Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_09-cv-08162/USCOURTS-azd-3_09-cv-08162-22/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

In Re: Allstate Life Insurance Company 

Litigation 

Lead Case No. CV-09-08162-PCT-GMS

Consolidated with: 

No. CV-09-8174-PCT-GMS 

ORDER 

 Pending before the Court are Defendants’ Joint Motion for Summary Judgment 

Dismissing the Claims of Non-Party Bondholders (Doc. 644) and the Underwriters’ 

Motion to Exclude the Report and Testimony of Robert M. Smith (Doc. 774). For the 

reasons discussed below, the Motion for Summary Judgment is granted in part and denied 

in part, and the Motion to Exclude is denied without prejudice. 

BACKGROUND

 This suit involves 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 claims subject to this Motion are those of a number of 

individual Bondholders 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 

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received the proceeds for the Bonds and built the Event Center.1

 The suit is based on a number of purported misstatements made by the 

Defendants. These misstatements allegedly were 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. Wells Fargo claims that the above misstatements caused Fitch, a bond 

rating agency, to issue the Bonds an investment grade rating of “A-.” It asserts that the 

Bondholders directly or indirectly relied on either the misrepresentations or the 

investment grade rating in making the decision to purchase the Bonds. The Event Center 

has failed to realize net operating revenues in the amounts projected by the OS, and while 

the Town has made TPT Revenue payments, Plaintiffs allege that it reserves the right to 

stop making those payments at any time. 

 Wells Fargo, on behalf of the Individual Bondholders, asserts claims of negligent 

misrepresentation and violation of the Arizona Securities Act (“ASA”) against 

Defendants.2

 (Doc. 466 at 107–09.) However, throughout the course of litigation, Wells 

Fargo was less than timely in response to Defendants’ discovery requests. It was not until 

early 2012, in light of a deadline that the Court set on June 15, 2012, that Wells Fargo 

sent out questionnaires to Bondholders requesting information on how to contact them 

and how they acquired the Bonds. (Doc. 572 at 3.) In light of the late production of such 

 

1

 For a more detailed summary of the facts of this case, see the Court’s previous Order on November 3, 2010. (Doc. 212.) 

2

 Wells Fargo’s other claims were dismissed in the Court’s previous Order. (Doc. 212 at 52–54.) 

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information, the Court placed restrictions on Wells Fargo’s ability to introduce certain 

evidence into the litigation. As such, Wells Fargo is prohibited from offering any 

testimony from the fifty-three Bondholders who never returned questionnaires. (Id. at 9.) 

It is also prohibited from offering any testimony relating to causation or damages from 

twenty-seven Bondholders who responded “No,” “Do Not Recall,” or left blank the 

answers to questions asking if they relied on the OS or their brokers in purchasing the 

bonds. (Id.) Wells Fargo is further limited to calling only the nine employees it expressly 

named in its June 15 disclosure and it cannot offer any documents or exhibits supporting 

claims on behalf of bondholders it did not expressly name prior to the June 15 deadline. 

(Id.) Finally, the Court barred Wells Fargo from bringing suit on behalf of any 

Bondholders not named by the June 15 deadline. (Id. at 5–6.) 

 Defendants now bring this Motion for Summary Judgment, arguing that Wells 

Fargo has not summoned sufficient evidence to support a finding in favor of the 

Bondholders on either claim. Defendants also move to exclude the testimony of Wells 

Fargo’s expert Robert M. Smith, on whose report Wells Fargo relies in making its 

argument against summary judgment. Defendants set forth three arguments in bringing 

their Motion for Summary Judgment. First, they assert generally that the claims of 

Bondholders who cannot demonstrate “essential elements” must be dismissed, including 

the claims of the fifty-three and twenty-seven Bondholders who were precluded or 

partially precluded from testifying, as well as the claims of Bondholders who purchased 

in the secondary market. Second, they argue that, for a number of reasons, Wells Fargo is 

unable to establish the element of transaction causation for the ASA claims. Finally, they 

argue that Wells Fargo is unable to establish individualized reliance for each Bondholder 

on their negligent misrepresentation claims. 

DISCUSSION

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 

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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. Anderson, 477 U.S. at 248. 

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 (1970)); Harris v. Itzhaki, 183 F.3d 1043, 1051 (9th Cir. 

1999) (“Issues of credibility, including questions of intent, should be left to the jury.”) 

(citations omitted). 

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

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

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

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

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

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

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

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

judgment in favor of the moving party.”). If the nonmoving party’s opposition fails to 

specifically cite to materials either in the court’s record or not in the record, the court is 

not required to either search the entire record for evidence establishing a genuine issue of 

material fact or obtain the missing materials. See Carmen v. S.F. Unified Sch. Dist., 237 

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F.3d 1026, 1028–29 (9th Cir. 2001); Forsberg v. Pac. N.W. Bell Tel. Co., 840 F.2d 1409, 

1417–18 (9th Cir. 1988). 

II. Analysis 

A. Bondholders Unable to Establish “Essential Elements” of Claims 

1. Bondholders Who Did Not Return Questionnaires

Fifty-three of the Bondholders never returned the form questionnaires sent out by 

Wells Fargo. In its October 11 Order of last year, this Court precluded Wells Fargo from 

offering any testimony by those Bondholders. (Doc. 572 at 9.) 

Defendants first assert that they are entitled to summary judgment on the claims of 

these fifty-three Bondholders because Wells Fargo is unable to muster admissible 

evidence that these Bondholders still own their Bonds. The Indenture of Trust permits 

Wells Fargo to bring claims only on behalf of current Bondholders. (Doc. 646-3 at 43–

44.) Defendants assert that Wells Fargo’s BondCom Report, a list of Bondholders, is 

insufficient to create a material issue of fact as to ownership because it is hearsay and 

because it is otherwise unreliable. (Doc. 644 at 5–6.) 

In its Response, Wells Fargo pointed to the fact that the Underwriter Defendants 

themselves keep records of the current Bondholders and produced lists of them during 

discovery. (See Doc. 659-25, 29, 31–35.) The names the 53 Bondholders appear on the 

lists produced by the Underwriters and RBC during discovery.3

 (Id.) The fact that the 

 3

 The Bondholders that appeared on lists supplied by the Underwriters and RBC are 

James C. & Christine B. Akers, Linda L. & William R. Beinke, Walter D. Bethoon & 

Addie M. Novaria–Bethoon, Keith & Barbara Bitzinger, C-2 Construction, Captive Investors, Mario J. Cirio, Sally L. Clark, Kenneth Cude, Samuel Dempster, Arlene Dotts, Lennis & Richard Elston, Barry Evans, Bruce W. Ewing, Lucinda M. & Kenneth E. Gerlitz, Betty T. Gleason, Fred Grapel, Marvin Groseth, Henry T. Hudson, Jr., Stephen Korey, Margaret Luebbers, Barbara Lurie, Billy G. Massey, Jeanine Mackintosh, Maxicor, Kathleen E. Milford, Edna F. Mlady, Patricia M. Mosbacher, David Orndoff, William E. & Nettie I. Postlewait, Charlotte & Jack Prescott, Lorraine Quayle, Amin Radparvar, Donald W. & Julia M. Rawn, Florence Reed, Norman Rothenbaum, Gloria 

Saiers, Daniel & Doris R. Sanchez, Mark Sanchez, Roland & Esther Sanchez, Betty F. Schonthal, Mortan & Susan Shane, Jack C. Silhavy, Kenneth Smith, Jack & Paula 

Strickstein, Dennis Swapp, Joan L. Titland, Herman R. Van Lier, Frances A. & Terrence 

L. White, Emerson H. Young, Pablo G. De Leon, Rita Echenique, and Karl Richard Gerlitz and Anita Dabney Jones–Gerlitz (counted as a single Bondholder). Initially, Wells Fargo submitted evidence that only fifty of the Bondholders’ names appeared on these lists, but at oral argument on September 4, 2013 asserted that in fact all fifty-three 

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Underwriters and RBC produced these lists in discovery does not, however, cure this 

evidence of its hearsay problem. The lists were created by an unidentified out-of-court 

declarant and are submitted to prove ownership, i.e., the truth of the matter asserted. 

Wells Fargo simply points to the fact that they exist; it does not lay a foundation for the 

lists, authenticate them, or show that they fall in any hearsay exception. 4 In light of the 

fact that Wells Fargo has had years to gather this information, the Court finds that Wells 

Fargo has failed to set forth any admissible evidence that these 53 Bondholders still hold 

the Bonds. 

Wells Fargo also relies on the fact that all 53 of the Bondholders’ names appear on 

the BondCom Report. (See Doc. 659-42.) But the BondCom Report is hearsay, too: the 

information in the Report was provided by Broadridge Financial Solutions and 

Bloomberg, out-of-court declarants, and the Report is offered to prove the truth of the 

Bondholders’ ownership of the Bonds. (See Doc. 661 (Martinez Decl.) at ¶ 4–5.) Wells 

Fargo argues that it laid a foundation for the Report by offering the Declaration of Sonia 

Martinez, the Assistant Vice President of BondCom, which describes the process by 

which BondCom obtained the information for the Bondholder list. (Doc. 657 at 37.) 

Nevertheless, laying a foundation for a document does not resolve hearsay issues. Wells 

Fargo further asserts that the sources on which BondCom relied to obtain the list are 

“recognized as reliable sources of information about Bond ownership” and routinely used 

by BondCom in the ordinary course of its business. (Id.) To establish the business records 

exception to the hearsay rule, however, the proponent of evidence must show that the 

record was (1) made by or from information transmitted by a person with knowledge, (2) 

kept in the course of a regularly conducted activity of the business, and (3) kept as a 

regular practice of that activity. Fed. R. Evid. 803(6). Martinez’s declaration fails to show 

 Bondholders’ names are contained on the lists. 

