Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_09-cv-08162/USCOURTS-azd-3_09-cv-08162-24/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 

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

(Trustee), has moved for summary judgment1

 on the counterclaim asserted by 

Defendants/Third-party Plaintiffs/Counter-Claimants Robert W. Baird & Company, Inc., 

Southwest Securities, Inc., successor to M.L. Stern & Company LLC, and Edward D. 

Jones & Co. LP (the Underwriters). (Doc. 680.) Because this Motion raises issues distinct 

from those in the other motions for summary judgment in this case, the Court has filed 

this separate Order. The Motion is granted for the reasons specified below. 

 

 

1

 The Court acknowledges that Wells Fargo has filed multiple motions for summary judgment in direct violation of the Case Management Order (CMO), which states: “No party shall file more than one motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure unless permission is first obtained, by joint 

telephone call, from the Court.” (Doc. 257 ¶ 7(b).) Wells Fargo has acknowledged that it did not receive permission to file multiple motions for summary judgment. (Doc. 935 at 2.) The Court has elected to consider the instant Motion, but reserves the right to award attorneys’ fees as a sanction for Wells Fargo’s violation of the CMO. 

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BACKGROUND

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

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

construction of the Events Center in the Town of Prescott Valley. This order pertains to a 

counterclaim of the Underwriters against the Trustee of the Independent Development 

Authority of the County of Yavapai (Issuer) for negligent misrepresentation. 

 In the Indenture, executed on November 1, 2005, Wells Fargo agreed to act as the 

Issuer’s trustee in the issuance of $35 million in excise tax revenue bonds. (Doc. 684 ¶ 1; 

Doc. 850 ¶ 1.) The Trust Indenture established Wells Fargo as the Trustee and described 

its role in the bond process. (Id.) The Issuer assigned to the Trustee the Issuer’s rights to 

all payments due under the Loan Agreement. (Doc. 684 ¶ 3; Doc. 850 ¶ 3.) The law firm 

of Kutak Rock LLC served as Bond Counsel in the transaction and drafted the Loan 

Agreement, Trust Indenture, and other related documents. (Doc. 684 ¶ 10; Doc. 850 ¶ 

10.) 

 Prescott Valley Events Center, LLC, (Borrower) borrowed the funds generated by 

the Bonds to finance the construction of a 5,000-seat convention center in the Town of 

Prescott Valley, Arizona (Town). (Doc. 684 ¶ 2; Doc. 850 ¶ 2.) Earlier in the process of 

preparing to issue the Bonds, the Town had signed a Development Agreement that 

pledged certain tax revenues (TPT Revenues) to the Borrower if the net operating income 

of the Event Center proved insufficient to service the debt. (Doc. 684 ¶¶ 4, 7–8; Doc. 850 

¶¶ 4, 7–8.) The TPT Revenues were also intended to serve as security for the Bonds, and 

the Bond Documents established a lien on those revenues in favor of the Trustee. (Doc. 

684 ¶ 27; Doc. 850 ¶ 27.) Under the terms of an Assignment Agreement, the Borrower 

assigned its right to receive the pledged TPT Revenues to the Trustee. (Doc. 684 ¶¶ 7–9; 

Doc. 850 ¶¶ 7–9.) Complications with accessing these TPT Revenues ultimately played a 

role in the inability to fully service the Bonds, as discussed below. 

The Indenture set forth how the TPT Revenues would be accessed. Article VI of 

the Indenture addressed the “Pledged Revenues,” which included net operating income, 

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certain TPT Revenues, and money on deposit in the relevant funds and accounts. (Doc. 

852-27 at KUTAK000084.) Article VI also briefly described how the TPT Revenues 

would function as security for the Bonds. (Id. at KUTAK000089–90.) The TPT Revenues 

were contained in certain accounts, such as the Fain Escrow Account, Lockbox Account, 

and Town Escrow Account. (Id.) If the proceeds in one fund were insufficient to service 

the debt, then the revenues in another fund would come into play; if those were 

insufficient, a third fund could be triggered. (Id.) If those three funds ad seriatum failed to 

fill the debt service requirements, a fourth—Secondary Credit Support Area funds—was 

available if the Trustee applied to the Town pursuant to the Development Agreement. (Id.

at KUTAK000090.) The Town, which was the source of the TPT Revenues, was not a 

party to the Indenture. 

