Financial Security Assurance, Inc. v. Stephens, Inc.

Full title: FINANCIAL SECURITY ASSURANCE, INC., Plaintiff, v. STEPHENS, INC., and…

Court: United States District Court, N.D. Georgia, Atlanta Division

Date published: Aug 23, 2004

Civil Action No. 1:00-CV-3181-JOF (N.D. Ga. Aug. 23, 2004)

Opinion

Civil Action No. 1:00-CV-3181-JOF.

August 23, 2004

ORDER

J. OWEN FORRESTER, District Judge

This matter is before the court on Defendant Stephens, Inc.'s motion for summary judgment [71-1] and Defendant Hayes, James Associates, Inc.'s motion for summary judgment [72-1].

I. BACKGROUND

A. Procedural History

This diversity case arises out of the re-financing of a solid waste disposal and recycling facility in Crisp County, Georgia, through the issuance of bonds by the Solid Waste Management Authority of Crisp County (the "Authority"). Plaintiff Financial Security Assurance, Inc. ("FSA"), is a New York corporation that is in the business of selling insurance policies. Defendant Stephens, Inc. ("Stephens"), is an Arkansas corporation that is in the business of underwriting various securities. Defendant Hayes, James Associates, Inc. ("Hayes, James"), is a Georgia corporation that is in the business of providing engineering services. FSA was the insurer of the bonds; Stephens was the underwriter of the bond offering; and Hayes, James was the engineering firm that supplied engineering and consulting services to the Authority. FSA alleges that both Defendants fraudulently induced FSA to insure the bonds and made negligent misrepresentations to FSA in order to induce it to provide such insurance. FSA further seeks a declaratory judgment that Defendants are liable to and must indemnify FSA for future payments under the subsisting bond terms and insurance policy. FSA also seeks attorney's fees pursuant to O.C.G.A. § 13-6-11.

FSA instituted this action on December 1, 2000, alleging common law fraud, negligent misrepresentation, and securities fraud (against Stephens only) and seeking declaratory relief and attorney's fees. Motions to dismiss these claims were filed by Stephens and Hayes, James on December 22, 2000. This court, in an Order dated September 19, 2001, granted Stephens' motion as to the federal securities claim, but denied both Defendants' motions as to the common law fraud and negligent misrepresentation claims, as well as to Plaintiff's demand for a declaratory judgment. After discovery, Defendants filed the instant motions for summary judgment. The court held oral argument on the motions on December 16, 2003, and permitted the parties to file post-hearing briefs.¹ B. Facts ²

1 This case was assigned to The Honorable Julie E. Carnes up through and including the filing of post-hearing briefs. In an order dated March 12, 2004, Judge Carnes recused herself from the case, and it was reassigned to the undersigned. The transcript of the arguments before Judge Carnes has been reviewed.

2 The court draws the undisputed facts from the following: Defendant Stephens' Statement of Undisputed Material Facts ("SMF-Stephens"); Defendant Hayes, James' Statement of Undisputed Material Facts ("SMF-Hayes, James"); Plaintiff's Response to Defendant Stephens' Statement of Material Facts ("PSMF-Stephens"); and Plaintiff's Response to Defendant Hayes, James' Statement of Material Facts ("PSMF-Hayes, James"). When Plaintiff has disputed a specific fact and pointed to evidence in the record that supports its version of events, the court has viewed all evidence and factual inferences in the light most favorable to Plaintiff, as required on a defendant's motion for summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); McCable v. Sharrett, 12 F.3d 1558, 1560 (11^th Cir. 1994); Reynolds v. Bridgestone/Firestone, Inc., 989 F.2d 465, 469 (11^th Cir. 1993). When the court could discern a material factual dispute from this pleading, the court has made all inferences in a light most favorable to Plaintiff. Accordingly, the following facts are either not disputed or are viewed in the light most favorable to Plaintiff.

1. Overview of the Bond Transaction

Municipal Waste Management, LLC ("MWM"), developed the initial plans for a regional facility for processing solid waste in Crisp County, Georgia (the "Facility"). SMF-Stephens, ¶ 1. In the early 1990s, the Crisp County Board of Commissioners approved this plan and formed the Authority to construct and operate the Facility. Id., ¶¶ 2-3. The Authority contracted with MWM to design and build the Facility. In 1996, in order to finance construction of the Facility, the Authority obtained approximately $53 million in short-term bank loans, with a commitment for permanent financing supported by a United States Department of Agriculture guarantee. SMF-Stephens, ¶ 7. The Authority also contracted with Hayes, James for its civil engineering services. Hayes, James was to provide a variety of services, including a feasibility study based on the bank financing and a report on the Acceptance Test that Hayes, James was to conduct on the equipment. Id.

Prior to the construction of the Facility, the Authority entered into various contracts related to the planned operations of the Facility. SMF-Stephens, ¶¶ 4-6. The Authority contracted with more than 30 city and county governments (the "Participants"), who agreed to make minimum monthly payments to the Authority, based on either an expected tonnage of waste collected by the Authority or the number of households that the Authority would service in the city or county. Id., ¶ 4. The Authority contracted with TransWaste Services LLC ("TransWaste"), a waste hauler, who agreed to pick up the Participants' waste and deliver it to the Facility, paying a tipping fee for each ton of waste delivered, and to deliver enough waste for the Authority to break even, but not to exceed 800 tons per day. Id., ¶ 5. The Authority agreed that TransWaste would receive a rebate from the Authority's revenues from the sale of recyclable "materials of value" (""materials of value""). Id. The Authority also contracted with Crisp County (the "County"), allowing the Authority to deposit waste on the County's landfill. Id., ¶ 6.

In the Fall of 1997, King Spalding LLP ("King Spalding") approached Edward Boze, a senior investment banker with Stephens, to ask Stephens to consider underwriting a bond issue by the Authority. Id., ¶ 10. Stephens had a strong financial incentive to pursue this bond financing and to see the transaction close, as it stood to collect more than $1 million in fees. PSMF-Stephens, ¶ 10. In November 1997, the Authority hired Stephens to serve as the sole structuring agent, underwriter, and ongoing remarketing agent for the bond transaction. Id., ¶ 11. Stephens then retained McKenna Long Aldridge LLP³ ("McKenna Long") to represent it in this bond transaction. SMF-Stephens, ¶ 12. King Spalding served as bond counsel, and Guy Pfeiffer of Culpepper Pfeiffer served as counsel for the Authority. Id., ¶¶ 13-14.

3 At the time Stephens retained counsel, the firm name was Long Aldridge Norman LLP. This firm merged with another law firm, effective June 2002, and is now named McKenna Long Aldridge LLP.

Beginning in February 1998, Stephens assembled and drafted a Request for Proposals for credit enhancement on behalf of the Authority. PSMF-Stephens, ¶ 15. Stephens distributed the Request for Proposal to potential credit enhancers, including FSA, in May 1998. SMF-Stephens, ¶ 22. FSA assigned one of its employees, Margaret Gifford, to analyze the Request for Proposal and to make a recommendation to FSA's Municipal Underwriting Committee ("MUNC") as to whether FSA should insure the bonds. Id., ¶ 31. Ms. Gifford submitted a written report and made an oral presentation to the MUNC on July 28, 1998, in which she recommended that FSA insure the bonds. Id., ¶ 45. Her report discussed the Authority's contracts with third parties, including its contracts with the Participants, TransWaste, and the County. Id., ¶¶ 45-48. At this meeting, FSA's MUNC approved Ms. Gifford's recommendation to submit a bid. Id., ¶ 77. FSA submitted a bid to insure the bonds on July 30, 1998. Id., ¶ 79. In its bid letter, FSA conditioned its issuance of the policy on the full review of any and all legal documentation pertaining to the deal. Id., ¶ 80. FSA issued a commitment letter to insure the bonds on August 13, 1998, which contained three conditions precedent to FSA's issuance of the insurance policy discussed below. PSMF-Stephens, ¶ 86. On November 12, 1998, the bond transaction closed. SMF-Stephens, ¶ 126.

2. Stephens Drafted and Distributed the Request for Proposal

As stated above, Stephens began assembling and drafting the Request for Proposal in February 1998. Id., ¶ 15. Stephens distributed the Request for Proposal to potential credit enhancers in May 1998. Id., ¶ 22. While the preparation of the Request for Proposal was a collaborative effort, Stephens was the party responsible for drafting it. PSMF-Stephens, ¶ 16. The Request for Proposal included a pro forma financial presentation (the "Pro Forma"). SMF-Stephens, ¶ 19. Stephens also played a substantial role in preparing the Pro Forma. PSMF-Stephens, ¶ 19. For example, Chris Sercy of Stephens received information to be included in the Pro Forma from the Authority and then would tell the Authority what needed to be added or changed. Id. Stephens circulated drafts of the Request for Proposal to those involved with the project, including the Authority, King Spalding, and William Goff of MWM, for their review and approval. SMF-Stephens, ¶ 17. Prior to distributing the Request for Proposal to potential credit enhancers, Stephens did not circulate drafts to the Authority's Financial Director, Marcia Dedert, or its counsel, Guy Pfeiffer. PSMF-Stephens, ¶ 17. While these drafts may have been circulated by Stephens so that the others could review, comment on, and ultimately approve them, there is no evidence in the record indicating which parties receiving the drafts gave their approval. Id.

The Request for Proposal indicated to the potential credit enhancers that the Facility had not completed construction, meaning that the information contained in the Request for Proposal was preliminary and not final. SMF-Stephens, ¶ 21. However, Stephens sent FSA updated financial information. PSMF-Stephens, ¶ 21. Ms. Gifford, who was responsible for reporting to the MUNC regarding the bond issuance, attached updated financial reports received from Stephens to her MUNC report. Id.

The Request for Proposal discussed the likely competition of the Facility, as well as a waste reduction mandated by Georgia law. Request for Proposal at 1, 3, 35, 43-44. It stated that the competition was "minimal." Id. at 7. Although there were four nearby landfills, the Request for Proposal indicated that the minimal level of competition stemmed from the fact that these landfills could not comply with the Georgia mandate of waste reduction. Id. at 3, 37-38. The parties now agree that Georgia does not have a mandatory regulation.

The Request for Proposal contained a disclaimer, instructing potential credit enhancers to conduct their own due diligence. SMF-Stephens, ¶ 23. Stephens fully expected potential credit enhancers to perform their own due diligence. Id., ¶¶ 24, 26. FSA did not sign the disclaimer form included in the Request for Proposal, instead submitting its bid on its own letterhead. PSMF-Stephens, ¶ 23.

