Court Opinion

ID: 3066091
Source: CourtListenerOpinion
Date Created: 2015-10-14 22:57:13.8056+00
Date Added: 2024-06-11T11:49:47.710881
License: Public Domain

FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

NUVEEN MUNICIPAL HIGH INCOME              No. 11-17391
OPPORTUNITY FUND; THE NUVEEN
MUNICIPAL TRUST ON BEHALF OF ITS             D.C. No.
SERIES NUVEEN HIGH YIELD                 3:08-cv-04575-SI
MUNICIPAL BOND TRUST,
             Plaintiffs-Appellants,

                  v.

CITY OF ALAMEDA, CALIFORNIA, on
behalf of itself and Alameda Power
& Telecom; ALAMEDA POWER &
TELECOM, a department of the City
of Alameda; ALAMEDA PUBLIC
FINANCING AUTHORITY; ALAMEDA
PUBLIC IMPROVEMENT
CORPORATION,
                 Defendants-Appellees.

NUVEEN MUNICIPAL HIGH INCOME              No. 11-17496
OPPORTUNITY FUND; THE NUVEEN
MUNICIPAL TRUST ON BEHALF OF ITS             D.C. No.
SERIES NUVEEN HIGH YIELD                 3:08-cv-04575-SI
MUNICIPAL BOND TRUST,
              Plaintiffs-Appellees,
                                            OPINION
                  v.
2         NUVEEN MUNICIPAL V. CITY OF ALAMEDA

 CITY OF ALAMEDA, CALIFORNIA, on
 behalf of itself and Alameda Power
 & Telecom; ALAMEDA POWER &
 TELECOM, a department of the City
 of Alameda; ALAMEDA PUBLIC
 FINANCING AUTHORITY, ALAMEDA
 PUBLIC IMPROVEMENT
 CORPORATION,
                Defendants-Appellants.

         Appeal from the United States District Court
           for the Northern District of California
           Susan Illston, District Judge, Presiding

                    Argued and Submitted
           May 13, 2013—San Francisco, California

                    Filed September 19, 2013

     Before: M. Margaret McKeown and Paul J. Watford,
    Circuit Judges, and Algenon L. Marbley, District Judge.*

                  Opinion by Judge McKeown

   *
     The Honorable Algenon L. Marbley, District Judge for the U.S.
District Court for the Southern District of Ohio, sitting by designation.
          NUVEEN MUNICIPAL V. CITY OF ALAMEDA                          3

                           SUMMARY**

                         Securities Fraud

    The panel affirmed the district court’s summary judgment
in a securities fraud action brought by purchasers of
municipal bonds offered by the City of Alameda to finance
the development of a cable and Internet system.

    The panel held that for federal claims under §§ 10(b)(5)
and 20(a) of the Securities Exchange Act of 1934, the bond
purchasers failed to establish a triable issue of fact on the
issue of loss causation. The panel held that the purchasers’
theory that they would not have purchased the bonds but for
the City’s alleged misrepresentation of the risks went only to
show reliance, or transaction causation. Missing was the
necessary link between the claimed misrepresentations and
the economic loss the purchasers suffered when the City sold
the cable and Internet system. The panel held that the fact
that the bonds were traded on an inefficient market, rather
than a more familiar efficient market like one of the stock
exchanges, did not change the result.

    The panel held that the City enjoyed statutory immunity
on the bond purchasers’ state law claims because California
courts have applied § 818.8 of the California Government
Claims Act to immunize public entities from liability for
misrepresentations sanctioned by those entities, and the
California Corporate Securities Act does not override that
immunity.

  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
4        NUVEEN MUNICIPAL V. CITY OF ALAMEDA

    Affirming the district court’s denial of the City’s motion
for defense costs, the panel held that although the City was
entitled to summary judgment, the bond purchasers had
reasonable cause to bring suit, and the evidence sufficed to
establish their good faith.

                         COUNSEL

Scott W. Wilkinson (argued), Michael P. Cillo, and Melissa
J. Hessler, Davis & Ceriani, P.C., Denver, Colorado, for
Plaintiffs-Appellants and Cross-Appellees.

Gregory R. Aker (argued), Eric J. Firstman, and Richard E.
Elder, Wulfsberg Reese Colvig & Firstman, P.C., Oakland,
California; Janet C. Kern, Office of the City Attorney, City of
Alameda, Alameda, California, for Defendants-Appellees and
Cross-Appellants.

                         OPINION

McKEOWN, Circuit Judge:

    This appeal stems from the City of Alameda’s offering of
municipal bonds to finance the development of a cable and
Internet system.       Nuveen Municipal High Income
Opportunity Fund, the Nuveen Municipal Trust for the
Nuveen High Yield Municipal Bond Fund, and Pacific
Specialty Insurance Company (collectively, “Nuveen”)
purchased about twenty million dollars worth of the bonds
and then lost money on the bonds when the City sold the
system several years later. Nuveen brought federal and state
securities claims against the City, alleging that the City
         NUVEEN MUNICIPAL V. CITY OF ALAMEDA                 5

misrepresented the risks to investors. We affirm the district
court’s summary judgment in favor of the City.

    For its federal claims under Section 10b-5 and Section
20(a) of the Securities Exchange Act of 1934, Nuveen has not
shown a triable issue of fact on the issue of loss causation.
Nuveen’s theory that it would not have purchased the
securities but for the City’s alleged misrepresentation of the
risks goes only to show reliance, or transaction causation.
Missing is the necessary link between the claimed
misrepresentations and the economic loss Nuveen suffered.

    Although Nuveen pitches its appeal as novel because the
notes were traded on an inefficient market, rather than a more
familiar efficient market like one of the stock exchanges, this
wrinkle does not change the result. Federal securities law
requires proof of both transaction and loss causation. Dura
Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336 (2005).

    The City enjoys statutory immunity from suit on
Nuveen’s state claims. California courts have applied § 818.8
of California’s Government Claims Act to immunize public
entities from liability for misrepresentations sanctioned by
those entities. The California Corporate Securities Act does
not override that immunity.

