[00:00:00] Speaker 00: Good morning. [00:00:01] Speaker 00: Oh, welcome to the center day O'Connor courthouse. [00:00:06] Speaker 00: It's a pleasure to be here this morning. [00:00:09] Speaker 00: Um, most of our cases have been submitted on the briefs and I will review those briefly at this time. [00:00:17] Speaker 00: Uh, the case of Cecilio Costanzo Morales versus Pam Bondi has been submitted on the briefs as well as the case of Leonardo Bedoya Corona versus Pam Bombly. [00:00:27] Speaker 00: and the case of Nestor Melanzar Salas versus Pambandi, and the case of Moises Ortiz-Garcia versus Pambandi. [00:00:35] Speaker 00: Those cases have been submitted on the briefs, as well as the case of Edgar Javier Solorio Monzo versus Pambandi. [00:00:44] Speaker 00: So the case set for oral argument this morning is the case of Cross First Bank, Kansas Banking Corporation, [00:00:53] Speaker 00: and Nancy Hanna versus Vieste SPELC, Herbert J. Sims and Company Inc. [00:01:02] Speaker 00: and William B. Sims. [00:01:04] Speaker 00: Council are ready to proceed. [00:01:06] Speaker 00: You may come forward. [00:01:11] Speaker 03: Good morning and may it please the court. [00:01:12] Speaker 03: My name is Jeff Goulder. [00:01:14] Speaker 03: I'm here with my partner Michael Vincent appearing on behalf of the plaintiff's appellants. [00:01:19] Speaker 03: My goal is to reserve five minutes for rebuttal. [00:01:24] Speaker 03: Of course, I mean no disrespect to either of the district court judges that have handled this case. [00:01:30] Speaker 03: Judge Bolton or Judge Reyes, but we believe that both committed reversible error unless the court prefers. [00:01:36] Speaker 03: Otherwise, I intended to start with Judge Bolton's order on the motion to dismiss the most direct path. [00:01:44] Speaker 00: And maybe it's me. [00:01:45] Speaker 00: I'm just having a little trouble hearing. [00:01:47] Speaker 00: Can you speak or bring the microphones up to you, please? [00:01:53] Speaker 03: Is that better? [00:01:54] Speaker 00: That's better. [00:01:55] Speaker 00: Thank you. [00:01:56] Speaker 03: What I was saying was the most direct path to reach the conclusion that Judge Bolton erred is simply this. [00:02:05] Speaker 03: Both Judge Bolton and Judge Reyes reviewed the same documentation, and that is the 2014 notice and the 2015 notice as defined in Judge Bolton's order. [00:02:20] Speaker 03: Judge Reyes [00:02:22] Speaker 03: concluded based on that information that there was not sufficient evidence that Fiesta was at fault. [00:02:29] Speaker 03: Judge Bolton, based on that same evidence, reached the different conclusion that there was sufficient evidence of fraudulent practice such that the statute of limitation against Fiesta started to run. [00:02:43] Speaker 03: That in and of itself, two district court judges viewing the same information reaching contrary conclusions [00:02:52] Speaker 03: I think establishes that there is a question of fact regarding accrual of the statute of limitations such that the case should proceed. [00:03:01] Speaker 03: There are other reasons. [00:03:02] Speaker 05: I'm not sure I understand that argument. [00:03:04] Speaker 05: I'm not sure it's your best argument either, but let me probe it for a second. [00:03:09] Speaker 05: As I understand it, Judge Bolton found that [00:03:12] Speaker 05: Several things should have put the plaintiffs on inquiry notice that the statute of limitations had begun to run. [00:03:20] Speaker 05: Judge Reyes found with respect only to the common law claims that there was no evidence of reliance on any misrepresentation. [00:03:30] Speaker 05: So given those two rulings, I'm having some difficulty figuring out why they conflict with each other. [00:03:36] Speaker 05: Judge Reyes didn't say the defendants were perfectly free [00:03:42] Speaker 05: had not done anything wrong. [00:03:44] Speaker 05: He just simply said there was no reliance on any misrepresentation. [00:03:48] Speaker 03: Well, I thought that Judge Reyes said something different. [00:03:52] Speaker 05: Well, if he did, you have to point out to me where he says it because his ruling is really restricted to the notice of reliance, I think. [00:04:02] Speaker 03: Am I wrong about that? [00:04:03] Speaker 03: I'm at page ER9 at line 17 and 18, which is Judge Reyes' ruling on summary judgment. [00:04:11] Speaker 03: He writes, [00:04:12] Speaker 03: It was not clear from the Emma notices that Vieste was in the wrong. [00:04:18] Speaker 03: Judge Bolton concluded that it was clear from the Emma notices that Vieste was in the wrong. [00:04:26] Speaker 05: So let's go back to Judge Bolton's ruling for a second, because as I understand your position, you wouldn't have been able to know whether you had a claim in this case until [00:04:41] Speaker 05: there was a ruling in the state court litigation, correct? [00:04:44] Speaker 05: You're correct. [00:04:46] Speaker 05: So I want to ask, I want to pose a hypothetical to you. [00:04:49] Speaker 05: Let's assume there had only been the 2014 notice from Standard & Poor's and no litigation had ensued. [00:04:58] Speaker 05: Would the statute of limitations ever have begun to run in your view? [00:05:09] Speaker 03: 2014 notice did not provide sufficient notice of fraudulent conduct. [00:05:14] Speaker 05: Well, why not? [00:05:18] Speaker 00: Why not? [00:05:19] Speaker 00: Thank you. [00:05:20] Speaker 00: First, if I can ask, why not? [00:05:23] Speaker 03: May I dive into the content of the 2014 notice? [00:05:26] Speaker 03: If Judge Turwitz would allow that. [00:05:29] Speaker 03: Sure. [00:05:29] Speaker 03: All right. [00:05:31] Speaker 03: This is what Judge Bolton had to say. [00:05:34] Speaker 05: Now tell me what the notice said, not what Judge Bolton said. [00:05:42] Speaker 05: The notice downgraded the bonds because it appeared that there was a controversy about whether or not, I'm going to use the term without capital letters, yard waste, to be separated. [00:05:57] Speaker 05: Shouldn't that have put the plaintiffs on inquiry notice that there might be a problem here? [00:06:07] Speaker 03: Even if it put the plaintiffs on inquiry notice, [00:06:11] Speaker 03: inquiry notice