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

Filing 237

ORDER and REASONS granting BSW's 186 Motion for Summary Judgment as stated within document. Signed by Judge Kurt D. Engelhardt on 12/9/2011. (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. 186), filed by
Defendant Breazeale, Sachse & Wilson (“BSW”). 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 BSW’s Reply (Rec. Doc. 220), 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.
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 (“Crews”) 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 BSW, as attorney for Crews. Plaintiffs
thereafter purchased the entire face amount of the Bonds. The formal closing with Plaintiffs
occurred on November 16, 2006. In connection with the closing, BSW issued an opinion letter
to Crews stating that the PLOM and LOM did not contain any misrepresentations or omissions of
facts.
On March 9, 2009 and after 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
from 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 BSW for negligent misrepresentation for (1)
failing to reveal relevant facts relating to the proximity of the HBGR to the Project; (2) failing to
reveal that a Phase I Environmental Site Assessment had not been conducted on the property; (3)
drafting the PLOM and LOM which allegedly contained misleading statements regarding a Phase
I Environmental Site Assessment;” and (4) issuing an opinion letter to Crews which states that
the PLOM and LOM did not contain misrepresentations or omissions of facts.

II.

ARGUMENTS OF THE PARTIES
BSW contends that it is entitled to summary judgment because Plaintiffs cannot prove (1)

that BSW knew that the Project was on the former site of the HBGR before the bond issuance;
(2) that BSW knew that a Phase I Environmental Site Assessment had not been performed; (3)
that BSW knew of the existence of any other material fact that should have been disclosed, but
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was not; (4) that BSW owed a duty to Plaintiffs; (4) that Plaintiff’s justifiably relied on any
statement from BSW; and (5) that BSW made a misrepresentation that caused Plaintiffs’
damages. (Rec. Doc. 186-1, pp. 2-3). In addition, BSW argues that even if Plaintiffs were able
to prove these things, it would still be entitled to summary judgment because Plaintiffs’ claims
are perempted. (Rec. Doc. 186-1, p. 23).
On the other hand, Plaintiffs argue that (1) BSW had actual knowledge of the lack of a
Phase I Environmental Site Assessment, but failed to disclose this in the PLOM or LOM; (2)
BSW made a false statement when it issued an Opinion Letter stating that the LOM did not
contain any untrue statement or omit any material fact; and (3) BSW supplied false information
when it drafted the PLOM and LOM which contained a reference to a Phase I Environmental Site
Assessment when none had been conducted. (Rec. Doc. 1, pp. 11-12). 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. 1617).

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
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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.
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
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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)).
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) BSW had a legal duty to supply correct information to Plaintiffs; (2) BSW
breached this duty; and (3) Plaintiffs were damaged as a result of justifiable reliance on BSW’s
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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 So.2d
1157, 1162 (La. App. 3 Cir. 1988)).
Here, even assuming BSW had a duty of disclosure and breached it, Plaintiffs have failed
to come forward with sufficient evidence to demonstrate justifiable reliance on any alleged
misrepresentation made by BSW. Plaintiffs’ negligent misrepresentation claim focuses on the
PLOM and the November 16, 2006 opinion letter written by BSW and addressed to Crews.
(Exhibit F to Rec. Doc. 186; Exhibit O to Rec. Doc. 186). The PLOM contains one reference to
a Phase I Environmental Site Assessment: “The information provided under the captions ‘The
Development,’ ‘Development Status,’ ‘The Builder,’ ‘Commercial Development,’ ‘Construction
Timeline,’ ‘Land Uses within the District,’ ‘Projeted Absorption,’ ‘Utilities,’ ‘Phase I
Environmental Site Assessment,’ and ‘Property Taxes’ has been provided by the Developer and
by Bodin and Webb, Inc.” (Exhibit F to Rec. Doc. 186, pp. CREWS 99 (emphasis added)). This
reference to a “Phase I Environmental Site Assessment” clearly refers the reader to a later section
with that title, but no such section exists. Bill Oliver, the financial analyst for Plaintiffs who read
the PLOM, failed to notice that the caption “Phase I Site Assessment” was missing from the
document. (Exhibit B to Rec. Doc. 186, p. 169). As Mr. Oliver failed to notice this discrepancy
and as he was the only representative of the Plaintiffs who read the PLOM, Plaintiffs cannot

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claim reliance on this alleged misrepresentation by BSW.1 Plaintiffs essentially argue that Mr.
Oliver interpreted the statement “the information under the missing caption[] . . . ‘Phase I
Environmental Site Assessment,’ . . . was provided by the developer and Bodin and Webb” to
mean that a Phase I Environmental Site Assessment had been performed on the Property and
relied upon that statement in making the decision to purchase the Bonds. (Exhibit F to Rec. Doc.
186, pp. CREWS 99; See Rec. Doc. 203, pp. 3-4). This argument is untenable and could not lead
any rational trier of fact to find for Plaintiffs.2 See Smith, 298 F.3d at 440. Plaintiffs have
presented no evidence of reliance on any allegedly misleading statement in the PLOM.
Plaintiffs further argue that BSW made misrepresentations in a November 16, 2006
opinion letter, which stated that the PLOM did not contain any misrepresentation or omission of
material fact. (Exhibit O to Rec. Doc. 186, p. 2). Again, even assuming BSW had a duty of
disclosure to Plaintiffs and breached this duty by making misrepresentations or omitting material
facts in this opinion letter, Plaintiffs have not presented any evidence tending to show justifiable
reliance on the letter. In fact, Mr. Oliver testified in his deposition that Plaintiffs did not rely on
the opinion letter in purchasing the Coves Bonds. (Exhibit B to Rec. Doc. 86, p. 161). As
Plaintiffs cannot demonstrate justifiable reliance on the alleged misrepresentations of BSW, their

1

Mr. Oliver testified at his deposition that neither Fred Cohen nor Guy Davidson, other
employees of the Plaintiffs who dealt with the Bond issuance, read the PLOM or the LOM.
(Exhibit B to Rec. Doc. 186, p. 117). Mr. Oliver testified that no one connected to Plaintiffs read
the LOM or the PLOM before the Bond purchase. (Exhibit B to Rec. Doc. 186, pp. 117, 118)
Plaintiffs have not presented any evidence tending to show that any employee or representative
other than Mr. Oliver read the PLOM or LOM.
2

Even accepting that Mr. Oliver saw the title, he clearly did not read and rely on the
substance of any assessment, as none was included for him to review. Blind “reliance” on a
nondescript title, with no indication of the substance of such assessment, can hardly create
liability.
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negligent misrepresentation claim must fail. National American Ins. Co. v. Melancon, 1999 WL
675421 at *3-5 (E.D. La. 1999).

IV.

CONCLUSION

Considering the foregoing, IT IS ORDERED that BSW’s “Motion for Summary
Judgment” (Rec. Doc. 186) is GRANTED.
New Orleans, Louisiana, this 9th day of December 2011.

_______________________________________
KURT D. ENGELHARDT
United States District Judge

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