance Company v. Robert W. Baird & Co. Inc., et al.

Filing 433

ORDER granting/denying in part 263 Consolidated Motion to Dismiss the Underwriters' Third-Party Complaint and Counterclaim; and Town of Prescott Valley's Counterclaims FURTHER ORDERED granting 281 Underwriters' Motion to Amend Third-Party Complaint and Counterclaim against Third-Party Counterclaim Defendant Wells Fargo Bank, N.A. Signed by Judge G Murray Snow on 11/18/11.(MAP)

1 WO 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE DISTRICT OF ARIZONA 8 9 10 11 12 13 14 ) ) ) In Re: Allstate Life Insurance Company ) Litigation ) ) ) ) ) ) ) ) Lead Case No. CV-09-8162-PCT-GMS Consolidated with: Case No. CV-09-8174-PCT-GMS ORDER 15 16 17 Pending before the Court are 1) Wells Fargo Bank, N.A.’s Consolidated Motion to 18 Dismiss the Underwriters’ and Town of Prescott Valley’s Counterclaims (Doc. 263), and 19 2) Underwriters’ Motion to Amend Third-Party Complaint and Counterclaim against Third- 20 Party and Counterclaim Defendant Wells Fargo Bank, N.A. (Doc. 281). As set forth below, 21 Wells Fargo’s Motion to Dismiss is granted in part and denied in part.1 The Underwriters’ 22 Motion to Amend is granted. 23 24 25 26 27 28 1 The Town’s request for oral argument is denied as the Court has determined that oral argument will not aid in its decision. See Lake at Las Vegas Investors Group v. Pac. Malibu Dev., 933 F.2d 724, 729 (9th Cir. 1991). BACKGROUND2 1 2 This action arises from the offering and sale of revenue bonds used to finance the 3 construction of a 5,000 seat event center in the Town of Prescott Valley, Arizona. In 2005, 4 various parties purchased approximately $35 million in Bonds pursuant to a set of offering 5 documents entitled the “Official Statements.” The Town of Prescott Valley pledged certain 6 tax revenues to be used to service the Bonds. Wells Fargo Bank, N.A. (the “Trustee”) was 7 appointed as the Indenture Trustee for the Bondholders and gained certain rights and 8 responsibilities in relation to the Bonds pursuant to an Indenture of Trust. The Trustee also 9 signed a “Closing Certificate of Trustee,” in which it acknowledges its acceptance of certain 10 duties and, the Town alleges, warranted the legal effectiveness of the Indenture. 11 In 2009, the majority bondholder, Allstate Life Insurance Company, commenced this 12 action against various parties, including the Town and certain Underwriters. Allstate asserts 13 federal and state securities fraud claims, and common-law claims for fraud, aiding and 14 abetting fraud, and negligent misrepresentation. The Trustee has brought additional claims 15 on the Bondholders’ behalf, including a common-law negligent misrepresentation claim and 16 a claim under the Arizona State Securities Act, A.R.S. § 44-1991. The Trustee’s negligent 17 misrepresentation claim is two-fold. First, the Trustee claims that certain parties, including 18 the Town and various Underwriters, negligently failed to disclose material facts in the 19 Official Statements regarding the economic feasibility of the event center. Second, the 20 Trustee claims that these parties negligently drafted or approved other Bond documents, 21 including the “Indenture, Loan Agreement and related documents,” which created 22 “significant administrative and legal impediments to the collection . . . of the Pledged 23 Revenues [from the Town].” (Doc. 130 at ¶¶ 187, 199). 24 The Town and Underwriters (collectively “Counterclaimants”), meanwhile, have 25 brought counterclaims against the Trustee. (Docs. 230, 237). The Underwriters’ sole 26 27 28 2 For a more detailed description of the background and facts, see the Court’s Order of November 3, 2010. (Doc. 212). -2- 1 counterclaim is for contribution. They make three distinct factual assertions in their 2 counterclaim. The Underwriters first allege that the Trustee “substantially participated” in 3 the creation of the Official Statements and that the Trustee’s negligence in drafting these 4 statements contributed to any damages to the Bondholders. (Doc. 230 at ¶¶ 48, 50). Second, 5 they allege that the Trustee negligently failed to ensure that the Indenture and other related 6 documents created an adequate mechanism for the Trustee to demand and obtain payment 7 of the Pledged Revenues from the Town. (Doc. 230 at ¶ 51). Third, the Underwriters allege 8 that by acting negligently, the Trustee breached its contractual obligations to the 9 Bondholders under the Indenture, which requires that the Trustee exercise the care of a 10 “prudent person.” (Doc. 230 at ¶ 52). The Underwriters conclude, therefore, that any loss 11 suffered by the Bondholders in relation to the bonds is the result of the Trustee’s negligence 12 and/or breach of its contractual obligations. (Doc. 230 at ¶ 13). They contend that “to the 13 extent that the Underwriters are found liable for any [Bondholder losses], the Trustee is liable 14 to the Underwriters for contribution.” (Id.). 