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

Filing 951

ORDER, Plaintiffs' Motion for Summary Judgment 696 is denied as moot in part and denied in part; summary judgment is denied on the Town's counterclaim against Allstate for tortious interference; because the Town has withdrawn its third-party claim against Wells Fargo, the Motion on that ground is denied as moot. Signed by Judge G Murray Snow on 9/13/13.(REW)

1

WO

2
3
4
5
6

IN THE UNITED STATES DISTRICT COURT

7

FOR THE DISTRICT OF ARIZONA

8
9
10

Lead Case No. CV-09-08162-PCT-GMS
In Re: Allstate Life Insurance Company
Litigation

11

Consolidated with:
No. CV-09-8174-PCT-GMS
ORDER

12
13
14
15

Third-party Defendant/Cross-Defendant/Cross-Claimant Wells Fargo Bank, NA

16

(Trustee) and Plaintiff/Counter-Defendant Allstate Life Insurance Company have moved

17

for summary judgment1 on the counterclaim and third-party claim asserted against them

18

by Defendant/Third-party Plaintiff/Cross-Claimant Town of Prescott Valley. (Doc. 696.)

19

Because this Motion raises issues distinct from those in other motions for summary

20

judgment in this case, the Court has filed this separate Order. The Motion is denied as

21

moot in part and denied in part for the reasons specified below.

22

///

23
24
25
26
27
28

1

Allstate and Wells Fargo have filed multiple motions for summary judgment in
direct violation of the Case Management Order (CMO), which states: “No party shall file
more than one motion for summary judgment under Rule 56 of the Federal Rules of Civil
Procedure unless permission is first obtained, by joint telephone call, from the Court.”
(Doc. 257 ¶ 7(b).) Both Parties have acknowledged that they did not receive permission
to file multiple motions for summary judgment. (Doc. 935 at 2.). While not generally
inclined to do so, the Court will rule on the multiple issues because the parties have spent
time briefing them, the Court has spent time reviewing them, and the ultimate fact finder
and the parties have an interest in refining the disputes in this case.

1

BACKGROUND

2

The facts pertaining to this securities litigation are set forth in earlier orders.

3

(Docs. 212, 655.) In short, this litigation was generated by a bond offering to finance the

4

construction of an Event Center in the Town of Prescott Valley. This Order addresses two

5

claims asserted by the Town. First, the Town asserted a third-party claim against Wells

6

Fargo, the Trustee of the Independent Development Authority of the County of Yavapai

7

(Issuer) “for such portions of the claims against the Town that arise from or are related to

8

the Town’s September 2009 payment under the Development Agreement and/or to such

9

other debts and service amounts not paid to Bond holders notwithstanding future

10

payments by the Town under the Development Agreement.” (Doc. 95 ¶¶ 50–51.) Second,

11

the Town counterclaimed against Allstate for intentional interference with contractual

12

relations. Both claims rely on the same basic premise, namely that Allstate directed Wells

13

Fargo to use certain revenues set apart for debt service to instead fund this litigation.

14

Three agreements are central to the Town’s claims.

15

On May 12, 2005, the Town entered into the Pre-Annexation Development

16

Agreement with Prescott Valley Event Center LLC (Borrower), among other parties.

17

(Doc. 697 ¶ 1; Doc. 869 ¶ 1.) The Trustee is not a party to the Development Agreement.

18

(Doc. 697 ¶ 3; Doc. 869 ¶ 3.) The basic purpose of the Development Agreement was to

19

chart the planning, funding, and construction of an Event Center. (Doc. 705-1, Ex. 1 at

20

KUTAK001092–96.) The Development Agreement set forth a number of provisions that

21

described how certain revenues would be used to service the debt raised by the Event

22

Center financing. Specifically, the Borrower agreed that the operating revenue of the

23

Event Center would be used, after deducting operating expenses and fees, to “pay all

24

current debt service on the [Event Center] financing.” (Id. at KUTAK001105.) If the

25

operating revenue proved insufficient to pay all current debt service, the Borrower agreed

26

that “any shortfall shall be paid first out of the funds held in the Fain Escrow Account,

27

then from the Lockbox Account, and then from the Town Escrow Account.” (Id.)