Finally, the Request for Proposal instructed potential credit enhancers to direct all communications regarding the Facility or bond issuance to Stephens. PSMF-Stephens, ¶ 23. FSA followed this instruction throughout the bond transaction. Id., ¶ 29.

3. FSA Receives and Reviews the Request for Proposal and Decides to Insure the Bonds

FSA assigned Ms. Gifford to analyze the Request for Proposal and to make a recommendation to the MUNC. SMF-Stephens, ¶ 31. FSA also assigned in-house counsel to handle the legal work on this transaction, first Steven Berkowitz, then Ronald Millet. Id., ¶ 38.

As part of her analysis on the bond issuance, Ms. Gifford toured the Facility with Charles Walker, Executive Director of the Authority; Boze, a senior investment banker with Stephens; and Sercy, also with Stephens. She was given information about the equipment, the amount of waste being delivered and processed, and the amount of "materials of value" being recovered. PSMF-Stephens, ¶ 21. Moreover, she was told that the Facility was properly functioning. Id. She inquired as to the ownership of the transfer stations and whether FSA could obtain a mortgage on them. Id. Boze and Sercy contributed information during the course of the visit and made a presentation outlining the "financing structure." Id. They also informed Gifford about some minor changes to information presented in the Request for Proposal. Id.

Ms. Gifford submitted a written report and gave an oral presentation to the MUNC on July 28, 1998. SMF-Stephens, ¶ 45. She recommended that FSA insure the bonds. Id. Her report emphasized that the Authority's contracts were important to the financial success of the Facility. Id. She referred to the Authority's contracts with the Participants, TransWaste, and the County. Id., ¶¶ 46-48. Moreover, Ms. Gifford recognized in her report that the Participant contracts were the ultimate security for the bonds. Id., ¶ 46. Despite her discussion of these contracts in her report, Ms. Gifford did not request copies of the Authority's contracts with TransWaste or the County. Id., ¶¶ 50-51. She did request copies of the contracts with the Participants, though Stephens sent her only one such contract. PSMF-Stephens, ¶ 55. Ms. Gifford reviewed this contract, which Stephens told her was "representative" of the contracts with the other Participants. Id.

FSA submitted a bid to insure the bonds on July 30, 1998. SMF-Stephens, ¶ 79. Ms. Gifford testified that her duties were "pretty much done" once she submitted her report to the MUNC on July 28, 2003. Id., ¶ 96. FSA issued its bid letter on August 13, 1998. Id. at 86. This bid letter listed three conditions precedent to FSA's insurance of the bonds: (1) an Official Statement was to be presented to FSA by Stephens' counsel, McKenna Long; (2) the Official Statement and other documents to be delivered in connection with the bond issue could not contain any untrue or misleading statements of material fact, nor could these documents fail to state a material fact necessary in order to make the statements not misleading; and (3) FSA was to receive an opinion letter from Stephens' counsel confirming the adequacy of the disclosures in the Official Statement and expressly permitting FSA to rely on the opinion as if it were addressed to FSA. PSMF-Stephens, ¶ 80. FSA also retained the right to refuse to insure the transaction if there were material changes. Id.

4. The Acceptance Test

The Request for Proposal indicated that the Facility would be subjected to an Acceptance Test, to ensure that the Facility could process waste consistent with the design specifications. SMF-Stephens, ¶ 64. These design specifications, supplied by Hayes, James, came from the contract between the Authority and MWM, which was based on the 1996 bank financing. PSMF-Hayes, James, ¶¶ 1, 5. Hayes, James made minor changes to these specifications before faxing them to Stephens. Id., ¶ 6; SMF-Hayes, James, ¶¶ 5, 6. Ms. Gifford testified that she relied on the "equipment performance and evaluation" section of the Request for Proposal, which included a description of the Acceptance Test. PSMF-Stephens, ¶ 65.

The Acceptance Test was completed by September 1998, after FSA submitted its bid and issued its commitment to insure the bonds. SMF-Stephens, ¶ 66. FSA never requested a copy of the Acceptance Test report from Stephens, nor did it ever inquire as to how well the Facility had performed. Id., ¶ 67. FSA also never requested a copy of the Acceptance Test report from Hayes, James. SMF-Hayes, James, ¶ 19.

5. The Views of Chris Cannon of TransWaste

On October 30, 1998, Boze, a senior investment banker with Stephens, and Maggie Joslin of McKenna Long had a conference call with Chris Cannon of TransWaste after learning that Cannon had concerns about the Facility. SMF-Stephens, ¶ 104. While on this call, Boze and Joslin learned that Cannon thought that the Facility had been accepted too soon and that it had been failing to meet its Pro Forma. PSMF Stephens, ¶ 104. Moreover, Cannon thought that the numbers from the Acceptance Test had been manipulated. Id. He was also concerned about the Authority's cash flow, "which he characterized as an `obvious' problem." Id. On the same day as this call, TransWaste signed its Answer to the Authority's bond validation petition, and the Authority executed an amendment to its contract with TransWaste, allowing TransWaste to enjoy the $12 rebate longer and delayed the enforcement of TransWaste's guarantee of waste. SMF-Stephens, ¶¶ 107-08. Stephens did not disclose this conference call to FSA, nor did it inform FSA of the amendment. PSMF-Stephens, ¶¶ 107-08.

6. The First Year Budget

In October 1998, Stephens, Hayes, James, and the Authority worked together to prepare a first year budget for the Authority. Id., ¶ 112. Mr. Sercy sent Ms. Gifford and Mr. Millet copies of this budget on November 3, 1998. SMF-Stephens, ¶ 113. Hayes, James certified the budget as reasonable. Id., ¶ 114.

7. The Official Statement

In late 1998, McKenna Long, Stephens' counsel, prepared the Authority's Preliminary Official Statement and Official Statement. SMF-Stephens, ¶ 120. Stephens also played a role in the preparation of the Preliminary Official Statement and the Official Statement. PSMF-Stephens, ¶ 120. For example, Stephens provided sample language from a prior bond deal and worked on the budget. Id. Drafts of the Preliminary Official Statement were sent to FSA. SMF-Stephens, ¶ 121. While Ms. Gifford's deposition testimony is that she conducted no due diligence after submitting her report to the MUNC, which was on July 28, 1998, she also testified that she "glanced at" drafts of the Preliminary Official Statement that she received. Id., ¶ 122. Mr. Millet also testified in his deposition that he read and made suggestions to at least one draft of the Preliminary Official Statement. Millet Depo. at 71-79.

8. The Bond Issue Closed

The bond issue closed on November 12, 1998, in the Atlanta offices of King Spalding. SMF-Stephens, ¶ 126. FSA, consistent with its practice, did not attend the closing. PSMF-Stephens, ¶ 126. As required by FSA's commitment letter, the final Official Statement was delivered to FSA just before the closing. SMF-Stephens, ¶ 127.

9. Post-Closing Events

On January 7, 1999, less than two months after the closing, the Authority informed FSA that it was revising its budget and cash flow analysis. Id., ¶ 129. FSA terminated Ms. Gifford's employment on February 11, 1999, see PSMF-Stephens, ¶ 135, due at least in part to her performance on this bond transaction. The Authority and TransWaste entered into an Interim Operating Agreement, which reduced the tipping fee on waste delivered to the Authority by TransWaste and relieved TransWaste of its tonnage guarantee. SMF-Stephens, ¶ 139. FSA has since received inquiries from third parties interested in purchasing or leasing the Facility, but only one of these parties reached the stage of being a formal proposal. PSMF-Stephens, ¶ 141. FSA rejected this proposal because FSA deemed it too risky. Id.

C. Contentions

FSA asserts that Stephens made ten misrepresentations and omissions: (1) misrepresentations as to the amount of tonnage; (2) an omission that the original design of the Facility had been altered; (3) misrepresentations as to the parameters of the Acceptance Test; (4) misrepresentations as to the Facility's operational and financial problems; (5) misrepresentation of Stephens' assessment of known risks; (6) misrepresentations as to the Facility's competition; (7) misrepresentation as to the legal mandate required by Georgia; (8) misrepresentations as to the viability of the landfill-only strategy; (9) misrepresentations as to the contract with TransWaste and omission as to the amendment to the TransWaste contract; and (10) misrepresentations as to the likely recovery rate of "materials of value."⁴

4 The court notes that no oral representations are at issue in this litigation as FSA conceded this in response to an interrogatory posed by Defendants. See Hearing Transcript, Dec. 16, 2003, at 85.

Stephens moves for summary judgment on numerous theories. First, Stephens contends that it did not owe a duty of care to FSA and thus cannot be liable for fraud or negligent misrepresentation. Second, Stephens contends that it cannot be liable to FSA for any alleged omissions because it had no duty to disclose information to FSA. Third, Stephens avers that numerous alleged misrepresentations are not actionable as a matter of Georgia law. Finally, Stephens argues that FSA cannot show reliance or justifiable reliance on numerous of its claimed misrepresentations.

FSA also contends that Hayes, James misrepresented the facts of the Acceptance Test and the Budget Certification. Hayes, James responds that it did not make any misrepresentations and FSA cannot show reliance on any alleged misrepresentations.

II. HAYES, JAMES

Georgia has adopted the Restatement (Second) of Torts § 552,⁵ thus recognizing negligent misrepresentation as a cause of action. Robert Co. Assoc. v. Rhodes-Haverty P'ship, 250 Ga. 680, 681 (1983). To make a claim of negligent misrepresentation in Georgia, a plaintiff must demonstrate: (1) the defendant's negligent supply of false information to foreseeable persons, known or unknown; (2) such persons' reasonable reliance upon that false information; and (3) economic injury proximately resulting from such reliance. See Hardaway Co. v. Parsons, Brinckerhoff, Quade Douglas, Inc., 267 Ga. 424, 426 (1997). To make a claim of fraud in Georgia, a plaintiff must show: (1) false representation by the defendant, (2) knowledge that the information is false (scienter), (3) intention to induce the plaintiff to act or refrain from acting, (4) justifiable reliance by plaintiff, and (5) damage to plaintiff. See, e.g., Avery v. Chrysler Motors Corp., 214 Ga. App. 602, 604 (1994). At base in both claims, then, is that the plaintiff must prove that the defendant made false statements, on which the plaintiff justifiably relied.

5 Section 552 states:

[o]ne who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information.

