SCB Diversified Municipal Portfolio et al v. Crews & Associates, Inc. et al

Filing 230

ORDER and REASONS granting 182 Greystone Valuation Services' Motion for Summary Judgment as stated within document. Signed by Judge Kurt D. Engelhardt on 11/28/2011. (cab)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
SCB DIVERSIFIED MUNICIPAL
PORTFOLIO, ET AL.

CIVIL ACTION

VERSUS

NO. 09-7351

CREWS & ASSOCIATES, ET AL.

SECTION “N” (4)

ORDER AND REASONS
Before the Court is the “ Motion for Summary Judgment” (Rec. Doc. 182), filed by
Defendant Greystone Valuation Services (“Greystone”). This motion is opposed by Plaintiffs,
SCB Diversified Municipal Portfolio, Short Duration New York Municipal Portfolio and Short
Duration California Municipal Portfolio (“Plaintiffs”). (See Rec. Doc. 203). After considering
the memoranda filed by the parties including Greystone’s Reply (Rec. Doc. 222), the Court rules
as set forth herein.
I.

BACKGROUND
On November 1, 2006, defendant Coves of the Highland Community Development

District (the “District) and MGD Partners (“MGD”) entered into a Development agreement to
begin development of The Coves of the Highland (the “Project”), a planned residential
community located in Tangipahoa Parish, Louisiana. In March of 2006, MGD purchased 324

acres of real property (the “Property”) at the site of the Project. MGD employed the services of
Greystone to prepare a “Marketability Study” for the Project. The effective date of the
Marketability Study was September 4, 2006. In an effort to fund certain infrastructure
improvements for the Project, the District issued $7,695,000 in bonds titled “Coves of the
Highland Community Development District, Parish of Tangipahoa, State of Louisiana Special
Assessment Bonds, Series 2006" (the “Bonds”). Defendant Crews and Associates was the
underwriter of the bonds and purchased the Bonds from the District. The Bonds were thereafter
offered for re-purchase to Plaintiffs in November of 2006 through a “Preliminary Limited
Offering Memorandum” (“PLOM”), and a final “Limited Offering Memorandum” (“LOM”)
dated November 8, 2006. The PLOM and LOM were drafted by Crews, the District, and
defendant Breazeale, Sachse & Wilson, L.L.P. (“Breazeale”). Greystone’s Marketability Study
was attached as an appendix to both the PLOM and the LOM. Plaintiffs thereafter purchased the
entire face amount of the Bonds in connection with the Project. The formal closing with
Plaintiffs occurred on November 16, 2006.
On March 9, 2009 and after the development of the Project had commenced, the U.S.
Army Corps of Engineers (“Corps”) published a Public Notice (the “Notice”) in the local
Hammond newspaper entitled “Request for Information about the Former Hammond Bombing
and Gunnery Range” (“HBGR”). In the Notice, the Corps announced that it had completed its
Site Inspection at the HBGR and that a Draft Site Inspection Report dated December 12, 2008
had been placed in the Hammond Public Library for public reference. According to Plaintiffs,
this Draft Site Inspection Report dated December 12, 2008 was the earliest public disclosure of
this information.
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The Notice revealed, among other things, that the Corps used portions of the property
form 1942 until September 1945 to provide gunnery, rocket and bombing practice for pilots. The
Corps’ inspection report noted the potential for unexploded ordnance (“UXO”) and munitions
and explosives of concern (“MEC”) on the HBGR.
On April 23, 2009, the Tangipahoa Parish Engineer notified MGD that no further
building permits or approvals would be issued by the Parish until the risk of UXO and MEC
contamination had been fully investigated and remediated. As such, development of the Project
has ceased, no permits or approvals are being issued, and lots on the Property are unable to be
sold.
The District defaulted on the Bonds and Plaintiffs filed the instant suit on November 16,
2009. Plaintiffs seek to recover damages against Greystone for negligent misrepresentation for
(1) failing to conduct an environmental investigation regarding the Project (as defined below) to
determine potential contamination; (2) failing to obtain a Phase 1 Environmental Site
Assessment; and (3) failing to obtain a title examination or title abstract to determine any
historical issues regarding environmental contamination.
II.