28

The Fain Escrow Account and Lockbox Account contained certain funds (TPT
-2-

1

Revenues) from the Town, and according to the Development Agreement, those funds

2

could be used to pay any shortfall in the current debt service on the Event Center

3

financing. (Id. at KUTAK001103.) The Town Escrow Account also contained TPT

4

Revenues, and the provision that established this Account also specified that “[t]he funds

5

in the Town Escrow Account shall be used to pay debt service on the [Event Center]

6

financing if the Net Operating Revenues from the [Event Center], any funds in the Fain

7

Escrow Account, and any funds in the Lockbox Account are insufficient to provide funds

8

to pay debt service in any month.” (Id. at KUTAK001112.) Finally, the Town agreed to

9

establish a fourth backup fund that consisted of additional TPT Revenues from a

10

Secondary Credit Support Area, to make up a certain percentage of any remaining

11

“deficiency” in meeting debt service. (Id. at KUTAK001113.)

12

The Trustee and the Issuer entered into an Indenture of Trust Agreement on

13

November 1, 2005. (Doc. 697 ¶ 4; Doc. 869 ¶ 4.) The Town is not a party to the

14

Indenture. (Doc. 697 ¶ 5; Doc. 869 ¶ 5.) Article VI of the Indenture pledged the operating

15

income of the Event Center and any TPT Revenues received to pay debt service on the

16

Bonds. (Doc. 705-2, Ex. 2 at KUTAK000084–90.) The Trustee agreed to establish a

17

Revenue Fund to hold operating income and TPT Revenues and then to disburse those

18

funds in a specific sequence to bondholders, certain expenses and fees, and then reserve

19

funds. (Id.) The Indenture expressly incorporated those provisions of the Development

20

Agreement that specified how, when, and for what purposes the Trustee could access and

21

use the Lockbox Account, Fain Escrow Account, Town Escrow Account, and funds from

22

the Secondary Credit Support Areas. (Id. at KUTAK000089–90.)

23

The Development Agreement allowed the Borrower, without prior consent or

24

approval, “to assign to any lender providing financing to the [Borrower] and/or with

25

respect to the [Event Center], as security for such financing, the rights of the [Borrower]

26

under this Agreement.” (Doc. 705-1, Ex. 1 at KUTAK001119–20.) Pursuant to that

27

provision, the Borrower and Trustee executed an Assignment Agreement on December 1,

28

2005. (Doc. 697 ¶ 6; Doc. 860 ¶ 6.) The Town is not a party to the Assignment
-3-

1

Agreement. (Doc. 697 ¶ 8; Doc. 869 ¶ 8.) The Borrower specifically “assign[ed],

2

transfer[ed] and convey[ed] unto the [Trustee], its successors and assigns, as security for

3

payment of the Bonds and the payment, performance and observance of all of the

4

[Borrower]’s duties and obligations with respect thereto, all of the [Borrower]’s rights in

5

and to the Pledged TPTax Revenues and the receipt thereof under the Development

6

Agreement.” (Doc. 705-3, Ex. 3 at KUTAK000138.) The Assignment Agreement

7

specifically provided, however, that the Trustee “shall not be obligated to perform or

8

discharge . . . any obligation, duty or liability under the Development Agreement, or

9

under or by reason of this Assignment Agreement, and all obligations, duties or liabilities

10

of the [Borrower] arising out of or in respect to the Development Agreement herein

11

assigned shall be the sole responsibility of the [Borrower].” (Id. at KUTAK000139.)

12

In October 2009, Allstate, a bondholder, instructed Wells Fargo to use available

13

revenues, including TPT Revenues, to pay the legal fees they expected to incur in this

14

action instead of making payment of debt service on the Bonds. (Doc. 875-3, Exs. 25–

15

28.) The Town subsequently brought claims against both Allstate and the Trustee.
DISCUSSION

16
17

I.

LEGAL STANDARD

18

Summary judgment is appropriate if the evidence, viewed in the light most

19

favorable to the nonmoving party, demonstrates “that there is no genuine dispute as to

20

any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.