FSA argues that it justifiably relied on the Request for Proposal's description of the Acceptance Test, provided by Hayes, James, as well as Hayes, James' certification of the budget. As a preliminary matter, the court notes that, in Georgia, the plaintiff must show actual reliance to support both negligent misrepresentation and fraud claims. Robert Co., 250 Ga. at 681 (negligent misrepresentation requires showing of justifiable reliance); White v. BDO Seidman, LLP, 249 Ga. App. 668, 671 (2001) (indirect reliance insufficient to support fraud claim). Moreover, Georgia law also requires that parties exercise due diligence before they can be said to have justifiably relied. Williams v. Dresser Industries, Inc., 120 F.3d 1163, 1171-72 (1997); White, 249 Ga. App. at 672; Bogle v. Bragg, 248 Ga. App. 632, 636.

FSA has offered no evidence showing that anyone at FSA ever read the Hayes, James budget certification. Because FSA has presented no evidence of actual reliance on the budget certification, Hayes, James is entitled to summary judgment as to the negligent misrepresentation and fraud claims based on alleged misstatements contained in the budget certification, and the court need not consider FSA's contention that Hayes, James' assessment that the budget was inaccurate and "completely unrealistic" because it assumed substantial "materials of value" revenues.

The court, then, is left to determine whether FSA has presented sufficient evidence to survive Hayes, James' motion for summary judgment as to the negligent misrepresentation and fraud claims based on alleged misstatements contained in the description of the Acceptance Test included in the Request for Proposal.

In response to a request from Stephens, Hayes, James sent to Stephens a description of the Acceptance Test. This description was a photocopy of the Acceptance Test description included in the original contract between MWM and the Authority. FSA has three complaints about this description. First, FSA argues that Hayes, James' description of the Acceptance Test was misleading because it stated it had been prepared consistent "with the financial projections presented to the financial institutions." Second, FSA argues that the description of the Acceptance Test was misleading because it stated that the Facility would be able to meet its financial projections if it passed the Acceptance Test. Third, FSA argues that the Acceptance Test was merely a "through-put" test and, therefore, did not measure the efficiency of the Facility in recovering materials of value.

FSA first argues that Hayes, James' description of the Acceptance Test was misleading because it stated that "the Acceptance Test was `written in a manner to be consistent with the financial projections presented to the financial institutions.'" As the court explained above, the Facility went through two rounds of financing. The first took place in 1996 and involved short-term bank loans with a financial commitment supported by the Department of Agriculture. The second took place in 1998 and involved the bond transaction at issue in this litigation. FSA argues that Hayes, James knew the description of the Acceptance Test that it provided for inclusion in the Request for Proposal was written for the 1996 bank financing, not the 1998 bond financing, yet failed to alert FSA to this fact. According to FSA, this fact mattered because the bank financing was for a smaller amount of money,⁶ and the projections associated with it were not dependent on the revenues from "materials of value" sales.

6 As to the bank versus bond financing itself, the court believes that FSA misunderstands the reasoning behind the refinancing. Indeed, it undisputed that while the bond financing was for a higher dollar amount ($68 million as compared to $53 million), the debt service payments were lower under the bond financing.

There is no dispute that Hayes, James simply provided Stephens with a photocopy of the Acceptance Test description; Hayes, James made no changes to this description, even leaving the date, September 8, 1995, on the last page. The actual words describing the Acceptance Test are not false. No one disputes that the Acceptance Test was designed bearing in mind the financial projections that had been given to the banks with regard to the short-term loans in 1996. What FSA actually wants to contend is that Hayes, James had a duty further to explain to FSA that the financial projections given in 1996 might be different than those made when FSA was considering issuing bond insurance in 1998. FSA, however, does not explain the source of Hayes, James' duty more fully to explain this document. As the court explains below with respect to Stephens, FSA cannot demonstrate that Defendants had a duty to disclose information.

FSA has not adduced any evidence to show Hayes, James hindered FSA from learning any information about the Acceptance Test or new financial projections, had FSA inquired. Nor has FSA adduced any evidence to show that Hayes, James attempted to alter this document to lead FSA to conclude that the Acceptance Test would be consistent with the financial information provided to FSA in 1998. Moreover, as the court noted during the hearing on Defendants' motions for summary judgment, it is not reasonable for FSA to have assumed that "financial institutions" meant the entities bidding to supply bond insurance because such entities are not "financial institutions." See Hearing Transcript, at 67. Furthermore, FSA's counsel admitted at the hearing that FSA did not make any inquiry concerning this statement. Id.

In sum, the court finds that (1) Hayes, James did not make a false statement in its description of the Acceptance Test because it accurately stated that the Acceptance Test was designed with respect to the bank financing, (2) Hayes, James did not have a duty to provide further explanatory information to FSA, and (3) FSA cannot establish justifiable reliance on this statement because it failed to make any inquiries with respect to it despite the statement's use of the phrase "financial institutions" and the September 1995 date on the Acceptance Test insert.

Second, FSA argues that the description of the Acceptance Test was misleading because it stated that the Facility would be able to meet its financial projections if it passed the Acceptance Test. Passing the Acceptance Test, according to FSA, bore little or no relationship to the Facility's ability to meet financial projections, since the Acceptance Test did not simulate real world operations.

FSA knew that the Facility was to undergo the Acceptance Test sometime after FSA issued its bid to insure the bonds but before the closing of the bond deal, yet FSA failed to make any inquiries into how well the Facility had performed. Indeed, FSA made no requests for the Acceptance Test report, which explained the conditions under which the Acceptance Test was conducted. Moreover, FSA acknowledges that the language describing that the Facility would be able to meet financial projections if it passed the Acceptance Test did not come from Hayes, James. For these reasons, this statement cannot serve as the basis for fraud or negligent misrepresentation liability against Hayes, James.

Finally, FSA takes issue with the fact that the Acceptance Test was a "through-put" test which would measure only the amount of waste that could be pushed through the Facility in a certain period of time. FSA contends this test would not measure how efficiently the Facility was at recycling "materials of value" because it did not simulate "real-world" situations. However, the Request for Proposal stated that the Acceptance Test was a throughput test. See Request for Proposal, at 53. Thus, FSA has produced no evidence demonstrating that this description of the Acceptance Test was false. FSA may have complaints about the standards set in the Acceptance Test, but FSA could have taken issue with these standards prior to agreeing to insure the transaction. Furthermore, the Acceptance Test report issued on October 8, 1998, describes that the Acceptance Test used more employees than would normally be working at the Facility and pre-sorted the waste. Had FSA inquired about the test or this report, it would have learned this information.⁷

7 The court further notes that FSA stands on a slim reed attempting to establish actual reliance with respect to the Acceptance Test. Ms. Gifford testified that the "idea of acceptance and testing" was not "anything that [she] focused on in underwriting this issue." See Gifford Depo., at 168.

For the foregoing reasons, the court GRANTS Hayes, James' motion for summary judgment as to FSA's negligent misrepresentation and fraud claims. Because no claims against Hayes, James survive, the court DENIES AS MOOT Hayes, James' motion for summary judgment as to FSA's demand for a declaratory judgement. Finally, Section 13-6-11 of the Georgia Code allows a jury to award attorneys' fees to a plaintiff when "the defendant has acted in bad faith, has been stubbornly litigious, or has caused the plaintiff unnecessary trouble and expense." However, only a prevailing plaintiff is entitled to such an award under the statute. SKB Indus., Inc. v. Insite, 250 Ga. App. 574, 578 (2001). As FSA's claims have not survived Hayes, James' motion for summary judgment, it cannot be considered a prevailing party. The court, therefore, GRANTS Hayes, James' motion for summary judgment as to FSA's claim for attorneys' fees. In sum, the court GRANTS Hayes, James' motion for summary judgment [72-1].

III. STEPHENS

The court described above the elements under Georgia law for establishing fraud and negligent misrepresentation. Because the court's analysis of Stephens' motion for summary judgment requires a more probing discussion than that related to Hayes, James, the court finds it useful to review the facts of Bogle, an illustrative case of Georgia law on fraud. There, Joe Bogle sued Chestatee Minerals, Inc., a mining company, and Chestatee's principals, John and Ian Bragg, for damages arising out of Bogle's failed investment in Chestatee. Bogle had expressed an interest in investing in Chestatee and met with the Braggs who told him that Chestatee mined high-quality talc, and the only other comparable source was in the northeast. 248 Ga. App. at 633. The Braggs also told Bogle that Chestatee was currently profitable, although it had experienced problems in the past. Id. The Braggs agreed to hire Bogle as a plant manager, and Bogle agreed to purchase stock in Chestatee at $18.75 per share. The parties signed an employment agreement to this effect with a repurchase provision guaranteeing a minimum price on the stock should Bogle ask Chestatee to redeem it. Id. Ian Bragg told Bogle that a Chestatee financial statement would be available in a couple of days, but the statement was never produced. Id. at 633-34. A month after beginning work, Bogle resigned and attempted to redeem his stock. Chestatee refused and the company soon filed for bankruptcy. Id.

The court found that Bogle's fraud allegation with respect to Chestatee's assertion that Chestatee would refund Bogle's investment at any time failed because Ian Bragg's representation about Chestatee "concerns the future actions of a third party and cannot be fairly characterized as made with the present intent to cause Chestatee not to redeem Bogle's stock." Id. at 635. The court further rejected Bogle's claim about the promised financial statements because "it was [Bogle's] choice to proceed with the stock purchase without them." Id. at 636. The court also noted that in "order to establish justifiable reliance, Bogle must show that he exercised due care to discover the fraud." Id. The court concluded that Bogle failed to do so. Id. Finally, the court held that "[s]uppression of a material fact is fraud only if there is a duty to disclose arising from a fiduciary relationship or the particular circumstances of the case." Id. ⁸ The court found no such relationship because it "was an arm's length transaction between persons experienced in the mining business." Id. In sum, the court granted the Braggs' motion for summary judgment.

8 The court finds this proposition clearly established in Georgia law. Although FSA cites Jordan v. Flynt, 240 Ga. 359 (1977), to support its contention that one who undertakes to speak must make full and fair disclosure even if there is no duty to disclose, id. at 366, the court finds this case distinguishable because it was a claim for specific performance of a contract involving property and not a claim for fraud or negligent misrepresentation. Furthermore, the court's discussion of the duty of disclosure was in the context of a waiver. Id.