    Finally, we also affirm the district court’s denial of the
City’s motion for defense costs. Although the City is entitled
to summary judgment, Nuveen had reasonable cause to bring
suit and the evidence suffices to establish its good faith.
6        NUVEEN MUNICIPAL V. CITY OF ALAMEDA

                       BACKGROUND

I. THE NOTES

    The City of Alameda decided to expand its municipal
electrical system to include telecommunications—cable TV
and Internet—in the late 1990s. Alameda Power & Telecom
(Alameda Power or “APT”), a division of the City, borrowed
money to construct the system. In 2004, Alameda Power
issued $33 million in Revenue Bond Anticipation Notes
(“Notes”) to refinance its debt and complete construction.
Alameda Power hired Stone & Youngberg, a municipal bond
underwriter, to prepare the Official Statement accompanying
the Notes, which set forth projections regarding the telecom
system’s viability and profitability. Alameda Power also
hired consultant Uptown Services to issue a feasibility report
on the proposed refinancing, on which Stone & Youngberg
relied in part.

    The Official Statement included discussion of “certain
risk factors” affecting the viability of the system. It
specifically disclosed the risk of competition from other cable
television and Internet service providers, chief among them
Comcast. It also discussed the risks presented by competitive
technologies such as Internet and satellite-based television,
programming costs, limited financial resources that could
“increase the vulnerability of the Telecom System to general
adverse economic and cable industry conditions,” limited
operating history, and limited franchise authority. Although
the Official Statement expressed an expectation that the
system could be a strong competitor in the field, it
specifically warned that “no assurances in this regard can be
provided to investors in the Notes or in any future financing
which Alameda P&T may require to repay the Notes.”
        NUVEEN MUNICIPAL V. CITY OF ALAMEDA                 7

    As the Notes were not rated, the Official Statement also
warned that they had limited liquidity. The minimum
purchase amount for the Notes was $250,000, limiting the
offering to sophisticated investors. The Notes offered an
interest (coupon) rate of 7 percent, with yield to maturity at
7.25 percent. Reflecting the high-risk nature of the Notes,
this return was more than double the yield of a typical tax-
free municipal bond in 2004.

    The Official Statement included Uptown’s feasibility
report as an appendix. In preparing the August 2003 report,
Uptown relied on information that Alameda Power provided
as of July 2003, including a five-year financial forecast and
subscriber and financial growth projections.

    Nuveen purchased $17,750,000 in face value of the Notes
at issuance and made several additional purchases of the
Notes over the following year and a half. Ultimately, Nuveen
held $20,550,000 in face value of the Notes. Nuveen
received interest payments totaling $6,516,003 over the life
of the Notes.

    The Notes were set to mature on June 1, 2009.
Repayment of the Notes was secured by three sources: (1) net
revenue generated by the telecom system, (2) a potential
refinancing of the telecom system prior to or at maturity, and
(3) net available proceeds from the sale of the system. The
Official Statement represented that Alameda Power did not
expect that net revenues would suffice to cover the principal
of the Notes at maturity and that it “expect[ed] to be
dependent for the payment of principal on a revenue bond or
similar financing to the extent such a financing may be
feasible at that time.”
8       NUVEEN MUNICIPAL V. CITY OF ALAMEDA

    The system performed poorly in the years following the
issuance of the Notes. Competition from Comcast was fierce.
In 2007, the United States economy began to show signs of
a recession that deepened in 2008. During this period, the
Notes were traded infrequently. There were eighteen trades
between January 31, 2005 and May 1, 2008, all of which
were at or near the face value of the Notes.

    In June 2008, Alameda Power determined that refinancing
the Notes was not a viable option in light of the overall
economic downturn and decided to sell the telecom system.
Comcast bought the telecom system in November 2008 for
approximately $15 million, and the City paid all net proceeds
from the sale to the Noteholders. Nuveen received
$10,105,110 toward the principal of the Notes it held, a
shortfall of approximately $10 million.

II. PROCEDURAL HISTORY AND NUVEEN’S CLAIMS

    Nuveen brings claims against the City for alleged
violations of Section 10b-5 and Section 20(a) of the
Securities Exchange Act of 1934 and California Corporate
Securities Act §§ 24000, 25500, and 25504.1. Nuveen argues
that the Official Statement contained inflated and unrealistic
projections that materially overstated the telecom system’s
anticipated performance. According to Nuveen, these
misrepresentations induced Nuveen to purchase the Notes and
caused Nuveen to suffer economic losses when the system
was sold. Nuveen seeks to recover as damages the entire
difference between the $20,550,000 face value of its Notes
and the $10,105,110 it received from the sale of the system.

    The City moved for summary judgment on all claims. On
the federal claims, the City argued Nuveen could not establish
         NUVEEN MUNICIPAL V. CITY OF ALAMEDA                  9

a triable issue that the City’s alleged material
misrepresentations caused Nuveen’s losses. Nuveen relied on
expert testimony to show this causal connection. Its primary
expert, Dr. David Sosa, took the position that the City’s June
2008 notice of the planned sale of the system served as a
“corrective disclosure” that revealed the truth about the City’s
allegedly fraudulent conduct, causing the Notes to lose value.

    Nuveen also relied on the testimony of Gregory Rosston,
a Ph.D. economist, who was of the view that “[t]he
projections in the Official Statement lacked a reasonable
basis because they did not reflect the available information
when the Official Statement was issued on April 8, 2004.”
Rosston stated that the OS relied on “outdated assumptions
that artificially increased the expected [average revenue per
unit] and number of subscribers in the subsequent five years.”
Specifically, he noted that the Official Statement incorporated
the Uptown feasibility report prepared in August 2003, even
though “additional information about APT Cable’s
performance in the seven months from September 2003 to
March 2004 and Alameda Power’s expectations about future
performance” had come to light. Rosston also noted that ten
days before issuance of the Official Statement, the Alameda
Public Utilities Board adopted a five-year business plan for
Alameda Power that “used significantly less optimistic
projections of Alameda Power Cable’s future financial
performance than the projections in the Official Statement.”
Rosston concluded that “[r]easonable projections would have
been much lower” than those in the Official Statement.