4

 Wells Fargo initially argued at oral argument that these lists were incorporated into sworn interrogatory responses in discovery, but was unable to cite to any evidence to support, and ultimately conceded that there was no such evidence. (Doc. 945 at 92:13–

93:21.) 

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either the first or the third element. Moreover, it does not demonstrate how the sources on 

which Bondcom relies, themselves hearsay, are admissible evidence. Nor does her 

declaration establish that the document falls within the residual hearsay exception, which 

requires “exceptional circumstances” and particularized guarantees of trustworthiness. 

United States v. Bonds, 608 F.3d 495, 500 (9th Cir. 2010). As such, the BondCom Report 

is insufficient to overcome Defendants’ Motion for Summary Judgment with regard to 

these three Bondholders. Orr v. Bank of Am., NT & SA, 285 F.3d 764, 783 (9th Cir. 

2002). 

2. Bondholders Not Named by the June 15 Deadline

 Defendants request judgment to be entered against all Bondholders not named by 

Wells Fargo as of the June 15 deadline. In this Court’s October Order, it precluded Wells 

Fargo from bringing claims on behalf of Bondholders not identified by June 15, 2012. 

(Doc. 572 at 7.) Thus, judgment is entered against those unidentified and untimelyidentified Bondholders, including the Catholic Diocese of Wilmington, Delaware. 

Defendants also move for summary judgment for failure to establish “essential 

elements” on the claims of Bondholders who have no evidence of reliance (Doc. 664 at 7) 

and Bondholders who purchased in the secondary market after the initial Bond offering 

(id. at 9). These claims are better discussed in the context of the Bondholders’ separate 

claims, as demonstrated below. 

 B. ASA Claims 

 1. Transaction Causation 

 A.R.S. § 44-1991 of the ASA creates a cause of action against any person who, in 

connection with a transaction involving an offer to sell or buy securities: 

(1) Employ[s] any device, scheme or artifice to defraud; 

(2) Make[s] any untrue statement of material fact, or omit[s] 

to state any material fact necessary in order to make the 

statements made, in light of the circumstances under which 

they were made, not misleading; [or] 

(3) Engage[s] in any transaction, practice or course of 

business which operates or would operate as a fraud or deceit. 

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Wells Fargo seeks to obtain relief against Defendants for violations of all three prongs of 

§ 44-1991. (Doc. 466 at 107.) The ASA further places the burden on the plaintiff to prove 

that the alleged violation caused the loss for which the plaintiff seeks to recover damages. 

A.R.S. § 44-2082(E).5

 The Parties disagree over whether “transaction causation” is an element of a § 44-

1991 claim. This Court held in October 2012 that a plaintiff would need to prove 

transaction causation as an element of an ASA claim. (Doc. 572 at 11.) The Arizona 

Court of Appeals recently held that causation in securities fraud claims requires both 

transaction and loss causation. Grand v. Nacchio, 214 Ariz. 9, 19, 147 P.3d 763, 773 (Ct. 

App. 2006) (“Grand I”). Wells Fargo argues that this statement in Grand is merely dicta 

and points out that there is no extended “discussion of transaction causation [and] 

whether it is an element under the ASA.” (Doc. 657 at 11.). The bulk of the discussion in 

Grand is, in fact, devoted to the issue of loss causation. However, the fact that the Court 

of Appeals did not discuss at length its holding that transaction causation is an element of 

securities fraud claims does not mean that this Court can ignore that holding. “Where 

there is no convincing evidence that the state supreme court would decide differently, a 

federal court is obligated to follow the decisions of the state’s intermediate appellate 

courts.” Ryman v. Sears, Roebuck & Co., 505 F.3d 993, 995 (9th Cir. 2007) (internal 

quotations omitted). 

Wells Fargo nevertheless argues that transaction causation is not required. (Doc. 

657 at 9.) It essentially argues that transaction causation is identical to reliance, and 

reliance is not required under the ASA. In 1981, the Arizona Court of Appeals in fact 

held that “reliance upon a misrepresentation is not an element of . . . our securities laws.” 

Rose v. Dobras, 128 Ariz. 209, 214, 624 P.2d 887, 892 (Ct. App. 1981).6

 Federal courts 

 

5

 The Court recognizes that for claims brought under A.R.S. § 44-1991(A)(2), the plaintiff does not bear the burden of proving loss causation; rather, loss causation is an 

affirmative defense. Grand, 214 Ariz. at 24. The Parties here focus only on transaction causation, however, and loss causation is not at issue in this Motion. 

6

 Defendants argue that the holding of Rose was merely that reasonable reliance is 

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commonly state that the requirement of transaction causation is “equivalent” to the 

element of reliance. See, e.g., Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, 552 

U.S. 148, 171 (2008) (Stevens, J., dissenting); Binder v. Gillespie, 184 F.3d 1059, 1065 

(9th Cir. 1999); Lopes v. Vieira, 543 F. Supp. 2d 1149, 1193 (E.D. Cal. 2008). However, 

transaction causation is also commonly defined as but-for causation, or the requirement 

that “the violations in question caused the plaintiff to engage in the transaction.” See, e.g., 

McGonigle v. Combs, 968 F.2d 810, 820 (9th Cir. 1992); see also Stoneridge, 552 U.S. at 

171 (Stevens, J., dissenting); Binder, 184 F.3d at 1065. Reliance is used “to demonstrate 

the causal connection between the defendant’s wrongdoing and the plaintiff’s loss,” but 

the requirement of causation can also be established “without direct proof of reliance.” 

Blackie v. Barrack, 524 F.2d 891, 906 (9th Cir. 1975). Rather, transaction causation “can 

be inferred from the materiality of the misrepresentation.” Id.; Kafton v. Baptist Park 

Nursing Ctr., Inc., 617 F. Supp. 349, 350 (D. Ariz. 1985). 

In Trimble, the Arizona Court of Appeals held that causation may be established 

by showing that the misstatement or omission was material. Trimble v. Am. Sav. Life Ins. 

Co., 152 Ariz. 548, 553, 733 P.2d 1131, 1136 (Ct. App. 1986). Materiality under Arizona 

law requires “a showing that there was a substantial likelihood, under the circumstances, 

that the misstated fact or omission would have assumed actual significance in the 

deliberations of a reasonable buyer.” Jakemer v. Romano, No. CV-06-2563-PHX-SMM, 

2007 WL 704178 at *7 (D. Ariz. Mar. 5, 2007) (citing Trimble, 733 P.2d at 1136). 

Trimble thus sets out how transaction causation may be proved without requiring the 

plaintiff to show reliance. 

 Federal courts have also used materiality as an indicator for measuring causation. 

 not required for an ASA claim, (Docs. 644 at 16–17; 776 at 11 n.15), but that is not the 

rule articulated by the Court of Appeals. On the facts of Rose, it is true that there was no 

question that the plaintiff relied on misrepresentations by the defendant; the issue raised by the defendant was only whether that reliance was reasonable. Id. Nevertheless, the 

Court of Appeals stated a rule that was broader than the narrow issues presented in that case: whether reasonable or not, reliance is not an element under the ASA. Id. Because of 

the broadly worded rule, this Court declines to adopt Defendants’ limited interpretation of Rose. 

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See, e.g., Mills v. Elec. Auto-Lite Co., 396 U.S. 375, 384–85 (1970) (“Where there has 

been a finding of materiality, a shareholder has made a sufficient showing of causal 

relationship between the violation and the injury for which he seeks redress . . . .”); 

Plaine v. McCabe, 797 F.2d 713, 721 (9th Cir. 1986) (“[T]he plaintiff succeeds in 

proving causation once the misstatement or omission has been shown to be ‘material.’”); 

Blackie v. Barrack, 524 F.2d 891, 906 (9th Cir. 1975) (“[C]ausation is adequately 

established . . . by proof of purchase and of the materiality of misrepresentations, without 

direct proof of reliance.”). Those courts reasoned that when deception artificially inflates 

the price of a security, “proof of subjective reliance on particular misrepresentations is 

unnecessary.” Blackie, 524 F.2d at 906. 

 Defendants object to this materiality standard for evaluating transaction causation 

on the ground that federal courts apply the above test only in cases involving fraud on the 

market. (Doc. 776 at 4–5.) Defendants are correct that the federal cases which applied the 

above standard involve misleading omissions in the presence of a duty to disclose 

(Affiliated Ute Citizens of Utah v. U. S., 406 U.S. 128, 153–54 (1972)) or securities sold 

on the open market (Blackie, 524 F.2d at 906), neither of which is the case here. 

However, the fact that federal courts have limited the causation–materiality test under 

federal law does not mean that the ASA should be similarly limited. Here, Arizona courts 

have expressly deviated from the federal scheme in ruling that reliance is not an element 

of an ASA cause of action. Compare Rose, 128 Ariz. at 214 (“[R]eliance upon a 

misrepresentation is not an element of [the ASA].”) with Basic Inc. v. Levinson, 485 U.S. 

224, 243 (1988) (“[R]eliance is an element of a Rule 10b-5 cause of action.”).7

 To limit 

the causation–materiality test for ASA claims in the same way as federal claims while 

keeping with the Arizona courts’ pronouncement that reliance is not an element would 

mean that some ASA claims do not require a showing of causation at all, a result that 

contradicts the ASA. See A.R.S. § 44-2082(E) (requiring the plaintiff to show causation). 

 

7

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Thus, a showing of materiality is necessary to establish the element of causation in Wells 

Fargo’s ASA claims. 

 Materiality is a question of fact for the jury. Siracusano v. Matrixx Initiatives, Inc., 

585 F.3d 1167, 1178 (9th Cir. 2009), aff’d, 131 S. Ct. 1309, 179 L. Ed. 2d 398 (U.S. 

2011). An issue of materiality can be resolved as a matter of law only when “omissions 

are so obviously important to an investor that reasonable minds cannot differ on the 

question of materiality.” Id. (internal quotations omitted) (citing TSC Indus., Inc. v. 

