                                                                           FILED
                            NOT FOR PUBLICATION                             MAR 01 2011

                                                                        MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                       U .S. C O U R T OF APPE ALS




                            FOR THE NINTH CIRCUIT

US BANK NATIONAL ASSOCIATION,                    No. 09-35639

              Plaintiff - Appellant,             D.C. No. 3:04-cv-05623-RBL
  v.

EEL RIVER INVESTMENT COMPANY,                    MEMORANDUM *
a Washington corporation,

              Defendant,
  and

STERNE AGEE AND LEACH INC., an
Alabama corporation,

              Defendant - Appellee.



                   Appeal from the United States District Court
                     for the Western District of Washington
                   Ronald B. Leighton, District Judge, Presiding

                       Argued and Submitted August 4, 2010
                               Seattle, Washington

Before: NOONAN, THOMPSON** and BERZON, Circuit Judges.


        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.

         ** Judge Thompson concurred in the decision of the court but died
before the decision was filed.
      This case was tried in 2006 and on appeal to us by the loser, U.S. Bank, was

remanded with directions by this court. As we then noted, the key issues were (1)

the materiality of the omissions made by the offeror of the securities, Sterne, Agee

and Leach, Inc. (SAL) and (2) the reliance of the investors upon the information

furnished. U.S. Bank Nat. Ass’n v. Sterne, Agee & Leach, Inc., 281 Fed. App’x

740 (2008) (unpublished).

      On remand, after a second bench trial, U.S. Bank again lost and again

appeals.

      In 2005, U.S. Bank, the trustee responsible for holding the investment

collateral, stepped into the shoes of the investors by purchasing their shares. U.S.

Bank’s purchase of the shares was part of a settlement to avoid liability for its own

alleged negligence as the trustee that lost control of the collateral. With this

nimble move, U.S. Bank now speaks as the allegedly defrauded investors, who

were told nothing about the criminal past of Buck Olsen, the entrepreneur for

whose benefit SAL arranged the financing.

      As this court stated in its first opinion in this case, if material facts were

omitted by SAL, then SAL had the burden of showing that the investors would not

have acted differently if they had known the omitted facts. 281 Fed. App’x at 742.




                                            2
      We focus on the issue that is dispositive. The investors first bought the

securities on May 21, 2002. They were informed in the offering memorandum:

      “No financial or operating information with respect to the Issuer is
      included herein.”
      “The Issuer was incorporated in March 2002. Accordingly it has no
      operating history upon which you can evaluate its prospects.”
      “Purchasers of the Shares should make their decisions to invest in the
      Shares solely upon their assessment of the creditworthiness of the
      Primary Credit Issuer and the Confirming Credit Issuer.”
      “No attempt is made in this Offering Memorandum to describe the
      Issuer in a manner that would enable purchasers of the Shares to
      assess the creditworthiness of the Issuer.”
      “Accordingly, in deciding whether to purchase the Shares, potential
      investors should not rely upon the ability of the Isser to make the
      required payment sunder the Indenture.”
      “PROSPECTIVE PURCHASERS OF THE SHARES SHOULD
      LOOK ONLY TO THE CREDIT FACILITY AND NOT THE
      CREDIT OF THE ISSUER AS THE SOURCE OF PAYMENT OF
      THE PRINCIPAL OF, INTEREST ON AND PURCHASE PRICE OF
      THE SHARE.”

In the face of these statements, no reasonable investor would have believed that

Olsen’s reputation was relevant.

      Four months later, in September of 2002, SAL proposed to amend the

original agreement. The amendment substantially changed the security that the

Credit Facility afforded the investors and gave substantially more discretion to

Olsen in the investment of the funds held as security at U.S. Bank. The long-term

Moody’s rating of the security was reduced two notches from Aaa to Aa2. The



                                          3
amendment did not give Olsen unlimited investment authority. The changes were

submitted to the investors, who could have terminated their investment but, on

September 18, 2002, chose to stay aboard. We construe the amendment as a new

sale. See Roberts v. Peat, Marwick, Mitchell & Co., 857 F.2d 646, 651 (9th Cir.

1988) (sale of securities takes place where investor makes a new “investment

decision”).

      Coming so soon after the May sale and proposed as an amendment to its

terms, the new sale contained no statements repudiating the original declarations

rejecting any reliance on the issuer. Both in May and September, the investors

acted through a financial adviser, John Goetz. His testimony as to what he looked

to was not consistent. At times he testified that if he had known Olsen’s past, his

investment decision would have been different. He also testified that it would have

made no difference. His deposition reads:

      Q.     And likewise when the first amendment to the trust and deposit
      agreement was executed, you understood that again you would be
      looking solely to the account, the assets that were, in essence, locked
      up, right?
      A.     Yes.
      Q.     And it is your testimony that because you thought this money
      was essentially locked up, that you had not been concerned about the
      prior history or lack of prior history of Eel River Investments and
      possibly may or may not have been concerned about who Veril Olsen
      was, the president of the company and/or who the directors and
      officers of the company were, correct?


                                          4
      A.     Yes.

      The factfinder had the task of deciding what parts of Goetz’s testimony to

credit. The deposition testimony supports the conclusion that the investors’

decision would not have been affected by disclosure of Olsen’s background. We

cannot say that the factfinder’s acceptance of this view of Goetz’s testimony was

clear error. See Arrington v. Merrill Lynch, Price Fenner, & Smith, Inc., 651 F.2d

615, 619 (9th Cir. 1981) (questions of materiality and reliance reviewed under the

clear error standard).

      Separately, U.S. Bank claimed that SAL omitted to disclose that the shares

were defectively issued under Washington’s corporations law. The district court

ruled that the alleged omissions as to the legality of the shares were not material.

Even assuming that the shares were not properly issued, they were enforceable

under Washington contract law. See In re Spokane Concrete Prods., Inc., 126

Wash. 2d 269 (1995). The district court did not clearly err in finding that the

investment decision of a reasonable investor would not have been affected by the

technical defects in the issuance of the shares.

      For these reasons, the judgment of the district court is AFFIRMED.




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