ARGUMENTS OF THE PARTIES
Greystone asserts that Plaintiffs’ negligent misrepresentation claim must fail because

Plaintiffs cannot meet their burden of showing (1) a legal duty to supply correct information; (2)
breach; and (3) damages resulting from justifiable reliance on the misrepresentation or omission.
(Rec. Doc. 182-1, p. 5). Greystone argues that obtaining a Phase I Environmental Site
Assessment was outside of the scope of the duty that Greystone assumed when it contracted with
MGD to prepare the marketability study. (Rec. Doc. 182-1, pp. 6-7). Greystone further claims
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that any duty it may have had to supply correct information was limited by provisions in the
marketability study which explained the scope of Greystone’s work and the underlying
assumptions with which it operated. (Rec. Doc. 182-1, pp. 7-8). In addition, Greystone states
that Plaintiffs cannot show that they actually relied on Greystone’s study for environmental
contamination matter, and that any such reliance would not have been justified. (Rec. Doc. 1821, pp. 12-15). Finally, Greystone asserts that Plaintiffs’ claim is prescribed. (Rec. Doc. 182-1,
pp. 15-19).
On the other hand, Plaintiffs argue that (1) Greystone had a duty to discover and disclose
the lack of a Phase I Environmental Site Assessment; (2) Greystone breached that duty; and (3)
Plaintiffs relied on statements by Greystone when they decided to purchase the Bonds. (Rec.
Doc. 203, pp. 9-10, 30-31). Plaintiffs further assert that their claims are not time-barred because
the Plaintiffs were not damaged when they first purchased the bonds on November 16, 2006, but
rather that their damages materialized in April 2009 when Tangipahoa Parish refused to issue
permits for the Project. (Rec. Doc. 203, pp. 16-17).
III.

DISCUSSION
A.

Legal Standard

Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment “shall
be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on
file, together with the affidavits, if any, show that there is no genuine issue as to any material fact
and that the moving party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). The
materiality of facts is determined by the substantive law's identification of which facts are critical
and which facts are irrelevant. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct.
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2505, 2510, 91 L.Ed.2d 202 (1986). A fact is material if it “might affect the outcome of the suit
under the governing law.” Id.
If the dispositive issue is one on which the nonmoving party will bear the burden of proof
at trial, the moving party may satisfy its summary judgment burden by merely pointing out that
the evidence in the record contains insufficient proof concerning an essential element of the
nonmoving party's claim. See Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554,
91 L.Ed.2d 265 (1986); see also Lavespere v. Liberty Mut. Ins. Co., 910 F.2d 167, 178 (5th Cir.
1990). Once the moving party carries its burden pursuant to Rule 56(c), the nonmoving party
must “go beyond the pleadings and by [his] own affidavits, or by the ‘depositions, answers to
interrogatories, and admissions on file,’ designate ‘specific facts showing that there is a genuine
issue for trial.’” Celotex, 477 U.S. at 324, 106 S.Ct. 2553; see also Matsushita Elec. Indus. Co.,
Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986);
Auguster v. Vermillion Parish School Bd., 249 F.3d 400, 402 (5th Cir. 2001).
When considering a motion for summary judgment, the Court views the evidence in the
light most favorable to the nonmoving party, Gillis v. Louisiana, 294 F.3d 755, 758 (5th Cir.
2002), and draws all reasonable inferences in favor of that party. Hunt v. Rapides Healthcare
System, L.L.C., 277 F.3d 757, 764 (2001). Factual controversies are to be resolved in favor of the
nonmoving party, “but only when there is an actual controversy, that is, when both parties have
submitted evidence of contradictory facts.” Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th
Cir. 1994) (citations omitted). The Court will not, “in the absence of any proof, assume that the
nonmoving party could or would prove the necessary facts.” See id. (emphasis omitted) (citing
Lujan v. Nat'l Wildlife Fed'n, 497 U.S. 871, 888, 110 S.Ct. 3177, 3188, 111 L.Ed.2d 695 (1990)).
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Although the Court is to consider the full record in ruling on a motion for summary
judgment, Rule 56 does not obligate it to search for evidence to support a party's opposition to
summary judgment. Malacara v. Garber, 353 F.3d 393, 405 (5th Cir. 2003) (“When evidence
exists in the summary judgment record but the nonmovant fails even to refer to it in the response
to the motion for summary judgment, that evidence is not properly before the district court.”).
Thus, the nonmoving party should “identify specific evidence in the record, and articulate”
precisely how that evidence supports his claims. Forsyth v. Barr, 19 F.3d 1527, 1537 (5th Cir.),
cert. denied, 513 U.S. 871, 115 S.Ct. 195, 130 L.Ed.2d 127 (1994).
The nonmovant's burden of demonstrating a genuine issue is not satisfied merely by
creating “some metaphysical doubt as to the material facts,” “by conclusory allegations,” by
“unsubstantiated assertions,” or “by only a scintilla of evidence.” Little, 37 F.3d at 1075. Rather a
factual dispute precludes a grant of summary judgment only if the evidence is sufficient to permit
a reasonable trier of fact to find for the nonmoving party. Smith v. Amedisys, 298 F.3d 434, 440
(5th Cir. 2002).
B.

