Bernard Osher Trust DTD 3/8/88 et al v. City of Alameda, California et al, No. 3:2009cv01437 - Document 25 (N.D. Cal. 2009)
Court Description: ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS re 10 . Amended Complaint is due 8/21/09. (SI, COURT STAFF) (Filed on 8/11/2009)
Download PDF
<![CDATA[
Bernard Osher Trust DTD 3/8/88 et al v. City of Alameda, California et al Doc. 25 1 2 3 4 5 IN THE UNITED STATES DISTRICT COURT 6 FOR THE NORTHERN DISTRICT OF CALIFORNIA 7 8 BERNARD OSHER TRUST DTD, 3/8/88, et al., 9 United States District Court For the Northern District of California 10 11 No. C 09-1437 SI Related Case: C 08-4575 SI Plaintiff, v. CITY OF ALAMEDA, CALIFORNIA, et al., 12 Defendant. ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION TO DISMISS / 13 14 On July 10, 2009, the Court heard oral argument on defendant’s motion to dismiss plaintiff’s 15 complaint. Having considered the arguments of counsel and the papers submitted, and for good cause 16 shown, the Court GRANTS IN PART and DENIES IN PART defendant’s motion to dismiss with leave 17 to amend. 18 BACKGROUND 19 20 This case arises out of the City of Alameda’s 2004 sale of $33 million in municipal revenue 21 bond anticipation notes. The notes were issued to finance the construction of the City of Alameda’s 22 cable TV and internet system. The sale was underwritten by Stone and Youngberg, who sold the notes 23 to plaintiff, among other purchasers.1 24 On April 1, 2009, plaintiff filed a complaint alleging seven claims for relief. Plaintiff’s third 25 claim for relief alleges securities fraud under the California Corporate Securities Law of 1968, namely 26 27 28 1 A detailed description of the factual background can be found in the Court’s May 20, 2009 Order in City of Alameda v. Nuveen Municipal High Income Opportunity Fund (Case No. C 08-4575SI), a related case arising out of the same notes sale. Dockets.Justia.com 1 violations of §§ 25400, 25401, 25500, 25501, and 25504.1 of the California Corporation Code. 2 Defendant the City of Alameda (the “City”) has moved to dismiss plaintiff’s third claim for 3 relief. In its opposition papers, plaintiff agreed (in light of certain of the Court’s ruling in the Nuveen 4 matter) to omit its 25501 claim from its amended complaint, and to amend its complaint with respect 5 to its 25500 claim to allege price manipulation. To this extent, defendant’s motion is GRANTED with 6 leave to amend. 7 8 The parties’ primary dispute centers on whether, as defendant argues, the City is immune from securities fraud claims under state law. This question will be discussed below.2 9 United States District Court For the Northern District of California 10 LEGAL STANDARD 11 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint if it 12 fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to dismiss, 13 the plaintiff must allege “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. 14 Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1974 (2007). While courts do not require “heightened 15 fact pleading of specifics,” id., a plaintiff must provide “more than labels and conclusions, and a 16 formulaic recitation of the elements of a cause of action will not do,” id. at 1965. A plaintiff must allege 17 facts sufficient to “raise a right to relief above the speculative level.” Id. In deciding whether the 18 plaintiff has stated a claim upon which relief can be granted, the Court must assume that the plaintiff’s 19 allegations are true and must draw all reasonable inferences in the plaintiff’s favor. See Usher v. City 20 of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). However, the court is not required to accept as true 21 “allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.” 22 St. Clare v. Gilead Scis., Inc. (In re Gilead Scis. Sec. Litig.), 536 F.3d 1049, 1055 (9th Cir. 2008). 23 If the Court dismisses the complaint, it must then decide whether to grant leave to amend. The 24 Ninth Circuit has “repeatedly held that a district court should grant leave to amend even if no request 25 to amend the pleading was made, unless it determines that the pleading could not possibly be cured by 26 the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) (citations and internal 27 2 28 Defendant City did not make the immunity argument in the Nuveen action, and counterclaims under the California Corporate Securities Law of 1968 are proceeding against the City in that action. 2 1 quotation marks omitted). 