isn't enough, but the fact that the bonds were downgraded simply means that there was a payment problem with the project. [00:06:20] Speaker 03: The fact that there was a downgrade does not reflect on which party, Fiesta or the city of Glendale, was in the wrong in terms of... Right, and that's why I'm asking the question. [00:06:31] Speaker 05: So let's assume the parties never ended up in litigation. [00:06:35] Speaker 05: Would the statute of limitations still be running, not have begun running today, if a lawsuit were brought? [00:06:47] Speaker 05: I mean, the reason I'm asking is your argument seems to be based on the notion that we have to wait till the end of a lawsuit for the statute of limitations to begin running. [00:06:59] Speaker 05: So I was trying to take the lawsuit out of it. [00:07:03] Speaker 05: I take it your position has to be that you could suit could be brought today because the statute never would have begun to run. [00:07:11] Speaker 03: Judge Hurwitz, we have a unique situation here where you have two parties, Glendale and Bieste. [00:07:20] Speaker 03: One is right, one is wrong, and they're both pointing fingers at one another. [00:07:25] Speaker 03: So different from the hypothetical you just... No, that's why I'm asking you the hypothetical. [00:07:29] Speaker 05: So let's assume that the lawsuit never begins. [00:07:33] Speaker 05: You know there's a dispute between the parties about what the contract provides, but they never sue each other. [00:07:41] Speaker 05: And if they never sue each other, then it must be your position that the statute of limitations never begins to run. [00:07:49] Speaker 03: It is my position that the statute of limitations didn't begin to run in 2014 based on what we knew at that time. [00:07:56] Speaker 00: But your position, it seemed like from the briefing, was that it only could have run until there was a decision in state court. [00:08:04] Speaker 00: And before then, there was no way, I think from what I'm understanding from your briefing, because I'm not hearing that from you here exactly today, was that I think we're supposed to look at when you would have suspected with reasonable diligence [00:08:25] Speaker 00: And I'm trying to understand why what happened in July, October of 2014 and July of 2015 isn't sufficient to put you on notice and to start the accrual of the Arizona Securities Act. [00:08:44] Speaker 00: It seemed like in your briefing, you made the argument that you could not have known who made representation in the official statement from the notices. [00:08:55] Speaker 00: between October and July, October 14 and July 15. [00:09:00] Speaker 00: But I think it seems like only VST made representations in the official statement. [00:09:08] Speaker 00: So I don't know how that argument works for you. [00:09:12] Speaker 00: And I'm going based on the briefing, because it sounds like you're maybe arguing something different here today. [00:09:18] Speaker 00: Because only VST could have been the party that made the misrepresentation. [00:09:25] Speaker 03: But that doesn't mean that only Vieste was a prospective defendant. [00:09:30] Speaker 03: In other words, there would have been a claim against the city of Glendale for negligence, for example, if it entered into a waste supply agreement and violated the agreement knowing that there were bondholders that bought. [00:09:47] Speaker 03: So the point I'm trying to make is based on the facts that were presented with, [00:09:52] Speaker 03: where we have underlying litigation, each party pointing the finger at the other, the plaintiffs know one party's not at fault. [00:10:00] Speaker 04: But it seems like a bit of an odd theory to say that only when a court determines the outcome of litigation and the arbitrator went one way and then the state court goes another way and the parties both think they have good faith positions [00:10:15] Speaker 04: to then say, well, when that's over, now I retroactively know that they were false statements at the time of the bonds issuance. [00:10:21] Speaker 03: That's a very odd theory, isn't it? [00:10:24] Speaker 03: It's a unique situation, Judge Collins, because as I said, we had two parties. [00:10:30] Speaker 03: We know not both of them are at fault. [00:10:33] Speaker 03: Only one is at fault. [00:10:36] Speaker 03: So I'm not asking the court to announce some broad [00:10:40] Speaker 03: decision regarding a pool of statute of limitations. [00:10:42] Speaker 04: I think what we're getting at here with the various lines of questioning is that the facts are what the facts are and what a court ultimately decrees about a party's good faith dispute that went one way versus the other can't be what controls the statute of limitations. [00:10:57] Speaker 04: It has to be what the underlying facts are that could have been discovered by a reasonable person on inquiry notice after the substantial downgrade of the bonds to a notch above junk. [00:11:08] Speaker 03: You're exactly right. [00:11:10] Speaker 03: It's when a reasonable person would have known. [00:11:12] Speaker 04: And in this case, under these facts, that's when... But once you know that the bonds have been downgraded to a point where there's worry that this is going to be an economically viable project, it isn't, a reasonable person isn't on inquiry notice that, gee, maybe all that stuff they said in the official statement wasn't, you know, wasn't on the up and up. [00:11:35] Speaker 03: I come back to the point I made with Judge Hurwitz. [00:11:38] Speaker 03: Judge Collins, you used the term inquiry notice. [00:11:41] Speaker 03: Judge Reyes concluded we were on inquiry notice, but he still concluded that the cause of action had not yet accrued. [00:11:50] Speaker 03: So in the worst case, the bond downgrade provided inquiry notice that there was a problem with the project, but there was nothing about the bond downgrade or anything else in the 2014 notice or the 2015 notice [00:12:05] Speaker 03: that indicated who was at fault for the problems that the project was confronting. [00:12:11] Speaker 03: Maybe this will help. [00:12:14] Speaker 03: There were two fundamental misstatements with this project. [00:12:20] Speaker 