15 The Town brings a substantially identical contribution counterclaim against the 16 Trustee, alleging that the Trustee is liable to the Town for contribution due to its negligence 17 and breach of contractual obligations. (Doc. 237 at ¶¶ 59–63). The Town also brings a claim 18 against the Trustee for common law indemnity. The Town makes the same first two 19 allegations in support of its indemnity claim that it and the Underwriters make in support of 20 their contribution claims, namely that the Trustee participated in creating the negligently 21 drafted Official Statements; and negligently failed to create an adequate mechanism for 22 delivery of the Pledged Revenues. (Doc. 237 at ¶¶ 55–58). 23 The Trustee moves to dismiss the counterclaims pursuant to Federal Rule of Civil 24 Procedure 12(b)(6) for failure to state a claim. (Doc. 263). The Underwriters, meanwhile, 25 move to amend their counterclaim to include a claim against the Trustee for negligent 26 misrepresentation. (Doc. 281). 27 28 -3- 1 2 DISCUSSION I. The Trustee’s Motion to Dismiss 3 A. 4 To survive dismissal, a claim or counterclaim must consist of more than “labels and 5 conclusions” or a “formulaic recitation of the elements of a cause of action”; it must contain 6 factual allegations sufficient to “raise a right to relief above the speculative level.” Bell Atl. 7 Corp. v. Twombly, 550 U.S. 544, 555 (2007). See also Starr v. Baca, 652 F.3d 1202, 1216 8 (9th Cir. 2011) (holding that the heightened pleading standard in Twombly and Iqbal applies 9 to a “complaint or counterclaim”) (emphasis added). While these factual allegations need not 10 be detailed, a claim “must plead ‘enough facts to state a claim to relief that is plausible on 11 its face.’” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th Cir. 2008) (quoting 12 Twombly, 550 U.S. at 570). “A claim has facial plausibility when the plaintiff pleads factual 13 content that allows the court to draw the reasonable inference that the defendant is liable for 14 the misconduct alleged.” Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009) (citing Twombly, 15 550 U.S. at 556). 16 B. 17 Legal Standard Legal Analysis 1. The Town’s and Underwriters’ Contribution Claims 18 In their counterclaims, both the Town and the Underwriters seek contribution from 19 the Trustee for the alleged losses suffered by the Bondholders. (Docs. 230, 237). The Trustee 20 argues these counterclaims should be dismissed, contending that a contribution claim 21 requires joint and several liability, and that in this case any liability on the Trustee’s behalf 22 is several only. (Doc. 263 at 7). 23 a. Choice of Contribution Law 24 To determine which state’s contribution laws govern this action, the Court applies the 25 choice-of-law rules of Arizona, the forum state. See Lange v. Penn Mut. Life Ins. Co., 843 26 F.2d 1175, 1178 (9th Cir. 1988). Arizona applies the contribution law of the state “with the 27 most significant relationship to the occurrence and to the parties.” Bill Alexander Ford v. 28 Casa Ford, Inc. 187 Ariz. 616, 618, 931 P.2d 1126, 1128 (App. 1996). See also -4- 1 RESTATEMENT (SECOND) OF CONFLICT OF LAWS §§ 6, 145(2). Unlike substantive causes of 2 action, “[c]ontribution does not involve the injured part[ies], rather it concerns the 3 relationship of tortfeasors to each other.” Bill Alexander, 187 Ariz. at 618 (internal citation 4 and quotations omitted). It is sometimes appropriate, therefore, to apply one state’s laws to 5 a substantive cause of action in a case and apply a different state’s laws to that case’s 6 contribution claim. See, e.g., id. (“Although Texas law applied in the action between Sandigo 7 and Casa Ford, the contribution action involves other parties and issues.”) (citing Caterpillar 8 Tractor Co. v. Teledyne Indus., Inc., 53 Cal. App. 3d 693, 697–98 (1975)). The Court, 9 therefore, rejects the Underwriters’ argument that their right to contribution is necessarily 10 “governed by the same law that governs the underlying substantive cause[s] of action.” (Doc. 11 280 at 5). Although the instant action involves Arizona, California, and Illinois securities 12 laws, it is not necessary to apply all three states’ contribution laws. 13 As stated, contribution involves only the tortfeasors and not the injured parties; 14 therefore state relationships to the injured Bondholders need not be considered in the choice 15 of law analysis. The Court must apply the law of the state with the most significant 16 relationship to 1) the occurrences that led to this action and to 2) the alleged tortfeasors. See 17 Bill Alexander, 187 Ariz. at 618. 18 The occurrences that led to this action took place primarily in Arizona. Not only were 19 the Bonds issued by an Arizona political subdivision, but tax revenues for servicing the 20 Bonds were pledged by an Arizona municipality. (Doc. 212 at 2–3). Moreover, the Bond 21 proceeds were used to finance the construction of an event center located in Arizona. (Id.). 