The U.S. District Court for the Northern District of California held that scienter was sufficiently pleaded in a proposed counterclaim set forth by investors in municipal bond notes against the issuing city and its underwriter. The city commenced the action seeking a declaration of the respective rights and duties of the city and the note holders. The proposed counterclaim sought, among other things, damages under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The plaintiffs had previously moved to dismiss the counterclaim and, after the motion was submitted, the investors sought leave to amend the counterclaim with new allegations based upon documents produced by plaintiffs specifically demonstrating that the city “fraudulently inflate[d]” revenues in its projections.  

Denying the motion to dismiss as to the Section 10(b) and Rule 10b-5 claims in the proposed counterclaim, the court held that the new allegations satisfied the Tellabs standard for pleading scienter in Private Securities Litigation Reform Act cases because they contained “a number of specific facts in support of the claim” including “facts taken from numerous surveys, feasibility studies, reports, budgets, and other documents showing that [the city] and [its underwriter] knew about all of the material problems” when they made statements to the contrary. Further, although some of these documents and information were available on the city’s website during the relevant time period, the court held that “there is a question about whether this information was reasonably available to investors.” (Alameda v. Nuveen Municipal High Income Opportunity Fund, 2009 WL 1424529 (N.D. Cal. May 20, 2009))