A. Reliance

As explained above, both fraud and negligent misrepresentation require that a plaintiff demonstrate reasonable reliance on a statement. Georgia requires actual reliance to support a claim for fraud. White, 249 Ga. App. at 671 (indirect reliance insufficient). Moreover, Georgia law also requires that parties exercise due diligence before they can be said to have justifiably relied. Williams, 120 F.3d at 1171-72; White, 249 Ga. App. at 672; Bogle, 248 Ga. App. at 636.

1. Actual Reliance

There is no dispute that FSA can show actual reliance on the Request for Proposal. Before the court considers whether sufficient evidence was proffered to demonstrate that anyone at FSA actually relied on the budget certification letter, the Preliminary Official Statement, or the Official Statement, the court must address issues related to Mr. Millet's deposition testimony and his later submission of an affidavit. During his deposition, Mr. Millet gave certain testimony as to his consideration of the Preliminary Official Statement and the budget certification from Hayes, James. In connection with its Joint Brief in Opposition to Defendants' Motions for Summary Judgment, FSA submitted the affidavit of Mr. Millet. Defendants object to this affidavit because it contains testimony contradicting what Mr. Millet gave during his deposition. An affidavit may be disregarded as a sham "when a party has given clear answers to unambiguous questions which negate the existence of any genuine issue of material fact . . . [and that party attempts] thereafter [to] create such an issue with an affidavit that merely contradicts, without explanation, previously given clear testimony." Tippens v. Celotex Corp., 805 F.2d 949, 954 (11th Cir. 1986).

In this case, the deposition testimony of Mr. Millet provided clear answers to unambiguous questions regarding the diligence performed by FSA in connection with the Crisp County bond deal. For example, in his deposition, Mr. Millet testified that he could not remember what he read of the draft Preliminary Official Statement. See Millet Depo., at 77-79. He also testified that he did not remember one way or the other whether he had actually reviewed the final Official Statement. Id. at 78-79. In his affidavit, however, Mr. Millet was able to testify that he "reviewed the initial draft of the Stephens Preliminary Official Statement in its entirety upon receipt" and that he "has no doubt that I read and reviewed the Preliminary Official Statement in this transaction." See Millet Aff., ¶¶ 35-36. Again, in his deposition, Mr. Millet testified that he did not know if anyone at FSA had reviewed the Hayes, James budget certification. See Millet Depo., at 124. He could not recall any experience he, himself, had with that document. Id. at 123. He testified that the budget certification was not considered by him or relied upon by him in connection with his work on the bond transaction. Id. Remarkably, Mr. Millet then testified in his affidavit that "I do recall receiving this certification letter and the budget because I knew that pursuant to the Bond Resolution the budget was one of the `deal specific' documents required for this Bond Financing to close." Millet Aff., ¶ 58.

These kinds of contradictions cannot be explained away. Contrary to FSA's assertion, the differences between Mr. Millet's deposition testimony and his affidavit testimony are not mere discrepancies or instances of failed memory. Rather, they are direct contradictions on a significant dispositive issue of law in this litigation — reliance. FSA's contention that Mr. Millet first discovered the information contained in his affidavit "upon a review of his deal file in preparation of his affidavit," see FSA's Resp., at 18-19, is unavailing. The court cannot conceive of the circumstances under which FSA's in-house counsel would not have reviewed this "deal file" in preparation for his deposition in a lawsuit regarding a $70 million bond transaction.

In any event, even were the court to accept this "explanation," Mr. Millet's affidavit only establishes that it was his practice to review such documents. Under Georgia law, indirect reliance is insufficient to establish the element of reliance. This testimony does not constitute direct reliance. Moreover, this information was within the possession of FSA and not revealed until after the close of discovery. Indeed, it was not disclosed until after Stephens and Hayes, James had filed their motions for summary judgment, which — coincidentally — argue in large portion that FSA could not establish actual reliance with respect to many of the alleged misrepresentations. Therefore, the court disregards the affidavit of Mr. Millet for the purposes of the pending motions.⁹

9 The court notes that the affidavit of Suzanne Finnegan, FSA's Chief Underwriting Officer, also suffers from the same problems as Mr. Millet's.

With these rulings in mind, the court finds that FSA has not offered any evidence showing that anyone at FSA read the Hayes, James budget certification letter. The only reliance evidence regarding the Preliminary Official Statement and the Official Statement that FSA has offered is a fax from Mr. Millet to Maggie Joslin, an attorney at McKenna Long, suggesting revisions on the initial draft of the Preliminary Official Statement. See Sept. 4, 1998 Fax from FSA to McKenna Long. Construing the facts in the light most favorable to Plaintiff, the court finds that this document does establish actual reliance for purposes of the Preliminary Official Statement. However, this fax was written prior to the finalization of the Official Statement and therefore cannot show actual reliance on the Official Statement. FSA has not proffered competent evidence to show that any one of its employees actually read the Official Statement which was delivered on the day of the closing. Thus, the court finds that FSA can establish actual reliance on statements found in the Request for Proposal and the Preliminary Official Statement, but not the Official Statement or the budget certification.¹⁰

10 Even this position is generous to FSA because the Preliminary Official Statement went through further revisions after September 4, 1998 and before the official closing in November 1998, and FSA has presented no evidence that anyone viewed the versions of the Preliminary Official Statement that existed after September 4, 1998.

2. Justifiable Reliance

FSA must also demonstrate that its reliance on statements attributable to Stephens was justifiable. Georgia courts consider the level of due diligence a party has undertaken to determine whether its reliance was justified. FSA argues strenuously that there is an "industry standard" for due diligence in the bond world which places the greatest investigatory burden on Stephens as the underwriter.¹¹ This may be true, but it is not legally dispositive. Georgia case law is consistent in holding that there is a significant due diligence burden on sophisticated parties engaged in an arm's-length transaction. See, e.g., William Goldberg Co. v. Cohen, 219 Ga. App. 628, 631 (1995) (noting that plaintiff "was a sophisticated businessman from whom greater diligence is required before reliance upon representations may be considered justified"). Thus, while FSA's assertions about the custom in the bond industry might inform the court's consideration of the reliance and due diligence issues, as the court outlines more fully below, custom, itself, is insufficient to create an issue of fact under the circumstances presented here.¹²

11 The court agrees with Stephens that the testimony of Doyle, Financial Guaranty Insurance Co., and Citron is based on "specialized knowledge," rather than personal knowledge relevant to the facts in the case. Only the latter is traditionally testified to by lay witnesses. Thus, the court considers their testimony to be expert testimony. FSA failed to inform Stephens of these experts before the date expert discovery closed as ordered by this court. The court, therefore, disregards the testimony of Doyle, Financial Guaranty Insurance Co., and Citron.
The court notes, though, that the result in this case would remained unchanged if these affidavits were considered, since expert testimony is not dispositive of the issues involved and FSA has failed to cite sufficient substantive Georgia law supporting its position.

12 The court notes that it applies this analysis equally to both parties. Just as the court declines to relieve FSA of its due diligence burdens under Georgia law because it is an insurer in the bond industry; as described below, the court also declines to rule that Stephens had no duty of care to FSA because underwriters generally do not have a duty to insurers.

Moreover, it is not even clear that FSA's testimony about industry custom would win the day. FSA's own expert testified that the insurer's analyst considers the information provided by the underwriter and communicates any questions or concerns to the underwriter. The only suggestion of a question posed by Ms. Gifford to Stephens here is a request for one or all of the Participant contracts, a situation the court addresses below. The facts do not illustrate a situation where Ms. Gifford was foiled in her attempts to investigate the Facility; rather the facts demonstrate that she made little or no efforts to do so.¹³

13 For this reason, the court finds Pinkerton Laws, Inc. v. Macro Construction, Inc., 226 Ga. App. 169 (1997) (noting industry custom when discussing due diligence), to be distinguishable. As an initial matter, in Pinkerton, the court reviewed a jury verdict finding fraud. Such a review is deferential. Furthermore, the facts in Pinkerton, showed that the surety bonding the performance of a subcontractor had called and received verbal confirmation of the terms of construction contract between the general and subcontractor. Id. at 170-71. Here, save for circumstances surrounding the Participant contracts discussed below, the evidence shows that Ms. Gifford simply did not ask to see the contracts at all. The court finds that Pinkerton does support Plaintiff's contention that industry custom may be relevant. As the court has explained above, however, that custom is not dispositive.

Taken to its extreme, FSA's position seems to be that it has no obligation at all to investigate any bond transaction offered up by an underwriter for FSA to insure. While this might be a business model that bond insurers would prefer, it does not reflect the manner in which Georgia law considers the due diligence obligations of sophisticated parties. If FSA could simply rely on whatever underwriters told it without investigation, one wonders why it would be necessary to employ analysts such as Ms. Gifford at all. The court agrees with Stephens, that FSA's position would essentially require that Stephens become a "reinsurer" for the whole transaction.

Finally, FSA contends that if "bond insurers could not so rely on the information provided by underwriters, the consequences for the municipal bond industry would be catastrophic." FSA Resp., at 23. While dramatic, the court finds FSA's own actions belie this statement. Ms. Finnegan testified that due to the problems in this transaction and Ms. Gifford's performance, FSA has already changed the manner in which it researches such projects. FSA has not shown these modifications in performance have proven to be catastrophic. While it does not rely on the Safeco case cited by Defendants and discussed below, the court notes Safeco holds that underwriters have no duty of care to insurers in bond transactions. Thus, the court's finding that the underwriter-insurer relationship does not absolve the insurer of its due diligence obligations cannot be described as an aberration.

The court further notes that the nature of the relationship between Stephens and FSA affects the manner in which the court considers justifiable reliance.¹⁴ It is clear that FSA and Stephens were engaged in an arm's-length negotiation. There also seems to be no doubt that FSA is a sophisticated player in the bond industry. Indeed, one of FSA's own experts testified that FSA was one of the biggest players in the industry. See Garfunkel Report at 1. Moreover, FSA's 1998 10-K/A filing states that FSA is "a leading insurer of asset-backed obligations (based on number of transactions insured) since its inception in 1985." See 1998 10-K/A. The arm's-length nature of the relationship is further evidenced by the fact that the Request for Proposal itself stated that "the ultimate confirmation of all information must be conducted by your firm's due diligence prior to closing the transaction." See Request for Proposal, Table of Contents. Cf. Rhodes-Haverty, 250 Ga. at 682 (noting that the additional duties imposed under section 552 may be "limited by appropriate disclaimers which would alert those not in privity with the supplier of the information that they may rely upon it only at their peril"). Finally, the court notes that this bond transaction was not insignificant; it involved $70 million.

