ALAMEDA -- A federal appeals court has upheld a judgment in the city of Alameda's favor in a lawsuit brought by investors who claimed the city misrepresented the risks associated with bonds used to finance Alameda Municipal Power's former telecommunications system.
But while the U.S. Ninth Circuit Court of Appeals rejected the claims by Nuveen Investments, it affirmed an earlier decision to deny the city of Alameda's bid to recoup its cost to fight the lawsuit.
The ruling Thursday effectively ends Alameda's involvement in litigation that stemmed from the construction and operation of its cable and internet system.
After the city sold the financially troubled system to Comcast for $17 million in November 2008, Nuveen and the Bernard Osher Trust sued, alleging that local officials violated federal and state security laws in how they managed the system.
Nuveen had purchased $20 million in bonds for the telecom division -- which was then under the auspices of Alameda Power & Telecom, the municipal agency's previous name -- while the Osher trust purchased nearly $9 million in bonds.
Nuveen was seeking more than $10 million from the city, or the difference between the face value of the bonds and what it received from the sale of the system.
Attorneys for Nuveen claimed city officials and their underwriter, Stone & Youngberg, did not fully disclose the risks associated with the bonds and that the city could have done more to make the telecommunications system profitable.
"Nuveen's theory that it would not have purchased the securities but for the city's alleged misrepresentation of the risks goes only to show reliance, or transaction causation," Judge M. Margaret McKeown said in the Ninth Circuit opinion. "Missing is the necessary link between the claimed misrepresentations and the economic loss Nuveen suffered."
The court also found the city of Alameda enjoyed statutory immunity under California law regarding the misrepresentation claims.
The ruling Thursday was in response to an appeal filed by Nuveen over a May 2011 summary judgment in the city of Alameda's favor in the U.S. District Court for the Northern District of California.
Reach Peter Hegarty at 510-748-1654 or follow him on Twitter.com/Peter_Hegarty.