    Finally, Peggy Garfunkel, an expert in municipal bonds,
opined that for the Notes to have been “marketable” in 2004,
“it was necessary for Alameda to show that long term revenue
bonds could be issued in 2009,” that is, that the Notes could
10       NUVEEN MUNICIPAL V. CITY OF ALAMEDA

be refinanced when they were set to mature. She concluded
that had the Official Statement relied on earlier, lower
projections, specifically those that had appeared in a March
2004 Business Plan prepared by Alameda Power, the Notes
“would not have been marketable.”

    The district court excluded Dr. Sosa’s opinion as
unsupported and unreliable and granted summary judgment
to the City on the federal claims because Nuveen failed to
establish loss causation. The district court granted summary
judgment to the City as to the state law claims on the ground
that the City enjoyed immunity under California law. The
district court denied the City’s motion for defense costs under
California Code of Civil Procedure § 1038(a). Nuveen
appealed summary judgment, and the City cross-appealed the
denial of defense costs. We review a grant of summary
judgment de novo. Szajer v. City of Los Angeles, 632 F.3d
607, 610 (9th Cir. 2011).

                        DISCUSSION

I. FEDERAL CLAIMS

    The federal claims in this appeal turn on loss
causation—an essential element of federal securities law
claims. Section 10(b) of the Securities and Exchange Act of
1934 and SEC Rule 10b-5 require proof of: (1) material
misrepresentation or omission, (2) scienter, (3) connection
with the purchase or sale of a security, (4) reliance, often
referred to as transaction causation, (5) economic loss, and
(6) loss causation. Dura Pharmaceuticals, 544 U.S. at
341–42.
         NUVEEN MUNICIPAL V. CITY OF ALAMEDA                 11

    The two elements of causation—transaction causation and
loss causation—are distinct and map onto familiar common
law concepts. Transaction causation constitutes “actual” or
“but-for” cause. In re Daou Sys., Inc., 411 F.3d 1006, 1025
(9th Cir. 2005) (“[T]o prove transaction causation, the
plaintiff must show that, but for the fraud, the plaintiff would
not have engaged in the transaction at issue. . . .”).
Transaction causation is akin to reliance; it focuses on the
time of the transaction and “refers to the causal link between
the defendant’s misconduct and the plaintiff’s decision to buy
or sell securities.” Emergent Capital Inv. Mgmt., LLC v.
Stonepath Grp., Inc., 343 F.3d 189, 197 (2d Cir. 2003)
(emphasis added). There is no dispute that Nuveen met its
burden on transaction causation by putting forth ample
evidence from which a reasonable juror could conclude that
Nuveen would not have purchased the Notes had the City not
made the allegedly fraudulent misrepresentations in the
Official Statement.

    The loss causation element, however, requires that
Nuveen also show “proximate” or “legal” cause. See Schaaf
v. Residential Funding Corp., 517 F.3d 544, 550 (8th Cir.
2008) (“Though loss causation is an ‘exotic name’ for this
concept, the standard does not differ from that employed in
a common law fraud case.”). Nuveen claims that because the
Notes were traded only sporadically, the market was
inefficient and that a novel standard should apply, namely
that loss causation is satisfied if “the Notes could never have
been sold but for the City’s fraud.” We reject this
approach—which finds no support in the law—because it
collapses transaction causation with loss causation. The loss
causation element is a fixture of federal law and applies to all
12           NUVEEN MUNICIPAL V. CITY OF ALAMEDA

10b-5 claims, whether involving securities traded in an
efficient or inefficient market.1

         A. LOSS CAUSATION PRINCIPLES AND PROOF

   Loss causation is simply “a causal connection between the
material misrepresentation and the loss.”               Dura
Pharmaceuticals, 544 U.S. at 342. The loss causation
requirement was codified in the Private Securities Litigation
Reform Act:

            In any private action arising under this
            chapter, the plaintiff shall have the burden of
            proving that the act or omission of the
            defendant alleged to violate this chapter
            caused the loss for which the plaintiff seeks to
            recover damages.

15 U.S.C. § 78u-4(b)(4) (emphasis added). The statute
applies to “any private action” and does not carve out a
different or special standard depending on the type of market
in which securities are traded.

     1
      As the Seventh Circuit aptly explained, “‘[e]fficiency’ is not an
all-or-nothing phenomenon.” Eckstein v. Balcor Film Investors, 8 F.3d
1121, 1130 (7th Cir. 1993). “The price in an open and developed market
usually reflects all available information, because the price is an outcome
of competition among knowledgeable investors. . . . We call a market
‘efficient’ because the price reflects a consensus about the value of the
security being traded—not necessarily because the price captures the true
value of the firm’s assets but because the price is the best available device
to assess the significance of additional bits of information.” Id. at
1129–30. Although “[t]he more thinly traded the stock, the less well the
price reflects the latest pieces of information,” even “inefficient” market
prices “change in response to news, including statements by the issuers.”
Id. at 1130.
         NUVEEN MUNICIPAL V. CITY OF ALAMEDA                13

    The Supreme Court reinforced the centrality of loss
causation in Dura Pharmaceuticals, noting that “[t]he
securities statutes seek to maintain public confidence in the
marketplace. . . . But the statutes make these [private
securities fraud] actions available, not to provide investors
with broad insurance against market losses, but to protect
them against those economic losses that misrepresentations
actually cause.” 544 U.S. at 345. “A plaintiff is not required
to show ‘that a misrepresentation was the sole reason for the
investment’s decline in value’ in order to establish loss
causation. ‘[A]s long as the misrepresentation is one
substantial cause of the investment’s decline in value, other
contributing forces will not bar recovery under the loss
causation requirement’ but will play a role ‘in determining
recoverable damages.’” In re Daou Sys., 411 F.3d at 1025
(internal citation omitted) (quoting Robbins v. Koger Props.,
Inc., 116 F.3d 1441, 1447 n.5 (11th Cir. 1997) (emphasis
added in Daou)).

