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Ambac Assurance Corp. v. Adelanto Public Utility Authority

March 15, 2010

AMBAC ASSURANCE CORPORATION, PLAINTIFF,
v.
ADELANTO PUBLIC UTILITY AUTHORITY, DEFENDANT.



The opinion of the court was delivered by: John F. Keenan, United States District Judge

Opinion and Order

This action arises from the early termination of an interest rate swap agreement between Piper Jaffray & Company ("Piper Jaffray") and defendant Adelanto Public Utility Authority (the "Authority" or "Defendant"). Plaintiff Ambac Assurance Corporation ("Ambac" or "Plaintiff"), a surety to the agreement, brings claims for reimbursement, breach of contract, and specific performance as a result of an early termination payment it made to Piper Jaffray that has not been reimbursed by the Authority. Before the Court is the Authority's motion to dismiss for lack of subject matter jurisdiction and lack of venue. For the reasons that follow, the motion is denied.

I. BACKGROUND

The following facts are derived from Ambac's Amended Complaint ("Am. Compl.").

Ambac, a Wisconsin corporation with its principal place of business in New York City, is in the business of surety and financial guaranty insurance. The Authority is a public utility authority existing under the laws of California, with its principal place of business in Adelanto, California.

In or about September 2005, the Authority issued $70,635,000 face amount of Variable Rate Revenue Bonds, 2005 Series A and B (Utility System Project) (the "Bonds"). The Bonds were underwritten by Piper Jaffray. Ambac issued a policy of bond insurance with respect to the Bonds, insuring payment of the principal and interest thereon.

Contemporaneously with its issuance of the Bonds, the Authority entered into an interest rate swap agreement (the "Swap Agreement") with Piper Jaffray in order to hedge its risk as the issuer of the Bonds. The Swap Agreement stays in effect for the life of the Bonds, but it may be terminated upon the occurrence of certain events, such as a party's default or bankruptcy. In the event of an early termination, the Swap Agreement provides for certain payments to compensate for the termination.

On September 7, 2005, Ambac issued a surety bond for the Swap Agreement (the "Surety Bond"). The Surety Bond provides that if the Authority were to fail to make certain payments required by the Swap Agreement, including certain termination payments, Ambac would make those payments.

Ambac was not a party to the Swap Agreement, but it is specifically identified in it as the issuer of the Surety Bond and is given the title "Swap Insurer." The Swap Agreement further provides that the Authority shall unconditionally reimburse Ambac, as the Swap Insurer, for any incurred fees, costs, or other expenses resulting from a breach of the Authority's obligations under the Swap Agreement. The Authority is also obligated under the Swap Agreement to reimburse Ambac for any amounts paid under the Surety Bond and any costs of collection and enforcement thereof, with interest at a specified rate.

The Swap Agreement is governed by New York law.*fn1 Regarding venue, the parties agreed as follows:

With respect to any suit, action, or proceeding relating to this Agreement ("Proceedings"), each party irrevocably --

(i) submits to the jurisdiction of the English courts, if this Agreement is expressed to be governed by English law, or to the exclusive jurisdiction of the United States District Court located in the Borough of Manhattan in New York City, if this Agreement is expressed to be governed by the laws of the State of New York; and

(ii) waives any objection which it may have at any time to the laying of venue of any Proceedings brought in any such court, waives any claim that such Proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such Proceedings, that such court does not have any jurisdiction over such party; provided that Party A [Piper Jaffray] will consent to the transfer of any such Proceedings initiated by Party B [the Authority] to the United States District Court with jurisdiction of the Government Entity [the Authority] if prior to seeking such transfer Party B has taken all steps as may be required by the laws that would be applicable in such transferee court to effect the valid waiver of jury trial by Party B in such court. (Def. Ex. A § 11(b)(1), Schedule Part 3(f).) (the "forum-selection provision").

On November 5, 2008 Moody's Investors Service downgraded Ambac's credit rating. Pursuant to the Swap Agreement, the downgrade of Ambac's credit rating required the Authority either to replace Ambac as the Swap Insurer or to obtain or maintain an unenhanced rating on the Bonds at or above a certain minimum within 30 days. The Authority's failure to satisfy either of those tasks within that time period would allow Piper to terminate the Swap Agreement. According to Ambac, the Authority did not make a good-faith effort to satisfy the terms of the Swap Agreement in either manner. Piper Jaffray chose not to immediately terminate the Swap Agreement; instead, in a letter dated February 5, 2009, Piper Jaffray stated that it "would like to ...


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