Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-3_09-cv-08162/USCOURTS-azd-3_09-cv-08162-7/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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The Town’s request for oral argument is denied as the Court has determined that oral

argument will not aid in its decision. See Lake at Las Vegas Investors Group v. Pac.

Malibu Dev., 933 F.2d 724, 729 (9th Cir. 1991).

WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Allstate Life Insurance Company;

Plaintiff, 

vs.

Robert W. Baird & Co., Inc., et al., 

Defendants. _________________________________

Ronald Covin, et al.,

Plaintiffs,

vs.

Robert W. Baird & Co., Inc., et al.,

Defendants.

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Lead Case No. CV-09-8162-PCT-GMS

Consolidated with:

Case No. CV-09-8174-PCT-GMS

ORDER

Pending before the Court is Allstate Life Insurance Company’s Motion to Dismiss the

Town of Prescott Valley’s Counterclaims. (Doc. 262). As set forth below, Allstate’s Motion

to Dismiss is granted in part and denied in part.1

Case 3:09-cv-08162-GMS Document 422 Filed 11/01/11 Page 1 of 6
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BACKGROUND

This action arises from 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. In 2005, Plaintiff Allstate Life Insurance Company invested $26.4

million in the Bonds and is the majority Bondholder. The Covin Plaintiffs, which consist of

Bondholders other than Allstate, invested an additional $9 million in the Bonds. Wells Fargo

Bank, N.A. (“Trustee”) was appointed as the Bonds’ Indenture Trustee and gained certain

rights and responsibilities in relation to the Bonds pursuant to the Indenture of Trust

(“Indenture”).

In 2009 Allstate commenced this action. Allstate alleges that in the offering

documents for the Bonds, various Defendants, including the Town of Prescott Valley

(“Town”), failed to disclose material information to purchasers of the Bonds, resulting in

financial loss to the Bondholders. Allstate has therefore filed federal securities fraud claims

against the Town, along with state-law claims for securities fraud, common-law fraud, aiding

and abetting fraud, and negligent misrepresentation. The Covin Plaintiffs likewise assert

fraud claims against the Town.

The Town, meanwhile, has counterclaimed, contending that Allstate is at least

partially responsible for the Bondholders’ financial loss. A 2005 development agreement

(“Development Agreement”) between the Town and the Trustee requires that the Town make

periodic payments to the Trustee of transaction privilege tax revenues (“TPT revenues”). The

Development Agreement further requires that these TPT revenues be used to service the

Bonds. (Dev. Agmt. § 4.3.7.4). The Town alleges, however, that Allstate improperly induced

the Trustee to use the TPT revenues to pursue litigation against the Town instead of to

service the Bonds. In particular, the Town alleges that “Allstate induced the Trustee to divert

the Town’s October 2009, April 2010, and October 2010 debt service payments to the

payment of legal fees.” (Doc. 238, ¶ 6). According to the Town, the Trustee acknowledged

Allstate’s actions in a notice on its website, which informed the Bondholders that Allstate

had “directed the Trustee in writing to forbear . . . from applying funds in the trust account

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to principal and interest on the Bonds.” (Doc. 238, ¶ 18). The Town contends that, as a result

of Allstate’s actions, Fitch Ratings “withdrew its rating on the Bonds, causing [the] harm to

the Bondholders for which they seek recovery from the Town.” (Doc. 238, ¶ 6).

At issue in the instant motion are the Town’s two counterclaims. (Doc. 238). First, the

Town claims that Allstate intentionally interfered with both the Indenture and the

Development Agreement. Second, the Town alleges that to the extent it is liable for harm

suffered by the Bondholders, it is entitled to contribution from Allstate. Allstate moves to

dismiss both counterclaims pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure

to state a claim. (Doc. 262).

DISCUSSION

I. Legal Standard

To survive dismissal, a claim must contain more than “labels and conclusions” or a

“formulaic recitation of the elements of a cause of action”; it must contain factual allegations

sufficient to “raise a right to relief above the speculative level.” Bell Atl. Corp. v. Twombly,

550 U.S. 544, 555 (2007). When analyzing a counterclaim for failure to state a claim under

Rule 12(b)(6), “[a]ll allegations of material fact are taken as true and construed in the light

most favorable to the non-moving party.” Smith v. Jackson, 84 F.3d 1213, 1217 (9th Cir.

1996). In addition, the Court must assume that all general allegations “embrace whatever

specific facts might be necessary to support them.” Peloza v. Capistrano Unified Sch. Dist.,

37 F.3d 517, 521 (9th Cir. 1994). Although a claim “need not contain detailed factual

allegations,” Clemens v. DaimlerChrysler Corp., 534 F.3d 1017, 1022 (9th Cir. 2008), the

Court will not assume that the plaintiff can prove facts different from those alleged. See

Associated Gen. Contractors of Cal. v. Cal. State Council of Carpenters, 459 U.S. 519, 526

(1983); Jack Russell Terrier Network of N. Cal. v. Am. Kennel Club, Inc., 407 F.3d 1027,

1035 (9th Cir. 2005). Similarly, legal conclusions couched as factual allegations are not

given a presumption of truthfulness, and “conclusory allegations of law and unwarranted

inferences are not sufficient to defeat a motion to dismiss.” Pareto v. FDIC, 139 F.3d 696,

699 (9th Cir. 1998).