2 United States District Court For the Northern District of California 3 DISCUSSION 4 Plaintiff’s third claim for relief is based on allegations that the City violated various provisions 5 of the California Corporate Securities Law of 19683 prohibiting fraud and misrepresentation in the offer 6 and sale of securities. Defendant moves to dismiss on the basis that public agencies are immune from 7 such suits. Defendant finds such immunity in § 815 of the California Tort Claims Act of 1963, which 8 prohibits statutory actions against public agencies unless the Act specifically permits the action; and in 9 § 818.8 of the Tort Claims Act, which provides public entities with absolute immunity against claims 10 for fraud or misrepresentation by their employees. Plaintiff counters that the California Corporate 11 Securities Law expressly imposes liability for misrepresentation on public entities, since by its terms 12 liability may be imposed on any “person” who engages in prohibited conduct and since “persons” are 13 specifically defined to include “a government or a political subdivision of a government.” Defendants 14 reply that the California Supreme Court rejected plaintiff’s reasoning in Caldwell v. Montoya, 10 Cal. 15 4th 972 (1995), and that even if it had not, the absolute immunity from liability for misrepresentation 16 provided by § 818.8 cannot be overcome by other statutory provisions. 17 The question whether a public entity is immune from suit for its own fraud and misrepresentation 18 in the offer and sale of securities, in violation of the California Corporate Securities Law, is evidently 19 one of first impression. 20 21 1. California Corporate Securities Law of 1968 22 Under the California Corporate Securities Law of 1968, “any person who willfully participates 23 in any act or transaction” which violates the statute “shall be liable to any other person” for the damages 24 sustained by the latter. Cal. Corp. Code § 25500. A “person” is defined as “an individual, a 25 corporation, a partnership, a limited liability company, a joint venture, an association, a joint stock 26 company, a trust, an unincorporated organization, a government, or a political subdivision of a 27 3 28 The Corporate Securities Law of 1968 is found in the California Corporation Code, §§ 25500 et seq. 3 United States District Court For the Northern District of California 1 government.” Cal. Corp. Code § 25013. According to the draftsmen’s commentary, this definition is 2 based on federal securities legislation, specifically § 401(i) of the Uniform Securities Act of 1956, which 3 defines a person in virtually identical language,4 and the definition was intended to apply to each section 4 of the statute. See Harold Marsh, Jr. et al., Practice Under the California Corporate Securities Law of 5 1968, Appendix A, § 25013 (1969); California Continuing Education of the Bar, California Corporate 6 Securities Law and Rules, § 25013 (1968); California Continuing Education of the Bar, Review of 7 Selected 1968 Code Legislation, § 25013 (1968). 8 Part Five of the Securities Law addresses “Fraudulent and Prohibited Practices.” Section 25400 9 prohibits “unlawful acts or misrepresentations to induce purchase or sale of securities or to manipulate 10 price,” and § 25401 prohibits the “sale or purchase of securities by means of written or oral 11 communications containing false statements or omissions.” 12 13 2. California Government Code § 815 14 California Government Code § 815, which addresses liability for injuries generally, states in 15 subdivision (a) that, except as otherwise provided by statute, “[a] public entity is not liable for an injury, 16 whether such injury arises out of an act or omission of the public entity or a public employee or any 17 other person.” Subdivision (b) states that, except as otherwise provided by statute, “[t]he liability of a 18 public entity established by this part. . . is subject to any immunity of the public entity provided by the 19 statute. . .” California Government Code § 815.2, which addresses liability for injury by a public 20 employee and the employee’s immunity, states in subdivision (a) that “[a] public entity is liable for 21 injury proximately caused by an act or omission of an employee of the public entity within the scope 22 of his employment if the act or omission would . . . have given rise to a cause of action against that 23 employee . . .” Subdivision (b) states that “except as otherwise provided by statute, a public entity is 24 4 25 26 27 28 Section 401(i) of the Uniform Securities Act of 1956 defines a person as “an individual, or corporation, a partnership, an association, a joint-stock company, a trust where the interests of the beneficiaries are evidenced by a security, an unincorporated organization, a government, or a political subdivision of a government.” The most recent version of the statute, the Uniform Securities Act of 2002, defines a person, in § 102(20), as “an individual; corporation; business trust; estate; trust; partnership; limited liability company; association; joint venture; government; governmental subdivision, agency, or instrumentality; public corporation; or any other legal or commercial entity.” 