21

P. 56(a). Substantive law determines which facts are material and “[o]nly disputes over

22

facts that might affect the outcome of the suit under the governing law will properly

23

preclude the entry of summary judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

24

248 (1986). “A fact issue is genuine ‘if the evidence is such that a reasonable jury could

25

return a verdict for the nonmoving party.’” Villiarimo v. Aloha Island Air, Inc., 281 F.3d

26

1054, 1061 (9th Cir. 2002) (quoting Anderson, 477 U.S. at 248). Thus, the nonmoving

27

party must show that the genuine factual issues “‘can be resolved only by a finder of fact

28

because they may reasonably be resolved in favor of either party.’” Cal. Architectural
-4-

1

Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987)

2

(quoting Anderson, 477 U.S. at 250). Because “[c]redibility determinations, the weighing

3

of the evidence, and the drawing of legitimate inferences from the facts are jury

4

functions, not those of a judge, . . . [t]he evidence of the nonmovant is to be believed, and

5

all justifiable inferences are to be drawn in his favor” at the summary judgment stage.

6

Anderson, 477 U.S. at 255 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158–59

7

(1970)); Harris v. Itzhaki, 183 F.3d 1043, 1051 (9th Cir. 1999) (“Issues of credibility,

8

including questions of intent, should be left to the jury.”) (citations omitted).

9

Furthermore, the party opposing summary judgment “may not rest upon the mere

10

allegations or denials of [the party’s] pleadings, but . . . must set forth specific facts

11

showing that there is a genuine issue for trial.” Fed. R. Civ. P. 56(e); see Matsushita Elec.

12

Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986); Brinson v. Linda Rose

13

Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995); Taylor v. List, 880 F.2d 1040, 1045

14

(9th Cir. 1989); see also L.R.Civ. 1.10(l)(1) (“Any party opposing a motion for summary

15

judgment must . . . set[ ] forth the specific facts, which the opposing party asserts,

16

including those facts which establish a genuine issue of material fact precluding summary

17

judgment in favor of the moving party.”).

18

II.

19
20

ANALYSIS
Although Allstate and the Trustee have jointly moved for summary judgment, the

Town’s claims against them are not identical and will be considered separately.

21

A.

Third-party Claim

22

The Town’s claim against the Trustee is a third-party claim under Rule 14(a)(1) of

23

the Federal Rules of Civil Procedure. Rule 14(a)(1) permits “[a] defending party [the

24

Town]. . . [to] serve a summons and complaint on a nonparty [the Trustee] who is or may

25

be liable to it for all or part of the claim against it.”

26

The Town’s Third-party Complaint does not specify the theory of liability that the

27

Town invokes. Under the heading “Third-party Claim against the Trustee,” the Town

28

alleges only that “[t]he Trustee is or may be liable to the Town for such portions of the
-5-

1

claims against the Town that arise from or are related to the Town’s September 2009

2

payment under the Development Agreement and/or to such other debts and service

3

amounts not paid to Bond holders notwithstanding future payments by the Town under

4

the Development Agreement.” (Doc. 95 at 36.) In the body of the Third-Party Complaint,

5

the Town alleges that “[t]he Trustee, as assignee of the rights of other parties to receive

6

payments from the Town under the Development Agreement, is obligated to handle and

7

disburse these amounts in accordance with that Agreement.” (Id. at 30.) Thus, the most

8

likely interpretation of the Town’s claim against the Trustee is that it sounds in contract.

9

Nevertheless, during the oral argument held before this Court on September 4, 2013, the

10

Town conceded that it had no contract claim against the Trustee, and rather that its claim

11

was one for common law indemnification. (Doc. 945 at 23:18–24:10.) The Town’s claim

12

for common law indemnification is the subject of a different Motion for Summary

13

Judgment. (Doc. 691.) That Motion has been denied in a separate Order filed

14

concurrently with this one. To the extent that the Town once alleged any claim against

15

the Trustee sounding in contract, the Court takes its statements during argument as a

16

withdrawal of such claims. Thus, because those claims are no longer in this lawsuit, the

17

Trustee’s Motion regarding those claims is denied as moot.

18

B.

19

The Town’s counterclaim against Allstate, however, is for tortious interference.

20

The Town claims that Allstate’s instruction to the Trustee to divert the Town’s TPT

21

Revenue payments from debt service to the payment of legal fees was in violation of the

22

Town’s rights under the Development Agreement. Allstate is unable to show otherwise.