03: One was that this facility was a recycling facility, that it was built as a recycling facility. [00:12:28] Speaker 03: And the second was that [00:12:30] Speaker 03: Vieste and Glendale had entered into a contract to receive the sort of waste that a recycling facility could handle. [00:12:39] Speaker 03: Neither one of those things turned out to be true. [00:12:42] Speaker 03: That is, the facility that was built was not a recycling facility at all because Vieste had never communicated to its building contractor that the use of the project has changed. [00:12:55] Speaker 03: The contractor built an incinerator. [00:12:59] Speaker 03: We didn't know that. [00:13:00] Speaker 03: We could not have known what the contract between the estate and its builder held until after the Glendale litigation concluded because that was not public knowledge. [00:13:14] Speaker 03: That was not public information. [00:13:16] Speaker 03: The other thing that we did not know and could not have known is what did the waste supply agreement mean. [00:13:25] Speaker 03: We knew what it said. [00:13:27] Speaker 03: We knew what it said. [00:13:28] Speaker 03: S&P knew what it said. [00:13:30] Speaker 03: S&P didn't pick up on the fact that there was some disconnect in terms of the definition of yard waste with the capital letters and yard waste with lowercase letters. [00:13:43] Speaker 03: S&P rated the bonds A+. [00:13:46] Speaker 03: So it is not a valid argument for the defendants to say [00:13:53] Speaker 03: You bond buyers had access to the waste supply agreement. [00:13:57] Speaker 03: You should have acted like lawyers and judges and determined for yourself what it meant. [00:14:04] Speaker 05: With respect to the first of the two misrepresentations that you identify, doesn't the 2014 S&P notice indicate that Vieste had decided that it had to retrofit the facility and change it in order to do [00:14:19] Speaker 05: what it wanted to do, so weren't you on at least notice at that point that the facility couldn't do what you thought it could do? [00:14:29] Speaker 03: We were on notice that the facility couldn't process the sort of waste that it was receiving. [00:14:35] Speaker 03: We were not on notice why that happened and who would have thought for it. [00:14:38] Speaker 05: Right, that's the second part of your, so you said there were two misrepresentations. [00:14:43] Speaker 05: One was [00:14:43] Speaker 05: that the facility they built couldn't do what it was represented to do. [00:14:48] Speaker 05: And I'm looking at the 2014 S&P notice, and that says VST has decided that it would have to retrofit the facility in order to accomplish what it wanted to do. [00:14:59] Speaker 05: So certainly you will have noticed at that point of that problem, weren't you? [00:15:05] Speaker 03: We did not know. [00:15:06] Speaker 03: what VST had contracted to build. [00:15:09] Speaker 03: I will grant you, Judge Hurwitz, that we were on inquiry notice of a problem. [00:15:16] Speaker 03: But we did not know and could not have known that, in fact, VST never even built the sort of facility that it intended to build, which was a recycling facility. [00:15:26] Speaker 00: But weren't you also on this that the city of Grandale would not pre-sort the waste to remove yard waste? [00:15:33] Speaker 00: And then there was the litigation or the state court [00:15:37] Speaker 00: in which the state court found that there was no provision in the agreement between Glendale and Vestay that required Glendale to remove yard waste from its deliveries to the recycling facility. [00:15:52] Speaker 00: And only Vestay made, from my reading, made representations in the official statement. [00:15:59] Speaker 00: So I just wanted to give you an opportunity to tell me why [00:16:04] Speaker 00: These notices are not sufficient for the plaintiffs to suspect that due to the yard waste dispute, that BSA had misrepresented the facility's design and its ability to generate the revenues. [00:16:17] Speaker 03: Thank you, Judge McGee. [00:16:18] Speaker 03: Let me take you up on that suggestion or invitation. [00:16:21] Speaker 03: I'm looking at the notice to bondholders, which is the 2015 notice. [00:16:27] Speaker 03: I'm at page ER 890, the bottom paragraph. [00:16:32] Speaker 03: This is Superior Court Judge Bergen. [00:16:35] Speaker 03: She writes, as a preliminary matter, there is no provision in the WSA that explicitly requires the city to remove unacceptable waste types. [00:16:46] Speaker 03: That's what Judge Bolton cited in her ruling. [00:16:50] Speaker 03: But that's not the end of the sentence. [00:16:52] Speaker 03: The rest of the sentence says, or [00:16:56] Speaker 03: or that explicitly allows the city to deliver both acceptable and unacceptable waste types. [00:17:04] Speaker 03: In other words, Judge Bergen was saying this contract doesn't answer the question. [00:17:11] Speaker 03: She was saying that there is not an explicit statement in the contract that resolves the issue. [00:17:18] Speaker 03: To my mind, holding out the possibility of extrinsic evidence to be used [00:17:25] Speaker 03: to interpret the contract. [00:17:28] Speaker 03: Of course, the bond buyers were not parties to any negotiations of this contract. [00:17:33] Speaker 03: They have no knowledge of any extrinsic evidence. [00:17:36] Speaker 03: All they can do is look at the waste supply agreement to the extent bond buyers even have an obligation to do that. [00:17:44] Speaker 03: And note the same thing that Judge Bergen noted, which is the contract doesn't explicitly answer the question. [00:17:54] Speaker 00: Thank you. [00:17:54] Speaker 00: You're at three minutes and 24 seconds. [00:17:56] Speaker 00: Did you want to reserve that time? [00:17:59] Speaker 03: Thank you. [00:17:59] Speaker 00: Thank you. [00:18:07] Speaker 01: Good morning. [00:18:08] Speaker 01: My name is Hudson Smellie. [00:18:10] Speaker 01: I'm here from HJ Sims and Company and Timothy's and Smith. [00:18:16] Speaker 01: I'm going to try to focus on the motion to dismiss that was granted, and my colleague will speak to the summary judgment. [00:18:25] Speaker 01: You're asking the same questions I've been