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Allstate argues that it cannot be held liable for tortious interference with the

Development Agreement since it is not a “stranger” to this contract. (Doc. 262 at 4). To

support this argument, Allstate cites Southern Union Co. v. Southwest Gas Corp., a 2001 case

in which the U.S. District of Arizona determined, citing Georgia state law, that “[t]he

intended third-party beneficiary of a contract . . . cannot be held liable for tortious

interference since he is not a stranger to the contract.” 165 F. Supp. 2d 1010, 1037 (D. Ariz.

2001) (citing Atlanta Market Ctr. Mgmt. Co. v. McLane, 269 Ga. 604, 609 (1998)). In 2002,

however, the Arizona Supreme Court allowed a tortious interference claim to proceed even

though the defendant was one of the contract’s beneficiaries. Wells Fargo Bank v. Arizona

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II. Legal Analysis

A. Intentional Interference with Contract

The Town claims that Allstate intentionally interfered with contractual relations

between the Town and the Trustee. (Doc. 238 at 35). To successfully state a claim for

intentional interference with contractual relations, the Town must plead: 

(1) the existence of a valid contractual relationship; (2)

knowledge of the relationship on the part of [Allstate]; (3)

intentional interference inducing or causing a breach; (4)

resultant damage to [the Town]; and (5) that [Allstate] acted

improperly. Snow v. Western Sav. & Loan Ass’n, 152 Ariz. 27,

33, 730 P.2d 204, 211 (1986). 

The Town has adequately plead elements (2), (3), and (5). Allstate contends, however, that

the Town has failed to allege (1) a valid contractual relationship or (4) damage to the party

whose relationship has been disrupted. (Doc. 262 at 4–5).

A contract is not valid for purposes of tortious interference unless the plaintiff is a

party to the contract. Am. Family Mut. Ins. Co. v. Zavala, 302 F. Supp. 2d 1108, 1118 (D.

Ariz. 2003) (citing Bowdoin v. Oriel, No. 98–5539, 2000 WL 134800, at *4 (E.D. Pa. Jan.

28, 2000)). Allstate alleges that the Town is not a party to the Indenture Agreement, and that

therefore the Town has failed to plead the existence of a valid contract. The Town, however,

has pled that Allstate tortiously interfered with both the Indenture and the Development

Agreement. Allstate acknowledges that the Town is a party to the Development Agreement.

(Doc. 294 at 2–3). Therefore, the Town has adequately pled a valid contractual relationship

with respect to the Development Agreement.2

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Laborers, 201 Ariz. 474, 493 n.19, 494, 38 P.3d 12, 31 n.19, 32 (2002) (holding that the

plaintiff had pled the existence of a valid contract even though it was a “beneficiary of the

[contract’s] proceeds”). Arizona does not, therefore, adhere to the “stranger” requirement.

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The Town must also plead that Allstate’s actions resulted in damages to the Town.

Snow, 152 Ariz. at 33. The Town alleges that as a result of Allstate’s actions, “the

Bondholders have been harmed by the loss of debt service payments and devaluation of the

Bonds, and the Bondholders seek recovery of such losses from the Town.” (Doc. 238, ¶ 40).

Although the Town’s allegations emphasize Bondholder losses, the Town makes clear that

it faces personal liability for these Bondholder losses and therefore has also been harmed by

Allstate’s actions. (Id.). For instance, the Town contends that, as a result of Allstate’s actions,

Fitch Ratings “withdrew its rating on the Bonds, causing [the] harm to the Bondholders for

which they seek recovery from the Town.” (Id. at ¶ 6). In short, the Town has adequately

pled that Allstate interfered with the contractual relations between the Town and the Trustee,

and that the Town was harmed as a result.

B. Contribution

The Town also claims that it “is entitled to contribution from Allstate due to the

actions of Allstate causing losses to Bondholders.” (Doc. 238, ¶ 49). Under Arizona law there

can be a “right of contribution [between parties] even though judgment has not been

recovered against all or any of them.” A.R.S. § 12-2501(A) (2011). Such a right of

contribution only exists, however, where the parties are jointly and severally liable. Id. And

the State of Arizona has largely abolished joint and several liability. A.R.S. § 12-2506

(2011). See also PAM Transport v. Freightliner Corp., 182 Ariz. 132, 133 (1995). 

The Town nevertheless contends that it and Allstate are jointly and severally liable

under the joint and several liability provisions of the PSLRA and Arizona Securities Act. See

15 U.S.C. § 78u-4(f)(2)(A) (2011); A.R.S. § 44-2003 (2011). In other words, the Town

claims that Allstate is jointly liable with the Town for securities fraud. (Doc. 282 at 5–7). But

the Town has not asserted counterclaims against Trustee for violating the PSLRA or the

Arizona Securities Act. Therefore the joint and several liability provisions of those acts are

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not applicable.

CONCLUSION

For the above reasons, the Town has adequately stated a claim against Allstate for

intentional interference with contractual relations. The Town has failed, however, to

adequately plead joint and several liability between Allstate and the Town. Therefore the

Town’s contribution claim must be dismissed.

IT IS THEREFORE ORDERED that Allstate Life Insurance Company’s Motion

to Dismiss the Town of Prescott Valley’s Counterclaims (Doc. 262) is GRANTED in part

and DENIED in part.

DATED this 1st day of November, 2011.

Case 3:09-cv-08162-GMS Document 422 Filed 11/01/11 Page 6 of 6