22 And the Underwriters and Town assert that “a substantial part of the events or omissions 23 giving rise to the claims asserted herein occurred in [Arizona], and the property that is the 24 subject of this action is located in [Arizona].” (Docs. 230 at ¶ 8; 237 at ¶ 11). Arizona 25 therefore has the most significant relationship to the occurrences that led to this action. 26 Arizona also has the most significant relationship to the alleged tortfeasors. The 27 alleged tortfeasors affected by the instant contribution claims are the Underwriters, the Town, 28 and the Trustee. At the time of the Bond offering, the Underwriters were citizens of, or had -5- 1 principal places of business in, California, Wisconsin, and Missouri. The Town, however, 2 is a political subdivision of the State of Arizona. (Docs. 130 at ¶ 27; 237 at ¶ 27). And 3 although the Trustee is a citizen of California, it “acted through its employee and agent 4 Nancy Eatros,” a citizen of Arizona. (Docs. 230 at ¶ 15; 280 at 9; 286 at 8). None of the 5 alleged tortfeasors involved in these motions has a connection with Illinois, and only one of 6 the Underwriters and Wells Fargo have any connection with California. In short, not only do 7 two of the alleged tortfeasors have significant ties to Arizona, but the occurrences that led 8 to this action took place primarily in Arizona. The Court will therefore apply Arizona 9 contribution law to both the Town’s and the Underwriters’ counterclaims. 10 b. Arizona Contribution Law 11 Under Arizona law, a legally cognizable right to contribution exists only where there 12 is joint and several liability. A.R.S. § 12-2501 (2003). Where liability is not joint and several, 13 there is no common liability to discharge and therefore no “right of contribution.” Cella Barr 14 Assocs. v. Cohen, 177 Ariz. 480, 484–85, 868 P.2d 1063, 1067–68 (App. 1994). In other 15 words, where liability is several only, it is not possible to hold a defendant to an obligation 16 to pay more than its respective share of damages and “the primary reason for contribution 17 disappears.” PAM Transp. v. Freightliner Corp., 182 Ariz. 132, 134, 893 P.2d 1295, 1297 18 (1995). The purpose of contribution is to prevent one defendant from having to bear the 19 burden of all damages when he was not the cause of all damages. Id. 20 Arizona Revised Statutes (“A.R.S.”) § 12-2506 abolishes joint and several liability 21 under most circumstances. PAM Transp., 182 Ariz. at 133. The right to contribution in 22 Arizona has therefore been largely eliminated. Id. Under Section 12-2506(D), however, a 23 party remains subject to joint and several liability where “the party and the other person were 24 acting in concert;” (2) the “other person was acting as an agent or servant of the party;” or 25 (3) “the party’s liability for the fault of another person arises out of a duty created by the 26 federal employers’ liability act.” A.R.S. § 12-2506(D) (2003). 27 28 -6- 1 The Underwriters contend that the Trustee is subject to the “acting in concert” 2 exception. To prove, however, that the Trustee was “acting in concert” with them, the 3 Underwriters must establish that the Trustee participated in committing an intentional tort: 4 8 “Acting in concert” means entering into a conscious agreement to pursue a common plan or design to commit an intentional tort and actively taking part in that intentional tort. Acting in concert does not apply to any person whose conduct was negligent in any of its degrees rather than intentional. A person’s conduct that provides substantial assistance to one committing an intentional tort does not constitute acting in concert if the person has not consciously agreed with the other to commit the intentional tort. A.R.S. § 12-2506(F) (2003) (emphasis added). 9 The only substantive causes of action referenced in the counterclaims are negligence and 10 breach of contract. Neither of these causes of action involve a “conscious agreement . . . to 11 commit an intentional tort.”A.R.S. § 12-2506(F) (2003). Nor do the Counterclaimants allege 12 any facts which make it plausible that the Trustee entered into an agreement to commit an 13 intentional tort. They have therefore failed to plead facts which would trigger the “acting in 14 concert” exception to Arizona’s general ban on joint and several liability. 