14 The court notes that Stephens moved for summary judgment on FSA's negligent misrepresentation claim alleging that Stephens does not owe a duty of care to FSA. Stephens cites Safeco Ins. Co. v. Dain Bosworth, Inc., 531 N.W.2d 867 (Minn.Ct.App. 1995), for this proposition. The court agrees that Safeco involves facts similar to those raised here. The court notes, however, that Minnesota law clearly defines "duty of care" as an element of a claim for negligent misrepresentation. See Grozdanich v. Leisure Hills Health Center, Inc., 25 F. Supp. 2d 953, 990 (D. Minn. 1998). It is not so clear that Georgia law incorporates duty of care as discussed in Safeco into a negligent misrepresentation claim under section 552. The court need not resolve this issue, however, because as noted below, the sophistication of the parties and the relationship between the parties is taken into account when determining whether there is justifiable reliance.

The court finds it significant that FSA engaged in virtually no due diligence efforts after Ms. Gifford submitted her report to the MUNC on July 28, 1998. Ms. Gifford testified only that she "glanced at" drafts of the Preliminary Official Statement that she received after that date. Mr. Millet testified in his deposition only that he read and made suggestions to one draft of the Preliminary Official Statement. It is difficult to imagine the circumstances under which such "glances" might satisfy the kind of due diligence that would allow FSA justifiably to rely on representations made by Stephens in a $70 million bond transaction. FSA's own response to Defendants' motions for summary judgment demonstrates the tenuous nature of its position. The fact section is replete with references to the unique nature of the transaction, the inexperienced persons the Authority had in its management positions at the Facility, and the fact that the Authority was a "small, rural government body." None of these factors was hidden from FSA. All were known at the time FSA decided to insure the bond transaction. Had FSA or its representatives chosen to engage in any kind of due diligence, the unique nature of the Facility and the background of the Authority's management would have been quite apparent. FSA blames Stephens for failing to consult with John Hayes (unrelated to Hayes, James), the original designer of the Facility. FSA did no better. All public documents relating to the Facility discussed that fact that its design was unique. No one at FSA, however, felt it necessary to talk to the person who came up with the design's concept, to ask at all whether the design was feasible, or to inquire whether the Facility passed its Acceptance Test.

The court notes that in its Post-Hearing Brief, FSA provides a list of due diligence efforts made by Ms. Gifford and Mr. Millet. Id. at 28-31. The court considers not only the quantity of efforts made by FSA but, more importantly, the quality of these efforts. To simply "read, review, and analyze" the Request for Proposal does not equate to due diligence. Id. at 28. FSA, itself, now disavows the importance of the Participant contracts to its understanding of the manner in which the Facility operated. The court is now left to wonder the significance of the fact that Ms. Gifford focused on these contracts and requested to be informed if any additional Participant contracts were signed. Id.

It is of minimal effort to request a visit to the site and again review the Request for Proposal and the financial projections in anticipation of that visit. Id. The description of Ms. Gifford's internet searches regarding the Facility belies any significant critical thought with respect to that endeavor. See Gifford Depo., at 100-104 (testifying that she "plug[ged] `Crisp County Solid Waste' into a search engine" to see what was in the internet; noting that her search was "somewhat limited"). The court has already addressed above Mr. Millet's efforts with respect to due diligence and the manner in which his deposition testimony differs from his affidavit. In any event, again, the mere review of documents is not sufficient to establish due diligence.

The court finds more telling what FSA did not do: It did not engage in any engineering review of the Facility's design; did not talk with Mr. Hayes, who conceived of the design; did not talk with Mr. Cannon of TransWaste who held the biggest contract with the Facility; did not review the TransWaste contract; and did not make any serious efforts to determine whether there were competitive facilities in the region — to name such a few examples. With this legal and factual framework in mind, the court next addresses specific allegations of misrepresentations.

3. Tonnage

FSA alleges that Stephens made material misrepresentations regarding the contracts that the Authority had executed with the Participants, TransWaste, and Crisp County. FSA claims that because it did not have full information about these contracts, Stephens was able to misrepresent the amount of tonnage the Facility was receiving. The amount of tonnage received goes directly to the financial viability of the Facility. In fact, Ms. Gifford testified that the reason she "placed particular importance" on the waste service agreements (the Participants' contracts) was because these contracts represented the security for the bonds.¹⁵

15 Stephens contends that such alleged misrepresentations are not actionable in Georgia, as a matter of law, since each party had the opportunity to review the contracts for itself. Stephens cites Vickers v. Roadway Express, Inc., 210 Ga. App. 78 (1993), and Gardiner v. McDaniel, 202 Ga. App. 663 (1992), to support its argument. In both Vickers and Gardiner, a plaintiff raised fraud claims arising out of a contract the plaintiff had signed with the defendants. The court found:

[o]ne cannot claim to be defrauded about a matter equally open to the observation of all parties where no special relation of trust or confidence exists. Further, in the absence of special circumstances one must exercise ordinary diligence in making an independent verification of contractual terms and representations, failure to do which will bar (a defense) based on fraud.

Vickers, 210 Ga. App at 79; Gardiner, 202 Ga. App. at 663 (internal citations omitted).
The court finds that Vickers and Gardiner are not directly on point. FSA does not base its claims upon a contract that it signed with a party. Rather, FSA contends that Stephens misrepresented the terms of the contracts signed by the Authority and that FSA relied upon those misrepresentations. The court finds the more appropriate analysis is whether FSA was justified in its reliance on Stephens' representations in the Request for Proposal describing the Participant contracts.

The court addresses first the Participant contracts. The Request for Proposal contains only descriptive summaries of these contracts. Ms. Gifford apparently requested a copy of all of the Participant contracts. See Gifford Depo., at 91 ("We wanted . . . I believe we wanted to see drafts of all of the contracts with the participants."). There is no dispute that on May 29, 1998, Mr. Boze, of Stephens, sent a letter to Ms. Gifford enclosing a "representative copy" of one of the Participant contracts.

Although it is far from clear to the court that FSA requested all copies of the Participant contracts from Stephens,¹⁶ even if that were true, FSA has not explained how the one "representative copy" of a Participant contract that it did receive misrepresented the true nature of the Participant contracts.

16 While FSA argues now that it requested a copy of all Participant contracts from Stephens, the record does not support this contention. Ms. Gifford testified that although she saw the representative copy, she had not "seen the other contracts." Id. at 95. She states that those contracts were requested prior to closing by Mr. Millet or Mr. Berkowitz, counsel for FSA, but that she never saw them because they were submitted directly to those individuals in their roles as FSA's in-house counsel. Id. Even Mr. Millet's eleventh-hour affidavit fails to aid FSA's claim. Interestingly, in direct conflict with Ms. Gifford's deposition testimony, Mr. Millet now claims that it was Ms. Gifford who requested the additional Participant contracts from Stephens. See Millet Aff., ¶ 54. He also testified that his "understanding based on [Mr. Boze's] letter was that the participant contracts were all based on a form contract and that the `representative copy' from Stephens was an accurate reflection of all of the participant contracts." Id., ¶ 55. As the court's review of the relevant Georgia cases makes clear, when two sophisticated parties are engaged in arm's-length negotiations, the mere "understanding" of FSA's counsel is not sufficient to establish justifiable reliance, particularly where it is far from clear that anyone at FSA actually did request all of the Participant contracts.
Even if that request was made, FSA could have asked Stephens why it only received one contract instead of the more than 30 it apparently wanted to review. In fact, Suzanne Finnegan, FSA's Chief Underwriting Officer, even testified that "the Participant contracts are not identical, as we had assumed, and that is something that perhaps we should have discovered for ourselves." See Finnegan Depo., at 110-11. See also Bogle, 248 Ga. App. at 636 (rejecting Bogle's claim about the promised financial statements because "it was [Bogle's] choice to proceed with the stock purchased without them").

At the oral argument held on Defendants' motions for summary judgment, the court attempted on numerous occasions to elicit from FSA's counsel what about the "representative" contract made it so misleading. FSA's counsel did not specifically respond to the court's queries. See Hearing Transcript, at 19, 21, 24, and 26.

The court notes that the representative contract provided to FSA explicitly states that the Participants were not required to guarantee a certain amount of tonnage, that the obligations were general, and that there was no condition on the contracts related to the ability of the Facility to recycle waste. As such, the court finds that FSA has not come forward with any evidence to show that it was mislead by having received only the one representative copy of a Participant contract.

Finally, at the oral argument, FSA raised its collateral argument with respect to the contracts. There, FSA argued that the Request for Proposal represented that the Facility would be receiving 1,000 tons of waste per day. FSA contends, however, that the Facility never received that amount of waste and thus was not financially viable.

In its post-hearing brief, FSA cites to numerous documents which it contends peg the actual amount of tonnage received at less than 800 tons. See Post-Hearing Brief, at 6-10. However, the tonnage reports cited by FSA do not show the total amount of tonnage being received by the Facility because they exclude waste coming from Crisp County and the City of Cordele. See Walker Depo., at 106-07. For example, when the Crisp County and City of Cordele figures are added to the September 1998 tonnage report, the total tonnage received was more than 900 tons. Furthermore, Mr. Walker testified that he provided the 1000-ton estimate for the Request for Proposal and believed that to be accurate. See Walker Depo., at 94-98. Mr. Cannon did not testify that the actual tonnage figures were inaccurate; rather, he stated that he took issue with some of the future tonnage projections. See Cannon Depo. I, at 135 and II, at 182. Thus, the court finds that FSA has not proffered evidence sufficient to show that the amounts cited in the Request for Proposal and the Preliminary Statement actually were false.¹⁷

17 Furthermore, FSA provides no evidence that Stephens was aware of any tonnage reports that differed from the estimates provided in the Request for Proposal. None of the reports was addressed to Stephens, and some were produced after the closing of the bond transaction.

Even if there are disputes about the actual tonnage figures, the court finds that FSA cannot establish justifiable reliance because it did no due diligence on the tonnage figures. The documents cited by FSA in its Post-Hearing Brief are documents to which FSA could have had access had FSA asked for them. See FSA's Post-Hearing Brief, at 6 (citing Tonnage Reports for March and October 1998 and minutes to the public Authority meeting on November 5, 1998). Furthermore, there is absolutely no evidence in the record that FSA requested the TransWaste contract or the Landfill agreement with the County which would have addressed the expected amounts of tonnage. Mr. Millet's testimony that he cannot recall one way or the other whether he specifically requested a copy of the landfill contract or the TransWaste contract, see Millet Depo., at 51, is simply insufficient to withstand a motion for summary judgment. Finally, Ms. Gifford never called the Authority, TransWaste, or the designer of the Facility to confirm the actual tonnage figures, nor did any representative of FSA attend the Facility's public meetings at which tonnage figures were discussed.