Analysis

In order to establish a prima facie claim for negligent misrepresentation, Plaintiffs must
demonstrate that (1) Greystone had a legal duty to supply correct information to Plaintiffs; (2)
Greystone breached this duty; and (3) Plaintiffs were damaged as a result of justifiable reliance
on Greystone’s misrepresentations. Kadlec Medical Center v. Lakeview Anesthesia Associates,
527 F.3d 412, 418 (5th Cir. 2008) (citing Brown v. Forest Oil Corp., 29 F.3d 966, 969 (5th Cir.
1994); In re Ward, 894 F.2d 771,776 (5th Cir. 1990); Pastor v. Lafayette Bldg. Ass’n, 567 So.2d
793, 796 (La. App. 3 Cir. 1990); Cypress Oilfield Contractors, Inc. V. McGoldrick Oil Co., 525
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So.2d 1157, 1162 (La. App. 3 Cir. 1988)). The existence of a legal duty is a question of law. Id.
(citing Bunge Corp. V. GATX Corp., 557 So.2d 1376, 1384 (La. 1990)).
Here, Plaintiffs have failed to clearly identify the source of law from which they claim
Greystone’s duty to obtain an environmental assessment or to disclose the absence of one arises.1
However, even assuming, arguendo, that Greystone had a legal duty, the Court finds that
Greystone did not breach that duty. Importantly, there is no mention of any environmental
assessment in Greystone’s report. (See Exhibit A to Rec. Doc. 182). Further, the Marketability
Study prepared by Greystone contained several “Underlying Assumptions and Conditions” that
make clear that Greystone did not guarantee the Project to be free from environmental defect in
1

For a negligent misrepresentation claim, a defendant’s duty to disclose may arise from
several sources. The duty may arise from the nature of defendant’s relationship with plaintiff;
when a special relationship exists between plaintiff and defendant, such as a fiduciary or
confidential relationship, then there will be a duty to disclose. Id. (citing Wilson v. Mobile Oil
Corp., 940 F.Supp. 944, 955 (E.D.La. 1996) (citing Greene v. Gulf Coast Bank, 593 So.2d 630,
632 (La. 1992) and First Downtown Dev. v. Cimochowski, 613 So.2d 671, 677 (La. App. 2 Cir.
1993)); Bunge Corp. V. GATX Corp., 557 So.2d at 1383-84 (La. 1990)). However, even in the
absence of a fiduciary relationship, courts impose a duty to provide accurate information on
defendants who voluntarily supply information to a plaintiff. Payne v. O’Quinn, 565 So.2d 1049,
1054 (La. App. 3 Cir. 1990); Pastor v. Lafayette Bldg. Ass’n, 567 So.2d at 796. While Greystone
may have had a duty under this precedent, the Court does not make any such finding as it is not
necessary for the resolution of this motion.
Further, Plaintiffs cite Rule 10b-5, promulgated by the SEC under Section 10(b) of the
Securities Exchange Act of 1934 provides that “[i]t shall be unlawful for any person, directly or
indirectly, . . . [t]o make any untrue statement of a material fact or to omit to state a material fact
necessary in order to make the statements made, in light of the circumstances under which they
were made, not misleading.” 17 C.F.R. § 240.10b-5. However, Plaintiffs have not asserted
securities law claims against Greystone. While Plaintiffs do not make the argument explicit, the
Court has inferred that the Plaintiffs may possibly be arguing that the obligation imposed under
Rule 10b-5 creates a duty for negligent misrepresentation. Given the limitations placed on the
enforcement of federal securities laws such as Section 10(b) of the Securities Exchange Act, the
Court is unsure of the viability of any such claim by Plaintiffs. However, the Court declines to
rule on this issue as its determination is not essential to the resolution of this motion.

