The City of Alameda (“City”) decided to expand its electrical system to include cable TV and internet, Alameda Power & Telecom (“Alameda Power”), a division of the City, borrowed money to construct the telecommunications system. In 2004, Alameda Power issued $33,000,000 in Revenue Bond Anticipation Notes (“Notes”) to complete construction and refinance its debt.
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 $20,550,000 in Notes and received $6,516,003, in interest payments over the life of the Notes. The Notes were set to mature on June 1, 2009. However, the telecom system performed poorly. Alameda determined in June 2008 that refinancing the Notes was not an option and sold the telecom system to Comcast for $15,000,000. The City paid all of the net proceeds from the sale to the Noteholders, including $10,105,110 to Nuveen, which left Nuveen with a shortfall of approximately $10,000,000.
Nuveen brought a lawsuit against the City alleging violations of the federal Securities Exchange Act of 1934 and California Corporate Securities Act.
The trial court granted summary judgment in favor of the City on the federal claims because Nuveen failed to establish loss causation and on the state law claims because the City enjoys immunity under California law.
The court found that the California Corporate Securities Act does not override the immunity provided by section 818.8. The court stated, “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.”