Northway, Inc., 426 U.S. 438, 450 (1976)). In defining materiality, the Arizona Court of 

Appeals has held that plaintiffs need not prove that the statement or omission was 

material to “this particular buyer” but rather that it “would have assumed actual 

significance in the deliberations of a reasonable buyer.” Aaron v. Fromkin, 196 Ariz. 

224, 227, 994 P.2d 1039, 1042 (Ct. App. 2000) (emphasis added). 

 Here, Defendants apparently concede that the alleged misrepresentations could be 

material. Instead, they argue, for example, that Wells Fargo must summon evidence that 

the misrepresentations in question caused each individual Bondholder to purchase their 

Bonds, (Doc. 644 at 26), or that Wells Fargo did not show that the Bonds would have 

failed to garner an investment grade rating, even if the alleged misrepresentations had 

been disclosed. 

 As discussed above, however, Arizona law requires only that a misrepresentation 

be material to a reasonable buyer to establish causation. It does not require a showing that 

the “misstatement was actually significant to a particular buyer.” Trimble, 152 Ariz. at 

553; see also Facciola v. Greenberg Traurig LLP, 281 F.R.D. 363, 372 (D. Ariz. 2012). 

The issue thus is not whether each individual Bondholder was personally persuaded to 

purchase by the alleged misstatements in the OS, but whether those misstatements would 

have made a difference in the decision of a reasonable purchaser. 8 Wells Fargo further 

 

8

 For example, the Court has prohibited the Trustee from introducing “any testimony relating to damages or causation from the twenty-seven bondholders who 

failed to provide meaningful responses [to the questionnaires] as it related to their reasons 

for their purchase of the Bonds.” While the inability of those individual bondholders to 

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relies on the possibility that Fitch would have issued the Bonds at the same or a lower 

rating, though still a rating considered “investment grade,” even after disclosure of the 

alleged misrepresentations. (Doc. 644 at 18–22.) However, again, the relevant factor for 

determining transaction causation is the materiality of the alleged misstatement. Trimble, 

152 Ariz. at 553. Speculation over whether Fitch would have issued a different rating if it 

had known of the alleged misrepresentations is not relevant to whether those 

misrepresentations “would have assumed actual significance in the deliberations of a 

reasonable buyer.” See Jakemer, 2007 WL 704178 at *7. 

 The issue of materiality is reserved for the jury. Defendants have thus failed to 

show a lack of a genuine issue of material fact on summary judgment. Defendants’ 

Motion for Summary Judgment on the element of transaction causation is therefore 

denied.9

 

2. Aftermarket Purchasers 

 The ASA allows a cause of action to be brought only against persons who “made, 

participated in or induced the unlawful sale or purchase” of securities in violation of 

A.R.S. § 44-1991. A.R.S. § 44-2003(A). Thus, liability extends only to persons who have 

“more than some collateral involvement in a securities transaction” and to misstatements 

that have more than “merely . . . the effect of influencing a buyer to make a sale.” 

Standard Chartered PLC v. Price Waterhouse, 190 Ariz. 6, 22, 945 P.2d 317, 333 (Ct. 

App. 1996). The actions of making, participating, or inducing an unlawful sale are not 

necessarily coterminous. Grand v. Nacchio, 225 Ariz. 171, 175, 236 P.3d 398, 402 

(2010) (“Grand III”). Though the terms may overlap, “participation and inducement are 

commonly understood to involve separate factors.” Id. Participation is “to take part in 

 introduce such testimony or evidence may preclude them from showing loss causation, it does not, for the above reasons, necessarily preclude them from establishing transactional causation. 

9

 Defendants’ argument for summary judgment on the ASA claims of the 27 

Bondholders precluded from testifying on causation or damages is also denied, as their 

failure or inability to demonstrate individualized reliance is not fatal to the ASA claim, 

which requires only a showing of materiality. 

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something . . . [usually] in common with others [or] to have a part or share in something.” 

Standard Chartered, 190 Ariz. at 21. Conversely, inducement is defined as moving or 

leading, prevailing upon, persuading, inspiring, or bringing about by influence or 

stimulation. Id. As demonstrated below by the facts of the Grand decisions, participation 

and inducement do not always cover the same conduct. 

 Defendants point to seventeen Bondholders who purchased Bonds outside the 

initial Offering from non-party brokers, as well as fifteen Bondholders who purchased 

after the initial Offering from Defendants Edward Jones, Baird, and M.L. Stern. (Doc. 

644 at 9.) Defendants assert that summary judgment should be granted on all thirty-two 

of these claims pursuant to the holding in Grand v. Nacchio, 222 Ariz. 498, 217 P.3d 

1203 (Ct. App. 2009) (“Grand II”) which they assert forecloses secondary market 

purchasers from bringing ASA claims. (Doc. 644 at 10.) 

In Grand II, the plaintiff chose to forego an ASA claim under a “make or induce” 

theory and instead pursued its cause of action solely on the theory that the defendants 

participated in the unlawful sale of securities. 222 Ariz. at 500. The plaintiff was an 

aftermarket purchaser of securities and alleged that the defendants “participated in” the 

unlawful sale of securities by sending the plaintiff emails containing misstatements, 

misleading public investors, and controlling the flow of information to the market. Id. at 

1205, 1206. The plaintiff further alleged that the defendants provided it with a referral to 

a broker. Id. at 1207. However, the Court of Appeals upheld the trial court’s 

determination that these allegations were not sufficient to support a claim that the 

defendants “participated in” the plaintiff’s aftermarket purchase. Id. at 1206. Thus, Grand 

II did not completely foreclose the possibility of a secondary market purchaser bringing 

an ASA claim; it merely held that facts like those described above are insufficient to 

sustain a claim on the participation theory. In affirming, the Arizona Supreme Court 

expressly noted that the facts would support an ASA claim under an inducement theory, 

but this theory was not available to the plaintiff due to the plaintiff’s own election of 

claims in filing suit. Grand III, 225 Ariz. at 176. Defendants do not dispute that fifteen of 

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the secondary market purchasers bought the Bonds through the Defendant Underwriters, 

which is sufficient evidence to create a triable issue of fact that those Defendants “made” 

the sales under the ASA. Their Motion for Summary Judgment is therefore denied as to 

these fifteen Bondholders’ claims. 

 Defendants nevertheless contend that they are entitled to summary judgment on 

the claims of the seventeen aftermarket Bondholders who did not purchase from 

Defendants.10 They assert that there is no evidence that any Defendant had any contact 

with these seventeen Bondholders, much less that they made, participated in, or induced 

the unlawful sales to those Bondholders. (Doc. 775 at 13.) 

 Wells Fargo does not argue that any Defendant made the sale to these seventeen 

Bondholders. However, it points to evidence that Defendants placed misleading 

information in the OS and that Fitch reviewed the OS as a “key document” in 

determining the bond rating. (Doc. 666-7 at 164:5–165:14.) Wells Fargo further points to 

evidence that eight of the seventeen Bondholders supplied testimony in the form of 

questionnaire responses or declarations showing that they indirectly relied on the OS and 

the Fitch Rating through their brokers. For example, Bondholders Carolyn Buckner, 

Dagmar Montgomery, and Lavina Lovitt declared that they relied on their brokers’ 

recommendations in deciding to purchase the Bonds, and that they would not have 

purchased them if they had known that they were not a safe and secure investment. (Doc. 

550-2 at 26, 98, 118.) Vicki Porter and Frank and Anna Marie Hemmen declared that 

they relied on their brokers and would not have purchased the Bonds if they were not 

investment grade. (Id. at 91, 145.) The remaining Bondholders simply filled out 

questionnaires in which they checked “yes” in response to the question of whether they 

 

10 These seventeen Bondholders are Larry Verhulst, Marvin Bruning, Carolyn Buckner, Carole Conover, Allen Dotson, Elene Fortman, Maryann Inman, Roger Johnson, Suzanne Johnson (beneficiary of original Bond purchaser), Mark Merrill, 

Dagmar Montgomery, Vicki Porter, Neil & Gayle Potter, Amanda Ross, Frank & Anna Hemmen, Lavina Lovitt, and Twila Smith. (Doc. 646-3 at ¶¶ 192–205, 241–43.) 

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relied on their brokers’ recommendation in deciding to purchase the Bonds. 11 (Doc. 550-

1 at 81, 327.) According to Wells Fargo, this evidence of reliance is sufficient to create 

an issue of material fact as to whether Defendants participated in or induced the sales to 

these Bondholders. Nevertheless, there is no evidence as to the basis on which the 

broker’s made their recommendations to the bondholders to purchase the bonds. 

 The information supplied by these Bondholders shows that Defendants’ level of 

involvement was less than the activity of the defendants in Grand II (sending emails, 

recommending brokers, etc.). 217 P.3d at 1206–07. Thus, Wells Fargo has failed to show 

that Defendants’ involvement in the allegedly unlawful sales of securities to these 

secondary market Bondholders arose to the level of participation. 

Nor can the evidence that Defendants supplied information which was used to 

formulate a rating which was then relied upon by two of the Bondholders support a 

finding that Defendants induced the sale to the aftermarket Bondholders. As discussed 

above, inducement is defined as persuading or influencing the decision to purchase. 

