Opinion ID: 500420
Heading Depth: 3
Heading Rank: 2

Heading: Issuer Defendants

Text: 76 The district court dismissed the claims against the City and the Authority at the pleading stage. Plaintiffs' complaint and a supplemental submission, Record, Vol. 4, Tab 254, permitted by the court alleged that the issuer defendants knew that Mount Royal was not the charitable corporation it claimed to be and that they were on notice that the project was not feasible. The district court's acceptance of the plaintiffs' supplemental submission (which was created using documents obtained during discovery), effectively converted the issuer defendants' motion to dismiss into a motion for summary judgment. 16 77 Although the supplemental submission alleges that the issuer defendants acted with scienter, the evidence presented (at most) an inference that these defendants were negligent in their reliance on Rice and several of the other defendants. The inference that there was a fraud in this bond issue is not strong enough to support the further inference that peripheral parties (such as the City and the Authority), who were not intimately involved in the planning and structuring of the bond issue, were actively involved in the fraud. Even though discovery was incomplete when these defendants were dismissed, we have seen nothing in the fully developed record to suggest the inference that these defendants acted with the requisite scienter to support a 10b-5 claim. Accordingly, in 86-7352, we affirm the district court's dismissal of the claims against Bank South and the issuer defendants.