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Case 1:12-cv-06811-CM-JCF Document 148 Filed 11/05/12 Page 1 of 12

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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: 12 Civ. 6811 (CM) (JCF)
US BANK NATIONAL ASSOCIATION,
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a national association as
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securities intermediary for LIMA
ACQUISITION LP,
: MEMORANDUM
: AND ORDER
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JAMES C. FRANCIS IV
UNITED STATES MAGISTRATE JUDGE

PHL VARIABLE INSURANCE COMPANY,
a Connecticut Corporation,
Defendant.

- against -

Plaintiff,

US Bank National Association (“US Bank”) owns twelve life
insurance policies known as Phoenix Accumulator Universal Life
(“PAUL”) policies issued by PHL Variable Insurance Company (“PHL”).
US Bank commenced this action on November 16, 2011, alleging that
PHL breached the policies and violated various laws by raising the
cost of insurance rates on the subject PAUL policies in 2010 and
2011. US Bank recently served subpoenas seeking documents from
five reinsurers; from the American Council of Life Insurers, a
trade association; from rating agencies that evaluate PHL; and from
insurance companies that issue products similar to PHL’s. PHL now
moves for a protective order pursuant to Rule 26(c) of the Federal
Rules of Civil Procedure, or, in the alternative, for an order
pursuant to Rule 45(c)(3) quashing the subpoenas. In addition, two

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of the non-party reinsurers, Transamerica Life Insurance Company
(“Transamerica”) and SCOR Global Life Americas Reinsurance Company
(“SCOR”), have likewise moved to quash the subpoenas or for a
protective order.
Background

The policies at issue in this case are universal life
insurance policies. A policyholder may choose how much he or she
wishes to pay into the policy account each month, and the account
then accrues interest. (First Amended Complaint (“FAC”), ¶ 2).
Various fees are deducted from the account, including a “cost of
insurance charge,” which is what the insurer pays for the actual
insurance: the cost of bearing the mortality risk. (FAC, ¶ 2).
There is no fixed monthly premium, but the account must be
sufficient to cover fees, including the cost of insurance. (FAC,
¶ 2). If it is not, the policy will ultimately lapse. (FAC, ¶ 2).
The PAUL policies at issue permit the insurer to adjust the
cost of insurance rates, but only based on certain specified
factors, the most significant of which is mortality. (FAC, ¶ 4).
US Bank alleges that, although life expectancy has increased, which
should lead to a reduction in the cost of insurance, PHL has
nevertheless increased its cost of insurance rates in violation of
the policy terms. (FAC, ¶ 4). According to the plaintiff, PHL has
done so both to increase its fees and to induce “shock lapses,”

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that is, to encourage policyholders to allow policies to lapse
rather than pay higher fees, thereby relieving PHL of the risk of
ever having to pay out on the policy. (FAC, ¶ 7).

The non-party that reinsures the twelve policies specifically
at issue here, Reinsurance Group of America (“RGA”), previously
produced documents in response to a request from US Bank. (Tr. at
20-21).1 According to US Bank, these documents show that PHL
reported changes in its cost of insurance, as well as the purported
reasons for those changes, to RGA. (Declaration of Khai LeQuang
dated Sept. 28, 2012 (“LeQuang Decl.”), Exh. I). When RGA
requested certain information such as mortality reports, PHL
provided it. (LeQuang Decl., Exh I). Furthermore, communications
were exchanged internally within RGA reflecting a belief that PHL
had in fact raised the cost of insurance based not on changes in
mortality, but in order to prop up its sagging financial situation.
(LeQuang Decl., Exh. I).

When the subpoenas now at issue were served, PHL filed its
motion to quash or for a protective order, arguing (1) that the
subpoenas are improper and premature, because the requested
information, to the extent it is relevant, can be obtained directly
from PHL, and (2) the subpoenas are overbroad and seek irrelevant

1 “Tr.” refers to the transcript of oral argument held on

October 11, 2012.

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information. US Bank disputes these contentions and further argues
that PHL lacks standing to contest the subpoenas. Transamerica and
SCOR have adopted PHL’s relevance arguments and also contend that
it would be unduly burdensome for them to be required to respond to
the subpoenas.