Standard Chartered, 190 Ariz. at 21. The Arizona Court of Appeals has found 

inducement where the defendant placed ads for the securities and showed misleading 

financial statements to potential purchasers. Strom v. Black, 22 Ariz. App. 102, 104, 523 

P.2d 1339, 1341 (Ct. App. 1974). Similarly, the Arizona Supreme Court described the 

actions taken by the defendants in Grand II of directly contacting and providing 

information to the plaintiffs as “classic inducement.” 225 Ariz. at 176. By contrast, the 

misleading statements in this case were placed in the OS, which was not given to 

aftermarket purchasers. There is no evidence that Defendants had any contact with the 

aftermarket purchasers. Defendants did not take any affirmative steps to persuade or 

influence the purchases of the seventeen aftermarket purchasers who did not purchase 

their Bonds from Defendants. The placement of misleading statements in the OS does not 

 

11 One of the Bondholders set forth by Wells Fargo inherited the Bonds from her mother and checked that she did not recall whether her mother relied on a broker’s 

recommendation or received any materials in connection with the Bond purchase. (Doc. 550-1 at 155–57.) 

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come close to the actions of other defendants who have been found to induce unlawful 

sales of securities in the cases described above. The evidence raised by Wells Fargo is not 

sufficient for a reasonable fact-finder to determine that any Defendant induced the 

aftermarket purchases by these seventeen Bondholders. Thus, Defendants’ Motion for 

Summary Judgment is granted as to the ASA claims of these Bondholders. 

 As stated above, the parties agree that at least fifteen of the Bondholders 

purchased their Bonds from the secondary market directly from the Underwriters.12

(Docs. 644 at 9; 657 at 23.) Defendants do not appear to contest that the Underwriters 

“made” the sale to these Bondholders under the ASA. Rather, they contend that they are 

entitled to summary judgment on the claims of these Bondholders as well because these 

secondary market sales were not made pursuant to the OS. (Doc. 775 at 14.) Defendants 

assert the lack of evidence that any of these fifteen Bondholders were provided with 

copies of the OS means that Wells Fargo cannot show that reliance or transaction 

causation for any of them. (Id.) As discussed above, however, reliance is not an element 

of an ASA claim and transaction causation requires only a showing of materiality. The 

ASA does not require evidence that any particular Bondholder relied on or was caused to 

purchase by a misstatement, and the issue of materiality is reserved for the jury. Thus, the 

lack of evidence pointed out by Defendants is not fatal to Wells Fargo’s ASA claims on 

behalf of these Bondholders. 

 Nevertheless, Defendants argue that the limited scope of the OS and the Bond 

Offerings prevents any secondary market purchasers from relying on misstatements 

therein to bring an ASA claim. (Doc. 644 at 11.) They point to the MSRB disclosure rule 

in effect at the time of the offering, which required delivery of the OS only to 

 

12 These fifteen Bondholders are Esther Bedford, Marilyn Diebold, Robert 

Dravecky, Faith Hammack, Willie and Georgia Knopff, Frederick and Patricia Mariacher, Richard John Strohmayer, Wendy Tanata, Larry and Deloris Tolliver, Keith and Barbara Birzinger, Essex Regional Retirement System, Norman Rothenbaum, Betty Schonthal, Morton and Susan Shane, and Rita Echenique. Rita Echenique’s claim is barred because, as discussed above, Wells Fargo has failed to provide any non-hearsay evidence of her current ownership of the Bonds. 

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Bondholders who purchased during the “new issue disclosure period,” and the fact that 

the OS’s cover page stated that it was “not intended for use in connection with any 

subsequent sale, reoffering or remarketing of the Bonds.” (Id. at 12–13.) 

 However, Defendants do not cite to any case law holding that a rule with limited 

disclosure requirements means that liability is limited to only the parties for which 

disclosure is required. In the federal scheme, liability is so limited only when the cause of 

action expressly states that the security was sold pursuant to the disclosure document, 

requiring the plaintiff to plead and prove that it purchased as part of the initial offering. 

See 15 U.S.C. § 77l; In re Century Aluminum Co. Sec. Litig., 749 F. Supp. 2d 964, 976 

(N.D. Cal. 2010). Those circumstances are not present in an ASA claim, which requires 

only that a defendant make any untrue statement or omit any material fact in connection 

with a securities transaction. A.R.S. § 44-1991. Nor does the statement on the cover page 

preclude secondary market purchasers from recovering; the mere statement that the OS is 

“not intended for use” by subsequent purchasers does not indicate that Defendants have 

thoroughly disclaimed liability for any misstatements in the document. 

B. Negligent Misrepresentation

 Arizona defines the tort of negligent misrepresentation in accordance with the 

Restatement (Second) of Torts § 552. St. Joseph’s Hosp. & Med. Ctr. v. Reserve Life Ins. 

Co., 154 Ariz. 307, 312, 742 P.2d 808, 813 (1987). Under Arizona law, negligent 

misrepresentation occurs when a person “fails to exercise reasonable care and 

competence in obtaining or communicating information and thereby, in the course of his 

business or employment, provides false information for the guidance of others.” PLM Tax 

Certificate Program 1191–92, L.P. v. Schweikert, 216 Ariz. 47, 50, 162 P.3d 1267, 1270 

(Ct. App. 2007). The recipients of the information must incur damages due to their 

justifiable reliance on the false information. Id. A claim for negligent misrepresentation 

cannot be based on future promises; it must be premised on statements about past or 

present facts. McAlister v. Citibank (Ariz.), a Subsidiary of Citicorp, 171 Ariz. 207, 215, 

829 P.2d 1253, 1261 (Ct. App. 1992). 

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 Liability for negligent misrepresentation is limited to loss suffered “by the person 

or one of a limited group of persons for whose benefit and guidance” the information is 

supplied. Restatement (Second) of Torts § 552 (1997). The defendant must have intended 

for the information to influence the plaintiff or known that the plaintiff would be 

influenced by the information. Id. In addition, the plaintiff must have actually relied on 

the information, and the misstatement must have caused the plaintiff’s injury. Id.

“However, direct communication of the information to the person acting in reliance upon 

it is not necessary.” Id. § 552 cmt. g. 

 In an earlier Order, this Court dismissed all negligent misrepresentation claims 

except for those relating to the “misleading impression that Bondholders would have a 

‘first lien’ upon certain TPT revenues that were pledged for debt servicing.” (Doc. 212 at 

70.) The Court found the other claims to be based on promises of future conduct, and thus 

incapable of supporting a negligent misrepresentation claim. (Id. at 72.) 

 Defendants primarily argue that they are entitled to summary judgment on the 

negligent misrepresentation claims because Wells Fargo is unable to prove the element of 

individualized reliance. (Doc. 644 at 30.) They also assert that summary judgment should 

be granted for the same reasons that they put forth for summary judgment on the ASA 

claims—namely, that Wells Fargo is unable to establish causation for each of the 

individual Bondholders. (Id. at 34.) 

 1. Standard for Reliance

 As discussed above, an essential element of the claim of negligent 

misrepresentation is justifiable reliance. The parties dispute the level of reliance that is 

required to overcome summary judgment on this element. Defendants argue that Wells 

Fargo is required (and has failed) to show “individual proof of direct reliance on a 

representation or omission.” (Doc. 664 at 32.) Conversely, Wells Fargo argues that 

indirect reliance is sufficient. (Doc. 657 at 13.) 

 Wells Fargo is correct that “direct communication of the information to the person 

acting in reliance upon it is not necessary.” Restatement (Second) of Torts § 552 cmt. g. 

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However, Wells Fargo further argues that establishing reliance requires only a showing 

that “the Defendants intended or had reason to expect that the fraudulently-procured 

rating would be communicated to the purchasers or their brokers.”13 (Doc. 657 at 16–17.) 

In doing so, it conflates two separate elements of the cause of action. Section 552 of the 

Restatement, which sets out the claim for negligent misrepresentation, requires both that 

the defendant “[intend] the information to influence or [know] that the recipient so 

intends” and that the plaintiff justifiably rely on the information, resulting in injury. 

There is nothing in the Restatement or Arizona law that suggests a showing of the first 

element (intent to influence a particular person or group of people) suffices to establish 

the second element of reliance. 

 None of the cases discussed by Wells Fargo demonstrate otherwise. They cite to a 

number of cases interpreting ASA claims and 10b-5 claims, but those are distinguishable. 

As discussed above, reliance is not an element of an ASA claim. The 10b-5 cases rely on 

the fraud-on-the-market theory, which does not apply to Arizona common law claims. 

Hoexter v. Simmons, 140 F.R.D. 416, 424 (D. Ariz. 1991). 

 Wells Fargo also relies on a number of cases interpreting the Restatement. The 

sections of the Restatement discussed in its Response do not, however, relate to the claim 

of negligent misrepresentation. Wells Fargo relies heavily on the sections describing 

causes of action other than negligent misrepresentation in setting forth its theory of 

indirect reliance. (See Doc. 657 at 15–16 (citing Restatement (Second) of Torts §§ 533 

(“Representation Made to a Third Person”), 534 (“Representation to More Than One 

Person”)).) These sections all discuss types of fraudulent misrepresentation, see 

Restatement (Second) of Torts § 533 cmt. b, which the Restatement expressly 

distinguishes from negligent misrepresentation. Id. § 552 cmt. a. (“The liability stated in 

 

13 Wells Fargo does state conclusorily that “each of the Bondholders purchased the Bonds ‘in reliance upon the erroneous [Fitch] rating so procured,” but do not cite to their 

Counter Statement of Facts or any part of the record in doing so. (Doc. 657 at 16.) Thus, the Court need not take this statement into account in deciding the summary judgment motion. 

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this Section [for negligent misrepresentation] is . . . more restricted than that for 

fraudulent misrepresentation stated in § 531.”). Moreover, while these sections discuss 

the concept of holding a defendant liable for statements that it intended to reach the 

plaintiff or the group of persons of which the plaintiff is a part, they do not equate that 

element to the element of reliance. Wells Fargo must summon evidence to show both

Defendants’ intent that the misrepresentations reach the Bondholders and the 

Bondholders’ reliance on those misrepresentations; proof of the first does not establish 

the second. 