    Typically, “to satisfy the loss causation requirement, the
plaintiff must show that the revelation of that
misrepresentation or omission was a substantial factor in
causing a decline in the security’s price, thus creating an
actual economic loss for the plaintiff.” McCabe v. Ernst &
Young, LLP, 494 F.3d 418, 425–26 (3d Cir. 2007). Loss
causation was adequately alleged, for instance, where
investors claimed that a company had engaged in improper
accounting practices and that the “stock fell precipitously
after [the company] began to reveal figures showing the
company’s true financial condition.” In re Daou Sys.,
411 F.3d at 1026 (explaining that “if the improper accounting
did not lead to the decrease in Daou’s stock price, plaintiffs’
reliance on the improper accounting in acquiring the stock
would not be sufficiently linked to their damages”). Courts
14       NUVEEN MUNICIPAL V. CITY OF ALAMEDA

typically describe this sequence of events as the “fraud-on-
the-market” scenario. See, e.g., Ray v. Citigroup Global
Mkts., Inc., 482 F.3d 991, 995 (7th Cir. 2007).

    In the absence of a responsive market price, “the factual
predicates of loss causation fall into less of a rigid pattern.”
McCabe, 494 F.3d at 426. Addressing a Rule 10b-5 case
concerning shares of a privately held company, we explained
that “a comparison of market stock price to establish loss
causation has less relevance because market forces will less
directly affect the sales prices of shares of a privately held
company.” WPP Luxembourg Gamma Three Sarl v. Spot
Runner, Inc., 655 F.3d 1039, 1053 (9th Cir. 2011). We
observed that plaintiffs may nonetheless show loss causation
by showing “that the revelation of the truth is directly related
to the economic loss alleged.” Id. (emphasis added). Loss
causation was therefore adequately alleged where a loss
followed revelations that the company founders had been
secretly selling their own shares in a privately held company.
Id. at 1054; see also McCabe, 494 F.3d at 425–26.

    Disclosure of the fraud is not a sine qua non of loss
causation, which may be shown even where the alleged fraud
is not necessarily revealed prior to the economic loss. The
“materialization of the risk” approach, adopted by some
circuits, recognizes loss causation where a plaintiff shows
that “misstatements and omissions concealed the
price-volatility risk (or some other risk) that materialized and
played some part in diminishing the market value” of a
security. Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161,
176–77 (2d Cir. 2005); see also Ray, 482 F.3d at 995.
Although “it cannot ordinarily be said that a drop in the value
of a security is ‘caused’ by the misstatements or omissions
made about it, as opposed to the underlying circumstance that
         NUVEEN MUNICIPAL V. CITY OF ALAMEDA                15

is concealed or misstated,” materialization of the risk
recognizes that “a misstatement or omission is the ‘proximate
cause’ of an investment loss if the risk that caused the loss
was within the zone of risk concealed by the
misrepresentations and omissions alleged by a disappointed
investor.” Lentell, 396 F.3d at 173. Under this theory, the
plaintiff must show that “it was the very facts about which the
defendant lied which caused its injuries.” McCabe, 494 F.3d
at 431 (internal quotation marks omitted).

    Along similar lines, we have recognized that loss
causation can be established by showing “that the
Defendants’ misrepresentation was directly related to the
actual economic loss [the plaintiff] suffered.” Livid Holdings
Ltd. v. Salomon Smith Barney, Inc., 416 F.3d 940, 949 (9th
Cir. 2005); see also McCabe, 494 F.3d at 434–36; Emergent
Capital, 343 F.3d at 197. Put another way, a plaintiff can
satisfy loss causation by showing that “the defendant
misrepresented or omitted the very facts that were a
substantial factor in causing the plaintiff's economic loss.”
McCabe, 494 F.3d at 425 (emphasis added).

    These principles of loss causation are well established and
Nuveen does not argue otherwise. Instead, Nuveen contends
that its “but for” theory, which it conflates with the
16        NUVEEN MUNICIPAL V. CITY OF ALAMEDA

materialization of the risk approach, satisfies loss causation.2
We disagree.

     B. NUVEEN’S “BUT FOR” THEORY

    Nuveen takes the position that because the Notes would
not have been issued “but for” the City’s fraudulent
misrepresentations, the loss causation requirement is
satisfied. Only in its reply brief did Nuveen move beyond
this “but for” theory and claim that its position is “consistent
with ‘the materialization of the risk’ approach.”3 Nuveen’s

 2
    Nuveen also maintains that the district court improperly required it to
prove loss causation by performing a “mathematical event study,” a
statistical analysis that isolates fluctuations in stock price and is often
employed to show loss causation in the typical “fraud-on-the-market”
scenario involving publicly traded stocks. The district court, however,
expressly stated that it “agree[d] with [Nuveen] that a traditional event
study is not feasible, given the type of ‘market’ here in which there were
very few trades.” Nuveen relied on the testimony of its expert, Dr. Sosa,
to try to show that the value of the Notes dropped after the City revealed
the truth by announcing its plan to sell the telecom system. The district
court excluded the testimony, not because Dr. Sosa failed to perform a
mathematical study, but because he did not attempt to quantify the value
of the telecom system either at issuance or at sale or relate how any
specific misrepresentations or revelations impacted the value of the
system. In its opening brief, Nuveen expressly abandoned reliance on
Sosa’s theory that the sale notice served as a corrective disclosure that
caused the Notes’ value to drop.
 3
   In its opening brief, Nuveen nowhere referenced a “materialization of
the risk” theory. It put forward such a theory before the district court,
which explicitly considered, and rejected, proof of loss causation under
the materialization of the risk standard. See In re Nuveen Funds/City of
Alameda Sec. Litig., C 08-4575 SI, 2011 WL 1842819, at *10 (N.D. Cal.
May 16, 2011) (“Plaintiffs’ reliance on a ‘materialization of the risk’
theory is also unavailing.”). We do not agree with Nuveen’s position that
the district court’s view on Nuveen’s corrective disclosure evidence
           NUVEEN MUNICIPAL V. CITY OF ALAMEDA                              17

effort to shoehorn its “but for” argument into the risk
materialization construct finds no support in the case law.
Although it is difficult to discern under which umbrella
Nuveen seeks shelter, its bottom line remains the same—but
for the fraud, the Notes would not have been marketed and
Nuveen would not have suffered a loss.

    We have consistently rejected loss causation arguments
like Nuveen’s—that a defendant’s fraud caused plaintiffs a
loss because it “induced them to buy the shares”—because
the argument “renders the concept of loss causation
meaningless by collapsing it into transaction causation.”
McGonigle v. Combs, 968 F.2d 810, 821 (9th Cir. 1992); see
also The Ambassador Hotel Co. v. Wei-Chuan Inv., 189 F.3d
1017, 1027 (9th Cir. 1999); Ray, 482 F.3d at 995 (“Although
they try mightily to convince us otherwise, it seems to us that
plaintiffs here are confusing loss causation . . . with
transaction causation.”). Nuveen’s argument fails for the
same reasons.