I will provide additional factual background in conjunction

with the legal analysis.
Discussion
A. PHL
A party lacks standing to challenge, on grounds of relevance
or burden, a subpoena served on a non-party. See Estate of Ungar
v. Palestinian Authority, 332 F. App’x 643, 645 (2d Cir. 2009);
Langford v. Chrysler Motors Corp., 513 F.2d 1121, 1126 (2d Cir.
1975); Meyer Corp. U.S. v. Alfay Designs, Inc., No. 10 CV 3647,
2012 WL 3537001, at *1 (E.D.N.Y. Aug. 14, 2012); GMA Accessories,
Inc. v. Electric Wonderland, Inc., No. 07 Civ. 3219, 2012 WL
1933558, at *4 (S.D.N.Y. May 22, 2012); Freydl v. Meringolo, No. 09
Civ. 7196, 2011 WL 1226226, at *1 (S.D.N.Y. March 25, 2011); 9A
Charles Alan Wright & Arthur R. Miller, Federal Practice &
Procedure, § 2459 (3d ed. 2008). Rather, the moving party must
assert some right or privilege personal to it, such as an interest
in proprietary, confidential information that would be disclosed or
an interest in maintaining a privilege that would be breached by

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disclosure. See Blue Angel Films, Ltd. V. First Look Studios,
Inc., No. 08 Civ. 6469, 2011 WL 830624, at *1 (S.D.N.Y. March 9,
2011) (proprietary information sought for different proceeding);
Copantitla v. Fiskardo Estiatorio, Inc., No. 09 Civ. 1608, 2010 WL
1327921, at *8 n.3 (S.D.N.Y. April 5, 2010) (proprietary
information); Monsanto Co. V. Victory Wholesale Grocers, No. 08 CV
134, 2008 WL 2066449, at *2 (E.D.N.Y. May 14, 2008) (privileged
information).

Here, PHL has failed to make the showing necessary to
establish its standing. To the extent that the communications at
issue were made between PHL and one of the non-parties, PHL has
represented that it will produce them, and so has no interest in
preventing the subpoenaed entities from doing so. (Tr. at 23-24;
Defendants’ Memorandum of Law in Support of Its Motion for
Protective Order and/or to Quash Pursuant to F.R.C.P. Rules 26(c)
and 45(c)(3) (“Def. Memo.”) at 5-6). Similarly, PHL has no
proprietary interest in the internal communications of the non-
parties. A party’s general desire to thwart disclosure of
information by a non-party is simply not an interest sufficient to
create standing.

Relying on cases from other jurisdictions, including Streck,
Inc. v. Research & Diagnostic Systems, Inc., No. 8:06CV458, 2009 WL
1562851, at *3 (D. Neb. June 1, 2009), and Auto-Owners Insurance

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Co. v. Southeast Floating Docks, Inc., 231 F.R.D. 426, 429 (M.D.
Fla. 2005), PHL nevertheless argues that even if it does not have
standing under Rule 45, it does under Rule 26 for purposes of
seeking a protective order. (Defendant PHL Variable Insurance
Company’s Reply in Support of Its Motion for Protective Order
and/or to Quash at 2-3). This is not a distinction recognized in
this circuit. Moreover, it would be peculiar indeed if a party
could circumvent the well-established standing requirements under
Rule 45 simply by styling what is effectively a motion to quash as
a motion for a protective order.

Because PHL lacks standing to challenge the subpoenas, its

motion must be denied.

B. Non-Parties Transamerica and SCOR
Transamerica and SCOR plainly have standing to challenge the
subpoenas served upon them, and they do so on the grounds that the
information sought is irrelevant and that it would be unduly
burdensome for them to be required to produce it.