 Thus, though Wells Fargo need not show that Defendants directly communicated 

the misstatements in the OS to the Bondholders, it does need to show that the 

Bondholders relied on the misstatements and that those misstatements caused the 

Bondholders’ harm. W. Technologies, Inc. v. Sverdrup & Parcel, Inc., 154 Ariz. 1, 3–4, 

739 P.2d 1318, 1320–21 (Ct. App. 1986). It cannot rely solely on evidence that 

Defendants provided misinformation that they intended to reach the Bondholders. 

2. Evidence of Causation and Reliance 

 It is undisputed that at least some of the Bondholders never obtained or saw the 

OS prior to purchasing the Bonds. (See, e.g., Doc. 646-1 at 84, 86, 88, 92 (Bondholder 

questionnaires answering “no” to the question whether they received a copy of the OS or 

POS prior to purchase).) Thus, because those Bondholders never personally read the 

misleading statements in the OS, Wells Fargo must prove indirect reliance. Wells Fargo’s 

theory is that the Bondholders indirectly relied on the Fitch Rating, which was the result 

of Fitch’s reliance on misinformation in the POS. (Doc. 657 at 3.) In addition, Wells 

Fargo contends that the Bondholders relied on the Underwriters, who in turn relied on the 

Fitch Rating and misinformation in the OS and/or POS. (Id.) Defendants argue that Wells 

Fargo’s claims rely on a long chain of causation and reliance that is broken by lack of 

evidence at multiple points. For the reasons that follow, Plaintiff has demonstrated 

sufficient evidence to raise an issue of fact as to whether Fitch’s rating was dependent on 

the OS. Nevertheless, as to those Bondholders who indicated only that they relied on the 

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statements of their brokers in purchasing the Bonds, the Trustee has failed to create a 

material issue of fact as to whether the brokers who sold the Bonds to the Bondholders 

relied on the misstatements in the OS in making their recommendations. 

 a. Link Between Fitch Rating and Misstatements in OS 

 Defendants cite to the fact that Jose Hernandez, the primary analyst evaluating the 

Bonds for Fitch, never definitively stated that the misrepresentations regarding a lien on 

the TPT Revenues would have foreclosed the possibility of an investment grade rating. 

They point to the lack of evidence from Hernandez, or any other witness, that not only 

would Fitch have declined to issue an A- rating, but would also have declined to issue 

any of the other four ratings qualified as “investment grade” had it known of the alleged 

misstatement regarding the TPT Revenues. Defendants cite Harrison v. Proctor & 

Gamble, a case from the Northern District of Texas, in which the court granted summary 

judgment on a claim of legal malpractice because the plaintiffs were unable to show that 

a term that their attorneys failed to include in a contract would have been accepted by the 

other party to the contract, even if the attorneys had brought it up. No. CIV.A.7:06-CV121-OE, 2009 WL 304573 at *8 (N.D. Tex. Feb. 9, 2009) aff’d sub nom. Harrison v. 

Taft, Stettinius & Hollister, L.L.P., 381 F. App’x 432 (5th Cir. 2010). They argue that the 

logic of Harrison applies here, and that they should be granted summary judgment 

because Wells Fargo is unable to show that Fitch would have issued a non-investment 

grade rating if it had known of the alleged issues with the TPT Revenues. 

 However, the facts of Harrison are distinguishable from the case at hand. Texas 

law specifically requires that, in malpractice cases “involving business transactions or 

contractual negotiations . . . a plaintiff must show that a negotiated term or provision 

would have been accepted by the other party to the negotiation.” Id. at *5. Thus, 

Harrison is distinguishable on multiple fronts: this is not a legal malpractice case and it 

does not involve terms or provisions omitted from negotiations. Additionally, Defendants 

have pointed to no express legal standard like the one under Texas law for omitted terms 

or provisions that would apply to a rating agency’s reliance on a misstatement in a 

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prospectus. Further, Texas law generally requires expert testimony to prove causation in 

legal malpractice cases, and in Harrison the plaintiffs’ expert “affirmatively disclaimed 

any opinion as to causation.” Id. at *8. Thus, the plaintiffs there failed to create a material 

issue of fact on summary judgment. 

 Here, conversely, Wells Fargo has submitted evidence that Fitch relied on 

statements in the OS, and that its subsequent rating was caused, at least in part, by those 

misstatements. Hernandez testified the POS was a “key document for Fitch to review” 

prior to issuing a bond rating. (Doc. 646-16 at 165:9–14.) He further testified that the 

support from the Town of Prescott Valley was “the key credit factor for Fitch” in rating 

the Bonds. (Id. at 172:16–19; 173:16–24; 174:1–9.) Hernandez agreed that it would be 

“unusual” for the Town of Prescott Valley to refuse to read any of the documents that 

Hernandez reviewed in evaluating the Bonds, though he apparently did not know that the 

Town was doing this at the time of his analysis in 2005. (Id. at 176:6–12.) He further 

testified that it would have been a “concern for [him] and Fitch” if he had been aware that 

the Town disagreed with the statement that it was pledging a junior lien on the TPT 

Revenues for debt servicing on the Bonds. (Id. at 179:5–21.) He also agreed that if 

anything impeded the ability of Wells Fargo to obtain TPT Revenues from the Town, that 

issue would have required a “satisfactory resolution” before the rating committee issued 

its decision. (Id. at 221:12–21.) 

 Defendants point to the fact that Hernandez stopped short of testifying that such a 

concern would have prevented Fitch from issuing an investment grade rating; instead, he 

noted that the rating was a decision made by a committee of which he was not a part. (Id.

at 112:1–7; 180:15–18.) However, the causation requirement for negligent 

misrepresentation is not as stringent as Defendants assert. Negligent misrepresentation is 

“governed by the principles of the law of negligence.” Van Buren v. Pima Cmty. Coll. 

Dist. Bd., 113 Ariz. 85, 87, 546 P.2d 821, 823 (1976). Under Arizona negligence law, the 

plaintiff is not required to establish that the defendant’s breach definitively caused the 

injury, but rather that the act of “negligence increased the risk of injury.” Ritchie v. 

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Krasner, 221 Ariz. 288, 297, 211 P.3d 1272, 1281 (Ct. App. 2009). “The step from 

increased risk to [the probability of] causation is one for the jury to make.” Id. Causation 

may be established even if the defendant’s “conducted contributed ‘only a little’ to 

plaintiff’s injuries.” Ontiveros v. Borak, 136 Ariz. 500, 505, 667 P.2d 200, 205 (1983) 

(citing Markiewicz v. Salt River Valley Water Users’ Assoc., 118 Ariz. 329, 338 n.6, 576 

P.2d 517, 526 n.6 (App. 1978)). 

 Here, Wells Fargo has identified evidence that Fitch relied on the OS as part of its 

decision-making process in issuing a rating for the Bonds. The OS, a “key document for 

Fitch to review,” contained omissions regarding the functionality of a lien on the TPT 

Revenues, and there is at least some evidence that Fitch would not have issued a rating at 

all until the issues with the lien were resolved. A genuine issue of material fact exists as 

to whether the omissions in the OS caused the Fitch rating. Thus, a jury could find that 

the omissions regarding the TPT Revenues increased the risk that Fitch would issue an 

investment-grade rating for the Bonds, thus contributing to the Bondholders’ decision to 

purchase the Bonds, and ultimately playing some part in the Bondholders’ injury of 

losing money on the Bonds. In addition, a jury could infer from Hernandez’s testimony 

that Fitch relied on the alleged misstatement in reaching the A- rating. Defendants’ 

Motion for Summary Judgment is thus denied for this prong of the causation analysis. 

 Wells Fargo also submitted the report of its expert witness, Robert Smith, to 

support its argument that the Fitch Rating would not have been issued if the true facts had 

been disclosed. (Doc. 657 at 26; see also Doc. 663.) Defendants, in turn, have filed a 

Motion in Limine to preclude Smith’s report, arguing that Smith is not qualified to opine 

on the matter and that his opinion is speculative. (Doc. 774.) However, because 

Defendants have failed to meet their summary judgment burden, the Court need not reach 

the question of whether Smith’s testimony is admissible to create a genuine issue of 

material fact. Defendants’ Motion in Limine is denied without prejudice. 

b. Bondholders’ Statements That They Would Not Have 

Purchased Bonds if Not for Investment Grade Rating 

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Defendants further argue that Wells Fargo is unable to show that the Bondholders 

actually relied on the Fitch Rating in deciding to purchase the Bonds. They assert that 

Wells Fargo’s evidence from Bondholders that they would not have bought the Bonds if 

they had not been investment grade is inadmissible. (Doc. 644 at 23.) Defendants are 

presumably referring to the declarations by some of the Bondholders gathered by Wells 

Fargo after the June 15 deadline set by this Court.14 (Doc 550-2.) The majority of those 

declarations contain statements asserting that the Bondholder in question would not have 

bought the Bonds if he or she had known they were “junk bonds.” (See generally id.) 

Defendants point to cases in which courts refused to allow “[v]ague, self-serving 

speculative testimony concerning what a party would have done under different 

circumstances.” See Bridgen v. Scott, 456 F. Supp. 1048, 1063 (S.D. Tex. 1978); 

Williams v. Sec. Nat’l Bank of Sioux City, Iowa, 358 F. Supp. 2d 782, 814 (N.D. Iowa 

2005). Many of the cases cited by Defendants occur in the products liability context, in 

which courts precluded plaintiffs from testifying what they would have done if 

defendants had not violated a standard of care. (See Doc. 23 n.30.) Those courts reasoned 

that a party’s testimony about what he or she might have done in other, hypothetical 

circumstances was speculative and not rationally based on the party’s perception, and 

thus impermissible under Federal Rule of Evidence 701. See Washington v. Dep’t of 

Transp., 8 F.3d 296, 300 (5th Cir. 1993). 