    To show loss causation, Nuveen must demonstrate a
causal connection between the alleged misrepresented risks
in the Official Statement and the economic loss Nuveen
suffered. This critical link is missing. Nuveen’s expert
testimony focuses instead on the proposition that the Notes
would not have been “marketable” in 2004 had the City not
inflated its projections of the system’s performance. Nuveen
invites the court to assume that the misrepresentations
account for the entire difference between the 2008 sale price
and the par value of the Notes, arguing that the Notes were
“dead on arrival and preordained to fail” because the City

tainted the district court’s analysis of the materialization of the risk theory.
In any event, our review of this theory on appeal is de novo.
18         NUVEEN MUNICIPAL V. CITY OF ALAMEDA

knew in 2004 that it would not be able to refinance the Notes
at maturity.4

    Nuveen’s assertions that the Notes were “doomed” rests
on a significant misapprehension. Contrary to Nuveen’s
assumption, the City’s decision to sell the telecom system,
rather than refinance the Notes for the long term, did not on
its own cause an injury or economic loss to Nuveen.
Nuveen’s loss results from the decline in value of the Notes,
as reflected in the sale price, not the fact of sale. Had
Comcast purchased the system for the par value of the Notes,
$33 million, Nuveen would not have suffered any economic
loss at all.

    In its reply brief, Nuveen suggests that the misrepresented
risks “materialized” over time and caused the economic loss.
Even if we credit this argument despite its emergence in the
reply brief, Nuveen’s evidence fails to create a triable issue

   4
     Nuveen’s focus on “marketability” bears resemblance to the “fraud-
created-the-market” theory of transaction causation, recognized in some
circuits, under which a “presumption of reliance is established where a
plaintiff proves that the defendants conspired to bring to market securities
that were not entitled to be marketed.” Malack v. BDO Seidman, LLP,
617 F.3d 743, 747–48 (3d Cir. 2010) (internal quotation marks and
alteration omitted). Because this is a transaction causation theory, it has
no bearing on loss causation. The close similarity of Nuveen’s argument
highlights that Nuveen is in fact urging an improper merger of the two
types of causation. Notably, even as a reliance theory, “fraud-created-the-
market” has been criticized in many circuits and we have not accepted it
in ours. See Malack, 617 F.3d at 748–49 (rejecting theory); Eckstein,
8 F.3d at 1130–31 (same); see also Desai v. Deutsche Bank Sec. Ltd.,
573 F.3d 931, 942 (9th Cir. 2009) (affirming district court’s refusal to
adopt “integrity of the market” presumption of reliance where
manipulation “allegedly destroys the efficiency of the market, and with it
the reliability of the market’s price”).
          NUVEEN MUNICIPAL V. CITY OF ALAMEDA                          19

on this point.5 Nuveen focuses on alleged misrepresentations
in the Official Statement regarding the system’s access to
apartment buildings, the success of competitors such as
satellite television providers and Comcast, and growing
programming expenses, and on evidence that the City inflated
service-area and subscriber projections. Nuveen’s experts
presented no opinions that these alleged misrepresentations
masked the facts that resulted in Nuveen’s economic loss.
Rather, the expert testimony targeted the reasonableness of
the City’s projections at the time the Notes were issued. This
left a gap between the alleged misrepresentations and a
substantial cause of Nuveen’s claimed loss—either the lower
valuation or the City’s inability to refinance the Notes when
they came due—that cannot now be bridged by conjecture.

    Rosston, Nuveen’s economist, adjusted the April 2004
Official Statement’s projections based on information in the
City’s March 2004 business plan, which he considered more
reasonable. Rosston’s conclusion, that “[t]he projections in
the Official Statement lacked a reasonable basis because they
did not reflect the available information when the Official
Statement was issued on April 8, 2004,” did not bear on the
system’s valuation in 2008. Garfunkel’s expert opinion was
similarly directed at the time of the Notes’ issuance. She
concluded only that the Notes would not have been
“marketable” in 2004 if the Official Statement had relied on
the more reasonable projections in the March 2004 business

   5
    The Ninth Circuit has not adopted the materialization of the risk
approach, though district courts in the circuit have applied it. See, e.g.,
Cement & Concrete Workers Dist. Council Pension Fund v. Hewlett
Packard Co., 12-CV-04115-JST, 2013 WL 4082011, at *11 (N.D. Cal.
Aug. 9, 2013). Given our conclusion that Nuveen fails to establish loss
causation under its parameters, we need not decide whether to endorse the
approach here.
20       NUVEEN MUNICIPAL V. CITY OF ALAMEDA

plan. Again, absent was testimony linking the 2004
projections to the economic loss in 2008.

     We reject Nuveen’s suggestion that the 2008 sale price
reflects the reduction in value attributable to the alleged 2004
fraud. For debt instruments like the Notes, Nuveen argues
that a default, “result[s in] a situation where the value of the
debt—which, in default, is reduced to the value of the
collateral—reflects the results of the fraud before the fraud
becomes known.” Nuveen analogizes its position to that of
a mortgage lender, whose “only recourse . . . would be to
recover as much of its initial investment as possible from the
sale of the collateral for the Notes.” This argument fails to
recognize that devaluation of collateral may be influenced by
all sorts of factors unrelated to the reasons for the default.