FSA's lack of due diligence efforts is highlighted by its post-hearing claim that Stephens never asked Marcia Dedert, the Authority's CFO, what the actual tonnage had been in the months up to the bond closing. FSA touts that if "Stephens had asked her for actual tonnage information, it would have learned" that the Authority was not certain of the amounts of tonnage it was receiving and may not have received the tonnage necessary for the Facility to break even. FSA's Post-Hearing Brief, at 7-8. FSA, however, does not indicate for the court what prevented it from asking Ms. Dedert those exact same questions and discerning these answers for itself prior to the bond closing.

In sum, FSA has not adduced evidence sufficient to show that Stephens made false statements with respect to the tonnage coming into the Facility. Furthermore, FSA has not shown that it undertook any due diligence efforts that would justify its reliance on Stephens' allegedly false statements regarding tonnage. Accordingly, the court grants Stephens' motion for summary judgment on the tonnage representations.

4. Facility's Operational and Financial Problems

FSA contends that the "materials of value" recovery was lower than expected and the Authority received less waste than was represented in the Request for Proposal and the Official Statement. Stephens responds that the alleged misrepresentations regarding the Facility's future "materials of value" recovery rates and financial projections are not actionable because they are forward-looking statements. FSA replies that while Stephens correctly identifies the general rule, statements that are known to be false when made are actionable, even though they may be forward-looking.

The court agrees that the Georgia Court of Appeals has recognized two exceptions to the general rule concerning forward-looking statements: "promises made without present intent to perform, which is [sic] a misrepresentation of a present state of mind, and promises made as an inducement to enter a contract. Both of these exceptions to the general rule require the promise (or concealment) be made in a manner as to deceive and mislead." Perimeter Realty v. GAPI, Inc., 243 Ga. App. 584, 595-96 (2000); see also Simpson Consulting, Inc. v. Barclays Bank PLC, 227 Ga. App. 648, 651 (1997) ("promise to perform some future act is not fraud unless made with the present intent not to perform or with a present knowledge that the future event will not take place"). More recently, the Georgia Court of Appeals has reiterated that a promise made without the present intent to perform is a present misrepresentation and thus actionable as fraud. Baker v. Campbell, 255 Ga. App. 523, 527 (2002).

Here, FSA relies on the second exception: a promise made as an inducement to enter a contract and contends that "Stephens deliberately misrepresented the anticipated operation of the Facility in the Request for Proposal and OS." The Official Statement indicates that the Facility was fully operational, using proven technology. However, as discussed above, because FSA has offered no evidence establishing that anyone at FSA read the Official Statement, comments in the Official Statement cannot serve as a basis for fraud.

As the court explained in a previous order, many of the alleged misrepresentations are "assumptions" about the expected operating results at the Facility. See Order, dated September 19, 2001, at 54.¹⁸ While FSA has offered evidence indicating that the Facility was experiencing difficulties prior to the bond closing, FSA has produced little evidence tending to show that Stephens knew of these problems.

18 The court notes that FSA reads the court's order denying Defendants' motion to dismiss too broadly. In its order, the court did note that some of the alleged misrepresentations were "`assumptions' about the expected operating results at the Facility that were wildly out of line with the actual operating results at the Facility, and FSA has alleged that Stephens was aware that those assumptions were flawed before the bond closing, yet failed to disclose that fact to FSA." Id. The court went on, however, to state that at that stage in the litigation prior to discovery, the court could not reach a conclusion as to whether Stephens had a duty to disclose material facts to FSA. Id. The court also noted that FSA would have to show that it engaged in the exercise of due diligence in order to state a claim for fraud or negligent misrepresentation. Id. at 55. Thus, the court held:

if FSA did not exercise due diligence in reviewing the reports, contracts, and other documents reasonably available to it to determine whether the assumptions and other information in the Request for Proposal and the OS were correct, and due diligence would have revealed that the Request for Proposal and OS contained many flawed assumptions about the economic viability of the Facility, the FSA may not sustain an action for fraud against Stephens.

Id. at 55-56.
The parties have now engaged in discovery, and as described below, the court holds that Stephens did not have a duty to disclose with respect to FSA. Furthermore, the court finds that FSA did not meet its obligations to engage in reasonable due diligence.

Chris Cannon, President of TransWaste, wrote the Authority a letter, dated April 10, 1998, which was before the Request for Proposal was distributed to potential credit enhancers, expressing his concern "that the Authority [wa]s not operating within the project pro forma and the financial reserves that were to be in place before the project began operation [we]re not funded." See Letter from TransWaste to the Authority, at 1-2. There is no evidence, however, that Stephens received this letter, and, thus, FSA cannot establish that Stephens made the statements in the Request for Proposal with the present intention not to fulfill them.

FSA also offers expert testimony that the projections in the Request for Proposal were unrealistic. See Vence Report, at 3-5. Even if this were the case, FSA would still have to establish justifiable reliance. FSA, however, conducted no investigation of these matters raised in the pro forma. See Gifford Depo., at 129-30. No one from FSA contacted the Facility or the Authority after Ms. Gifford's visit there in July 1998. No one from FSA inquired as to how much tonnage the Facility was processing. No one from FSA contacted TransWaste until January 1999, several months after the closing of the bond transaction. FSA does not explain how its expert easily concludes now that the projections in the Request for Proposal were unrealistic, yet FSA was not able to reach this conclusion through its own due diligence prior to the closing of the transaction.

Finally, the court in Bogle rejected the plaintiff's claims based on the forward-looking statement that the mining company would refund Bogle's investment at any time because Ian Bragg's representation about Chestatee "concerns the future actions of a third party and cannot be fairly characterized as made with the present intent to cause Chestatee not to redeem Bogle's stock." 248 Ga. App. at 635. The court reached this conclusion despite that fact that Ian Bragg was a principal of Chestatee. Here, Stephens' relationship with the Facility is far more attenuated than Bragg's with Chestatee. Thus, under Bogle, Stephens' statements about the "materials of value" recovery rates and financial projections contained in the Request for Proposal cannot have been made with the present intent not to perform because they concerned the future actions of a third party. Thus, the court grants Stephens' motion for summary judgment with respect to operational and financial problems.

5. Acceptance Test Results

FSA claims that the description of the Acceptance Test was inaccurate, since it was written with the prior bank-financing in mind, making its inclusion in the Request for Proposal misleading. FSA also contends that Stephens knew or should have known that the description of the Acceptance Test in the Request for Proposal and the actual manner in which the Acceptance Test was conducted were different. For the reasons stated in the court's discussion of FSA's claims against Hayes, James, these allegations are not actionable.

FSA also claims that the Request for Proposal represented that if the Facility passed the Acceptance Test, it would be able to meet financial expectations. FSA read this language to mean that the Acceptance Test was designed to measure the ability of the Facility to meet these projections. Significantly, the statement in the Request for Proposal that FSA contends is a misrepresentation, is "[i]f the Facility passes [the General Acceptance Test] it will be capable of meeting the financial projections made by the Authority with the only variable being the efficiency of human pickers." Request for Proposal, at 52 (emphasis added). The precondition for that statement is the Facility's passing of the test. FSA knew that the Facility was to undergo an Acceptance Test at a future date and that the Facility had to pass the Acceptance Test in order to be accepted by the Authority. FSA, then, was on notice that this test was an important part of the bond issuance. Despite this notice, FSA failed to request a copy of the Acceptance Test report, which detailed how the test was run and how the Facility had performed. FSA has proffered no evidence that it was somehow barred by Stephens from learning any information about the Acceptance Test.

FSA argues that it did not have any obligation to make inquiries about the Acceptance Test because pursuant to industry custom, it was entitled to rely on Stephens to let it know if the Facility did not pass the Acceptance Test. As the court found above, industry custom is not dispositive as to the level of due diligence FSA would have to conduct. The Acceptance Test was a significant step in the development of the Facility. FSA was on notice when the Test was occurring and made no effort to follow up. Under these circumstances, the court finds that even accepting FSA's contentions with respect to industry custom, that custom would not excuse FSA from making even the barest of inquiries.

Finally, FSA argues that since the Facility's passing of the Acceptance Test was a prerequisite to the bond insurance being issued, Stephens was under an obligation to inform FSA if the Facility failed the Acceptance Test, as this would have constituted a material change. Contrary to FSA's assertions, it is important for the court to note clearly that Stephens did not sign a Commitment Letter with FSA, and FSA received no commitment from Stephens to notify it of any material changes. The Commitment Letter was exchanged between the Authority to FSA, not Stephens and FSA. Stephens played no part at all in the Letter. Furthermore, the Letter contains no language at all that requires that FSA be notified of any material changes. See Aug. 13, 1998 Letter from FSA to the Authority. Rather, the Commitment Letter states that there are to be no material changes but does not demand, request, or otherwise require Stephens or anyone else to notify FSA if there are any such changes. Finally, Ms. Finnegan and Mr. Millet both testified that FSA should check for material changes. See Finnegan Depo., at 121-23 (testifying that FSA did have a right to refuse to issue the insurance policy if there were material changes in the bonds or security for the bonds, and it was Ms. Gifford's responsibility to determine whether a material change had taken place); Millet Depo., at 65-66 (analyst and counsel responsible for determining that no material change has occurred). For the foregoing reasons, the court grants Stephens' motion for summary judgment with respect to the Acceptance Test allegations.

6. Landfill-only Strategy

Although the Facility was to operate primarily on the basis of waste brought by the Participants, from which materials of value would be partially recovered and used as a source of revenue, the Facility also contemplated operating only as a landfill should there be insufficient recoverable waste. The Request for Proposal's financial statement indicates that the fee the County would charge the Authority for landfilling all waste would be capped at $1.75 million per year. FSA asserts that in reality there is no cap on the charges. FSA claims that it relied on the representations made in the Request for Proposal regarding the feasibility of this landfill-only strategy. Ms. Gifford included the viability of this back-up strategy in her report to the MUNC, stating that "[i]n the unlikely event the plant is shut down, the Authority has contracted with the County for sufficient landfill space for the next 25 years." See MUNC Report, at 2. As such, FSA can show actual reliance on this representation.

