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Seventh Circuit Holds Lake of the Torches Bond Indenture is Void

September 13, 2011 | Posted by Molatore, Clifton | Print this page
On September 6, 2011, the Seventh Circuit Court of Appeals affirmed the district court's opinion in Wells Fargo Bank, National Association v. Lake of the Torches Economic Development Corporation that the bond indenture at issue constitutes an unapproved management contract and is void. However, the Seventh Circuit remanded the case to the district court to allow Wells Fargo to file an amended complaint.
The court stated, "We agree with the district court that the indenture constitutes an unapproved management contract within the meaning of the statute and is therefore void. Consequently, Lake of the Torches’ waiver of sovereign immunity contained in that document is also void and cannot serve as a predicate for the district court’s jurisdiction. We further believe that the district court prematurely denied Wells Fargo’s motion to file an amended complaint asserting claims for legal and equitable relief in connection with the bond transaction. Assuming that Wells Fargo has standing to assert the claims of the bondholder, it is an open issue whether other documents connected to the bond offering, exclusive of the indenture, evince an intent on the part of the Corporation to waive sovereign immunity with respect to claims in connection with the bond offering filed by Wells Fargo on behalf of the bondholder or on its own behalf. Accordingly, we affirm in part and reverse in part the judgment of the district court."