Nuveen Municipal v. City of Alameda

Failure to establish loss causation for securities fraud is fatal for a claim alleging loss due to misrepresentations.

In the late 1990s, the City of Alameda ("Alameda") decided to expand their municipal electrical system to include cable TV and Internet. A division of the city, Alameda Power and Telecom (“APT”), borrowed money for system construction and in 2004 issued $33 million in Revenue Bond Anticipation Notes (“Notes”) to finish construction and refinance the debt. APT hired a bond underwriter and consultants to issue an official statement on the viability, profitability, and risk factors of the system. Investors in municipal bonds (collectively, “Nuveen”) purchased about $22 million in face value of the Notes. Later, in light of poor system performance and competition, APT decided to sell the system to Comcast for $15 Million. Nuveen received approximately $10 million towards the principle of its notes, a shortfall of about $10 million. Nuveen sued Alameda under federal and state securities claims and the district court granted summary judgment for Alameda but denied attorney’s fees claims for Alameda. Nuveen appealed and Alameda cross-appealed. The Ninth Circuit affirmed, holding first that the securities fraud claims brought by Nuveen failed because they did not establish the element of loss causation and because they could not show a causal connection between Alameda’s alleged misrepresentations about the Notes’ risk and Nuveen’s loss when Alameda sold the system. Second, the panel held Alameda could claim immunity because California law immunized Alameda as a public entity from injury caused by misrepresentations. Additionally, the California Corporate Securities Act does not override Alameda’s immunity. Finally, the panel held Alameda was not entitled to attorney’s fees because Nuveen had a reasonable basis for their suit.