    Because there are a tangle of factors that affect
refinancing and sale, evidence that certain misrepresented
risks are responsible for a loss must reasonably distinguish
the impact of those risks from other economic factors. The
Supreme Court succinctly summarized the reality of market
conditions: a security’s “lower price may reflect, not the
earlier misrepresentation, but changed economic
circumstances, changed investor expectations, new
industry-specific or firm-specific facts, conditions, or other
events, which taken separately or together account for some
or all of that lower price.” Dura Pharmaceuticals, 544 U.S.
at 343; see also Schaaf, 517 F.3d at 550 (“In a securities case,
this standard requires the plaintiff to show that the
defendant’s fraud—and not other events—caused the
security’s drop in price.”). In a similar vein, the Tenth
Circuit, for example, affirmed summary judgment for the
defendants where the plaintiffs’ expert’s “theories of loss
causation could not distinguish between loss attributable to
         NUVEEN MUNICIPAL V. CITY OF ALAMEDA                  21

the alleged fraud and loss attributable to non-fraud related
news and events.” In re Williams Sec. Litig.-WCG Subclass,
558 F.3d 1130, 1132 (10th Cir. 2009). Like Nuveen’s
experts, the plaintiffs’ expert “assumed that almost the entire
decline in price was the result of the truth gradually leaking
into the market, despite the fact that the decline in . . . share
price closely correlated with the overall decline in the
telecommunications industry as a whole.” Id. at 1135.

    Although Nuveen repeatedly promotes a different
standard for Rule 10b-5 claims arising from “inefficiently
traded” securities, the need to reliably distinguish among the
tangle of factors affecting a security’s price is no less urgent
in inefficient markets. “[F]undamentally, the same loss
causation analysis occurs in both typical and non-typical
§ 10(b) cases.” McCabe, 494 F.3d at 425 n.2. In either case,
whether a misrepresentation “was a substantial factor in
causing . . . economic loss includes considerations of
materiality, directness, foreseeability, and intervening
causes.” Id. at 436; see also id. at 436–37 (affirming
summary judgment in favor of defendants where plaintiffs
merely asserted that a company’s breach of various
contractual and registration agreements was “[a]mong the
reasons for [the company’s] failure to meet earnings and
revenue targets” (internal quotation marks omitted)). These
concerns apply to all covered securities transactions.

    To be sure, the system did not perform as reportedly
expected and the City’s allegedly inflated projections were
not in fact met. But it does not follow from the proposition
that the Official Statement downplayed certain risks that
those particular risks were substantially responsible for the
economic loss Nuveen suffered. Had Nuveen shown that
access to apartment buildings, success of competitors,
22        NUVEEN MUNICIPAL V. CITY OF ALAMEDA

programming expenses, and inflated subscriber
projections—the very facts the City allegedly misrepresented
or omitted—were a substantial factor in causing its loss, it
may have established a triable issue on loss causation. See
Livid, 416 F.3d at 949; McCabe, 494 F.3d at 429. But
Nuveen has presented no evidence on that score, and we
decline its invitation to infer a connection. The City is
entitled to summary judgment on the federal claims.

II. IMMUNITY UNDER CALIFORNIA LAW

    Nuveen’s state law claims present a threshold question,
namely, whether the City has immunity under California law.
The California Corporate Securities Act provides for the
liability of “any person” who willfully makes a false or
misleading material statement for the purpose of inducing the
sale of a security. Cal. Corp. Code §§ 25400, 25500. The
law defines “person” to include “a government, or a political
subdivision of a government.” Cal. Corp. Code § 25013.

    The California Tort Claims Act of 1963 (as amended and
now referred to as the Government Claims Act)6 provides
public entity immunity and is arguably in tension with the
general corporate code. Section 815 of the Government
Claims Act prohibits holding a public entity liable “[e]xcept
as otherwise provided by statute.” Cal. Gov’t Code § 815.
Section 818.8 specifically immunizes public entities from
liability “for an injury caused by misrepresentation by an
employee of the public entity, whether or not such

 6
   Consistent with the California Supreme Court, we “adopt the practice
of referring to the claims statutes as the ‘Government Claims Act,’ to
avoid the confusion engendered by the informal short title ‘Tort Claims
Act.’” City of Stockton v. Superior Court, 171 P.3d 20, 23 (Cal. 2007).
         NUVEEN MUNICIPAL V. CITY OF ALAMEDA                23

misrepresentation be negligent or intentional.” Cal. Gov’t
Code § 818.8.

    Nuveen takes the position that the California Corporate
Securities Act expressly “provide[s] by statute,” Cal. Gov’t
Code § 815, that a public entity is not immune by including
public entities within the definition of “person[s]” that may
be held liable for securities violations. Nuveen further argues
that § 818.8 is inapplicable because it prohibits liability
founded on employees’ misrepresentations, whereas here the
alleged misrepresentations in the Official Statement were
made with the City’s own imprimatur. The City maintains
that the Government Claims Act, and in particular § 818.8,
immunizes it from suit.

    The City has the better argument. To begin, California
courts have applied § 818.8 to immunize public entities from
liability for their own misrepresentations, not only for
misrepresentations by their employees. In Jopson v. Feather
River Air Quality Management District, 133 Cal. Rptr. 2d 506
(Ct. App. 2003), for example, the court considered an action
by a ranch owner alleging that a public entity was negligent
in calculating certain pollution credits earned by the ranch.
The public entity itself was “responsible for calculating,
issuing, and registering” the credits. Id. at 507. The court
held that § 818.8 barred the suit, relying on “a long line of
California cases,” including cases under § 818.8 that
addressed allegations that the public entity itself had made
misrepresentations. Id. at 510 (citing Brown v. City of Los
Angeles, 73 Cal. Rptr. 364 (Ct. App. 1968), and Hirsch v.
Dep’t of Motor Vehicles, 115 Cal. Rptr. 452 (Ct. App. 1974)).

   Nuveen has cited no contrary California case law that
adopts the employee versus entity distinction it posits with
24       NUVEEN MUNICIPAL V. CITY OF ALAMEDA

regard to § 818.8. Although the text of § 818.8 refers to
“misrepresentation by an employee of the public entity,” the
commentary conflates employees and entities, explaining that
the “section provides public entities with an absolute
immunity from liability for negligent or intentional
misrepresentation.” Cal. Gov’t Code § 818.8 (Legislative
Committee Comments–Senate). The California courts of
appeal appear to have adopted this interpretation, see, e.g.,
Freeny v. City of San Buenaventura, 157 Cal. Rptr. 3d 768,
778 (Ct. App. 2013) (“[I]t is well settled that section 818.8
confers upon public entities an absolute immunity for all
misrepresentations . . . .”) (emphasis in original), and we are
not free to ignore their decisions. “In the absence of a
pronouncement by the highest court of a state, the federal
courts must follow the decision of the intermediate appellate
courts of the state unless there is convincing evidence that the
highest court of the state would decide differently.” Briceno
v. Scribner, 555 F.3d 1069, 1080 (9th Cir. 2009) (internal
quotation marks omitted). Application of § 818.8 to both
employees and entities is not so illogical as to persuade us
that the California Supreme Court would reject the approach.