5 6 7 15 In their briefs, the Counterclaimants next contend that the Trustee is rendered jointly 16 and severally liable by the various state securities statutes involved in this action. The 17 Counterclaimants do not allege in the counterclaims themselves, however, that the Trustee 18 committed any substantive securities violations. Although the Underwriters’ make a brief, 19 one-sentence reference in their counterclaim to the joint and several liability provisions of 20 several state securities statutes, they do not allege that the Trustee committed the substantive 21 securities violations which would subject the Trustee to these statutes’ joint and several 22 liability provisions. (Doc. 230 at ¶ 49). For example, one of the joint and several liability 23 provisions mentioned by the Underwriters is A.R.S. § 44-2003. Section 44-2003(A) provides 24 for joint and several liability for “any person, including any dealer, salesman or agent, who 25 made, participated in or induced the unlawful sale or purchase [of securities].” A.R.S. § 44- 26 2003(A) (2003). Section 44-2003(B), however, limits this grant of joint liability, stating that 27 a party “is jointly and severally liable for damages only if the trier of fact determines that the 28 [party] recklessly or knowingly committed a violation of this chapter.” A.R.S. § 44-2003(B) -7- 1 (2003). The Underwriters do not allege in their counterclaim that the Trustee committed a 2 substantive violation of the Arizona Securities Act, much less that the Trustee did so 3 knowingly or recklessly. Nor do the Town or Underwriters plead substantive violations of 4 any other particular securities statutes. They therefore fail to plead facts under which the 5 Trustee would be subject to joint and several liability.3 6 Finally, the Counterclaimants contend that even if the Trustee is not jointly and 7 severally liable for their alleged securities violations, they still have a valid contribution 8 claim against the Trustee under both the Private Securities Litigation Reform Act (PSLRA) 9 and A.R.S. § 44-2003(M). The Town does not cite to these statutes or reference their 10 elements in its counterclaim. Rather, the Town first cites to the PSLRA and A.R.S. § 44-2003 11 in its Opposition to the Trustee’s motion to dismiss. The Underwriters similarly fail to 12 mention the PSLRA or its elements in their counterclaim, and only make a brief reference 13 to A.R.S. § 44-2003. (Doc. 230 at ¶ 49). The parties may not rewrite their counterclaims in 14 their briefs. 15 It is true that—had the counterclaimants asserted the statutes and necessary factual 16 allegations in their counterclaims—the PSLRA and A.R.S. § 44-2003(M) provide securities 17 violators with a statutory cause of action for contribution: A covered person who becomes jointly and severally liable for damages in any private action may recover contribution from any other person who, if joined in the original action, would have been liable for the same damages. A claim for contribution shall be determined based on the percentage of responsibility of the claimant and of each person against whom a claim for contribution is made. 15 U.S.C. § 78u-4(f)(8) (2006); A.R.S. § 44-2003(M) (2003). 18 19 20 21 22 The Town argues that the “same damages” language means that a securities violator is 23 entitled to contribution from any other tortfeasor who contributed to a plaintiff’s damages, 24 25 26 27 28 3 To the extent the Underwriters argue that the “alleged misrepresentations pled in the Underwriters’ Counterclaim [ ] are the same as those pled by Allstate and [the Trustee], which this Court has already held are sufficient to survive . . . motions to dismiss” (Doc. 280 at 3, 11–14), they fail to take into account that Allstate and the Trustee not only pled material misrepresentations, but also pled substantive violations of particular securities statutes. -8- 1 regardless of whether that tortfeasor itself committed a securities violation. (Doc. 283 at 2 9–10). The Town has not provided, however, nor has the Court found, any authority for such 3 a broad interpretation of this language. To the contrary, at least one court has held that “[a] 4 person sued for contribution under the securities laws must meet the same standard as any 5 other person sued under those laws.” Ray v. Citigroup Global Markets, Inc,. 2004 WL 6 1794927, at *2 (N.D. Ill. Aug. 4, 2004) (citing Barker v. Henderson, Franklin, Starnes & 7 Holt, 797 F.2d 490, 495 (7th Cir. 1986)). In other words, that court held that to be liable for 8 contribution under the securities laws, a person must have violated the substantive provisions 9 of those securities laws, including any scienter requirement that such laws might impose.4 10 See Ray v. Citigroup Global Markets, Inc., 2004 WL 1794927 at *3 (“A person can be ‘liable 11 for the same damages’ as someone else found liable under the securities laws only if the 12 person acted with scienter.”). As stated, the Town and Underwriters do not allege in their 13 counterclaims that the Trustee committed a substantive violation of the federal or Arizona 14 securities statutes. (See Docs. 230; 237). 