However, that case law is inapposite to the facts of this case, where the 

Bondholders’ statements regarding junk bonds were made in the context of their 

 

14 Nine of these declarations are made by Bondholders from whom the Court has 

prohibited testimony relating to reliance or causation. (Doc. 572 at 9.) Thus, the 

declarations of these Bondholders are not admissible and will not be considered on this 

Motion for Summary Judgment. The Bondholders whose declarations will not be 

considered are Lisa Audlin (Doc. 550-2 at 10–12), Ronald Chehy (Doc. 646-2 at 42–43), Emil DePiero (Doc. 55-2 at 71–72), Brian Donovan (id. at 73–75), Kester Haugh (id. at 

89–91), Lavina Lovitt (id. at 97–09), Bernard Patton (id. at 136–37), Neil Potter (id. at 

146–47), and Harold Smith (id. at 162–64). In addition, one of the declarations is made 

on behalf of the Catholic Diocese of Wilmington, Delaware, whose claim the Court has 

barred. (Doc. 572 at 7.) That declaration will not be considered on this Motion to 

Dismiss, either. (Doc. 550-2 at 46–48.) 

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assertions regarding their general investing strategy. The Bondholders declared that they 

avoided high-risk, speculative bonds; only invested in securities that were safe and 

secure; only bought bonds with good ratings; considered themselves conservative 

investors; and wanted to preserve principal. (See, e.g., Doc. 550-2 at 15 (“My investment 

goals in 2005 were to invest conservatively to prepare and be available for retirement.”); 

29 (“We make only safe and secure investments . . . . We require the bonds we purchase 

to have a good rating.”); 35 (“I . . . require any bonds I purchase to have at least an Arating.”); 70 (“I was a conservative investor who preferred safe and secure investments, 

not high-risk ones.”); 103 (“I tend to avoid high risk investments.”); 114 (“I do not care 

about high yields. I want safe bonds.”); 116 (“My broker knows that I’m a conservative 

investor and don’t make risky investments.”); 125 (“I do not believe that I have ever 

bought a junk bond. . . . I wanted a steady source of income for my retirement and did not 

want to risk principal.”); 132 (“I am a conservative investor . . . . All of my bonds are 

investment grade.”).) Thus, when the Bondholders declared that they would not have 

bought the Bonds if they had known that they were junk bonds or they were not 

investment grade, they were not basing their assertions on a hypothetical situation but 

rather on their own behavior based on known preferences and habits. Such testimony is 

not vague and speculative; it is based on the personal knowledge and experience of the 

Bondholders. 

Bridgen, the primary case on which Defendants rely, involved different facts from 

the ones at issue here. The plaintiffs in that case testified that they would not have 

invested if they had known that “the property was sold twice on the same day.” Bridgen, 

456 F. Supp. at 1063. The Southern District of Texas found this testimony “completely 

meaningless” because the plaintiffs were sophisticated and were familiar with the 

transaction’s setup, including that its structure would result in “enormous tax advantages” 

because of its “highly leveraged nature.” Id. at 1064. Based in these facts, it determined 

that the plaintiffs’ testimony was totally inconsistent with the “material economic 

realities” manifested in the record. Id. at 1065. It therefore found no genuine issue of 

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material fact and granted summary judgment for defendants. 

Wells Fargo argues that a genuine issue of material fact is created by “the 

undisputed evidence that the investment grade rating was a key factor in the decision to 

sell the Bonds and in marketing them.” (Doc. 657 at 31.) It cannot, however, rely on a 

general statement that this factor was key to the decision to create a genuine issue of 

material fact as to reliance by each of the individual Bondholders. Wells Fargo’s 

Statement of Facts reveals only 43 Bondholders whose declarations create a genuine 

issue of material fact that they relied on the Fitch Rating—these Bondholders stated that 

they would not have invested in the Bonds if they had not been investment grade, if they 

had not been rated above a B, or if they hadn’t been “so highly rated.”15 Such statements 

are sufficient to create a genuine issue of material fact that these Bondholders relied on 

the Fitch Rating, which as discussed above may have been the result of reliance on 

alleged misstatements in the OS. 

Conversely, many of the Bondholders’ declarations state only that they relied on 

their broker (or their brokers’ judgments of the Bonds safety or rating), that they would 

not have invested if the Bonds were not “safe and secure,” or that they would not have 

purchased the Bonds if they had known that they were “junk bonds.” These declarations 

 

15 The 43 Bondholders are Mary Abbey (Doc. 550-2 at 3), Roberta Alcorn (id. at 

6), Gary and Sharon Armstrong (id. at 8), Joseph and Linda Beane (id. at 20), Carl 

Becvar (id. at 18), Maurice Campbell (id. at 32), S. Kathryn Carnahan (id. at 35), Marilyn Colley (Doc. 550-2 at 41), Larry Roger Cunningham (id. at 67), Stephen Dorr (id. at 77), 

Robert Dravecky (id. at 83), Eric R. Erlbaum (id. at 86), Joseph F. Gleissner (id. at 88), 

Faith M. Hammock (Doc. 646-2 at 101), Frank & Anna Marie Hemmen (id. at 92), 

Maryann Inman (id. at 94), Jerry Jackson (doesn’t appear on Doc. 532-2) (Doc. 646-2 at 

112), John E. James (id. at 115), Elmo & Deanna Jones (id. at 117), Basil J. Komas (Doc. 

550-2 at 96), John MacFadden (id. at 100–01), Bruce Mackintosh (id. at 103), Fred 

Mariacher (id. at 105), Charles Marshall (id. at 107), Dagmar Montgomery (id. at 118), 

Edith Marie Moser (id. at 122), Jean Pansch (id. at 130), Larry Parr (id. at 132), Edward 

Patillo (id. at 134), Carl B. Peterson (id. at 141), Dale Petty (id. at 143), Vicki Porter (id.

at 145), Charles Robeda (id. at 149), Cecilia Robertson (id. at 151), Betty Schmidt (Doc. 646-2 at 184–85), Michael Schuster (Doc. 550-2 at 158), James L. Self (Doc. 646-2 at 

190), William & Lisa Sims (Doc. 550-2 at 161), Emily Gladys Smith (Doc. 646-2 at 195), Wendy Tanata (id. at 171), Deloris Tolliver (id. at 175), Sam Wasserman (id. at 

178), and Lloyd Wiles (id. at 180). Ronald Chehy, Emil DePiero, Kester Haugh, Bernard Patton, and Harold J. Smith submitted affidavits but are precluded from testifying on causation and damages per the Court’s earlier Order. (Doc. 572 at 9 n.7.) 

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do not indicate that the Bondholders behind them relied specifically on the Fitch Rating 

in deciding to purchase the Bonds. Wells Fargo cannot assert general reliance on the 

Fitch Rating to demonstrate individualized, indirect reliance for these remaining 

Bondholders. It argues instead that those Bondholders relied on their brokers, who they 

claim relied on either the Fitch Rating or the alleged misstatements in the OS. 

c. Lack of Individual Broker Testimony

Defendants assert that Wells Fargo has not presented sufficient evidence to 

establish that the brokers who sold the Bonds to individual Bondholders relied on either 

the OS or the Fitch rating, thus breaking the chain of causation and reliance on alleged 

misstatements in the OS. They point out that this Court barred Wells Fargo from offering 

testimony by the individual brokers in its previous Order on October 11, 2012. (Doc. 572 

at 10.) They assert that, as a matter of law, Wells Fargo cannot establish that the brokers 

who sold the Bonds relied on either the OS or the Fitch Rating without their testimony. 16

(Doc. 644 at 26.) They claim that the lack of the individual brokers’ testimonies breaks a 

crucial link in the chain of reliance from the misstatements in the OS to the Bondholders’ 

purchases. 

As discussed earlier, the Restatement does not require the misrepresentation to be 

made directly to the ultimate recipient of the information. Rather, the misrepresentation 

need only be made to a person whom the maker knows will supply or intends to supply 

the information to the ultimate recipient. Restatement (Second) of Torts § 552. “[D]irect 

communication of the information to the person acting in reliance upon it is not 

necessary.” Id. cmt. g. “It is enough that the maker of the representation intends it to 

reach and influence . . . a group or class of persons.” Id. cmt. h. 

In addition, however, the Restatement requires that “the party injured must have 

relied on the information the defendant supplied.” W. Technologies, Inc. v. Sverdrup & 

 

16 Defendants argue this in asserting that Wells Fargo has failed to establish transaction causation, but carry all arguments made in the transaction causation context to 

their argument that Wells Fargo failed to establish indirect reliance on their negligent misrepresentation claim. (Doc. 644 at 34.) 

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Parcel, Inc., 154 Ariz. 1, 3, 739 P.2d 1318, 1320 (Ct. App. 1986) (emphasis in original). 

The Restatement also requires that the above reliance caused the injuries suffered by the 

plaintiff. Id. at 1320–21. Thus, in order to show that the Bondholders relied on the 

misstatements and that the misstatements caused their injury, Wells Fargo must show 

both that the brokers relied on the misstatements in the OS and the Bondholders based 

their purchase of the Bonds on their brokers’ reliance on those misstatements.17 

Here, Wells Fargo has submitted evidence that Defendants made misstatements in 

the OS regarding the TPT Revenues. (See Doc. 583-2 (Preliminary Official Statement) at 

KUTAK00435, 442, 448, 450, 451, 453–54 (describing the TPT Revenues and the 

alleged “first lien” on them).) The purpose of an OS in a municipal securities offering is 

“to enhance the quality and timeliness of disclosure to investors” and underwriters for 

such offerings are required to “obtain and distribute to their customers the issuers’ 

official statements for the offerings.” Securities Act Release No. 7049, File No. S7-4-94 

(March 9, 1994). The fact that Defendants placed information regarding the TPT 

Revenues in the OS is sufficient for a finder of fact to find that the Defendants intended 

that information to reach the purchasers of the Bonds. 