    Our decision that the City may properly invoke § 818.8
does not resolve its liability completely. We must consider
the additional question of whether this immunity should
prevail in the face of the provisions of the California
securities law. That these are separate questions is
highlighted by Janis v. California State Lottery Commission,
80 Cal. Rptr. 2d 549 (Ct. App. 1998). There, the court found
that § 818.8 barred common law claims that the California
State Lottery had misrepresented the legality of the game
Keno. See id. at 552. But it separately considered whether
the plaintiff could maintain statutory claims under
California’s Unfair Practices Act. Because that Act did not
         NUVEEN MUNICIPAL V. CITY OF ALAMEDA                25

include governmental entities in the definition of “persons”
to which the statute applied, the court concluded the claims
failed as a matter of law. Id. at 553; see also Trinkle v.
California State Lottery, 84 Cal. Rptr. 2d 496, 498 (Ct. App.
1999) (same).

    Unlike the Unfair Practices Act, the California Corporate
Securities Act includes governmental entities in the definition
of persons liable. Cal. Corp. Code § 25013. This inclusion
may be necessary to abrogate immunity, but is it sufficient?
Both the structure of the Government Claims Act and the case
law persuade us that it is not. Although no published
decisions have considered the precise immunity question
presented here, other California case law interpreting the
Government Claims Act suggests that the specific immunity
provision of § 818.8 overrides the liability provision in the
securities statute because the statute does not expressly
withdraw such immunity.

    The Government Claims Act was enacted after the
California Supreme Court had largely abrogated common law
governmental immunity. The Court explained that the “intent
of the Act is not to expand the rights of plaintiffs in suits
against governmental entities or employees, but to confine
potential governmental liability to rigidly delineated
circumstances: immunity is waived only if the various
requirements of the Act are satisfied.” Caldwell v. Montoya,
897 P.2d 1320, 1328 (Cal. 1995) (internal quotation marks
and alterations omitted).
26       NUVEEN MUNICIPAL V. CITY OF ALAMEDA

    Section 815 establishes the analytical approach for
determining liability and applicable immunities:

        Except as otherwise provided by statute:

        (a) A public entity is not liable for an injury,
        whether such injury arises out of an act or
        omission of the public entity or a public
        employee or any other person.

        (b) The liability of a public entity established
        by this part (commencing with Section 814) is
        subject to any immunity of the public entity
        provided by statute, including this part, and is
        subject to any defenses that would be
        available to the public entity if it were a
        private person.

Cal. Gov’t Code § 815 (emphasis added). According to
subsection (a), the general rule provides for governmental
immunity unless a statute provides otherwise. According to
subsection (b), even if liability is established by statute, that
liability is subject to the various specific governmental
immunities set forth in the Government Claims Act or
elsewhere. The commentary to the section accordingly
explains that “the immunity provisions will as a general rule
prevail over all sections imposing liability.” Id. (Legislative
Committee Comments–Senate). One such liability-imposing
section is the California corporate securities law. However,
“the general rule is that the governmental immunity will
override a liability created by a statute outside of the
[Government] Claims Act.” Gates v. Superior Court, 38 Cal.
Rptr. 2d 489, 506 (Ct. App. 1995); see also Clark v. Optical
Coating Lab., Inc., 80 Cal. Rptr. 3d 812, 843 (Ct. App. 2008)
          NUVEEN MUNICIPAL V. CITY OF ALAMEDA                          27

(“The [Government] Claims Act governs all liability against
public entities in California.”) (emphasis added).7

    To rebuff this general rule, a liability-creating statute
must clearly withdraw statutory immunities. The California
Supreme Court articulated this clarity requirement in
Caldwell, which considered whether public employees could
be held liable under the state’s Fair Employment and Housing
Act (“FEHA”).8 FEHA’s imposition of a general duty and
liability on public employees did not override immunity for
discretionary acts under Cal. Gov’t Code § 820.2. Discussing
FEHA, the court explained:

         Such a statute may indeed render the
         employee liable for his violations unless a
         specific immunity applies, but it does not
         remove the immunity. This further effect can
         only be achieved by a clear indication of
         legislative intent that statutory immunity is
         withheld or withdrawn in the particular case.

   7
     Nuveen mischaracterizes the relationship between § 815 and the
subsequent statutory immunities. In arguing that “Section 818.8 may be
‘absolute’ within the confines of Section 818.8, but does not trump
Section 815,” Nuveen claims that wherever liability is “provided by
statute,” § 815, all specific immunities fall away. This argument ignores
subsection (b) of § 815, which expressly subjects liability to subsequent
immunities.
  8
     FEHA made it unlawful for any covered “employer” to engage in
certain employment discrimination and permitted suits for violations of
the act; the act provided that an “employer” includes “any person acting
as [the employer’s] . . . agent” and also made it unlawful for “any person”
to aid or abet violations of the act. Caldwell, 897 P.2d at 1324 n.3.
28       NUVEEN MUNICIPAL V. CITY OF ALAMEDA

Caldwell, 897 P.2d at 1329 (first emphasis added). The court
emphasized that FEHA is a general statute that governs both
public and private employers and displays no special
emphasis on public employees. Id.

    The Caldwell decision did not explain what exactly a
“clear indication” would look like. However, in a footnote,
the court discussed previous cases that had implicitly found
such an indication in a whistle-blower protection statute.
That statute “subjected ‘any’ state ‘officer or employee’ to
direct civil liability” for retaliating against whistle-blowers,
ostensibly overriding the asserted statutory governmental
immunities. Id. at 1329–30 n.7 (citing S. Cal. Rapid Transit
Dist. v. Superior Court, 36 Cal. Rptr. 2d 665 (Ct. App. 1994),
and Shoemaker v. Myers, 4 Cal. Rptr. 2d 203 (Ct. App.
1992)). The court highlighted the “specific nature and
purpose” of whistle-blower protection statutes, which have as
their “core statutory objective[]” the prevention of
government misconduct. The court distinguished this
essentially government-focused scheme from FEHA, which
“promotes much more general policies throughout the public
and private sectors and advances no specifically
governmental interest that would support a finding of intent
to abrogate any immunity of public employees.” Id. at 1330
n.7 (emphasis original). Following this approach, the
California Corporate Securities Act is more akin to FEHA
than it is to the whistle-blower statute. Nuveen has cited no
legislative history or other authority, and we are aware of
none, showing that any particular concern with municipal
liability underlay the state securities law.