15 To the extent that the Counterclaimants identify actual claims against the Trustee that 16 assert the Bondholders were damaged by the Trustee’s actions, the Counterclaimants would 17 not need to invoke the contribution provisions in the PSLRA or state statute to prevent a 18 windfall to the Plaintiffs. In such a case, Arizona state law would require the jury to not only 19 determine the amount of damages, if any to the Bondholders, but to also apportion the 20 percentage of fault for the total damages attributable among each identified tortfeasor that 21 the jury finds contributed to the damage. Each party is then responsible only for its 22 percentage of the total liability. A.R.S. § 12-2506(A) (2003). The Court does not, therefore, 23 adopt the Town’s broad interpretation of these securities statutes’ contribution provisions. 24 25 26 27 4 Scienter is defined as a “mental state embracing intent to deceive, manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n. 12 (1976). To adequately plead scienter, a party must allege either intentional misconduct or recklessness. See id. 28 -9- 1 2. The Town’s Common Law Indemnification Claim 2 In addition, the Town brings a claim against the Trustee for common law 3 indemnification. Under Arizona indemnity law, “one who has discharged a common liability 4 [can] seek reimbursement in full from another.” Herstam v. Deloitte & Touche, LLP, 186 5 Ariz. 110, 117–118, 919 P.2d 1381, 1388–89 (App. 1996) (emphasis in original omitted). 6 Indemnity, however, “is an all or nothing proposition damage-wise, and hence should be an 7 all or nothing proposition fault-wise.” Transcon Lines v. Barnes, 17 Ariz.App. 428, 435, 498 8 P.2d 502, 509 (1972). It exists “neither to apportion damages nor to balance relative degrees 9 of fault, but ‘to give full restitution to one who pays damages but is without personal fault.’” 10 Id. at 437. See also Sprint Communications Co., L.P. v. Western Innovations, Inc. 618 F. 11 Supp. 2d 1101, 1117 (D. Ariz. 2009) (“[Plaintiff] was negligent itself; it cannot claim a right 12 to common law indemnity.”). 13 In this case, the Town seeks indemnification from the Trustee for two different types 14 of Bondholder loss for which the Town may be found liable. First, the Town seeks 15 indemnification for losses related to the omission of material facts from the “Official 16 Statements.” The Bondholders brought claims against the Town for its allegedly negligent 17 omission of material facts from the Official Statements. (Doc. 130 at ¶ 187). In turn, the 18 Town counterclaims that “to the extent that the Town is . . . liable to Bondholders on [these] 19 grounds,” it should receive indemnification from the Trustee because the Trustee 20 “substantially participated” in creating the Official Statements. (Doc. 237 at ¶¶ 56–57). The 21 Town further alleges that it has absolutely no fault in relation to the Official Statements 22 because it “did not undertake or have a duty to prepare . . . or review” them. (Doc. 237 at ¶ 23 6). If the factfinder agrees that the Town is not responsible for the contents of these 24 statements, the Town will not be liable for any such negligent omission. If, on the other hand, 25 the Town is held liable for the omissions in the Official Statements, it will be because the 26 factfinder determined that the Town and the Trustee shared the responsibility for creating the 27 Official Statements. And if the Town and Trustee shared the responsibility for creating the 28 Official Statements, then they would also share any fault for the alleged omissions. Although - 10 - 1 it is possible for one party to be liable for another’s actions even absent personal fault, for 2 example through an agency relationship, the Town has not alleged such a relationship in this 3 case. The Court will not assume that a claimant can prove facts different from those alleged. 4 See Associated Gen. Contractors of Cal. v. Cal. State Council of Carpenters, 459 U.S. 519, 5 526 (1983); Jack Russell Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027, 6 1035 (9th Cir. 2005). In short, the Town has not pled facts under which it could be both 7 without personal fault and at the same time liable for the omissions in the Official 8 Statements. Therefore the Town’s counterclaim is dismissed insofar as it relates to losses 9 stemming from these omissions. 10 The Town also seeks indemnification, however, for losses related to the Town’s 11 alleged failure to deliver certain pledged tax revenues to the Bondholders. (Doc. 237 at ¶ 58). 