The Underwriters hired the law firm of Stinson Morrison to draft the Bond 

Purchase Agreement. (Doc. 684 ¶ 22; Doc. 850 ¶ 22.) The Trustee was not a party to this 

agreement. (Doc. 684 ¶ 23; Doc. 850 ¶ 23.) The Bond Purchase Agreement required 

specific representations and warranties from the Issuer and the Borrower to the 

Underwriters before the Underwriters would purchase the Bonds. (Doc. 684 ¶ 22; Doc. 

850 ¶ 22.) Among these were the opinions of counsel for various parties, along with 

specific representations. (Doc. 684 ¶¶ 28–39; Doc. 850 ¶¶ 28–39.) 

The Trustee issued a Closing Certificate. (Doc. 687-5 (Baudry Decl. Ex. 2) at 

KUTAK000360–62.) In it, the Trustee warranted that “[t]he Trustee Documents 

constitute the valid and binding obligations of the Trustee, enforceable in accordance 

with their terms . . . .” (Id. at KUTAK000360.) In addition, the Certificate claimed that 

the execution of delivery of the Trustee Documents and the consummation 

of the transactions contemplated thereby, and the fulfillment of the terms 

and conditions thereof, do not contravene the charter or bylaws of the 

Trustee or conflict with or constitute a breach of or default under any law, 

administrative regulation, order, consent decree or any agreement or 

instrument applicable to the Trustee or its property. 

(Id.) 

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In 20082 the net operating income was insufficient to service the Bonds, and the 

Trustee asked the Town to pay the TPT Revenues set forth in the Bond Documents. (Doc. 

466 ¶¶ 247, 250.) The Town refused to make the payments without a specific, formal 

demand from the Trustee, but the Trustee could not timely obtain the information it 

needed to make the demand on the Town. (Id.) The Town, in turn, could not release the 

TPT Revenues under Arizona law absent the specific information the Trustee could not 

provide. (Id.) An administrative quandary thus developed that was not contemplated in 

any of the Bond Documents—the lack of detail about how the various funds would be 

accessed prevented any debt service on the Bonds. Wells Fargo alleges that “[a]s a result 

of negligent draftsmanship . . . the Town’s obligation to pay sales tax revenues from the 

Entertainment District and Secondary Credit Support Area to pay debt service on the 

Bonds in the event of revenue shortfalls was rendered defective because no adequate 

mechanism existed for the Trustee to demand payment.” (Id. ¶ 264.) 

The Underwriters’ counterclaim essentially alleges that Wells Fargo is to blame, at 

least in part, for the problem. The Underwriters claim that “[t]he Closing Certificate of 

Trustee, which Wells Fargo signed and provided to all parties to the offering, intending 

that they rely on its statements,” negligently misrepresented that the Trust Indenture was 

legally effective. (Doc. 281 at ¶ 54). The Underwriters contend that the Trustee had an 

obligation to substantively review the Indenture to ensure that it was legally effective and 

“workable,” and that, since the Trustee now seeks to hold the Underwriters liable for its 

negligent performance of this obligation, the Trustee should also be liable, in whole or in 

part, for any damages resulting from the Indenture’s alleged inadequacies. (Id.) 

/ / / 

/ / / 

/ / / 

 

2

 The facts in this section are taken from Wells Fargo’s Counterclaim, which the Underwriters do not contest for purposes of this Motion. (Doc. 466.) For purposes of the present motion then, the Court assumes the truth of the allegations described in this 

paragraph. 

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DISCUSSION 

I. LEGAL STANDARD

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

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

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

P. 56(a). 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 v. Liberty Lobby, Inc., 477 U.S. 242, 

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

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

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

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

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

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

(quoting Anderson, 477 U.S. at 250). 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 L.R.Civ. 1.10(l)(1) (“Any party opposing a motion for summary 

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

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

judgment in favor of the moving party.”). 

II. ANALYSIS 

The Underwriters’ negligent misrepresentation claim is founded on representations 

the Trustee made in its Closing Certificate. Because the Closing Certificate does not, no 

matter how broadly read, make any misrepresentations as to the ability of the Trustee to 

call upon the TPT revenues as security, and because the Underwriters point to no other 

representations to support their claim, summary judgment in favor of the Trustee is 

appropriate. 