23
24

Tortious Interference

To successfully state a claim for intentional interference with contractual relations,
the Town must show:

27

(1) the existence of a valid contractual relationship; (2) knowledge of the
relationship on the part of [Allstate]; (3) intentional interference inducing or
causing a breach; (4) resultant damage to [the Town]; and (5) that [Allstate]
acted improperly.

28

Snow v. Western Sav. & Loan Ass’n, 152 Ariz. 27, 33, 730 P.2d 204, 211 (1986).

25
26

-6-

1

Thus, “[t]ort liability may be imposed upon a defendant who intentionally and improperly

2

interferes with the plaintiff’s rights under a contract with another if the interference

3

causes the plaintiff to lose a right under the contract.” Id. at 34.

4

The Development Agreement is clear that the TPT Revenues are intended solely to

5

“pay all current debt service on the PVCEC Financing.” (Doc. 705-1, Ex. 1 at

6

KUTAK1105.) Sections 4.1.4, 4.2.7.2, 4.3.7.4, and 4.3.7.6 of the Development

7

Agreement, among others, establish that limited purpose. Each time the Development

8

Agreement describes an account that contains TPT Revenues, it states that the funds

9

“shall be used” to pay debt service. (Doc. 705-1, Ex. 1 at KUTAK001103,

10

KUTAK001105, KUTAK001112–13.) The “shall be used” language appears in sections

11

entitled “Obligations of Fain,” “Obligations of GED and Developer [Borrower],” and

12

“Obligations of the Town.” (Id.) Each time the language is used, it is in the context of

13

describing the purpose of the TPT Revenues. For example, in § 4.3.7.2 the Town agrees

14

to “establish a separate account” and “credit quarterly to the . . . Account” a certain

15

amount of TPT Revenues, but that same section states that the funds from that account

16

“shall be used to pay debt service on the [Event Center] financing” under the conditions

17

discussed above. (Id. at KUTAK001112.) Every time the Agreement discusses accessing

18

the TPT Revenues, it recites that those revenues are to be used for debt service. Thus the

19

Town had the obligation to make those funds available in the specific accounts, but the

20

Borrower had the right to access those funds only to service the debt and only if the

21

operating income was insufficient. Consequently, the Development Agreement

22

apparently conferred a right to access the TPT Revenues that was conditional on the

23

promise to use those funds only to service the bond debt if other funds proved

24

insufficient, and not a freewheeling right to the TPT Revenues and a separate obligation

25

to use those revenues to service the bond debt. Use of the TPT Revenues for any other

26

purpose arguably exceeds the scope of the right granted and would constitute a breach of

27

the Development Agreement.

28

Even if the Trustee is not independently liable for the Borrower’s obligations
-7-

1

under the Development Agreement, the Borrower assigned its right to access the TPT

2

Funds under the Development Agreement to the Trustee. Thus, the conditions for which

3

the Trustee could access the funds were defined by the Development Agreement. Indeed,

4

the Assignment Agreement states that the Borrower “assign[ed], transfer[ed] and

5

convey[ed] unto the [the Trustee] . . . all of the [Borrower]’s rights in and to the Pledged

6

TPTax Revenues and the receipt thereof under the Development Agreement.” (Doc. 705-

7

3, Ex. 3 at KUTAK000138.) Arguably, the Indenture also permitted the Trustee to use the

8

TPT Revenues only for debt service if operating income was lacking.

9

It is axiomatic that a party can assign no more than the contractual rights it has.

10

Stephens v. Textron, Inc., 619 P.2d 736, 739 (Ariz. 1980); Bus. Fin. Servs., Inc. v. Butler

11

& Booth Dev. Co., 711 P.2d 649, 651 (Ariz. Ct. App. 1985); Restatement (Second) of

12

Contracts § 336, cmt b. Because the Borrower had no right to use the TPT Revenues for

13

anything other than bond service, the Trustee had no right to use the TPT Revenues for

14

anything other than bond service. Accordingly, the Trustee had no right to use the TPT

15

Revenues to pay legal fees under the Assignment Agreement and quite possibly the

16

Indenture. Its obligation was to exercise only those rights it received. Consequently,

17

Allstate arguably induced a breach of the Development Agreement between the Town

18

and the Borrower by inducing the Trustee to use the TPT Revenues to pay legal fees.