4 United States District Court For the Northern District of California 1 not liable for an injury resulting from an act or omission of an employee of the public entity where the 2 employee is immune from liability.” 3 “Sovereign immunity is the rule in California; governmental liability is limited to exceptions 4 specifically set forth by statute.” Harshbarger v. City of Colton, 197 Cal. App. 3d 1335, 1339 (1988) 5 (quoting Cochran v. Herzog Engraving Co., 155 Cal. App. 3d 405, 409 (1984)). In general, immunity 6 provisions of the Tort Claims Act prevail over sections that impose liability. See Arroyo v. State of 7 California, 34 Cal. App. 4th 755, 761 (1955). 8 In Gates v. Superior Court, 32 Cal. App. 4th 481, 510-13 (1995), the California Court of Appeal 9 considered whether public entities were immune from suit for violation of the Unruh Act (Civil Code 10 § 51 et seq.). It found that nothing in the legislative history of the Unruh Act showed any intent to 11 override the immunity from the payment of money damages provided to public entities by § 845 of the 12 Tort Claims Act. In Trinkle v. California State Lottery, 71 Cal. App. 4th 1198, 1202-03 (1999), the 13 California Court of Appeal held that § 815 rendered the state immune from liability under the Unfair 14 Competition Act (Business and Professions Code § 17200 et seq.) because there was no section 15 imposing liability on public entities thereunder. The court reasoned that “only through an unreasonable, 16 strained construction can the state be deemed to fall within any of the statute’s definitional categories.” 17 Trinkle, 71 Cal. App. 4th at 1203. 18 The California Supreme Court has also held that § 820.25 of the Tort Claims Act affords 19 discretionary act immunity to individual school board members against claims brought under the 20 California Fair Employment and Housing Act (FEHA), which includes in its definition of “employer” 21 22 23 /// 24 25 26 27 28 5 California Government Code § 820.2 states that “[e]xcept as otherwise provided by statute, a public employee is not liable for an injury resulting from his act or omission where the act or omission was the result of the discretion vested in him, whether or not such discretion be abused.” 5 United States District Court For the Northern District of California 1 “the state or any political or civil subdivision thereof.”6 Caldwell, 10 Cal. 4th at 978. The court 2 reasoned that because a specific grant of immunity prevails, it “cannot be abrogated by a statute which 3 simply imposes a general legal duty or liability.” Id. at 986. To overcome such a specific grant of 4 immunity for discretionary acts there must be a “clear indication of legislative intent that statutory 5 immunity is withheld or withdrawn in the particular case.” Id. (emphasis in original). The court 6 emphasized, however, that its holding affected only individual employee immunity under § 820.2, and 7 did not necessarily extend immunity against FEHA claims to the employer/school district, a question 8 which the Court specifically declined to address.7 The California Supreme Court has applied Caldwell 9 to afford the State Department of Health Services discretionary act immunity from a general statutory 10 liability where the defendant agency allegedly breached a discretionary duty. Creason v. State Dep’t 11 of Health Servs., 18 Cal. 4th 623, 635 (1998). The California Court of Appeal has also applied Caldwell 12 to afford a county agency discretionary act immunity from a general statutory liability where the agency 13 allegedly fail to perform a discretionary act. Ortega v. Sacramento County Dep’t of Health and Human 14 Servs., 161 Cal. App. 4th 713, 733 (2008). 