In re: Allstate Life Insurance Company Litigation
G. MURRAY SNOW, District Judge.
Pending before the Court is Defendant Town of Prescott Valley's (the "Town") Motion for Partial Summary Judgment. (Doc. 578.) For the reasons discussed below, the Town's Motion is denied.
At issue in this lawsuit is the offering and sale of $35 million in revenue bonds (the "Bonds") used to finance the construction of a 5, 000-seat Event Center in the Town of Prescott Valley, Arizona. The facts of the case are set out in greater detail in the Court's earlier Order of November 4, 2010. (Doc. 212.) Plaintiffs in this case are entities and individuals who purchased in the Bond offering in November 2005 (the "Bondholders"). They include Allstate Life Insurance Company and a number of individual plaintiffs whose interests are represented by the Indenture Trustee of the Bonds, Wells Fargo.
The Defendants in this case are numerous. They include the underwriters for the bonds, attorneys for the underwriters, and the various entities that received the proceeds for the bonds and built the Event Center. The relevant Defendant for the purposes of this Order is the Town, which agreed to the construction and financing of the Event Center in 2004 and participated in the drafting of the Bond documents.
This suit is based on a number of purported misstatements made by the Defendants. These misstatements were allegedly made in the Preliminary Official Statement and the Official Statement, collectively referred to as the Official Statements ("OS"). The OS provided two sources for paying debt service on the Bonds: (1) the net operating income from the Event Center and (2) Transaction Privilege Tax Revenues ("TPT Revenues"), allegedly pledged by the Town, consisting of sales taxes generated by the Event Center and certain areas near the Event Center. The alleged misstatements pertained to (1) the annual attendance and profitability of the Event Center and (2) the existence of a lien or other security device on the TPT Revenues for the benefit of the Bondholders.
The alleged misstatements regarding the Event Center's attendance and profitability are based on figures in the OS that projected an annual attendance of approximately 480, 000. Based on this number, the OS projected that the Event Center would generate approximately $5 million in total revenues in the first year. Plaintiffs allege that Defendants put these figures in the OS despite their knowledge of material information that would undermine the Event Center's ability to generate the projected attendance and revenue. Two reports-the "2001 ICC Report" and the "2005 ERA Report"-were conducted on the feasibility of the Event Center. These reports concluded that the Center would generate substantially less revenue than what was stated in the OS. Plaintiffs allege that the Defendants failed to disclose the existence of these feasibility reports, and that the OS stated that no feasibility reports had been prepared on its projections at all. Since its opening, the Event Center has in fact failed to recognize profit at the level of the projections set forth in the OS.
The parties agree that in June 2008, Allstate became aware of document defects relating to the security for the Bonds, and that Plaintiffs subsequently attempted to restructure the Bond documents and obtain enhanced security for Bond payments. (Doc. 624 at 2, ¶ 1-2.) At that time, Allstate knew that the Event Center was not producing sufficient net income to cover the Bond payments. ( Id. at 2, ¶ 3.) In the process of negotiating the restructure of the Bond documents, Plaintiffs sought an independent economic consultant to perform a feasibility study on the Event Center. ( Id. at 5, ¶ 10.) Economic Research Associates ("ERA"), the firm that prepared the 2005 ERA Report, was proposed to perform the study. ( Id. at 6, ¶ 11.) ERA thus prepared a draft proposal for a new 2008 feasibility study and circulated it to Wells Fargo and Allstate on October 15, 2008. ( Id. at 6, ¶ 13-14.) That proposal stated that ERA had previously prepared a feasibility study on the Events Center in 2005. ( Id. at 6, ¶ 15.) Thus, Allstate was aware of the existence of the 2005 ERA Report by October 15, 2008. ( Id. )
When Kelly Cruse, an Allstate analyst, reviewed the draft proposal in October 2008, she became concerned that the 2005 ERA Report was not disclosed in the OS. ( Id. at 8, ¶ 21.) Cruse brought the issue to the attention of Anthony Ceravolo, Allstate's in-house counsel. ( Id. at 8-9, ¶ 22.) Ceravolo declined to take action on the issue at the time, deciding instead to wait and see the results of the new 2008 feasibility study. ( Id. )
Plaintiffs received the new feasibility study from ERA on December 18, 2008. ( Id. at 14, ¶ 9.) The study set forth materially lower financial projections, including lower event and attendance figures, than those disclosed in the OS. ( Id. ) In January 2009, Allstate hired counsel to investigate whether it had a claim to void its purchase of the Bonds due to material misrepresentations and omissions. ( Id. at 15, ¶ 10.) In February 2009, as a result of counsel's investigation, Allstate received a copy of the 2005 ERA Report. ( Id. ) It was not until this time that Allstate had actual knowledge of the contents of the 2005 ERA Report. ( Id. at 15-16, ¶ 13.) Allstate provided its Notice of Claim to the Town on May 21, 2009. ( Id. at 16, ¶ 15.)
I. Legal Standard
Summary judgment is appropriate if the evidence, viewed in the light most favorable to the nonmoving party, shows "that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Only disputes over facts that might affect the outcome of the suit will preclude the entry of summary judgment, and the disputed evidence must be "such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). "[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
Substantive law determines which facts are material, and "[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248; see Jesinger, 24 F.3d at 1130. Because "[c]redibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge, ... [t]he evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his favor" at the summary judgment stage. Id. at 255 (citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 ...