12 The Town was obligated to make periodic payments of these tax revenues, if necessary, to 13 secure repayment of the Bonds. (Doc. 283 at 7). The Town alleges in its counterclaim, 14 however, that the Trustee “owed a duty to the Bondholders to ensure that there existed an 15 adequate notice procedure in place to enable the Town to timely budget and pay [these] sales 16 tax revenues.” (Doc. 237 at ¶ 32). The Town further alleges that the Town’s failure to make 17 payments of these revenues was due to the Trustee’s failure to fulfill its duty to “ensure that 18 an appropriate and workable procedure existed . . . to enable the Town to make [the] tax 19 revenue payments.” (Doc. 237 at ¶ 58). The Town has therefore adequately pled that any 20 obligation by the Town for the missed payments should be discharged by the Trustee because 21 it was the Trustee’s unique obligation to ensure that there was a mechanism that would 22 provide timely payment. See Busy Bee Buffet Inc. v. Ferrell, 82 Ariz. 192, 196–98, 310 P.2d 23 817, 820–21 (1957) (holding that a party retains its right to indemnity if it breaches its duty 24 “solely through the negligence of the indemnitor”). The Town’s indemnification 25 counterclaim therefore withstands the motion to dismiss as it relates to losses resulting from 26 missed payments on the Bonds. 27 /// 28 /// - 11 - 1 II. The Underwriters’ Motion to Amend 2 The Underwriters also move to amend their counterclaim to include a negligent 3 misrepresentation claim against the Trustee. As stated, the Trustee brought a claim for 4 negligent misrepresentation against various defendants, including the Underwriters.5 (Doc. 5 130). In its claim, the Trustee alleged that the Underwriters were responsible for the 6 negligent draftsmanship of the Indenture. (Id. at 199). The Trustee further alleged that, due 7 to this negligent draftsmanship, “no adequate mechanism existed for the Trustee to demand 8 payment” of the Pledged Revenues from the Town, resulting in damages to the Bondholders. 9 (Id.). 10 The Underwriters now seek to bring their own negligent misrepresentation claim 11 against the Trustee. The Underwriters allege that “[t]he Closing Certificate of Trustee, which 12 Wells Fargo signed and provided to all parties to the offering, intending that they rely on its 13 statements,” negligently misrepresented that the Indenture was legally effective. (Doc. 281 14 at ¶ 54). The Underwriters further contend that as a result of the Trustee’s misrepresentation, 15 they face potential legal liability to the Bondholders. (Id. at 57). In essence, the Underwriters 16 are contending that the Trustee had an obligation to substantively review the Indenture to 17 ensure that it was legally effective and that the Trustee now seeks to hold the Underwriters 18 liable for its negligent performance of this obligation. Therefore, they argue, the Trustee 19 should be liable, in whole or in part, for any damages resulting from the Indenture’s alleged 20 inadequacies. (Id.). The Underwriters therefore move to amend their complaint to include a 21 negligent misrepresentation claim. 22 “The court should freely give leave [to amend] when justice so requires.” Fed. R. Civ. 23 P. 15(a)(2). In deciding this motion, the Court “‘must be guided by the underlying purpose 24 of Rule 15 – to facilitate decision on the merits rather than on the pleadings or 25 technicalities.’” Eldridge v. Block, 832 F.2d 1132, 1135 (9th Cir. 1987) (citation omitted). 26 27 28 5 As determined in the Court’s Order of November 3, 2010, the Trustee’s negligent misrepresentation claim survived the defendants’ motions to dismiss. (Doc. 212 at 69–70). - 12 - 1 “Thus, ‘Rule 15’s policy of favoring amendments to pleadings should be applied with 2 extreme liberality.’” Id. This liberality “is not dependent on whether the amendment will add 3 causes of action or parties.” DCD Programs, LTD. v. Leighton, 833 F.2d 183, 186 (9th Cir. 4 1987). The Court may deny a motion to amend if there is a showing of undue delay or bad 5 faith on the part of the moving party, undue prejudice to the opposing party, or futility of the 6 proposed amendment. See Foman, 371 U.S. at 182. Generally, however, “this determination 7 should be performed with all inferences in favor of granting the motion.” Griggs v. Pace Am. 8 Group, Inc., 170 F.3d 877, 880 (9th Cir. 1999). 9 The Trustee’s only objection to the Underwriters’ motion to amend is that such an 10 amendment would be futile. The Trustee argues that the Underwriters’ proposed amendment 11 would be futile for three reasons. First, the Trustee argues that the Closing Certificate of 12 Trustee (“Certificate”) certifies the legal effectiveness of the Indenture only as it relates to 13 the Trustee’s obligations. Second, the Trustee argues that even if the Certificate does 14 warranty the legal effectiveness of the entire Indenture, the Trustee based this warranty upon 15 legal opinions from other parties’ counsel upon which it had the absolute right to rely. Third, 16 the Trustee argues that the Underwriters’ proposed amendment does not satisfy the pleading 17 requirements of Rule 8 or Rule 9. 