 A. Legal Principles 

 The Underwriters’ claim is for negligent misrepresentation. Arizona imposes 

liability on “‘[o]ne who, in the course of his business, profession or employment, or in 

any other transaction in which he has a pecuniary interest, supplies false information for 

the guidance of others in their business transactions” for “pecuniary loss caused [to 

others] by their justifiable reliance upon the information, if he fails to exercise reasonable 

care or competence in obtaining or communicating the information.’” St. Joseph’s Hosp. 

& Med. Ctr. v. Reserve Life Ins. Co., 742 P.2d 808, 813 (Ariz. 1987) (quoting 

Restatement (Second) of Torts § 552). The Underwriters claim that the Trustee’s 

Certificate “supplie[d] false information for the guidance of others” and that Wells Fargo 

“fail[ed] to exercise reasonable care or competence in obtaining or communicating the 

information.” Id.

While the claim is not one for breach of contract, the resolution of the 

Underwriters’ counterclaim nevertheless depends on the interpretation of the Closing 

Certificate of Trustee and thus, as all Parties apparently agree, relies on the same 

interpretive principles. “The interpretation of a contract is a question of law” and is often 

appropriate to resolve at the summary judgment stage. L. Harvey Concrete, Inc. v. Agro 

Const. & Supply Co., 939 P.2d 811, 813 (Ariz. Ct. App. 1997). A court “‘must give effect 

to the contract as it is written, and the terms or provisions of the contract, where clear and 

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unambiguous, are conclusive. The intent of the parties, as ascertained by the language 

used, must control the interpretation of the contract. It is not within the province or power 

of the court to alter, revise, modify, extend, rewrite or remake an agreement.’” Shattuck v. 

Precision-Toyota, Inc., 566 P.2d 1332, 1334 (Ariz. 1977) (quoting Goodman v. Newzona 

Investment Co., 421 P.2d 318, 320 (Ariz. 1966)). 

Wells Fargo relies on two arguments to justify summary judgment in its favor. 

First, Wells Fargo argues that because the Certificate does not contain any warranties 

relating to the compatibility of the Indenture with the Development Agreement or any 

other Bond Document; it certifies only the Trustee’s role in transaction and ability to 

fulfill its obligations under Indenture. Because the Court concludes that the Closing 

Certificate’s representations are limited only to Wells Fargo’s obligations and do not 

warrant the overall “workability” of the transaction, the Court does not reach Wells 

Fargo’s second issue regarding the reliance on counsel. 

B. The Closing Certificate of Trustee 

The Underwriters’ claim relies on the interpretation of § 1(b) of the Closing 

Certificate. The Trustee made two specific representations in two separate paragraphs. In 

the first paragraph, the Trustee certified that “[t]he Trustee Documents constitute the 

valid and binding obligations of the Trustee.” (Doc. 687-5 (Baudry Decl. Ex. 2) at 

KUTAK000360.) This paragraph merely notes, by its plain terms, that the Trustee is 

bound by the Trustee documents. It makes no representations about the “workability” of 

the arrangement between the underwriters, the Town, the Issuer and the borrower. There 

is no warranty that the Trustee will ensure that each party involved in the bond 

transaction is able to play their part. In fact, each party to the transaction made a very 

similar representation. The Issuer made a warranty to the Underwriters concerning its 

ability to perform under the Indenture. (Doc. 684 ¶¶ 37–38; Doc. 850 ¶¶ 37–38.) The 

Borrower did the same. (Doc. 684 ¶¶ 39–40; Doc. 850 ¶¶ 39–40.) Each attested to the 

enforceability of their obligations under the Indenture, but not the obligations of others. 

To interpret a representation that “[t]he Trustee Documents constitute the valid and 

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binding obligations of the Trustee” to mean that the Trustee warranted the “workability” 

of the entire arrangement would wrest the plain language of the Certificate beyond its 

clear meaning. Section 1(b)’s first paragraph says only that the Underwriters can hold the 

Trustee to its duties under the Indenture. Consequently, the first representation in § 1(b) 

cannot support a claim of negligent misrepresentation. 