However, as noted above, neither Ms. Gifford, nor anyone else at FSA, ever requested a copy of this Landfill contract. See Gifford Depo. at 96-97. FSA relied on Stephens' summary of the Authority's contract with the County in the Request for Proposal and exercised no independent evaluation or due diligence regarding this contract. The contract, itself, would describe whether there was a cap on the landfill cost. Because FSA never undertook the due diligence to request and review the actual Landfill contract, the court finds that any reliance on the representations Stephens may have made regarding the Landfill contract cannot be justified as a matter of law, and the court grants Stephens' motion for summary judgment on the landfill-only representations.

7. TransWaste Contract and Amendment

FSA claims that the Request for Proposal and Official Statement misrepresented the nature of the contract between the Authority and TransWaste. Again, the court disregards any claims of reliance based on statements made in the Official Statement. The court's analysis of the alleged misrepresentations in the TransWaste contract is the same as for the contract with the County regarding the landfill: FSA never requested the contract with TransWaste, choosing instead to take at face value the representations made in the Request for Proposal. FSA conducted no diligence with respect to this contract and therefore, as a matter of law, cannot have justifiably relied on it, or statements regarding it.

The amendment to the TransWaste contract which allowed TransWaste to enjoy the rebate longer than originally anticipated was discussed and ratified at an open meeting. See Agenda of Authority's Nov. 5, 1998 Meeting. As such, FSA could have discovered the information for itself and could not reasonably rely on the Request for Proposal's representations alone. Furthermore, as explained below, Stephens was under no duty to disclose that the TransWaste contract had been amended. The court finds that FSA cannot satisfy the elements of fraud or negligent misrepresentation with respect to the TransWaste contract and amendment to the contract.¹⁹

19 The court notes that the parties disagree about the impact the TransWaste amendment would have on the financial viability of the Facility. The court need not resolve this issue because it finds that FSA cannot establish justifiable reliance.

B. OMISSIONS

FSA raises six alleged omissions: (1) information regarding the Facility's recovery of "materials of value"; (2) the results of the Acceptance Test; (3) the conference call between Boze, Joslin, and Cannon, as well as the resulting amendment to the TransWaste contract; (4) a transfer station audit report prepared in October 1998 by MWM; (5) possible competition from other landfills; and (6) "fundamental flaws" in the Facility's design. Because the court has discussed above the TransWaste amendment and the Acceptance Test, it need not revisit those issues.

Stephens contends that allegations of omissions are not actionable under Georgia law because it owed no duty to disclose information to FSA. FSA responds that Stephens did have a duty to disclose under Georgia law, which states: "[s]uppression of a material fact which a party is under an obligation to communicate constitutes fraud. The obligation to communicate may arise from the confidential relations of the parties or from the particular circumstances of the case." O.C.G.A. § 23-2-53. Based on industry custom, FSA argues that its confidential relationship with Stephens and the particular circumstances of this case impose a disclosure duty on Stephens.

Questions of whether a confidential relationship exists or whether the particular circumstances justify the imposition of an obligation to communicate are generally reserved for the jury. Yarbrough v. Kirkland, 249 Ga. App. 523, 527 (2001); First Union Nat'l Bank of Ga. v. Davies-Elliot, 207 Ga. App. 791, 793 (1993). However, a trial court may decide these questions as a matter of law "[w]here the facts are patent, unambiguous, and undisputed." Middleton v. Troy Young Realty, 257 Ga. App. 771, 773 (2002); see also Williams v. Dresser Indus., 120 F.3d 1163, 1168 (11th Cir. 1997) (applying Georgia law) ("when the facts do not authorize the finding of a confidential relationship, the trial court does not err in deciding the issue as a matter of law").

In Williams, the court found that there is no duty to disclose between parties with no prior relationship who are negotiating business transactions at arm's length. See id., 120 F.3d at 1167. See also Southern Intermodal Logistics, Inc. v. Smith Kelly Co., 190 Ga. App. 584, 586 (1998) (no duty to disclose information equally available to both parties in arm'slength negotiation). Although the court recognizes that FSA makes an industry custom argument, here as well FSA points to no case, and the court has found none, which supports the notion that sophisticated business parties who had no prior relationship and who each had their own objectives in pursuing a deal have a confidential relationship. While it may or may not be true that bond insurers and underwriters typically disclose information to each other when dealing together in a particular offering, this does not mean that the law imposes a fiduciary-type relationship. Accordingly, the court finds that there was no confidential relationship between FSA and Stephens that would justify the imposition of the disclosure duties under O.C.G.A. § 23-2-53.

Alternatively, Georgia courts have traditionally applied two factors in determining whether the particular circumstances impose a duty to disclose: There must have been (1) intentional concealment (2) for the purpose of obtaining an advantage or benefit. See Order, September 19, 2001, at 53 (citing Ga. Real Estate Comm'n v. Brown, 152 Ga. App. 323, 325 (1979)). More recently, some Georgia courts appear to have read the "particular circumstances" language out of the statute, finding that if there was no confidential relationship, then there was no duty to disclose. See Middleton, 257 Ga. App. at 773-74 (no discussion of whether the particular circumstances of the case imposed a duty to disclose once the court concluded no confidential relationship existed); Bogle, 248 Ga. App. at 636-37 (same). Indeed, the only recent Georgia case this court found addressing the "particular circumstances" language of the statute found the lack of a confidential relationship between the parties to be a factor in its ultimate determination that the particular circumstances did not impose any disclosure duty. See Park Place Café Inc. v. Metro. Life Ins. Co., 254 Ga. App. 733, 736 (2002).

Here, FSA argues that Stephens had an obligation to disclose information under the particular circumstances of this transaction because: (1) Stephens requested that FSA direct all its communications to Stephens given Stephens' supposed superior knowledge regarding the bond issuance; (2) industry custom allowed FSA to rely on Stephens to disclose information; (3) FSA's commitment letter required that it be notified in the case of any material changes; and (4) FSA has presented evidence indicating that Stephens intentionally concealed information. Rather than disclose the information, FSA contends that Stephens intentionally concealed the information at issue because it had a strong financial incentive to see the bond deal close and that the issuance of a bond insurance policy was a prerequisite to the closing.

Regardless of whether the court takes the traditional or more modern approach regarding the "particular circumstances" language, the result is the same: Stephens had no duty of disclosure for O.C.G.A. § 23-2-53 purposes. Applying the Georgia Real Estate Commission factors, Stephens clearly had no duty imposed by O.C.G.A. § 23-2-53, as FSA has failed to point to any evidence indicating that Stephens intentionally concealed information. Rather, all of the evidence highlighted by FSA demonstrates only that Stephens stood to collect a sizeable fee if the bond deal closed, a fact not in dispute. The record is clear that Stephens collected more than $1 million in fees from this bond issuance. It seems obvious, then, that Stephens wanted to see the deal close. What is not obvious, however, is that Stephens intentionally concealed information so as to secure the closing, and FSA has failed to produce any evidence indicating such concealment. It is, therefore, unnecessary, under the Georgia Real Estate Commission factors, to discuss the other arguments raised by FSA as to this point.

Taking the more modern approach, the court still finds that "particular circumstances" of this case did not impose any disclosure duty on Stephens. First, as explained above, the Commitment Letter was not exchanged between Stephens and FSA and did not require that FSA be notified of any material changes.

Second, the Request for Proposal instructed FSA, as well as all other potential credit enhancers, to direct all communications to Stephens. However, it is clear from a review of the Procedures to Submit Proposals attached to the Request for Proposal that this instruction applied during the bidding process. See Tab B, Exh. 14 to Stephens' Motion for Summary Judgment. The list of procedures relates solely to the bidding process, including indicating in bold that proposals were due by July 30, 1998. Moreover, the Procedures note that "[A]fter the number one provider is selected by the Authority, the provider will be permitted adequate time to review all detail information." Id. Thus, nothing in the record supports FSA's contention that it was not to conduct any investigation except through Stephens. Indeed, Ms. Gifford met with Charles Walker, Executive Director of the Authority, when she visited the Facility.

Third, industry custom is not dispositive. The court cannot conclude as a matter of law that FSA was under no obligation to research the bond issuance or run its own financial analyses before deciding whether to insure the bonds. It simply is not the law that a sophisticated party such as FSA may take at face value the assertions, numbers, and claims of success made by those selling the deal.²⁰

20 While FSA relies on Pinkerton Laws Co. v. Roadway Express, Inc., 650 F. Supp. 1138 (N.D. Ga. 1983) (Ward, J.), that case is clearly distinguishable. There, the contractorplaintiff relied on expensive tests of the subsurface soil, a latent or intrinsic quality, as conducted and represented by the defendant. Id. at 1147-48. These tests were not of the type normally performed by the plaintiff or others in a similar position. Id. Unlike the subsurface soil tests in Pinkerton, here, FSA has pointed to nothing unique about this transaction that would render FSA unable to undertake any kind of due diligence efforts.

Finally, while FSA also argues that "when one knowingly takes advantage of another who is `laboring under a delusion' regarding the true facts" that party has a duty to disclose, FSA has failed to adduce any evidence that Stephens knew that FSA was under a delusion regarding the true facts. The fact that Stephens knew FSA had not submitted its bid to insure the bonds on the disclaimer form included in the Request for Proposal in no way could be construed to indicate to Stephens that FSA was relying solely on Stephens to tell FSA everything it needed to know regarding the bond transaction. Furthermore, while FSA shows that Stephens had a financial interest in the bond transaction closing, this is not sufficient to demonstrate intentional concealment on the part of Stephens. It is not unusual for business people to draw motivation from seeking profit. Taking all these allegations together, they fail to impose any disclosure duty on Stephens. The court, then, finds that Stephens had no general duty, imposed by O.C.G.A. § 23-2-53, to disclose information to FSA and grants summary judgment to Stephens with respect to the alleged omissions.

Although the court holds that Stephens did not have a duty to disclose information to FSA, the court finds it prudent to elaborate further on one area of omission relied on to a great extent by FSA in this litigation. FSA's joint response to Defendants' motions for summary judgment is replete with references to the testimony of Chris Cannon, President of TransWaste, and notes he took during conversations which reflect that he was very skeptical of the Facility and felt that bond financing was happening too early. Significantly, some of these meetings were not even attended by any representative of Stephens, such as the November 10, 1998 meeting referenced by FSA.²¹ Similarly, numerous of the attachments to FSA's Post-Hearing Brief are memos or letters sent by Mr. Cannon to Charles Walker, the Executive Director at the Authority. While these letters certainly indicate that Mr. Cannon had problems with the viability of the Facility, there is no indication that Stephens was aware of these exchanges between Mr. Cannon and the Authority.