Generally, “[p]arties may obtain discovery regarding any
nonprivileged matter that is relevant to any party’s claim or
defense[.]” Fed. R. Civ. P. 26(b)(1). “Although not unlimited,
relevance, for purposes of discovery, is an extremely broad
concept.” Condit v. Dunne, 225 F.R.D. 100, 105 (S.D.N.Y. 2004);
see also Oppenheimer Fund, Inc. v. Sanders, 437 U.S. 340, 351

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(1978). “Relevant information need not be admissible at the trial
if the discovery appears reasonably calculated to lead to the
discovery of admissible evidence.” Fed. R. Civ. P. 26(b)(1). The
burden of demonstrating relevance is on the party seeking
discovery. See, e.g., Mandell v. Maxon Co., No. 06 Civ. 460, 2007
WL 3022552, at *1 (S.D.N.Y. Oct. 16, 2007). However, “[g]eneral
and conclusory objections as to relevance, overbreadth, or burden
are insufficient to exclude discovery of requested information.”
Melendez v. Greiner, No. 01 Civ. 7888, 2003 WL 22434101, at *1
(S.D.N.Y. Oct. 23, 2003).

Given the broad definition of relevance in the context of
discovery, the information sought by US Bank is relevant, even if
much of it is only marginally so. For example, communications by
PHL with reinsurers about cost of insurance increases for PAUL
policies will have some relevance, even if they will be less
critical than communications about the twelve specific PAUL
policies at issue in this case. Likewise, communications internal
to the reinsurers about PHL’s conduct may not ultimately be
admissible, but it may well lead to admissible evidence if, for
instance, those communications reference contacts between PHL and
the reinsurer which may or may not have been memorialized
elsewhere.

The non-parties’ burden arguments, however, are more

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compelling, particularly in light of the limited relevance of the
subpoenaed information. Each of Transamerica’s reinsurance
treaties, for example, covers multiple individual policies,
sometimes numbering in the thousands. (Declaration of Stephanie
Dunn in Support of Non-Party Transamerica Life Insurance Company’s
Motion to Quash Subpoena and/or Motion for Protective Order dated
Sept. 19, 2012 (“Dunn Transamerica Decl.”), ¶ 6). Yet Transamerica
does not track whether its treaties cover PAUL policies in
particular. (Dunn Transamerica Decl., ¶ 7). Furthermore,
Transamerica’s database does not contain a keyword search feature,
so any search would have to be done by an outside vendor. (Dunn
Transamerica Decl., ¶ 10).

SCOR faces similar challenges. Like Transamerica, it lacks
the means to track which of its treaties include PAUL policies.
(Declaration of Stephanie Dunn in Support of Non-Party SCOR Global
Life Americas Reinsurance Company’s Motion to Quash Subpoena and/or
Motion for Protective Order dated Sept. 19, 2012 (“Dunn SCOR
Decl.”), ¶¶ 6, 7). While it can do some keyword searches on its
database, its ability to do so is limited. (Dunn SCOR Decl., ¶
10). Because SCOR has undergone several organizational changes,
even locating responsive physical files and documents would be
difficult. (Dunn SCOR Decl., ¶¶ 11, 12).

“[T]he court must limit the frequency or extent of discovery”

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where “the burden or expense of the proposed discovery outweighs
its likely benefit, considering the needs of the case, the amount
in controversy, the parties’ resources, the importance of the
issues at stake in the action, and the importance of the discovery
in resolving the issues.” Fed. R. Civ. P. 26(b)(2)(C)(iii). In
this case, the amount in controversy is in the multiple millions of
dollars (Tr. at 8-9, 40-41); the parties each have substantial
resources at their disposal; the basis for PHL’s increase in the
cost of insurance is an issue critical to the outcome of the case;
and discovery is necessary to illuminate that issue. The parties
dispute, however, the balance between the value of the discovery
requested and the burden of production. In such circumstances, the
prudent course is to allocate the costs of discovery in a manner
that places the incentive on the parties to focus the production
and minimize costs. See generally Zubulake v. UBS Warburg LLC, 217
F.R.D. 309 (S.D.N.Y. 2003); Rowe Entertainment, Inc. v. William
Morris Agency, Inc., 205 F.R.D. 421, 429 (S.D.N.Y. 2002). Cost-
shifting is particularly appropriate in the context of subpoenas,
since Rule 45 directs courts to minimize the burden on non-parties.
See Watts v. SEC, 482 F.3d 501, 509 (D.C. Cir. 2007); Solomon v.
Nassau County, 274 F.R.D. 455, 460 (E.D.N.Y. 2011); MacNamara v.
City of New York, No. 04 Civ. 9612, 2006 WL 3298911, at *5
(S.D.N.Y. Nov. 13, 2006); Prescient Acquisition Group, Inc. v. MJ