Wells Fargo also claims that it has evidence that all the brokers involved in this 

case used a standardized sales pitch in selling the Bonds to the Bondholders. (Doc. 657 at 

32.) “[A] showing that . . . sales presentations were uniformly patterned on a known 

model provides certitude that material misrepresentations were a causative factor in each 

plaintiffs’ decision.” Am. Continental, 140 F.R.D. at 430. The evidence to which Wells 

Fargo cites, however, does not support the existence of a standardized sales pitch. At 

most, the evidence suggests that some of the Defendant Underwriters and non-party 

sellers of Bonds forwarded information from the OS or the Fitch Rating to their retail 

sales force. (See, e.g., Docs. 666-11 at 32:23–25 (Kimes sent wire communication to the 

 

17 Wells Fargo need not show that the brokers relied on the misstatements for 

those Bondholders who claim that they directly relied on the misstatements in the OS without relying on their brokers. 

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sales force at Edward Jones mentioning the Fitch Rating and TPT Revenues); 666-3 at 

16:8–13, 91:2–13 (Forsberg sent emails with information on Fitch Rating, TPT 

Revenues, and OS to sales representatives at Lawson); 66-8 at 22:24–24:10 (Howell at 

Baird forwarded the OS and Fitch Report to the retail sales force); Doc. 332-27 (email 

from Benickes at ML Stern to all personnel setting out detailed information about the 

Bonds).) However, none of this evidence demonstrates the existence of a uniform or 

standardized sales pitch that the individual brokers were required to use in selling the 

Bonds to the Bondholders. The evidence shows that employees in the higher levels of 

each of the Underwriters’ and sellers’ offices sent the individual brokers information 

regarding the Bonds, including information on the Fitch Rating and the content of the OS, 

but there is no evidence that the individual brokers considered that information or even 

viewed it before deciding to sell the Bonds to the individual Bondholders. Thus, there is 

no evidence that any Bondholder who claims to have relied on their broker in deciding to 

purchase the Bonds, without relying separately on the OS or the Fitch Rating, relied, even 

indirectly, on misstatements regarding the TPT Revenues in the OS. 

Consequently, the chain of reliance linking the misstatements in the OS to the 

Bondholders’ purchases of the Bonds is broken for those Bondholders who claim to have 

relied solely on their brokers in making the purchase.18 Because there is no evidence that 

 

18 86 Bondholders checked that they relied on their brokers and not on the OS in 

making their purchases of the Bonds. (Doc. 532-2 at 6–8.) As discussed above, however, 

some of those Bondholders submitted declarations that create a genuine issue of material fact as to whether they relied on the Fitch Rating. The remaining Bondholders are: Francis J. Allbritton, Bonnie Kane Barenholtz, Vernon & Janet Bloom, Merle Buck, 

Carolyn Buckner, Louis John & Joyce Buytendorp, Lee & Helen Capuchio, Thomas & Loretta Coder, Helen M. Corlett, Eva J. Dayhuff, Marilyn R. Diebold, Edna M. Doole, 

Susan Dorr, Allen Dotson, Bill & DeEtte Douglas, Sam L. Farmer, Elene Fortman, Kristi 

L. Galindo-Dyson, Lester & Jody Gaskill, Robert R. Griebnow, Zelda J. Hawk, Curtis & 

Adeana Henrickson, David A. Hester, Iron Workers Local Union Nos. 40, 361, 417 

Pension Fund, Lois A. Irwin, Billie Sue Jackson, Roger H. Johnson, Thomas Jungwirth, Arlie & Barbara Kyzer, Larry D. Lauderback, John F. L’Ecuyer, Fred Lenz, Marlynrae Mathews, Robert L. Matthiessen, Rudolph & Marsha Mayers, Lucy Mayorga, Patricia Mecey, Mark A. Merrill, Minnesota Masonic Charities Funds, Linda A. Monteblanco, 

Edwin & Marjorie Olson, Marilyn & Deborah Orndoff, Leonard & Linda Peters, Kathy Philips, Wilmetta A. Roth, Betty & Robert Schmidt, Martha H. Schroyer, Kennon H. Shank, Lawrence L. Siems, Paulina J. Smith, Twila Smith, Louis J. Stamey, Richard Strohmayer Charles & Karen Struthers, Logan Tivitt, Samuel R. Wasserson, Melvin & 

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the individual brokers relied on either misstatements in the OS or the Fitch Rating (which 

arguably was premised in part on the same misstatements) in selling Bonds to 

Bondholders, there is no evidence that the Bondholders relied on that information in 

purchasing the Bonds, either. Wells Fargo does not set forth any evidence that any of 

these Bondholders relied, directly or indirectly, on misstatements in the OS 

independently of their reliance on their brokers.19 

3. Bondholders Who Gave Incorrect Reasons for Purchasing 

Bonds

 Defendants assert that they are entitled to summary judgment on the claims of 

several Bondholders who declared that they bought the Bonds for reasons that were not 

applicable to the Bonds. They point to the affidavits of six Bondholders who variously 

stated that they bought the Bonds because they were “AAA rated,” “insured,” or “tax 

free.” (Doc. 645 at ¶ 21.) The Bonds were not AAA-rated or insured, though they were 

exempt from state taxes. 

 Five of these six Bondholders stated in their affidavits that they relied in some way 

on the Bonds’ rating in deciding to purchase the Bonds. (Doc. 646-2 at 101 ¶ 3 (Faith 

Hammock), 105 ¶ 4 (Frank & Anna Marie Hemmen), 110 ¶ 4 (Maryann Inman), 131 ¶ 5 

(Charles Marshall), 205 ¶ 4 (Wendy Tanata).) Thus, the fact that they also relied on other 

mistaken beliefs on the Bonds is immaterial. The fact that they relied on the Fitch Rating, 

which in turn was the result of reliance on alleged misstatements in the OS, is sufficient 

to create a genuine issue of material fact as to their reliance. The sixth Bondholder, 

Kester Haugh, also declared that he relied on the Fitch Rating (id. at 103 ¶ 4), but his 

testimony on causation and damages was precluded by the Court’s earlier Order, and thus 

he cannot demonstrate reliance. (Doc. 572 at 9 n.7.) Defendants’ Motion for Summary 

 Sandra Weber, Brenda Wellenreiter, and Wisconsin Laborers Health Fund C/O Voyageur Asset Management. 

19 Defendants’ specific argument for summary judgment on the claims of the 27 

Bondholders who are precluded from testifying on causation and damages is granted for the same reason. Because these Bondholders are unable to establish reliance, they are missing a crucial element of the negligent misrepresentation claim. 

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Judgment on the five Bondholders’ claims is therefore denied, but granted as to the 

negligent misrepresentation claims of Kester Haugh. 

4. Bondholders Who State They Relied on the OS

 Defendants contend that they are entitled to summary judgment on the claims of 

twenty-seven Bondholders who checked either that they relied on the OS or that they 

received the OS before purchasing the Bonds.20 They argue that the checkmarks are mere 

legal conclusions that cannot create a genuine issue of material fact on summary 

judgment. (Doc. 644 at 27–29.) They fault Wells Fargo for failing to produce any 

evidence that any of these Bondholders actually read the OS. (Id. at 28.) Thus, they 

argue, Wells Fargo has failed to produce evidence that these twenty-seven Bondholders 

actually relied on any misstatements in the OS, and Defendants are entitled to summary 

judgment on those negligent misrepresentation claims. 

 However, Defendants’ characterization is incorrect. Though reliance is an 

essential element of the claim of negligent misrepresentation and thus has legal 

significance, a Bondholder’s declaration that he or she relied on the OS does not become 

a legal conclusion because of that significance. Rather, it is a mixed question of law and 

fact. “When the application of a rule of law depends on the resolution of disputed 

historical facts, . . . it becomes a mixed question of law and fact.” William W. Schwarzer, 

Alan Hirsch, & David J. Barrans, The Analysis and Decision of Summary Judgment 

Motions: A Monograph on Rule 56 of the Federal Rules of Civil Procedure, 139 F.R.D. 

441, 456 (1992). Defendants dispute the historical fact of whether these particular 

Bondholders in fact relied on misstatements in the OS by questioning whether they even 

read the OS. “Such disputed facts normally preclude summary judgment.” Id. That the 

 

20 Sixteen of the Bondholders checked that they relied on the OS: John Barron, Marvin 

Bruning, Maurice Campbell, Karen Cotterell, Larry Cunningham, Ernestine Hins, William & Glenda Hins, Willaim Kramer, Bernard Lampo, Peggy Moore, Ruby Norris, Judith Padrta, Darlene Rowe, Larry & Deloris Tolliver, Lloyd Wiles, and Gary Willgues. Eleven checked that they received the OS before purchasing the Bonds: Emil & Theresa DePiero, Robert Dravecky, Sam Farmer, Maryann Inman, Lois Irwin, Willie & Georgia Knopff, Pauline Lovato, Marlynrae Mathews, Dale Petty, Michael & Denise Schuster, and Rosella Wiessman. 

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fact of reliance is “essential to a claim” does not mean that it is a legal conclusion that 

cannot raise a genuine issue of material fact. Instead, these “ultimate facts are ordinarily 

the province of the jury.” Carrasco v. City of Vallejo, No. CIV.S001968 WBS JFM, 2001 

WL 34098655 at *2 (E.D. Cal. Sept. 6, 2001). Thus, the Court rejects Defendants’ 

characterization of these Bondholders’ checkmarks on form questionnaires as legal 

conclusions that cannot overcome a motion for summary judgment. Defendants’ 

objections to the checkmarks go to the weight and credibility of the evidence, and such 

objections are not appropriate for resolution at the summary judgment stage. Harris, 183 

F.3d at 1051. 