21 FSA also argues that Mr. Walker and Ms. Dedert, in management positions at the Facility, also had concerns about the financial viability of the Facility. FSA, however, presents no evidence that Stephens was aware of these alleged concerns.

The only evidence presented by FSA that Stephens was aware of Mr. Cannon's opinions is the October 1998 conference call between Mr. Boze, Ms. Joslin, and Mr. Cannon. Mr. Cannon's opinions, however, were not solely available to Stephens. FSA could have contacted Mr. Cannon at any time. Despite knowing that TransWaste held the largest contract with the Facility and would be its most important customer and understanding the importance, therefore, of TransWaste to the financial viability of the Facility, FSA chose not to contact Mr. Cannon, do any investigation of TransWaste, or even read the TransWaste contract.²² The bottom line remains the same — FSA did nothing after agreeing to insure the bond transaction in July 1998 to monitor the situation at the Facility, despite the fact it still had the opportunity to refuse to insure the transaction.

22 For this same reason, FSA's more recent gloss on its TransWaste allegations also fail. In its Post-Hearing Brief, FSA contends that even if it had seen the TransWaste contract, it would not have known that TransWaste took the position that it was not required under its contract to guarantee a minimum tonnage of waste per day. Id. at 16 n. 15. Had FSA requested the TransWaste contract, it could have determined for itself whether the contract guaranteed a minimum tonnage. Furthermore, the court cannot find any legal authority that would require Stephens to predict for FSA whether or not TransWaste would eventually comply with any alleged contractual requirements.

C. NOT ACTIONABLE AS MATTER OF LAW

The court next addresses Stephens' contention that some misrepresentations alleged by FSA are not actionable as a matter of Georgia law.

1. Risks

The Request for Proposal included an assessment of operational and financial risks to the credit enhancer, that is, the insurer. FSA claims that Stephens was aware, prior to the bond closing, that the risks to the credit enhancer in areas such as design technology, equipment, and construction were greater than the "none" or "minimal" represented in the Request for Proposal. FSA argues that such opinions can be the basis for fraud. See 37 Am. Jur. 2D Fraud and Deceit § 69 (2001). Indeed, according to FSA, "[i]t is well-settled that under appropriate circumstances, even statements or representations characterized as `opinions' can be the subject of a claim for fraud or negligent misrepresentation." Despite the well-settled nature of this notion, FSA has failed to cite any case applying Georgia law where statements of opinions served as the basis for a fraud claim. On the contrary, Georgia law clearly establishes that opinions cannot serve as the basis of a fraud claim.

In Buckner v. Mallett, 245 Ga. 245 (1980), a purchaser sued a vendor and a real estate agent for specific performance of a contract for sale of land alleging fraud. The plaintiff contended that the real estate agent made a fraudulent misrepresentation when he stated that the plaintiff's property could only be zoned residential. Id. at 246. The court determined that the real estate agent's statement was "merely an expression of opinion" and could not be the basis of a fraud claim. Id. Similarly, in R.L. Kimsey Cotton Co. v. Ferguson, 233 Ga. 962 (1975), a buyer brought suit against a cotton farmer for specific performance of a contract providing that cotton produced by the farmer during the year would be sold to the buyer at a certain price. The farmer commented on what he believed the price might be "in the fall" or what price Kimsey might be able to sell at the mills at a future date. Id. 967. The court found that such statements were "only predictions or conjecture as to future events and cannot be the basis of fraud." Id. See also Anderson v. Atlanta Comm. for the Olympic Games, Inc., 261 Ga. App. 895, 899-900 (2003) ("mere statements of opinion cannot constitute the basis for a claim of fraud"); Bogle, 248 Ga. App. at 637 (plaintiff in fraud claim not entitled to rely on statement of opinion as if statement of fact); Simpson Consulting, 227 Ga. App. at 650 ("[s]tatements of opinion are not such factual representations that are actionable as fraud").

Here, the court finds that the statements in the Request for Proposal relating to what operational and financial risks would accrue to the credit enhancer are merely expressions of opinion and not actionable as fraud. Furthermore, the court notes that the Request for Proposal, itself, discussed the unique nature of the Facility's design.

2. Competition

FSA claims that it relied on the representation in the Request for Proposal and the Official Statement that competition for the Facility was minimal. Again, the court disregards all claims of reliance on the Official Statement. Ms. Gifford, however, did testify that she relied on the Request for Proposal's representation regarding competition. She also testified that she conducted some research into the likely competition of the Facility and found nothing to indicate that the information provided in the Request for Proposal was inaccurate.

The court notes that the reason given in the Request for Proposal for the minimal amount of competition related to the "`[e]nvironmental legislation and regulation.'" Stephens argues that such statements are not actionable under Georgia law for two reasons: (1) statements about the law are opinions, and (2) everyone is presumed to know the law, so such statements cannot be the basis for actionable fraud. FSA responds that while a party might be presumed to know the law of its own jurisdiction, representations as to the law of a foreign state are considered representations of fact. See 37 Am. Jur. 2D Fraud and Deceit § 103 (2001). Thus, FSA contends, as questions of fact, misrepresentations as to foreign law constitute fraud.

Georgia courts have uniformly held that "all persons are presumed to know the law and therefore cannot be deceived by erroneous statements of the law." Lakeside Inv. Group, Inc. v. Allen, 253 Ga. App. 448, 450 (2002); see also Harry v. Glynn County, 269 Ga. 503, 506 (1998) ("All persons are presumed to know the law, so even if the defendants in this case had actively misrepresented the state of the law, there would be no actionable fraud."). Significantly, in Christopher v. Whitmire, 199 Ga. 280 (1945), the court found that a representation made by the defendant ex-husband to his former wife, the plaintiff, concerning the validity of a Mexican divorce was not actionable as fraud. Id. at 283. Thus, the court finds no support in Georgia law for FSA's "foreign state law" exception.

The court finds that statements in the Request for Proposal that allegedly misrepresent the state of Georgia law are not actionable as fraud, and reliance on such representations are not justified as a matter of law. Because the assessment of likely competition was based on the nonexistent Georgia legal mandate and because FSA was not entitled to rely on Stephens' representation of Georgia law, reliance on the Request for Proposal's discussion of competition was not justifiable.

FSA also contends that the statements in the Request for Proposal concerning competition are misrepresentations because there were several landfills within a 100-mile radius of the Facility. The court notes, however, that any reliance on the statements about competition would not be justified given the fact that the Request for Proposal, itself, contained a discussion of competition and noted alternative landfills that would be available to the Participants. Further, Ms. Gifford's effort in determining whether there were competitor facilities in the area was limited to her cursory internet searching. See Gifford Depo., at 104-05 (plugging in "solid waste, Georgia" into a search engine to "see what appears"; testifying that she could not recall if she came up with a list of landfills in the area).

3. Legal Mandate Required by Georgia

The Request for Proposal contains a reference to a Georgia regulation requiring a 25% reduction in waste. Ms. Gifford referenced this regulation in her report to the MUNC. FSA alleges this statement in the Request for Proposal is a misrepresentation because the regulation merely sets a mandatory goal and is not enforceable. As the court explained above, statements about Georgia law are not actionable, as a matter of law. Furthermore, FSA produced no evidence showing that it made any effort to ascertain the accuracy of the representation of Georgia law. Ms. Gifford testified that she did not ask FSA's in-house counsel to look into the regulation. See Gifford Depo., at 166-67. As such, any reliance would therefore be unjustified.

D. Summary

Contrary to the assertions in FSA's briefs, the court's ruling does not permit outright fraudulent acts by Defendants because they had the fortuity of finding a "pigeon" — to use FSA's term²³ — in the form of Ms. Gifford. The court recognizes that there were ample problems with the viability of the Facility, particularly there appear to be serious issues between TransWaste and the Facility. These problems alone, however, do not render Stephens liable to FSA under Georgia law. Stephens was not in the role of insuring for FSA that its investment was risk-free. Before it can succeed on a negligent misrepresentation or fraud claim, FSA has an obligation under the law to show that it conducted sufficient due diligence so that it was justified in relying on the representations of Defendants. As the information adduced in discovery shows, FSA did the bare minimum in investigating the Facility, its personnel, its technical feasibility. FSA's MUNC considered this transaction for a total of 10 minutes, five of which were determining the premium to charge. See Gifford Depo., at 173-74 (the portion of the MUNC meeting relating to this transaction lasted approximately ten minutes, only five of which dealt with Ms. Gifford's presentation, the remainder relating to pricing of the insurance premium). Georgia law does not authorize the court to save FSA from its own actions by shifting liability to Defendants.

23 See Hearing Transcript, at 157.

Because the court GRANTS Stephens' motion for summary judgment as to Plaintiff's negligent misrepresentation and fraud claims, the court also GRANTS Stephens' motion for summary judgment as to Plaintiff's declaratory judgment and attorney's fees claims.²⁴

24 During the course of discovery, it became clear that Stephens lost five boxes of documents containing its underwriting files on this deal. Several months after the bond transaction closed, Stephens closed its Atlanta office and Mr. Boze, one of its employees, took employment elsewhere. Mr. Boze packed up the boxes and sent them to Stephens' offices in Arkansas. No record of the boxes is found after this shipment. For obvious reason, FSA expresses concerns over this loss. See Post-Hearing Brief, at 4 n. 5. FSA contends that its ability "to prove certain elements of its case has been impeded by the unexplained (and inexplicable) `loss' by Stephens." Id. FSA, however, does not ask the court to deny Stephens' motion for summary judgment on this basis. As such, the court will have nothing else to say on this matter, but to note that the thrust of the court's holding is that FSA cannot establish justifiable reliance, Stephens had no duty to disclose, and certain misrepresentations are not actionable as a matter of law. Nothing that might be in Stephens' file would touch on these matters which are either issues of law based upon discovery concerning the relationship between Stephens or FSA or materials within the possession of FSA to demonstrate its own due diligence efforts.

IV. CONCLUSION

For the foregoing reasons, the court GRANTS Defendant Stephens, Inc.'s motion for summary judgment [71-1] and GRANTS Defendant Hayes, James Associates, Inc.'s motion for summary judgment [72-1]. The Clerk of the Court is DIRECTED to DISMISS Plaintiff's complaint.

IT IS SO ORDERED.