The Underwriters concentrate most of their argument on the second representation 

in § 1(b), but that representation is likewise too narrow by its terms to support the 

interpretation the Underwriters assign to it. In full, the paragraph reads 

The execution and delivery by the Trustee of the Trustee Documents and 

the performance by the Trustee of its duties under the Trustee Documents 

have been duly authorized by all necessary corporate action on the part of 

the Trustee and the execution and delivery of the Trustee Documents and 

the consummation of the transactions contemplated thereby, and the 

fulfillment of the terms and conditions thereof, do not contravene the 

charter or bylaws of the Trustee or conflict with or constitute a breach of or 

default under any law, administrative regulation, order, consent decree or 

any agreement or instrument applicable to the Trustee or its property.

(Doc. 687-5 at KUTAK000360 (emphasis added).) 

 Where the first paragraph certified that the Underwriters could hold the Trustee to 

its obligations under the Indenture and other Trustee Documents, this paragraph certified 

the Trustee’s ability to perform its obligations unhindered. The provision lists potential 

legal impediments to the Trustee’s performance: the charter and bylaws of the Trustee, 

and “any law administrative regulation, order, consent decree or any agreement or 

instrument applicable to the Trustee or its property.” (Id.) It is that last clause that most 

clearly defeats the Underwriters’ attempt to ascribe a wider sweep to the Trustee’s 

representation. It narrows the certification to those laws “applicable to the Trustee or its 

property.” It says nothing about the obligations of the Town to provide security for the 

performance of the bonds. 

 The Trustee’s central claim (which gave rise to the Underwriters’ counterclaim) 

was its inability to receive the TPT Revenues due to certain state laws that hemmed in the 

Town. But those are not laws that constrain the Trustee’s ability to fulfill its obligations; 

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rather, those laws impair the Trustee’s ability to receive the revenues it had a right to 

receive under the Development Agreement, Indenture, and Assignment Agreement. 

Contractual arrangements are always about the obligations of one party and the rights of 

another. See Providence Bank v. Billings, 29 U.S. 514, 522 (1830) (recognizing that a 

contract confers rights on one party and imposes obligations on the other). The warranty 

in the second paragraph of § 1(b) concerns Wells Fargo’s obligations, not its rights. The 

Town, not the Trustee, was unable to release the TPT Revenues due to state law 

constraints on its budgeting processes. Those state law constraints do not appear to have 

been contemplated by any party, but they are constraints on the Trustee’s right to receive 

the needed TPT Revenues, not on its obligation to fulfill its duties under the Indenture. 

In the Order on the Underwriters’ Motion to Amend, the Court examined this 

language in § 1(b) and observed that the “language does not so clearly refer only to the 

Trustee’s obligations under the Indenture, that the Court will preclude the Underwriters, 

at this stage, from discovering facts and circumstances that may shed some light on the 

intent of the parties.” (Doc. 443 at 14–15.) In making that preliminary observation, 

however, the Court specifically cited and relied upon the Underwriters’ claims that the 

Trustee “owed a duty to the Bondholders to insure that there existed an adequate notice 

procedure in place to enable the Town to timely budget and pay sales tax revenues,” and 

that “a different part was assigned to provide certificates for each document involved in 

the Bond offering and that the Trustee was the party assigned to certify the Indenture.” 

(Id. at 15.) The Underwriters have presented no evidence to support either of these 

allegations. In the absence of such evidence, there is no language of the Closing 

Certificate that makes an assertion that is reasonably susceptible to the interpretation it is 

given by the Underwriters. 

 The Underwriters’ Bond Purchase Agreement specifically listed certain 

“representations, warranties, covenants and agreements” whose submission was a 

condition precedent to execution. (Doc. 687-6 at KUTAK402–04.) These documents 

included the Official Statement, Issuer Documents, Borrower Documents, opinion of 

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Bond Counsel, opinion of the Issuer’s counsel, opinion of the Borrower’s counsel, 

opinion of the Underwriters’ counsel, certificates from the Issuer and Borrower, and 

additional legal opinions, certificates, instruments and other documents . . . 

to evidence the truth and accuracy . . . of the Issuer’s and Borrower’s 

representations, warranties, covenants and agreements . . . and of the 

statements and information contained in the Official Statement and the due 

performance or satisfaction by the Issuer and the Borrower . . . of all the 

agreements then to be performed and conditions then to be satisfied by 

them. 