 Defendants nevertheless argue that in order to succeed on summary judgment, 

Wells Fargo must show that each Bondholder relied on “a particular representation or 

omission that is alleged to be false or misleading.” (Doc. 644 at 30.) Defendants argue 

that Wells Fargo has failed to establish the element of reliance because it lacks evidence 

that the Bondholders specifically relied on the misstatements in the OS regarding the 

alleged lien on TPT Revenues. (Id. at 31–32.) However, Wells Fargo has provided 

evidence that at least sixteen of these Bondholders relied on the OS generally in making 

their purchases. A reasonable finder of fact may infer from that evidence that these 

Bondholders relied on the statements within the OS regarding TPT Revenues. 

Defendants’ Motion for Summary Judgment on this ground is thus denied. 

 As for the eleven Bondholders who merely received the OS, however, a 

checkmark indicating receipt does not create a triable issue of fact as to whether they 

relied on the OS in making their purchase. Of the eleven, three—Emil & Theresa 

DePiero, Pauline Lovato, and Rosella Weissman—are precluded from testifying on 

causation and damages, and thus cannot demonstrate reliance. (See Doc. 572 at 9 n.7.) 

Another four of them submitted declarations stating that they would not have invested in 

the Bonds if they had not been investment-grade.21 This is sufficient to create a triable 

 

21 The four investors are Robert Dravecky (Doc. 646-2 at 93–95), Maryann Inman (id. at 109–110), Dale Petty (id. at 168–69), and Michael and Denise Schuster (id. at 186–

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issue of fact as to whether they relied on the Fitch Rating, thus completing a chain of 

reliance sufficient to withstand summary judgment. The remaining four did not submit 

any affidavit; nor does Wells Fargo point to any evidence showing that they relied, 

directly or indirectly, on the misstatements in the OS.22 Defendants’ Motion for Summary 

Judgment is thus granted as to their claims. 

IT IS THEREFORE ORDERED that Defendants’ Motion for Summary 

Judgment is GRANTED as to the claims of the 53 Bondholders who failed to return 

questionnaires, namely James C. & Christine B. Akers, Linda L. & William R. Beinke, 

Walter D. Bethoon & Addie M. Novaria–Bethoon, Keith & Barbara Bitzinger, C-2 

Construction, Captive Investors, Mario J. Cirio, Sally L. Clark, Kenneth Cude, Pablo G. 

De Leon, Samuel Dempster, Arlene Dotts, Rita Echenique, Lennis & Richard Elston, 

Barry Evans, Bruce W. Ewing, Karl Richard Gerlitz & Anita Dabney Jones–Gerlitz, 

Lucinda M. & Kenneth E. Gerlitz, Betty T. Gleason, Fred Grapel, Marvin Groseth, Henry 

T. Hudson, Jr., Stephen Korey, Margaret Luebbers, Barbara Lurie, Billy G. Massey, 

Jeanine Mackintosh, Maxicor, Kathleen E. Milford, Edna F. Mlady, Patricia M. 

Mosbacher, David Ornoff, William E. & Nettie I. Postlewait, Charlotte & Jack Prescott, 

Lorraine Quayle, Amin Radparvar, Donald W. & Julia M. Rawn, Florence Reed, Norman 

Rothenbaum, Gloria Saiers, Daniel & Doris R. Sanchez, Mark Sanchez, Roland & Esther 

Sanchez, Betty F. Schonthal, Mortan & Susan Shane, Jack C. Silhavy, Kenneth Smith, 

Jack & Paula Strickstein, Dennis Swapp, Joan L. Titland, Herman R. Van Lier, Frances 

A. & Terrence L. White, and Emerson H. Young. 

IT IS FURTHER ORDERED that Wells Fargo is prohibited from bringing 

claims on behalf of any Bondholders not identified by the June 15, 2012 deadline, 

including the Catholic Diocese of Wilmington, Delaware. 

 88). 

22 The remaining four are Sam Farmer, Lois Irwin, Willie & Georgia Knopff, and Marlyanne Mathews. 

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IT IS FURTHER ORDERED that Defendants’ Motion for Summary Judgment 

on the ASA claims is GRANTED as to the secondary market purchasers who did not 

purchase their Bonds from Defendants, namely Larry Verhulst, Marvin Bruning, Carolyn 

Buckner, Carole Conover, Allen Dotson, Elene Fortman, Maryann Inman, Roger 

Johnson, Suzanne Johnson (beneficiary of original Bond purchaser), Mark Merrill, 

Dagmar Montgomery, Vicki Porter, Neil & Gayle Potter, Amanda Ross, Frank & Anna 

Hemmen, Lavina Lovitt, and Twila Smith. However, Defendant’s Motion for Summary 

Judgment is DENIED as to the ASA claims of all other Bondholders. 

IT IS FURTHER ORDERED that Defendants’ Motion for Summary Judgment 

on the negligent misrepresentation claims is DENIED as to those Bondholders who 

claimed to have relied on the Fitch Rating or the OS, namely Mary Abbey, Roberta 

Alcorn, Gary and Sharon Armstrong, Joseph and Linda Beane, Carl Becvar, Maurice 

Campbell, S. Kathryn Carnahan, Marilyn Colley, Larry Roger Cunningham, Stephen 

Dorr, Robert Dravecky, Eric R. Erlbaum, Joseph F. Gleissner, Faith M. Hammock, Frank 

& Anna Marie Hemmen, Maryann Inman, Jerry Jackson, John E. James, Elmo & Deanna 

Jones, Basil J. Komas, John MacFadden, Bruce Mackintosh, Fred Mariacher, Charles 

Marshall, Dagmar Montgomery, Edith Marie Moser, Jean Pansch, Larry Parr, Edward 

Patillo, Carl B. Peterson, Dale Petty, Vicki Porter, Charles Robeda, Cecilia Robertson, 

Betty Schmidt, Michael and Denise Schuster, James L. Self, William & Lisa Sims, Emily 

Gladys Smith, Wendy Tanata, Larry & Deloris Tolliver, Sam Wasserman, Lloyd Wiles, 

John Barron, Marvin Bruning, Karen Cotterell, Ernestine Hins, William & Glenda Hins, 

Willaim Kramer, Bernard Lampo, Peggy Moore, Ruby Norris, Judith Padrta, Darlene 

Rowe, and Gary Willgues. However, Defendants’ Motion for Summary Judgment on the 

negligent misrepresentation claims is GRANTED as to those Bondholders who relied 

only on their brokers or only received the OS without any indication that they relied on it, 

namely Francis J. Allbritton, Bonnie Kane Barenholtz, Vernon & Janet Bloom, Merle 

Buck, Louis John & Joyce Buytendorp, Lee & Helen Capuchio, Thomas & Loretta 

Coder, Helen M. Corlett, Eva J. Dayhuff, Edna M. Doole, Susan Dorr, Bill & DeEtte 

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Douglas, Sam L. Farmer, Elene Fortman, Kristi L. Galindo-Dyson, Lester & Jody 

Gaskill, Robert R. Griebnow, Zelda J. Hawk, Curtis & Adeana Henrickson, David A. 

Hester, Iron Workers Local Union Nos. 40, 361, 417 Pension Fund, Lois A. Irwin, Billie 

Sue Jackson, Roger H. Johnson, Thomas Jungwirth, Arlie & Barbara Kyzer, Larry D. 

Lauderback, John F. L’Ecuyer, Fred Lenz, Marlynrae Mathews, Robert L. Matthiessen, 

Rudolph & Marsha Mayers, Lucy Mayorga, Patricia Mecey, Mark A. Merrill, Minnesota 

Masonic Charities Funds, Linda A. Monteblanco, Edwin & Marjorie Olson, Marilyn & 

Deborah Orndoff, Leonard & Linda Peters, Kathy Philips, Wilmetta A. Roth, Betty & 

Robert Schmidt, Martha H. Schroyer, Kennon H. Shank, Lawrence L. Siems, Paulina J. 

Smith, Louis J. Stamey, Charles & Karen Struthers, Logan Tivitt, Samuel R. Wasserson, 

Melvin & Sandra Weber, Brenda Wellenreiter, Wisconsin Laborers Health Fund C/O 

Voyageur Asset Management, and Willie & Georgia Knopff. It is also GRANTED as to 

the negligent misrepresentation claims of the Bondholders who are precluded from 

testifying on causation and damages, namely Therese Anthony, Lisa M. Audlin, Beverly 

Bledsoe, Ronald T. Chehy, Emil & Theresa DePiero, Brian C. Donovan, Alvin Curtis 

Earls, Essex Regional Retirement System, Kester D. & Ann Haugh, Wendy A. Laude, 

Pauline Lovato, New Jersey Statewide Building Laborers Pension Fund, Operating 

Engineers Local #49 Health and Welfare, Bernard A. Patton, Neil R. & Gayle S. Potter, 

Production Sheet Metal Workers’ Local 10 Retirement Plan, Laurence V. Rosa, Lenore 

M. Sesner, Harold J. Smith, Byron & Dorothy A. Snyder, State Bank & Trust, United 

Food and Commercial Workers Union Local #789 & St. Paul Food Employees Health 

Care Fund, Vance & Bobbie G. Vaupel, Rosella Weissman, Ed C. Winthrop, Esther 

Bedford, Suzanne G. Johnson, and Lavina J. Lovitt. 

 Accordingly, 

IT IS ORDERED that Defendants’ Motion for Summary Judgment (Doc. 640) is 

GRANTED IN PART and DENIED IN PART. 

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/ / / 

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IT IS FURTHER ORDERED that Defendants’ Motion in Limine (Doc. 774) is 

DENIED WITHOUT PREJUDICE. 

 Dated this 13th day of September, 2013. 

Case 3:09-cv-08162-GMS Document 947 Filed 09/13/13 Page 36 of 36