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writing its report.2 Any duty of
2

The relevant portions of the Marketability Study state:
“Underlying Assumptions and Conditions: The analysis and report
are made subject to the following conditions and assumptions: . . .
2. No responsibility is assumed for matters legal in nature. Title is
assumed to be good and marketable and in fee simple unless
discussed otherwise in the report. The property is considered to be
free and clear of existing liens, assessments, and encumbrances,
except as noted.
...
6. Unless otherwise noted herein, it is assumed that there are no
encroachments or violations of any zoning or other regulations
affecting the subject property . . . .
...
10. Unless subsoil opinions based upon engineering core borings
were furnished, it is assumed there are no subsoil defects present
that would impair development of the land to its maximum
permitted use, or would render it more or less valuable.
...
14. The analysis is based on the premise that there is full
compliance with all applicable federal, state and local
environmental regulations and laws unless otherwise stated in the
report; further that all applicable zoning, building and use
regulations and restrictions of all types have been complied with
unless otherwise stated in the report; further, it is assumed that all
required licenses, consents, permits, or other legislative or
administrative authority, local, state, federal and/or private entity or
organization have been or can be obtained or renewed for any use
considered in the value estimate.
...
16. Although the analyst has made, insofar as is practical, every
effort to verify as factual and true all data set forth in this report, no
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disclosure that Greystone may have had was certainly met by the inclusion of these extensive
assumptions.
Further, Plaintiffs argue that Greystone breached a duty by failing to meet the Uniform
Standards of Professional Appraisal Practice in preparing its report. (Rec. Doc. 203, p. 31).
However, Plaintiffs cite no case or statute, nor can the Court locate one, that imposes a legal duty
upon Greystone to meet these standards such that a failure to meet them would constitute a
negligent misrepresentation. While it is hypothetically possible that the failure to conform to
these standards would constitute a breach of contract3, Plaintiffs would not be the proper parties

responsibility is assumed for the accuracy of any information
furnished the analysts either by the client or others. If for any
reason, future investigations should prove any data to be in
substantial variance with that presented in this report, the analyst
reserves the right to alter or change any or all conclusions and/or
estimates of value.
...
19. This report has been prepared for the exclusive benefit of MGD
Partners, LLC. It may not be used or relied upon by any other party
unless otherwise stated. Any party who uses or relies upon any
information in this report, without the preparer’s written consent,
does so at their own risk.
20. ACCEPTANCE OF, AND/OR USE OF, THIS REPORT
CONSTITUTES ACCEPTANCE OF THE ABOVE
CONDITIONS.
(Exhibit A to Rec. Doc. 182, pp. 4-5).

3

The Court has not determined that Greystone failed to conform to these standards or that
the failure to conform to these standards would constitute a breach of contract because that issue
is not before the Court.
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to assert that claim as no contract existed between Plaintiffs and Greystone.
In addition, Plaintiffs cannot show justifiable reliance on the existence of a Phase I
Environmental Site Assessment based on Greystone’s study. Any such reliance would certainly
have been unjustified based on the above cited assumptions and conditions. However, the
deposition of William Oliver, Plaintiffs’ agent who worked on this transaction, demonstrates that
Plaintiffs did not rely on Greystone’s study for information regarding a Phase I Environmental
Site Assessment. It is undisputed that Mr. Oliver reviewed the PLOM and LOM in order to
make an investment decision on Plaintiffs’ behalf. (See Rec. Doc. 203, at pp. 3-4). Mr. Oliver
testified at his deposition that he understood that any information regarding a Phase I
Environmental Site Assessment in the PLOM was supplied by Bodin & Webb, the Project’s
engineers, and not from any other source.4 As such, Plaintiffs have not shown any reliance on
the Greystone study regarding the existence of a Phase I Environmental Site Assessment.
4

The relevant deposition testimony reads as follows:
Q. So you knew that the information provided under these
captions [including “Phase I Environmental Site Assessment”]
were coming from the developer or from Bodin & Webb, the
engineer?
A. Yes.
Q. And in light of reading that statement and your knowledge that
information was coming from the developer and Bodin & Webb,
you didn’t expect the information to come from any other source,
correct?
...
A. I guess not.

(Exhibit F to Rec. Doc. 182, p. 149).
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IV.

CONCLUSION

Considering the foregoing, IT IS ORDERED that Greystone’s “Motion for Summary
Judgment” (Rec. Doc. 182) is GRANTED.
New Orleans, Louisiana, this 28th day of November 2011.

_______________________________________
KURT D. ENGELHARDT
United States District Judge

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