18 First, the Trustee argues that the Certificate validates the Indenture only as it relates 19 to the Trustee’s obligations. In the Certificate, the Trustee accepts “the duties and obligations 20 of the Trustee.” (Doc. 281, Ex. 1 at 29). One of the duties accepted by the Trustee was the 21 valid execution of the “Trustee Documents,” a defined term which includes the Indenture.6 22 As part of this duty, the Trustee certified that the Trustee Documents were enforceable: 1. Acceptance of Duties. The Trustee is duly authorized to accept and does accept the duties and obligations of the Trustee as trustee, paying agent and registrar pursuant to the Indenture; .... 23 24 25 26 6 27 28 The term “Trustee Documents” is defined in the Certificate as “the Indenture, the Delivery and Cross Receipt, and [the] Closing Certificate of Trustee.” (Doc. 281, Ex. 1 at 29). - 13 - 1 (b) Execution of Trustee Documents. The Trustee Documents have been duly executed on behalf of the Trustee by the person listed on the Official Signing Power Authority attached hereto as Exhibit A, and said person was at the time of the execution of the Trustee Documents and now is the duly elected or appointed, qualified and acting incumbent of such person’s office, and the signature, as stated on Exhibit A, is the true and genuine signature of such officer. The Trustee Documents constitute the valid and binding obligations of the Trustee, enforceable in accordance with their terms, except as by bankruptcy, moratorium, reorganization or other laws or decisions of general application affecting the enforcement of creditors’ rights generally. The execution and delivery by the Trustee of the Trustee Documents and the performance by the Trustee of its duties under the Trustee Documents have been duly authorized by all necessary corporate action on the part of the Trustee and the execution and delivery of the Trustee Documents and the consummation of the transactions contemplated thereby, and the fulfillment of the terms and conditions thereof, do not contravene the charter or bylaws of the Trustee or conflict with or constitute a breach of or default under any law, administrative regulation, order, consent decree or any agreement or instrument applicable to the Trustee or its property. (Doc. 281, Ex. 1 at 29) (emphasis added). 2 3 4 5 6 7 8 9 10 11 12 13 14 The Underwriters contend that the above language evidences the Trustee’s intent to 15 certify the legal effectiveness of the entire Indenture. The Trustee, meanwhile, contends that 16 the Certificate “pertains only to . . . the Trustee’s obligations under [the] Indenture.” (Doc. 17 295 at 9) (emphasis added). “The construction of a contract is a question of law where the 18 terms of the agreement are plain and unambiguous.” Smith v. Melson, Inc., 135 Ariz. 119, 19 121, 659 P.2d 1264, 1266 (1983). A contact is only unambiguous where 1) the language of 20 the contract and 2) all the circumstances surrounding it make “the intent of the parties [ ] 21 clear.” Id. 22 The Certificate states that “the fulfillment of the terms and conditions [of the 23 Indenture] do not . . . conflict with or constitute a breach of or default under any law, 24 administrative regulation, order, consent decree or any agreement or instrument applicable 25 to the Trustee or its property.” (Doc. 281, Ex. 1 at 29). The language does not so clearly refer 26 only to the Trustee’s obligations under the Indenture, that the Court will preclude the 27 Underwriters, at this stage, from discovering facts and circumstances that may shed some 28 - 14 - 1 light on the intent of the parties. Taylor v. State Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 2 154, 854 P.2d 1134, 1140 (1993) (holding that where a judge finds that “contract language 3 is ‘reasonably susceptible’ to the interpretation asserted by its proponent, [ ] evidence is 4 admissible to determine the meaning intended by the parties.”) 5 The alleged circumstances surrounding the certification may shed some doubt on the 6 Trustee’s assertion that the Certificate only warrants the legal effectiveness of the Trustee’s 7 obligations. For example, the Underwriters allege in their complaint that the Trustee, as the 8 sole representative of the Bondholders, “owed a duty to the Bondholders to insure that there 9 existed an adequate notice procedure in place to enable the Town to timely budget and pay 10 sales tax revenues.” (Doc. 281, Ex. 1 at ¶ 25). The Underwriters further allege in their brief 11 that a different party was assigned to provide certificates for each document involved in the 12 Bond offering and that the Trustee was the party assigned to certify the Indenture. (Doc. 312 13 at 4). In short, the language of the Certificate combined with the alleged circumstances 14 surrounding it do not make the scope of the Trustee’s warranty clear. The Underwriters’ 15 amendment is not, therefore, futile as a matter of law. 16 The Trustee also argues that the Underwriters’ proposed amendment is futile because 17 the Trustee received two separate opinions from counsel “opining as to the enforceability of 18 the [Indenture],” upon which “the Trustee had the absolute right to rely.” (Doc. 295 at 10). 