asking. [00:18:28] Speaker 01: And it's really this. [00:18:29] Speaker 01: Did these plaintiffs, who were certainly very sophisticated folks who had to be qualified institutional buyers and all that stuff, in order to even buy these bonds, did they have to sit on their hands for years hoping that a court [00:18:44] Speaker 01: might rule on the WSA. [00:18:47] Speaker 01: In hindsight, it did rule. [00:18:49] Speaker 01: But in 2015, you don't know if that's ever going to happen. [00:18:52] Speaker 01: It's just sort of like the hypothetical that was presented. [00:18:55] Speaker 01: What if there wasn't any litigation? [00:18:57] Speaker 01: What if the litigation's settled? [00:18:58] Speaker 01: What if there's never a ruling? [00:18:59] Speaker 01: And I think the answer is really this. [00:19:03] Speaker 01: Their allegations of specific misrepresentations don't live or die on how the state court ultimately rules on the WSA. [00:19:15] Speaker 01: Their allegations include, just to highlight some, that the S-Day misrepresented its experience with like projects. [00:19:24] Speaker 05: Let me ask you, because this seems to be at the center of both sides' arguments, what do you think the test is under Arizona law for when a statute of limitations begins to run? [00:19:39] Speaker 05: I mean, obviously, it normally begins to run when an injury occurs. [00:19:43] Speaker 05: But we're dealing with discovery in these cases. [00:19:46] Speaker 05: Both sides seem to joust a little bit about what the Arizona test is. [00:19:50] Speaker 05: Tell me what you think the Arizona test is. [00:19:52] Speaker 01: I'll tell you what I think it is. [00:19:53] Speaker 01: I think it starts with the statute under the ASA because it's known or should have known of a fraudulent practice. [00:20:01] Speaker 01: So we start there. [00:20:01] Speaker 01: You've got to know of a fraudulent practice, not necessarily cognition. [00:20:05] Speaker 05: And I take it this case turns on should have known. [00:20:08] Speaker 05: because that's what Judge Bolton sort of says. [00:20:12] Speaker 05: So I'm trying to figure out what this should have known mean. [00:20:15] Speaker 01: Yeah, right. [00:20:17] Speaker 01: It's one of my list of questions. [00:20:18] Speaker 01: How much do you know before you know? [00:20:20] Speaker 01: And I think the answer under Arizona Supreme Court law from 2024, the Satamian case that we've cited in our brief, no, it wasn't. [00:20:29] Speaker 01: Sorry, it was not an ASA case. [00:20:32] Speaker 01: But it's when you had enough information to file your claim. [00:20:36] Speaker 01: It was when you had an idea that someone was a potential defendant. [00:20:42] Speaker 01: It's not, as we see in certain places in the plaintiff's brief, when they know something unequivocally. [00:20:48] Speaker 05: Well, but what they're saying, and this makes a little bit of procedural sense, is that all they really knew in 2014 and 15 was that somebody had misrepresented something, whether it was the city of Glendale or [00:21:05] Speaker 05: Vieste. [00:21:07] Speaker 05: And should they have sued both of them at the time? [00:21:10] Speaker 01: I think that was a possibility. [00:21:12] Speaker 01: I think they knew more than just that somebody might have made a misrepresentation. [00:21:17] Speaker 01: You back up from this big picture. [00:21:20] Speaker 01: Vieste had one job to which all the other things it was going to do were somewhat peripheral. [00:21:25] Speaker 01: It needed to make sure Glendale, the only possible source of the right kind of waste, was not only willing but [00:21:32] Speaker 01: capable financially and technologically to deliver the waste, and then it needed to do a contract that unequivocally explicitly required them to do that. [00:21:43] Speaker 01: Nothing else would matter if that wasn't done. [00:21:45] Speaker 01: and having the agreement in place just by itself isn't enough. [00:21:49] Speaker 01: Even if the USDA had won the lawsuit in the state court years later, all of their claims still stand. [00:21:56] Speaker 01: The fact that the agreement was poorly drafted, took years of litigation, would be support or evidence for their having misrepresented their experience in this kind of project. [00:22:07] Speaker 01: So the claims don't ultimately turn on that issue, but back to how much did they need to know [00:22:14] Speaker 01: If they had enough in the court, Judge Bolton had cited and relied on Aaron V. Frumkin. [00:22:21] Speaker 01: That case used the language of, because there was a court ruling in that case out of the bankruptcy court, and that's what they had relied on, and the court said, no, you knew sooner because you suspected the fraud sooner. [00:22:34] Speaker 01: You had reason to suspect the fraud sooner. [00:22:36] Speaker 01: That was the language here. [00:22:37] Speaker 05: Well, that's why I'm asking, because sometimes the briefs talk about suspicion, and sometimes they talk about should have known, [00:22:44] Speaker 05: And the language in the ASA should have known, but the language in some of the Arizona cases talks about reasonable suspicion. [00:22:52] Speaker 05: So I'm trying to figure out what Arizona tests were supposed to apply to this. [00:22:57] Speaker 01: I think the Arizona case law isn't 100% consistent on that. [00:23:02] Speaker 01: But I think from the Supreme Court of Arizona, that's the Tamian case in 2024. [00:23:07] Speaker 01: captures the idea. [00:23:09] Speaker 01: When did you have enough information to plead your claim? [00:23:12] Speaker 01: Arizona has well established pleading rules. [00:23:15] Speaker 01: You don't have to make a prima facie case. [00:23:17] Speaker 01: We had cited that in our brief. [00:23:19] Speaker 01: There's a case called Boone that we had cited. [00:23:22] Speaker 01: But basically, [00:23:23] Speaker 01: You do enough investigation that you can allege these claims that aren't clearly groundless or frivolous. [00:23:28] Speaker 01: We have a discovery process that allows you to discover more facts, but what's clear under the Arizona rule, announced or really said again in Sotamian, you don't have to have all the facts. [00:23:40] Speaker 