15 This case differs from those where California courts have held public entities immune from 16 statutorily imposed liability. The California Corporate Securities Act, which specifically includes public 17 agencies within its ambit, 18 Harshbarger involved no such statute, relying instead on common law fraud and negligence. Unlike 19 the situation in Trinkle, the Corporate Securities Act explicitly includes public entities in its coverage; 20 the Unfair Competition Act did not do so. Whereas in Gates nothing in the legislative history of the was passed five years after the governmental immunity statutes. 21 22 23 6 California Government Code § 12926(d). Upon amendment in 1999, “thereof” was replaced with “of the state.” 7 24 25 26 27 28 Caldwell, 10 Cal. 4th at 989, n.9: “However, FEHA creates direct statutory rights, obligations, and remedies between a covered ‘employer,’private or public, and those persons it considers or hires for employment. (§§ 12926, subd. (d), 12940, subds (a), (c)-(k), 12941, 12942, 12945, 12945.2, 12945.5, 12946, 12947.5, 12950, 12965.) FEHA thus provides a basis of direct entity liability independent of the derivative liabilities addressed in § 815.2. Accordingly, any personal immunity of a public employee against a particular FEHA claim does not necessarily accrue to the benefit of the public entity itself as a covered ‘employer.’ (See Bradford, supra, 36 Cal.App.3d at p. 20; also cf. Ramos v. County of Madera, supra, 4 Cal.3d 685, 695.)” The Court concluded that public entity immunity was not before it in that case. 6 United States District Court For the Northern District of California 1 Unruh Act showed any intent to override the immunity provided by § 845, here the inclusion of 2 government entities in the statute suggests that the legislature intended that the law apply to government 3 entities, and thus to overcome the governmental immunity rule established five years prior in 1963. And 4 plaintiffs seek to hold the public entity itself liable for its actions in connection with its sale of securities, 5 not individual employees of the public entity as was the case in Caldwell. 6 This case also differs from Creason and Ortega, where government entities were held immune 7 from liability for alleged failure to perform discretionary acts, because here the City has acted, and has 8 done so as a party in a securities transaction, rather than in a discretionary fashion. By including 9 government entities in its definition of person, the Corporate Securities Law treats these entities as it 10 does all other parties engaged in such transactions: by imposing upon them liability for fraudulent and 11 prohibited conduct. 12 13 3. California Government Code § 818.8 14 California Government Code § 818.8 states that “[a] public entity is not liable for an injury 15 caused by misrepresentation by an employee of the public entity, whether or not such misrepresentation 16 be negligent or intentional.” The Legislative Committee Comments to § 818.8 state that “[t]his section 17 provides public entities with an absolute immunity from liability for negligent or intentional 18 misrepresentation.” Cal. Law Revision Com., Comment, Deering’s Ann. Gov. Code § 818.8 (1982 ed.) 19 (cited in Harshbarger, 197 Cal. App. 3d at 1340); see also Masters v. San Bernadino County Employees 20 Ret. Ass’n, 32 Cal. App. 4th 30, 43 (1995) (holding that publicly entities are “wholly immune” for fraud 21 and negligent misrepresentation by their employees). The Senate Committee on Judiciary Comment 22 to § 818.8 provides the following example of the Section’s applicability: “This section will provide . 23 . . a public entity with protection against possible tort liability where it is claimed that an employee 24 negligently misrepresented that the public entity would waive the terms of a construction contract 25 requiring approval before changes were made.” Sen. Jour. p. 1889 (April 24, 1963) (cited in Johnson 26 v. State, 69 Cal. 2d 782, 800 (1968) (explaining that § 818.8 was designed to exempt government 27 entities from liability for “interferences with financial or commercial interest,” and basing its reasoning 28 on United States v. Neustadt, 366 U.S. 696, 697, 711 (1961), where the United States Supreme Court 7 United States District Court For the Northern District of California 1 held the government immune under a federal statute similar to § 818.8 from liability for an alleged 2 misrepresentation in an inspection and appraisal report provided to property buyers by the Federal 3 Housing Administration.)). 