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Publishing Trust, No. 05 Civ. 6298, 2006 WL 2996645, at *2
(S.D.N.Y. Oct. 13, 2006). The factors to be considered in
determining whether cost-shifting is warranted include “(1) whether
the nonparty has an interest in the outcome of the case; (2)
whether the nonparty can more readily bear the costs; and (3)
whether the litigation is of public importance.” In re World Trade
Center Disaster Site Litigation, No. 21 MC 100, 2010 WL 3582921, at
*1 (S.D.N.Y. sept. 14, 2010). Here, each of these factors favors
cost-shifting: neither Transamerica nor SCOR has any interest in
the litigation; neither is in a better position than US Bank to
bear the costs; and the litigation involves a purely private
dispute. Further, PHL is in a position to craft a sampling
protocol to help it in making a threshold determination whether the
information it seeks will, in fact, be useful enough to proceed
with broader discovery. Accordingly, US Bank shall bear the
search, collection, and production costs associated with compliance
with the subpoenas served upon Transamerica and SCOR.2

However, these non-parties shall bear their own costs of

2 In some cases, it is appropriate to shift only a percentage
of such costs to the requesting party. See Zubulake v. UBS Warburg
LLC, 216 F.R.D. 280, 289 (S.D.N.Y. 2003) (shifting 25% of costs of
responding to discovery demand to requesting party). However,
given the fact that Transamerica and SCOR are entitled to
heightened protection as non-parties with no stake in the
litigation, and given the marginal relevance of the information
requested, full shifting of these costs is warranted here.

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Case 1:12-cv-06811-CM-JCF Document 148 Filed 11/05/12 Page 11 of 12

reviewing the documents for privilege. Generally, it is not

appropriate to shift such costs because "the producing party has

the exclusive ability to control

the cost of

reviewing

the

documents."

Zubulake, 216 F.R.D. at 290.

Furthermore,

I will

enter an order pursuant to Rule 502{d) of the Federal Rules of

Evidence that will preclude the disclosure of privileged documents

in this case from constituting a waiver of privilege or of work

product protection in this or any other proceeding, state or

federal. Although Transamerica and SCOR are, of course, free to

engage in as exacting a privilege review as they wish, entry of a

Rule 502{d) order will give them the option of conducting a more

economical analysis while minimizing the risk of waiver.

Conclusion

For the reasons set forth above, PHL's motion to quash, or in

the a1 ternative, for a protective order (Docket no. 107) is denied.

Transamerica's motion to quash (Docket no. 98) and SCOR's motion to

quash (Docket no. 94) are each denied upon the condition that US

Bank bear

the costs of search, collection,

and production

associated with compliance with the subpoenas.

SO ORDERED.

cJ= C·~elM-~ ]V


JAMES C. FRANCIS IV
UNITED STATES MAGISTRATE JUDGE

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Case 1:12-cv-06811-CM-JCF Document 148 Filed 11/05/12 Page 12 of 12

Dated:

New York, New York
November 5, 2012

Copies mailed this date:

Khai LeQuang, Esq.
Melanie D. Phillips, Esq.
Orrick Herrington & sutclif
777 South Figueroa St., Suite 2200
Los Angeles, CA 90017

LLP

Philipp Smaylovsky, Esq.
Stephen G. Foresta, Esq.
Orrick Herrington & Sutcliffe LLP
51 West 52nd Street
New York, NY 10019

Daniel L. Rasmussen, Esq.
Payne and Fears LLP
4 Park Plaza, Suite 1100
Irvine, CA 92614

Scott o. Luskin, Esq.
Payne and Fears LLP
801 South Figueroa St., Suite 1150
Los Ange

CA 90017

I

Stephen J. Jorden, Esq.

Brian P. Perryman, Esq.

Jason H. Gould, Esq.

Waldemar J. Pflepsen, Jr., Esq.

Jorden Burt LLP

1025 Thomas Jefferson St., N.W.

Suite 400 East

Washington, D.C. 20007


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