01: You don't have to have all the evidence. [00:23:42] Speaker 04: What Sotamian says is there must also be reason to connect the what to a particular who [00:23:49] Speaker 04: in such a way that a reasonable person would be on notice to investigate whether the injury might result from fall. [00:23:57] Speaker 04: So what is it that establishes the connection here to the particular who as of what time? [00:24:06] Speaker 01: Yeah, I think, and of course that's in a different context in the ASA, but I think the gist of it still applies. [00:24:13] Speaker 01: here because under the ASA. [00:24:14] Speaker 04: Do you think the standard for the statute of limitations is different for the ASA than for the common law claims? [00:24:21] Speaker 01: I think it requires less and it requires less because the elements are less. [00:24:26] Speaker 01: This was a statutory claim that was made to be much simpler than even a 10b-5 claim. [00:24:32] Speaker 01: You don't have to prove damages. [00:24:34] Speaker 01: You don't have to prove intent. [00:24:37] Speaker 01: You do have to prove materiality in the remedies rescission. [00:24:41] Speaker 04: Just so I understand your position, Craig, the elements of the discovery rule are the same. [00:24:46] Speaker 04: The difference comes from the fact that they're applied to different underlying elements of the causes of action that produces a different ultimate rule. [00:24:55] Speaker 01: Exactly. [00:24:55] Speaker 01: And there are Arizona cases that will make that note that the, you know, the elements of a particular cause of action play a role in determining a cruel. [00:25:05] Speaker 01: So here, [00:25:06] Speaker 01: It's not when did they know with certainty or unequivocally that Vieste is at fault. [00:25:11] Speaker 01: They knew this thing was a cluster in 2014 and 15, and as has already been pointed out, Vieste owned the pen on the official statement. [00:25:22] Speaker 01: If there is a misrepresentation there, it's at their hand. [00:25:26] Speaker 01: And then what else is important is that, again, those claims, [00:25:32] Speaker 01: misrepresenting their experience or how deeply they looked into the viability of the facility, whether the facility could be self-sustaining. [00:25:44] Speaker 01: All the later ruling could do is add another data point of evidence one way or the other. [00:25:50] Speaker 01: Those things were either false or true back in 2013 when that document was authored. [00:25:55] Speaker 05: One of the things that sort of seems strange to me in this case is that [00:26:00] Speaker 05: I'm not sure they would ever have an ASA claim against Glendale, because the representations were purported to be made by VSA and the underwriter. [00:26:10] Speaker 01: That's right. [00:26:11] Speaker 01: Because the ASA, we mentioned earlier, Judge Collins, about the who. [00:26:18] Speaker 01: The ASA tells you kind of the who. [00:26:20] Speaker 01: You have to make, induce, and there's one other, you know, you had to fit one of those three, and courts don't usually parse those out very carefully. [00:26:29] Speaker 01: But that kind of identifies the who, who's that involved? [00:26:32] Speaker 05: Well, I guess what I'm saying is that the who in this context could only have been the underwriters in Vieste. [00:26:39] Speaker 05: It may have been that they didn't do anything wrong. [00:26:41] Speaker 05: That goes to the other part of the inquiry, which is where you put on notice. [00:26:45] Speaker 05: But I don't think there was going to be a difficult time figuring out if there was a misrepresentation, who made it? [00:26:51] Speaker 05: Because representation was only made by the underwriters in Vieste. [00:26:55] Speaker 01: That's correct, because Glendale doesn't have a pin on the official statement. [00:26:59] Speaker 01: Yeah, the waste supply agreement's attached to it and that's negotiated, but you're absolutely right. [00:27:06] Speaker 01: Who wrote this? [00:27:06] Speaker 01: There is an issuer of the bonds, but they make it clear in the official statement that they really didn't have a pin on the official statement. [00:27:14] Speaker 05: So I want to go back to the other part of the test. [00:27:17] Speaker 05: So your position is that the ASA standard, which is new or should have known, is congruent with the Arizona common law standard? [00:27:25] Speaker 01: I think it is with just the caveat that you have less elements than you have. [00:27:30] Speaker 05: What you knew or should have known is different. [00:27:32] Speaker 05: The question is whether it's new or should have known. [00:27:35] Speaker 01: I think that's right. [00:27:37] Speaker 01: It's right in the statute, and new or should have known will be based on not looking in a piece of information in isolation like the rating going from A plus to triple B minus. [00:27:47] Speaker 01: In the aggregate, [00:27:48] Speaker 01: Not only was this thing a complete disaster, it's a revenue bond with no revenue, no recycling, no money coming in. [00:27:55] Speaker 01: It's a recipe for default on the bonds. [00:27:59] Speaker 01: And VST didn't do that first task. [00:28:01] Speaker 01: Make sure Glendale can actually do the job and is willing. [00:28:06] Speaker 00: Can I ask you a question out of town? [00:28:08] Speaker 00: In your briefing, you represent Sims, is that correct? [00:28:12] Speaker 01: Yes, Your Honor, and Dan Smith. [00:28:15] Speaker 00: Sims argued that the misrepresentation allegations in the plaintiff's first amended complaint were considerably broader than they are on appeal, and then argued that the dismissal of the Arizona Securities Act claims should be reviewed against the broader misrepresentation allegations. [00:28:37] Speaker 00: I was just trying to figure out what's your best case for this position? [00:28:41] Speaker 01: Well, my best case for that position is that's what they actually alleged in their complaint. [00:28:45] Speaker 01: And so my point is simply that if you've alleged a whole slew of misrepresentations, you start to realize, you know what, there's a bunch of that I was aware of due to these notices. [00:28:55] Speaker 01: You start narrowing the claim and