19 Recognizing that motion to dismiss standards apply, the Trustee seeks judicial notice of these 20 legal opinions and of the Bond Purchase Agreement. (Doc. 296). The Court can take notice 21 of “evidence on which the [Underwriters counterclaim] ‘necessarily relies’ if: (1) the 22 [counterclaim] refers to the document; (2) the document is central to the [counterclaim]; and 23 (3) no party questions the authenticity of the copy attached.” See Marder v. Lopez, 450 F.3d 24 445, 448 (9th Cir. 2006). This standard is met with respect to the Indenture and the Bond 25 Purchase Agreement. The opinions of counsel, however, are not referred to in the 26 27 28 - 15 - 1 Underwriters’ counterclaim.7 The Court, therefore, does not yet take notice of these 2 documents or any right the Trustee may have had to rely upon them. 3 Finally, the Trustee contends that leave to amend should be denied because the 4 Underwriters have not met Rule 9(b)’s pleading requirements. See FED. R. CIV. P. 9(b). The 5 Trustee acknowledges that the Underwriters proposed amendment is “styled as an action for 6 negligent misrepresentation.” (Doc. 295 at 11). The Trustee contends, however, that the 7 Underwriters’ claim contains “fraud-like accusations” and therefore must meet Rule 9(b)’s 8 heightened pleading requirements. (Id. at 12). See Vess v. Ciba-Geigy Corp., 317 F.3d 1097, 9 1104 (9th Cir. 2003) (“[I]n a case where fraud is not an essential element of a claim, [ ] 10 allegations (‘averments’) of fraudulent conduct must satisfy the heightened pleading 11 requirements of Rule 9(b).”). In W.L. Gore & Associates, Inc. v. GI Dynamics, Inc., the Court 12 applied Rule 9(b) to a negligent misrepresentation claim. 2010 WL 5184254, at *11 (D. Ariz. 13 Dec. 15, 2010). In that case, the plaintiff claimed that the defendant had promised not to copy 14 the plaintiff’s invention, but then nevertheless copied it. The Court held that the 15 circumstances surrounding this alleged promise needed to be pled with more particularity. 16 In that case, however, the plaintiff’s negligent misrepresentation claim was “based on the 17 same set of operative facts underlying [a] corresponding claim of fraudulent 18 misrepresentation.” Id. In the instant case, the Underwriters make no corresponding claim 19 of fraudulent misrepresentation. Moreover, the Trustee does not even attempt to explain 20 which of the Underwriters’ accusations are “fraud-like.” (See Doc. 295 at 12). The 21 Underwriters’ proposed claim is not, therefore, subject to Rule 9(b). In addition, the 22 Underwriters’ proposed amendment adequately states a claim for negligent misrepresentation 23 under Rule 8. See FED. R. CIV. P. 8. This claim is not, therefore, futile. 24 As stated above, however, the Underwriters have failed to state a valid contribution 25 claim. The Court’s decision to allow the amendment does not change the analysis of whether 26 7 27 28 The opinions of counsel for which the Trustee seeks judicial notice were referenced in one of the Trustee’s counterclaims, but not by the Underwriters’ counterclaim, which is the relevant pleading for the instant motion. (See Doc. 296). - 16 - 1 their contribution claim is valid. To the extent that the Underwriters’ negligent 2 misrepresentation claim asserts that the damage to the Bondholders was due in part to the 3 Trustee’s negligent certification of the indenture as operative, the jury will be required to not 4 only determine the amount of damages, if any, to the Bondholders, but to also apportion the 5 percentage of fault for the total damages attributable among each identified tortfeasor that 6 the jury finds contributed to the damage. Each party is then responsible only for its 7 percentage of the total liability. A.R.S. § 12-2506(A) (2003). Thus, with each party only 8 being responsible for its own fault, there arises no claim for contribution. The Underwriters’ 9 “First Claim for Relief (Contribution)” in the amended counterclaim is therefore denied. 10 CONCLUSION 11 For the above reasons, both the Town and Underwriters have failed to state a claim 12 for contribution. The Town has, however, stated a claim for indemnification with respect to 13 losses resulting from missed payments on the Bonds. The Underwriters’ proposed amended 14 counterclaim is not futile. 15 IT IS THEREFORE ORDERED that Wells Fargo Bank, N.A.’s Consolidated 16 Motion to Dismiss the Underwriters’ Third-Party Complaint and Counterclaim; and Town 17 of Prescott Valley’s Counterclaims (Doc. 263) is GRANTED IN PART AND DENIED IN 18 PART. 19 IT IS FURTHER ORDERED that Underwriters’ Motion to Amend Third-Party 20 Complaint and Counterclaim against Third-Party and Counterclaim Defendant Wells Fargo 21 Bank, N.A. (Doc. 281) is GRANTED. 22 DATED this 18th day of November, 2011. 23 24 25 26 27 28 - 17 -