    The DeJung decision invoked by Nuveen does not
support the proposition that the inclusion of governmental
entities in the definition of “person” is sufficient evidence of
         NUVEEN MUNICIPAL V. CITY OF ALAMEDA                  29

intent to abrogate immunities. The California Court of
Appeal concluded there that FEHA’s similar definitional
scheme expressly subjected a public employer to liability for
discrimination. DeJung v. Superior Court, 87 Cal. Rptr. 3d
99, 106–07 (Ct. App. 2008). Critically, however, the court
did not consider that liability in the face of a properly invoked
statutory immunity. Rather, the court rejected the public
employer’s argument that it was shielded by the § 820.2
discretionary act immunity for public employees, reasoning
that the statutory liability asserted against the employer was
not derivatively based on employees’ actions but directly
based on the employer’s own actions. The employer
therefore had no basis for invoking the Government Claims
Act’s provision on vicarious liability and immunity, which
provides that, “[e]xcept as otherwise provided by statute, a
public entity is not liable for an injury resulting from an act
or omission of an employee of the public entity where the
employee is immune from liability.” Id. at 106 (citing Cal.
Gov’t Code § 815.2(b)).

    Here, by contrast, the City properly invoked immunity
under § 818.8. Despite that provision’s nominal reference to
employees, California case law permits public entities to rely
directly on the grant of immunity for their own
misrepresentations. After considering the intersection
between the Government Claims Act and the California
Corporate Securities Act, we conclude that the City enjoys
immunity from suit and is entitled to summary judgment on
Nuveen’s state claims.

III.    DEFENSE COSTS

    The City cross-appeals the denial of its motion for
defense costs. Under California law, “applicable defendants
30         NUVEEN MUNICIPAL V. CITY OF ALAMEDA

may recover defense costs . . . if the trial court finds the
plaintiffs lacked either reasonable cause or good faith in
filing or maintaining the lawsuit.” Kobzoff v. Los Angeles
Cnty. Harbor/UCLA Med. Ctr., 968 P.2d 514, 516 (Cal.
1998); Cal. Code Civ. Proc. § 1038(a).

    The district court noted that the City raised “some
forceful arguments” in its § 1038 motion but ultimately
determined that there “is no basis in the record to conclude
that [the] claims presentment arguments were brought in bad
faith or without reasonable cause.” The main complaint in
the City’s cross-appeal is that the court did not individually
address each of its arguments for defense costs. In fact, the
order provides considerable detail as to the court’s reasoning
and nothing requires the district court to respond to each
argument tit-for-tat or in explicit detail. Indeed, this court
“infer[s] from the court’s denial of the City’s motion that it
made the determinations necessary to support its order.”
Laabs v. City of Victorville, 78 Cal. Rptr. 3d 372, 397 (Ct.
App. 2008).9

    Reasonable cause is “defined under an objective standard
as whether any reasonable attorney would have thought the

 9
   Relying on Federal Rules of Civil Procedure 52(a)(1) and 54(d)(2)(C),
the City argues that “whatever the rule may be in state courts, the rules
applicable in federal courts . . . require specific findings of fact.” These
authorities are inapposite. Rule 52(a)(1) governs findings in bench trials.
Rule 52(a)(3), governing motions, provides “[t]he court is not required to
state findings or conclusions when ruling on a motion under Rule 12 or 56
or, unless these rules provide otherwise, on any other motion.” Fed. R.
Civ. P. 52(a)(3) (emphasis added). Rule 54(d)(2)(C) merely requires
courts considering motions for attorney’s fees to proceed in accordance
with Rule 52(a), where, as noted, the applicable subsection is (a)(3) rather
than (a)(1). Fed. R. Civ. P. 54(d)(2)(C).
          NUVEEN MUNICIPAL V. CITY OF ALAMEDA                         31

claim tenable.” Kobzoff, 968 P.2d at 518 (internal quotation
marks omitted).10 The City’s reasonable cause argument
focuses on the propriety of allegations in Nuveen’s First
Amended Counterclaim, specifically the allegation that
Alameda pressured Uptown to revise the projections included
in the Official Statement. Regardless of this particular
allegation, a reasonable lawyer could “have thought the
claim[s] tenable” when they were asserted. Kobzoff, 968 P.2d
at 518. While the City characterizes the assertedly false
allegation as “key” to the claims, Nuveen’s claims relied on
a far broader set of allegations and do not rise or fall on the
veracity of the Uptown projection allegation. We agree with
the district court that Nuveen had reasonable cause to
maintain its claims.

    “Good faith, or its absence, involves a factual inquiry into
the plaintiff's subjective state of mind.” Clark, 80 Cal. Rptr.
3d at 843 (emphasis and internal quotation marks omitted).
The district court, which lived with this case from 2008 until
judgment in 2011, found no support in the record for the
City’s claims that Nuveen acted in bad faith. The court was
well acquainted with the City’s concerns about the adequacy
of Nuveen’s discovery responses and disclosures about its
theory of the case. The focus of the good faith inquiry for
defense costs is a party’s honest belief in the viability of the
claims, see Laabs, 78 Cal. Rptr. 3d at 397, and the record

 10
    Although we generally review fee decisions under state law for abuse
of discretion, see Champion Produce, Inc. v. Ruby Robinson Co., 342 F.3d
1016, 1020 (9th Cir. 2003), in keeping with California law and giving the
City the benefit of the doubt, we review de novo the objective
determination of reasonable cause. Hall v. Regents of Univ. of California,
51 Cal. Rptr. 2d 387, 390 (Ct. App. 1996).
32      NUVEEN MUNICIPAL V. CITY OF ALAMEDA

amply suffices to support the district court’s finding that
Nuveen had such a belief.

     AFFIRMED.