Judge John Keenan
Ambac Assurance was surety to the Adelanto Public Utility Authority’s interest rate swap agreement with Piper Jaffrey, hedging risk in its 2005 issuance of $70.6 million in variable rate revenue bonds. Piper Jaffrey terminated the swap agreement due to the authority’s inability to resolve financial difficulties after Ambac’s credit rating was downgraded in 2008. Ambac was forced to pay Piper $4.5 million. Denying the authority judgment, the court, applying New York law, granted Ambac judgment as to liability and damages on its reimbursement claim. It also granted Ambac partial judgment as to liability on claims for contract breach and seeking reimbursement of its expenses. The authority did not present evidence of “unconscionable, bad faith, or inequitable conduct” sufficient for it to avoid liability under California’s suretyship law, which entitles a surety to reimbursement from its principal for amounts paid to the obligee upon the principal’s default. Nor did the downgrade of Ambac’s credit rating absolve the authority from reimbursement. Because Piper Jaffrey properly terminated the swap agreement and because the authority’s default forced Ambac to pay Piper Jaffrey, Ambac was entitled to reimbursement from the authority.