say, well, we don't have an explicit statement that the MRF was ill designed. [00:29:01] Speaker 01: That was my point. [00:29:02] Speaker 01: If I just go back to the complaint. [00:29:06] Speaker 00: Okay. [00:29:06] Speaker 00: Thank you very much. [00:29:08] Speaker 01: Thank you. [00:29:20] Speaker 02: And may it please the court, Todd Feltis, and I'm here on behalf of the VSK entities and four of the five members of the board of managers. [00:29:29] Speaker 02: I was going to, and in splitting up the time with my colleague that was going to address the summary judgment issues, but I'm certainly prepared to talk about the motion to dismiss as well. [00:29:41] Speaker 02: The district court correctly found that the plaintiff did not establish actual reliance. [00:29:46] Speaker 02: And there wasn't any evidence that was presented in the summary judgment record that anyone actually directly or indirectly relied on any statement made in the official statement. [00:29:59] Speaker 02: And as we trace back all the evidence of the various people on both the insurance company side and on CrossFit side, [00:30:07] Speaker 02: The reliance evidence comes down really to two individuals, Eric Nelmark, who is the analyst for the insurance company's investment advisor, and David O'Toole, who is the investment officer on behalf of Cross First Bank and Cross First Investments. [00:30:22] Speaker 02: And on appeal for the first time, the plaintiffs point to habit evidence and say that the actual reliance can be shown [00:30:32] Speaker 02: on the habits of Mr. Nelmark. [00:30:35] Speaker 05: There's summary judgment briefing. [00:30:39] Speaker 05: I think I read it all. [00:30:40] Speaker 05: Talks about habit evidence once or twice. [00:30:43] Speaker 05: I mean, talks about habit once or twice in the course of what I think is 47 pages of briefing or something like that. [00:30:52] Speaker 05: Is that enough to preserve the issue for review? [00:30:56] Speaker 02: It's not. [00:30:58] Speaker 02: for three reasons on that. [00:31:00] Speaker 02: And the evidence that you're talking about, Your Honor, comes in the four-page discussion. [00:31:05] Speaker 02: I think it's pages eight through 12, or in that area of the response of summary judgment, where it walks through. [00:31:12] Speaker 00: Because they make two references to practice, to the practice. [00:31:18] Speaker 02: That's absolutely correct. [00:31:19] Speaker 02: So with respect to Eric Nelmark, they talk about custom and practice. [00:31:23] Speaker 02: And then with respect to a tool, they talk about practice. [00:31:28] Speaker 05: Why wasn't that enough to put the district court on notice that this was something that may or may not be successful? [00:31:36] Speaker 05: That's a separate issue. [00:31:37] Speaker 02: Sure. [00:31:37] Speaker 05: But your first argument is that they never made the argument below. [00:31:41] Speaker 05: That's right. [00:31:41] Speaker 05: And I think it's probably better to say they didn't develop the argument below very well, but they did seem to raise it. [00:31:50] Speaker 02: Well, I think the development of the argument in the briefs and the underlying record goes into them not raising it. [00:31:57] Speaker 02: With NELMARK, the use of the phrase custom in practice doesn't tie to any label in rule 406. [00:32:05] Speaker 02: I'm not here to say that labels matter. [00:32:07] Speaker 04: I don't understand why it has to tie to 406. [00:32:09] Speaker 04: 406 is an issue about [00:32:12] Speaker 04: And I don't see that anyone was contesting about admissibility. [00:32:17] Speaker 04: When I read the summary judgment order, the first thing I immediately thought of was, oh, this is an argument that this is what I would normally do and so I must have done it on. [00:32:26] Speaker 04: Logically, you can make that argument. [00:32:29] Speaker 04: This is what I do and therefore I draw the inference. [00:32:32] Speaker 04: Whether you stamp 406 or have it on it, I don't see, that seems to me to be a red herring. [00:32:37] Speaker 04: Why am I wrong? [00:32:38] Speaker 02: Well, I think it gets to, it gets, [00:32:41] Speaker 02: gets beyond the label. [00:32:42] Speaker 02: So when you go beyond the one sentence about the custom and practice, with Eric Nelmark, for example, pages 19 and 20 of his deposition that they rely on, they ask him three questions as to what he would have done in a hypothetical situation. [00:32:57] Speaker 02: It's not a reflexive view [00:33:00] Speaker 04: It may be insufficient to support an inference that they did in fact when they looked at this official statement that they did in fact look at particular things. [00:33:12] Speaker 04: They may factually not establish a sufficient basis that based on how they would normally do things, they did something here. [00:33:21] Speaker 04: that could be reasonably inferred. [00:33:23] Speaker 04: But that seems to me to be the issue. [00:33:25] Speaker 04: And this whole thing about 406, or did you say magic words, seems to me to be a red herring. [00:33:30] Speaker 02: Well, the magic words I don't think goes far enough. [00:33:33] Speaker 02: I think that's one of three things. [00:33:35] Speaker 02: But the underlying evidence behind what the customer practices [00:33:42] Speaker 00: What about the england factors? [00:33:43] Speaker 00: Do they need to be reviewed in your view? [00:33:45] Speaker 00: Is that what you're arguing? [00:33:47] Speaker 02: Yes, I think the england factors, and I think the england factors are more just a reflection of the advisory committee rules in Rule 406. [00:33:58] Speaker 05: Let's assume for a second that they preserve the argument. [00:34:04] Speaker 05: And the evidence was what the evidence was. [00:34:07] Speaker 05: Why was that evidence insufficient to establish reliance? [00:34:12] Speaker 05: And that may be more useful for me, at least, to focus on whatever evidence was introduced, whether it establishes reliance or not. [00:34:20] Speaker 02: Because, let me start with Nelmark. [00:34:23] Speaker 02: In the case of Nelmark, the underlying evidence, the three questions that he was asked on pages 19 and 20 didn't go anywhere near