534 F. App'x 817
11th Cir.2013Background
- In 2007 the Water Works Board issued water and sewer revenue bonds and created a Reserve Fund.
- Reserve Fund could be satisfied by a AAA-rated surety bond, or replacement with a AAA-rated bond if rating fell.
- The Board purchased a AAA Ambac surety bond for the Reserve Fund; Ambac’s rating later dropped to AA in June 2008.
- Following the downgrade, the Board deposited cash into the Reserve Fund and sued Ambac for breach, fraud, suppression of truth, and negligence.
- The district court dismissed the claims; the Board appeals asserting various theories against Ambac under Alabama law.
- The Trust Indenture contemplated rating downgrades and provided alternatives to meet the Reserve Fund; no express or implied duty to maintain AAA.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Breach of contract viability | Board asserts Indenture obligated Ambac to maintain AAA rating. | Indenture did not require AAA maintenance; downgrade permitted with alternatives. | No breach of contract; no express or implied duty to maintain AAA; dismissal affirmed. |
| Fraud claim viability | Ambac misrepresented underwriting standards during downgrade period. | Statements were puffery, not actionable misrepresentations of fact. | Fraud claim failed; statements were puffery or non-reliant; dismissal affirmed. |
| Suppression of truth viability | Ambac concealed underwriting standards and surveillance policy. | No duty to disclose; statements were not actionable omissions. | Suppression claim failed; no duty to disclose established; dismissal affirmed. |
| Negligence claim viability | Ambac had a duty not to negligently lose its AAA rating. | No duty to retain rating absent contract; tort remedy not available here. | Negligence claim dismissed; not a tort distinct from contract in this context. |
Key Cases Cited
- Southern Medical Health Systems, Inc. v. Vaughn, 669 So.2d 98 (Ala. 1995) (elements of contract claim require contract, performance, nonperformance, damages)
- Brushwitz v. Ezell, 757 So.2d 423 (Ala. 2000) (elements of fraud; misrepresentations must be fact, not puffery)
- Russell v. Wilson, 991 So.2d 745 (Ala.Civ.App. 2008) (reliance requires misrepresentation induced action)
- Hunt Petroleum Corp. v. State, 901 So.2d 1 (Ala. 2004) (reliance; timing of statements matters for misrepresentation claim)
- Mason v. Chrysler Corp., 653 So.2d 951 (Ala. 1995) (duty to disclose when undertakes to speak; silence not fraudulent absent duty)
- Vines v. Crescent Transit Co., 85 So.2d 436 (Ala. 1956) (negligent breach exception; tort remedy not available for pure contract breach)