(Id. at KUTAK000403.) This detailed list of key documents focuses almost exclusively 

on the obligations and representations of the Issuer and Borrower. Nowhere is the Trustee 

mentioned. There is, then, no evidence from which a trier of fact could conclude in light 

of the language used in the certification that the Trustee’s role was a “master reviewer,” 

as the Underwriters claim. While the Bond Purchase Agreement states that the 

Underwriters did rely on “the representations, warranties, covenants and agreements to be 

contained in the documents and instruments to be delivered on the date of delivery of the 

Bonds,” which included the Trustee Documents, the Trustee Documents do not 

themselves contain any obligation to insure the functionality of all the various obligations 

of the parties to the bond offering. 

Moreover, the certifications from other parties show that each party certified only 

its ability to carry out its own obligations, and not the ability of any other party to do so. 

Bond Counsel certified that the Indenture is binding on the Issuer as to its terms. (Doc. 

684 ¶ 28; Doc. 850 ¶ 28.) Issuer and Issuer’s Counsel attested that the Issuer Documents 

constitute binding obligations of the Issuer. (Doc. 684 ¶¶ 37–38; Doc. 850 ¶¶ 37–38.) 

Borrower and Borrower’s Counsel represented that the Borrower Documents were 

enforceable obligations. (Doc. 684 ¶¶ 39–40; Doc. 850 ¶¶ 39–40.) The multitude of 

certifications and representations makes clear that each party would certify only its own 

performance. 

Both the Trustee and the Underwriters have marshaled expert testimony to support 

their competing interpretations of the contract, but the existence of competing expert 

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interpretation of the contract does not suffice to preclude summary judgment where the 

language of the representation or alleged warranty is unambiguous. Cf. L. Harvey 

Concrete, 939 P.2d at 813; Shattuck, 566 P.2d at 1334. Here, the language of § 1(b) 

attests only to the ability of the Trustee to perform its own obligations under the 

Indenture and not to the overall “workability” of the arrangement. 

 The Underwriters contend that this reading of § 1(b) equates the representations in 

the first paragraph with the second paragraph and thereby renders one or the other 

superfluous. See Scholten v. Blackhawk Partners, 909 P.2d 393, 396 (Ariz. Ct. App. 

1995) (“[A] contract should be construed to give effect to all its provisions and to prevent 

any of the provisions from being rendered meaningless.”); Phillips v. Flowing Wells 

Unified Sch. Dist. No. 8, 669 P.2d 969, 970 (Ariz. Ct. App. 1983) (“A contract must be 

construed so that every part is given effect.”). They are not. Each paragraph performs a 

separate function. The first affirms that the Trustee will be bound by its obligations and 

that the Underwriters—or any other party that is a recipient of the Closing Certificate—

can hold the Trustee to those obligations. The second certifies that there are no legal 

hindrances specific to the Trustee that could prevent its ability to perform those 

obligations. Read in its entirety, § 1(b) makes two limited representations specific to the 

Trustee. Each representation has a specific role in the overall certification and therefore 

half of § 1(b) is not rendered superfluous. 

 Nothing in § 1(b) supports a claim that Wells Fargo warranted that the entire deal 

was “workable.” There is no evidence to support the Underwriters’ prior assertion that “a 

different party was assigned to provide certificates for each document involved in the 

Bond Offering and that the Trustee was the party assigned to certify the Indenture.” (Doc. 

433 at 15.) Instead, it appears that each party certified only their ability to fulfill their 

own obligations, but not the overall effectiveness of the agreement. That was the case 

with § 1(b) of the Closing Certificate. Because those statements cannot be read to make 

such a warranty, the Underwriters have not shown any false statement and summary 

judgment on their claim of negligent misrepresentation is appropriate. 

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CONCLUSION

 As a matter of law, the Closing Certificate of Trustee does not certify that the 

arrangement was “workable” from the perspective of all parties; just that the Trustee 

would be able to perform its obligations vis-à-vis the Underwriters. Because the 

Underwriters have not shown that the Trustee has made the statements they claim are 

false, summary judgment is appropriate. 

IT IS THEREFORE ORDERED that Wells Fargo’s Motion for Summary 

Judgment (Doc. 680) is GRANTED. 

 Dated this 13th day of September, 2013. 

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