habit. [00:34:30] Speaker 02: It asked what he would have done [00:34:32] Speaker 02: in a particular situation and what he would have done would have raised it with the supervisor. [00:34:38] Speaker 02: In addition, Nelmark's testimony was that this was not a reflexive action on his part. [00:34:45] Speaker 02: I mean, certainly he read a fair amount of official statements, but his testimony was, hey, once I saw this thing was rated A+, I wasn't quite as careful. [00:34:54] Speaker 02: I may not have read through the whole document. [00:34:58] Speaker 02: Can you address O'Toole's [00:35:01] Speaker 05: affidavit that the district court eventually decided not to consider? [00:35:06] Speaker 02: Sure. [00:35:07] Speaker 02: O'Toole's declaration was 180 degrees off from what he testified in his deposition. [00:35:15] Speaker 02: None of this declaration really goes to habit or customer practice. [00:35:20] Speaker 02: It's what he would have testified had he been asked certain questions. [00:35:25] Speaker 02: In his declaration, he goes specifically what he would have relied on in the official statement. [00:35:32] Speaker 02: Now, going back to the deposition, which was a 30b6 deposition with one of the topics that was described with reasonable particularity, reliance. [00:35:42] Speaker 02: And for good reason, because that was part of the class definition for the fraud and negligent misrepresentation claims. [00:35:49] Speaker 05: So in the absence of O'Toole's, assume he's never been deposed. [00:35:53] Speaker 05: Would his declaration have been sufficient to create a fact issue on reliance? [00:36:00] Speaker 05: No. [00:36:02] Speaker 02: It might be. [00:36:05] Speaker 02: I mean, the problem with O'Toole's declaration, though, is that he phrases it, had I been asked, this is what I answered. [00:36:14] Speaker 05: No, I understand. [00:36:15] Speaker 05: I understand that the district court said, I'm not going to consider it because it's in contrast to your [00:36:22] Speaker 05: deposition testimony. [00:36:24] Speaker 02: Right. [00:36:24] Speaker 05: But let's assume that he should have considered it. [00:36:28] Speaker 05: If he should have considered it, it seems to me it's probably enough to get past summary judgment, isn't it? [00:36:34] Speaker 02: It might be in particularly the paragraph where he lays out the, I mean, I guess if we had no summary or we had no deposition before. [00:36:43] Speaker 00: If it hadn't been a sham or declared as a sham. [00:36:45] Speaker 00: Right. [00:36:45] Speaker 02: I mean, we're certainly in a closer call. [00:36:47] Speaker 05: So in order for us to [00:36:50] Speaker 05: uphold the reliance ruling of the district court. [00:36:53] Speaker 05: It seems to be necessary to uphold the sham affidavit ruling. [00:36:58] Speaker 02: I think that's right. [00:37:00] Speaker 02: And I think there's ample evidence. [00:37:02] Speaker 02: I mean, first of all, that it's reviewed on abuse of discretion. [00:37:06] Speaker 02: And I think Judge Reyes was well within his discretion on declaring it a sham declaration. [00:37:13] Speaker 02: Motul was after these. [00:37:14] Speaker 04: We've also said [00:37:16] Speaker 04: that it should be applied with considerable caution because it really presents a risk that the district court is going to start to make credibility determinations. [00:37:25] Speaker 04: And so it has to be, you know, an absolutely clear contradiction between the two. [00:37:31] Speaker 04: And we've also said that without any credible explanation as to why it was different. [00:37:37] Speaker 04: Here the declaration actually makes quite an effort to explain why [00:37:43] Speaker 04: It shouldn't be viewed as contradictory. [00:37:47] Speaker 04: Isn't the district court now making credibility determination? [00:37:50] Speaker 02: I don't think so because this was a 30 v 6 deposition on the topic of reliance. [00:37:55] Speaker 02: O'Toole had reviewed the official statement in preparation of that deposition. [00:38:00] Speaker 02: He was asked at least twice during the course of the declaration, what did you rely on on the official statement? [00:38:06] Speaker 02: He couldn't point to anything. [00:38:11] Speaker 02: In justifying why they did a 180 in the declaration, they pointed to, well, this was class-based discovery, not merits discovery. [00:38:20] Speaker 02: I would have only been prepared for that on merits discovery. [00:38:23] Speaker 02: But that doesn't pass the straight-based test, because reliance was part and parcel of the class definition. [00:38:29] Speaker 02: I mean, to have a class rep who was [00:38:33] Speaker 02: going to represent the defiant class needed to have read and relied upon the official statement. [00:38:39] Speaker 04: Was this class for both at the time of that deposition was a class on both the ASA or just common law? [00:38:46] Speaker 02: Just common law. [00:38:47] Speaker 02: The ASA had been deposed in 2018. [00:38:49] Speaker 04: That's right. [00:38:52] Speaker 02: So that had been four years. [00:38:53] Speaker 02: So the class was solely about the fraud and the negligence representation claims. [00:39:00] Speaker 02: And reliance was key to the class route. [00:39:03] Speaker 02: So the fact that he came into the deposition somewhat prepared. [00:39:07] Speaker 02: He read the official statement and wasn't able to point to anything that he relied upon. [00:39:11] Speaker 02: Two years later, we don't have any explanation other than, you know, supposedly ambushed because it was on class issues, but reliance was the class issue. [00:39:21] Speaker 02: So this is exactly, I mean, this is the Yeager case. [00:39:25] Speaker 02: And I see that my time is up and I think anyway, [00:39:29] Speaker 02: Any way that that this is fun. [00:39:31] Speaker 02: It was a sham declaration. [00:39:33] Speaker 02: Judge Reyes was properly considered it as such and summary judgment is proper. [00:39:39] Speaker 02: Thank you very much. [00:39:44] Speaker 03: Just a moment on the statute of limitations issue. [00:39:48] Speaker 03: Cause of action accrues when a fraudulent practice is known or should be known. [00:39:54] Speaker 03: That's set forth