The opinion of the court was delivered by: Garland E. Burrell, Jr. United States District Judge
ORDER GRANTING DEFENDANTS' MOTION TO DISMISS*fn1
Defendants California Infrastructure and Economic Development Bank ("I-Bank"), and Orrick, Herrington & Sutcliffe LLP ("Orrick") (collectively referred to as "Defendants"), move for an order dismissing with prejudice Plaintiff William George's ("George") Second Amended Consolidated Complaint ("SAC"), under Federal Rule of Civil Procedure ("Rule") 12(b)(6) and the Private Securities Litigation Reform Act of 1995 ("PSLRA"). George alleges in the SAC a putative class action securities fraud claim under § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 ("§ 10(b)" or "§ 10(b) claim"). Defendants argue that George "has failed to allege sufficient facts to state" a § 10(b) claim. (Defs.' Notice of Mot. and Mot. to Dismiss SAC 1:9-11.)
I. Background and Factual Allegations
George was appointed lead plaintiff for the putative class, following which George filed a "consolidated complaint." Defendants filed a dismissal motion challenging the sufficiency of the consolidated complaint. While the motion was pending, George filed a First Amended Consolidated Complaint ("FAC"), which mooted Defendants' dismissal motion. Defendants subsequently filed a dismissal motion challenging the sufficiency of the FAC, which was granted in George v. California Infrastructure and Economic Development Bank ("George I"), No. 2:09-cv-01610-GEB-DAD, 2010 WL 2383520, at *9 (E.D. Cal. June 10, 2010). George was granted leave to amend and subsequently filed the SAC, which is challenged in the dismissal motion sub judice.
The following facts are alleged in the SAC: George and the proposed class members purchased certain section 501(c)(3) revenue bonds issued by I-Bank between June 1, 2007 and December 1, 2008 ("2007 Bonds"). (SAC ¶¶ 2, 14.) I-Bank is "a public instrumentality of the State of California" that "may issue, from time to time, certain tax exempt revenue bonds . . . which . . . create public benefits in California communities where a sponsored project is located by enhancing the economic, social, or cultural quality of life for local residents." Id. ¶ 2. I-Bank "may also issue . . . from time to time, certain refunding revenue bonds." Id. ¶ 3. Orrick is "an entity comprised, inter alia, of Members of the State Bar of California engaged in the active practice of law." Id. ¶ 4. I-Bank employed Orrick to provide I-Bank with legal services in connection with the issuance of the 2007 Bonds. Id. ¶¶ 5-7.
I-Bank issued approximately $70 million in revenue bonds in 1999 ("1999 Bonds"). Id. Ex. 1, at 19. I-Bank loaned the proceeds from the sale of the 1999 Bonds to Copia, a non-profit corporation, to finance the construction and development of "a cultural institution, museum and educational center located in Napa, California." Id. Ex. 2, at 1. The 1999 Bonds were secured by a first deed of trust on Copia's real property. Id. ¶ 38. Copia struggled financially, however, and I-Bank and Orrick "began work on a second bond issue in late 2006 or early 2007 in order to try and avoid the impending default on 99 Bonds." Id. ¶¶ 40, 46.
I-Bank and Orrick "began work on [the 2007 Bond] issue in late 2006 or early 2007 in order to try and avoid the impending default on99 Bonds." Id. ¶ 46. I-Bank received $77,612,773.55 from its underwriter "and immediately loaned that $77,612,773.55 to [Copia]." Id.
¶ 27. The 2007 Bonds went on sale to the public on or about June 1, 2007, and were marketed through the use of a prospectus (the "Prospectus"). Id. ¶ 28. George and the proposed class members purchased the 2007 Bonds between June 1, 2007 and December 1, 2008. Id. ¶ 14. The 2007 Bonds were secured by a second deed of trust on Copia's real property. Id. ¶ 81. The Prospectus states that "upon the issuance of the  [B]onds, a portion of the proceeds . . . will be deposited in an escrow fund . . . and irrevocably pledged to the payment of the principal and interest and premium on the  Bonds." Id. Ex. 1, at1.
Despite receiving additional capital, Copia filed for bankruptcy on December 1, 2008. Id. ¶ 82. George alleges that since Orrick never issued a "necessary opinion," "there was never any pre-bankruptcy defeasance of 99 bonds" and, as a result, "theunderlying obligation of [Copia] on [the 1999 Bonds] was never extinguished." Id. ¶ 81. Since this obligation was never extinguished, the 1999 Bonds "remained secured by an unrecorded equitable lien on [Copia's] assets at the time [Copia] filed for bankruptcy." Id. ¶ 82. George also alleges that Copia's bankruptcy trustee was able "to avoid that unrecorded equitable lien . . . thus putting [the purchasers of the 1999 Bonds and 2007 Bonds] both in the position of being entirely unsecured creditors of [Copia]." Id.
George alleges the following statements contained in the Prospectus are misleading:
Certain preconditions to the defeasance of  Bonds . . . are not expected to be met until September 7, 2007. In particular, the occurrence of an Act of Bankruptcy by [Borrower on or before] . . . September 7, 2007, would prevent the legal defeasance of  Bonds from the proceeds of 07 Bonds. Until  Bonds are defeased . . .  Bonds will be subordinate to  Bonds . . . . After the defeasance of  Bonds . . . it is expected that . . .  Bonds will be deemed paid and no longer outstanding . . . . Assuming that  Bonds are delivered in May 2007 and that [an] Escrow Fund is funded on such date of delivery, it is expected that the preconditions to the defeasance of  Bonds . . . will be met by September 7, 2007.
Id. ¶ 29. George alleges those statements in the Prospectus are misleading as follows:
[W]hat is being misrepresented to the reader . . . is that, once September 7, 2007, arrives, and, assuming [Copia] has not then already filed for bankruptcy, [the 19]99 Bonds would be paid off by means of an advance deposit of $71,172,906.34 into escrow and thereby annulled or abrogated consistent with the provision for such advance defeasance (99 Bonds Defeasance) contained in Article X of an Indenture dated July 1, 1999, by and between [I-Bank] on the one hand, and BNY Western Trust Company, on the other hand . . . and that [the 20]07 Bonds would, following such 99 Bonds Defeasance, represent [Copia's] only then outstanding bond debt.
Id. ¶ 31. George further alleges: "At page 2 of Prospectus there was a misleading description falsely conveying that the preconditions to defeasance of 99 Bonds would be met according to the expected timing of such defeasance (not later than September 7, 2007)." Id. ¶ 63. George alleges Defendants "actually knew that the affirmative statements in Prospectus regarding the use to which the proceeds of 07 Bonds were to be put, to wit, for 99 Bonds Defeasance, were untrue when made and ...