19

Although the Trustee was not in privity with the Town under the Development

20

Agreement, as discussed above, that fact does not foreclose a tortious interference claim.

21

A claim may lie where the interference (here, the instruction by Allstate to Wells Fargo)

22

has some effect on the Town's rights in the contract, even if the interference was indirect,

23

i.e., not with a party to the contract that was allegedly breached. The Arizona Supreme

24

Court has emphasized that there are a number of ways to show interference:

25
26
27
28

“There is no technical requirement as to the kind of conduct that may result
in interference with the third party's performance of the contract.” . . .
While the paradigm case of tortious interference with contract may be that
of a tortfeasor who induces breach by enticing the contracting party not to
perform or by preventing or disabling that party from being able to

-8-

1
2

perform, the Restatement emphasizes that liability attaches to any
intentional interference, whether by inducement or otherwise. “The
essential thing is the intent to cause the result.”

3

Wells Fargo Bank v. Arizona Laborers, Teamsters & Cement Masons Local No. 395

4

Pension Trust Fund, 201 Ariz. 474, 494, 38 P.3d 12, 32 (2002) (quoting Restatement

5

(Second) of Torts § 766 cmts. k, h) (internal citations omitted). Thus Allstate’s

6

instruction to the Trustee may have resulted in the breach of the borrower’s obligation

7

under the Development Agreement to use the TPT Revenues solely for debt service.

8

Despite Allstate’s assertion to the contrary, the fact that the Trustee was not a party to the

9

Development Agreement is not fatal. The Town’s claim is that Allstate’s actions caused a

10

breach of the Development Agreement and there is sufficient evidence of that fact to

11

allow the claim to proceed.

12

Allstate has also claimed there is insufficient evidence of damages to allow the

13

Town’s claim to go to a jury. Damages are an essential component of a tortious

14

interference claim. See Snow, 152 Ariz. at 33. The Trustee and Allstate attempt to negate

15

any damages by making a “binding, unequivocal judicial admission that the Town has

16

been and will be given credit for all TPT Revenue payments it has made in the past and

17

will make in the future and that Plaintiffs are not seeking damages for those payments.”

18

(Doc. 696 at 6.) In other words, the Town will not be liable to either Allstate or the

19

bondholders the Trustee represents for TPT revenues it has paid with the intent that those

20

revenues be used for bond service, but which the Trustee has instead used to pay the legal

21

fees for itself and Allstate.

22

Even if Allstate and the Trustee credit the Town with whatever TPT Revenues the

23

Town has paid,2 that may not resolve all the consequences to the Town of Allstate’s

24
25
2

26
27
28

The Town disputes whether Allstate and Wells Fargo have properly credited the
Town with the TPT Revenues it has paid. (Doc. 871 ¶¶ 29–39.) That dispute goes to the
amount of the credit the Town should receive in the event it is found liable to Allstate or
Wells Fargo, not whether the Town has suffered damage as a result of the actions of
Allstate. Allstate has expressly claimed that the Town will not be required to pay
anything that it has already paid as TPT Revenues.
-9-

1

direction to the Trustee to use TPT Revenues for legal expenses rather than paying the

2

bondholders. There are genuine factual issues that remain as to how the Town may have

3

been damaged by that alleged interference, including whether that instruction had a role

4

in Fitch’s downgrade of the bonds, the resulting change in the value of the Bonds, and the

5

resulting initiation of any claims against the Town in this lawsuit. In light of these factual

6

uncertainties, summary judgment is inappropriate.
CONCLUSION

7
8

The Town has withdrawn any claims it has against the Trustee for third-party

9

breach of contract. The counterclaim against Allstate for tortious interference, however,

10

remains.

11

IT IS THEREFORE ORDERED that Plaintiffs’ Motion for Summary Judgment

12

is denied as moot in part and denied in part. (Doc. 696.) Summary judgment is denied

13

on the Town’s counterclaim against Allstate for tortious interference. Because the Town

14

has withdrawn its third-party claim against Wells Fargo, the Motion on that ground is

15

denied as moot.

16

Dated this 13th day of September, 2013.

17
18
19
20
21
22
23
24
25
26
27
28
- 10 -