4 Analogizing to Neustadt and Johnson, the California Court of Appeal has held the City of 5 Hermosa Beach immune from liability for alleged financial interference resulting from a mistaken 6 description of local zoning laws in a report prepared by one of its employees even though the Tort 7 Claims Act imposed liability on public entities for such conduct. See Grenell v. City of Hermosa Beach, 8 103 Cal. App. 3d 864, 868, 874-75 (1980). The California Court of Appeal has also held the City of 9 Montebello immune from liability for an alleged misrepresentation when one of its police officers orally 10 promised compensation to a police informant, see Page v. City of Montebello, 112 Cal. App. 3d 658, 11 661, 671-72 (1980), and has held Los Angeles County immune from general liability imposed by § 12 815.2 when one of its employees mistakenly instructed local farmers to spray their crops with a pesticide 13 whose use was actually prohibited, see Tokeshi v. State of California, 217 Cal. App. 3d 999, 1002-03 14 (1990). 15 The application of § 818.8 to the Corporate Securities Law, however, is a novel question, for 16 which California case law provides no established answer. The only case either party has found on this 17 issue is an unpublished Los Angeles County Superior Court case which defendant discusses in its reply.8 18 Moreover, the issue has not been thoroughly briefed by either party, and defendant has not previously 19 raised its immunity argument against identical claims in the related Nuveen matter. 20 This case differs from those where California courts have applied § 818.8 to render government 21 entities immune from alleged misrepresentation by their employees. Here, the alleged misrepresentation 22 involved prospectuses issued with the City’s imprimatur in the sale of $33 million in municipal revenue 23 bond anticipation notes. Such a transaction differs substantially from the issuance of inspection and 24 25 26 27 28 8 According to a 1998 Practicing Law Institute Bulletin (1098 PLI/Corp. 915-919), in BNY Western Trust v. City of Los Angeles (LASC Case No. BC 161090) the Superior Court sustained the City’s demurrer to securities fraud claims under § 25500 of the Corporate Securities Law based on the immunity provided by § 818.8. Defendant states that its has been unable to obtain the briefs or order from the Superior Court file. In addition to the Bulletin, defendant attached docket entries from the California Court of Appeal, which denied the plaintiff’s writ petition, and from the California Supreme Court, which denied review. 8 United States District Court For the Northern District of California 1 residential building reports and oral promises and instructions. Whereas government entities have been 2 held immune from liability for the “financial interference” arising from such alleged misrepresentations, 3 the securities fraud alleged here was not a “financial interference” but rather the City’s own plan and 4 design. In each of the cases where government entities were held immune, they were held immune for 5 misrepresentations made by individual employees acting contrary to the government entities’ official 6 policies. Although defendant is correct in arguing that the City cannot act without its employees also 7 acting, here the alleged misrepresentation was not the result of a single employee acting contrary to 8 official policy, but rather resulted from the implementation of official City policy. Moreover, as 9 discussed above, the statute governing such transactions and applying liability to government entities 10 engaged therein was enacted five years after the immunity rule was established. Since government 11 entities can only act through their employees, the language in the Corporate Securities Law imposing 12 liability on government entities would be rendered nugatory if the immunity applied. 13 Under all these circumstances, the Court is not persuaded at this time that the immunity from 14 liability for employee misrepresentation provided by § 818.8 of the Tort Claims Act of 1963 overrides 15 the liability for misrepresentation imposed on government entities by the Corporate Securities Law of 16 1968, and therefore DENIES defendant’s motion on the grounds of immunity under California law.9 17 18 CONCLUSION 19 For all of the foregoing reasons, the Court hereby GRANTS IN PART and DENIES IN PART 20 defendants’ motion to dismiss plaintiff’s third claim for relief with leave to amend. (Docket No. 10). 21 Plaintiff shall file an amended complaint no later than August 21, 2009. 22 23 IT IS SO ORDERED. Dated: August 11 , 2009 24 SUSAN ILLSTON United States District Judge 25 26 27 9 28 In the event that defendant is able to make a further showing on this issue at a future date, it may renew its argument at that time. 9
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
