CENTRAL BANK OF DENVER V. FIRST INTERSTATE BANK OF DENVER 511 U.S. 164 (1994) CASE BRIEF

CENTRAL BANK OF DENVER V. FIRST INTERSTATE BANK OF DENVER

511 U.S. 164 (1994)

NATURE OF THE CASE: This was a dispute over the liability of aiding and abetting 10b-5 violators.

FACTS: Bonds were issued for a public housing Authority and secured with landowner assessment liens with the covenant that an annual report be prepared for an appraisal on the land with that report affirming that the land was worth at least 160% of the bonds' outstanding principal and interest. The company that was required to submit this report was AmWest. In 1988, AmWest provided Central Bank an updated appraisal of the land securing the 1986 bonds. The appraisal showed the land values had remained the same. The senior underwriter of the bonds expressed concern with that report as land values had been falling. That underwriter suggested that Central retain an outside appraiser to conduct an independent review of the 1988 appraisal. After an exchange of letters, Central Bank and AmWest agreed to delay independent review until the end of the year, six months after the June 1988 closing on the bond issue. Before that review was completed, Authority defaulted on the bonds. The bond purchasers' sued Authority, the bonds' underwriters, the developer of the land, and the trustee for the bonds, Central Bank. The district court granted summary judgment for the trustee of the bonds. The Court of Appeals reversed, based on precedent permitting aiding and abetting actions under 10(b). The Court listed that cause of action; a primary violation of 10(b), recklessness by the aider and abettor as to the existence of the primary violation and substantial assistance given to the primary violator by the aider and abettor. From those facts, the Court of Appeals found that Central Bank was aware of the concerns about the 1988 appraisal, knew that the sale of the 1988 bonds was imminent and that purchasers were using the appraisal to evaluate the collateral for the bonds. This was an extreme departure from the standards of ordinary care, that a genuine issue of material fact existed, and that a reasonable trier of fact could conclude that Central Bank rendered substantial assistance by delaying the independent review of the appraisal.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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