in the statute. [00:39:57] Speaker 03: I would urge the panel to consider 44-2082, which sets forth the pleading standards. [00:40:06] Speaker 03: In order for the plaintiffs to have sued Vieste and the underwriters for securities fraud, we would have had to set forth, it says, the complaint shall specify each alleged untrue statement or material omission and the reason or reasons why the statement or omission is misleading, [00:40:26] Speaker 03: or the emission is material. [00:40:28] Speaker 03: We could not have known those things. [00:40:30] Speaker 03: We could not have pled those things until the 2017 order came out. [00:40:38] Speaker 03: A comment was made about, well, when were these statements false? [00:40:43] Speaker 03: Were they false when they were made or were they false when we learned that they were false? [00:40:47] Speaker 03: Well, they were false when they were made. [00:40:49] Speaker 03: But still, the discovery rule applies. [00:40:52] Speaker 03: When should we have known that they were false? [00:40:54] Speaker 04: How does a court ruling tell you that it was false? [00:40:55] Speaker 04: That's just a weird theory. [00:41:00] Speaker 03: Because we have unique facts, Judge Collins. [00:41:04] Speaker 04: No, but it defies the laws of causation. [00:41:08] Speaker 04: How can a court ruling that nobody knows what the court's going to say, you just know the underlying facts, determines, aha, now I know that in 2013 what they said was false? [00:41:20] Speaker 04: I don't understand how that could be true. [00:41:22] Speaker 04: Either the facts as known in 2013 show that it's false or it's not. [00:41:29] Speaker 04: And what some court thinks about a dispute where it went through a lot of rounds and no one knew how it was going to come out, how could that retroactively establish a falsity in 2013? [00:41:40] Speaker 03: It doesn't retroactively establish a falsity. [00:41:43] Speaker 03: It puts us on notice of the falsity. [00:41:47] Speaker 04: But how could that be a [00:41:49] Speaker 04: This goes back to the question that Judge Hurwitz asked at the beginning. [00:41:53] Speaker 04: How could it be that a court pronouncement about the facts provides notice when the facts themselves don't? [00:42:02] Speaker 03: Judge Collins, what I will tell you is Judge Reyes looked at the same situation and he says, this doesn't tell us enough. [00:42:09] Speaker 03: This doesn't tell us that Vieste was at fault. [00:42:12] Speaker 03: That's why I started with that point. [00:42:15] Speaker 03: I see I'm very short on time, so let me just go very quickly to the reliance. [00:42:20] Speaker 03: I will say that, first of all, the O'Toole deposition testimony in and of itself is sufficient to show reliance. [00:42:28] Speaker 03: We never need to get to his declaration. [00:42:30] Speaker 00: There is nothing sham... What's your best case for that? [00:42:33] Speaker 00: What's your best case for the habit evidence is sufficient here to establish reliance for this common law claim? [00:42:42] Speaker 03: because Mr. O'Toole testified to what he does in these circumstances. [00:42:46] Speaker 00: But do you have an actual case to tell me as precedent that supports with these kind of facts here? [00:42:53] Speaker 03: No, Your Honor, I don't beyond what's in the brief. [00:42:56] Speaker 04: Can I ask one more specific question? [00:42:59] Speaker 04: If we were to find, I'm just saying hypothetically, if we were to find that the S&P downgrade notice in 2014 was sufficient [00:43:11] Speaker 04: to establish inquiry notice, would that time bar all the claims? [00:43:19] Speaker 04: Because even a three-year claim would have run by that point. [00:43:24] Speaker 04: Is three years the longest statute of limitations we're dealing with here? [00:43:27] Speaker 03: Yes, it is. [00:43:28] Speaker 03: But inquiry notice wouldn't have triggered the accrual of the cause of action. [00:43:35] Speaker 04: But I understand that argument. [00:43:36] Speaker 04: But if we were to find that the cause of action accrued, [00:43:40] Speaker 04: In 2014, everything would be time barred. [00:43:43] Speaker 04: I understand you don't think that premise is correct, but if that premise is true, then everything would be time barred. [00:43:49] Speaker 03: Three years is the longest statute of limitations. [00:43:50] Speaker 05: To put it differently, you're not making different arguments with respect to the accrual of your ASA claims and common law claims, are you? [00:44:00] Speaker 05: No. [00:44:01] Speaker 05: I understand Judge Reyes may have made a determination when he thought the common law claims accrued. [00:44:07] Speaker 05: But it's really the same argument, isn't it? [00:44:10] Speaker 03: In fact, Judge Reyes, I believe, agreed with Judge Bolton that the 2015 date would be the date, but it was a longer statute of limitations period. [00:44:23] Speaker 03: It was a three-year limitations period on the common law claims. [00:44:27] Speaker 03: But what Judge Reyes obviously disagreed with Judge Bolton on was when we knew that Fiesta was the one at fault. [00:44:35] Speaker 03: I have just one last parting comment, and that is because this was not fully developed in the briefing. [00:44:43] Speaker 03: There was a challenge to the NELMARK testimony saying that he didn't testify that he had read the official statement. [00:44:51] Speaker 03: He did testify that he read the bond rating report. [00:44:54] Speaker 03: The Allstate case develops the concept of indirect reliance, same situation where an investor [00:45:05] Speaker 03: relied on a bond rating, which in turn relied on the official statement and the underlying documents. [00:45:11] Speaker 03: And that was sufficient to get past summary judgment. [00:45:15] Speaker 03: Thank you. [00:45:15] Speaker 03: Thank you. [00:45:16] Speaker 00: Thank you, Mr. Golder and Mr. Feltes and Mr. Smalley. [00:45:20] Speaker 00: We appreciate the oral argument presentations made today. [00:45:24] Speaker 00: The case of Cross First Bank and Nancy Hanna versus Vieste, Herbert Sims and William Sims is now submitted and we are adjourned. [00:45:34] Speaker 00: Thank you. [00:45:37] Speaker ?: Bye.