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BANK OF AMERICA, N.A. v. TERRA NOVA INS. CO. LTD.

July 18, 2002

BANK OF AMERICA, N.A., ET AL., PLAINTIFFS,
V.
TERRA NOVA INSURANCE COMPANY LIMITED, DEFENDANT.



The opinion of the court was delivered by: Gorenstein, United States Magistrate Judge.

OPINION AND ORDER

Terra Nova Insurance Company Limited ("Terra Nova") seeks an order compelling disclosure of certain documents that Bank of America, N.A. (the "Bank") has withheld from discovery as privileged. For the reasons stated below, the motion is granted.

BACKGROUND

The 1999 Reinsurance Contracts and Letter of Credit Agreements

In 1999, Palladium Insurance Limited and some of its affiliates, including Platinum Indemnity Limited, (collectively, "Palladium") entered into a series of weather derivative contracts with various third parties under which Palladium accepted certain weather related risks at locations throughout the United States. In connection with these contracts, the Bank entered into letter of credit agreements with Palladium pursuant to which the Bank extended letters of credit for Palladium's account.

In the letter of credit transactions between the Bank and Palladium, the Bank was represented by the law firm of Winston & Strawn. Palladium was represented by the firm of Conyers, Dill & Pearman. Pursuant to the letter of credit agreements, the Bank issued letters of credit for Palladium's account. Also pursuant to these agreements, Palladium purported to procure reinsurance policies from Terra Nova and other insurance companies in order to provide security for the Bank's potential obligations on draws that might occur under the letters of credit. Under these reinsurance policies, Terra Nova and the other companies had to indemnify the Bank and Palladium for any payments they were required to make in connection with the underlying weather derivative contracts.

Ultimately, payments were required to be made to the third parties under the weather derivative contracts and thus under the reinsurance policies as well. The dispute in these cases centers on the authority of the individual who allegedly acted as the agent of Terra Nova (and the other insurance companies) in issuing the reinsurance policies: Harold Mollin of the Customized Worldwide Weather Insurance Agency, Inc. Terra Nova alleges that Mollin acted without authority in purporting to bind Terra Nova to the reinsurance policies and that the policies are therefore invalid. The Bank asserts that the insurance policies are binding. Mollin has since fled the country.

The Subpoenas At Issue

On March 17, 2002, Terra Nova served Loren Weil of Winston & Strawn, the Bank's counsel in its dealings with Palladium, with a subpoena duces tecum requiring him to testify and produce documents concerning the 1999 letter of credit agreements between the Bank and Palladium. In response, the Bank provided Terra Nova with documents to which it has asserted no privilege and also provided Terra Nova with a privilege log identifying a number of communications between Well and Palladium in 1999 that the Bank claims to be privileged under the "common interest" doctrine. See Privilege Log, reproduced as Exhibit B to Letter from John M. Aerni, dated May 17, 2002 ("May 17 Letter"), at 1. Terra Nova seeks to compel production of these documents (hereinafter, the "Disputed Documents") on the ground that the relationship between Weil and Palladium was not one of attorney and client but merely "debtor and creditor" and that therefore the common interest doctrine does not apply.

DISCUSSION

Applicable Choice of Law

At the outset, the parties disagree as to which law of privilege applies to this case. The Bank claims that the Court should apply the federal law of privilege, while General Star Indemnity Company ("General Star") — an insurance company in a related case that seeks similar documents from the Bank — argues that New York law should apply. Rule 501 of the Federal Rules of Evidence provides that although federal common law generally governs federal court proceedings, "in civil actions and proceedings, with respect to an element of a claim or defense as to which State law supplies the rule of decision, the privilege . . . shall be determined in accordance with State law."

The Bank argues that because subject matter jurisdiction is based on the Edge Act, 12 U.S.C. § 632, the federal law of privilege applies. General Star argues that while the Edge Act provides federal jurisdiction for claims involving international or foreign banking, it does not provide a rule of decision but merely acts as a "pass-through to state law principles." Lloyds Bank PLC v. Republic of Ecuador, 1998 WL 118170, at *6 (S.D.N.Y. March 16, 1998) (citing Pescatore v. Pan Am. World Airways, Inc., 97 F.3d 1, 12 (2d Cir. 1996)); see also A.I. Trade Finance, Inc. v. Petra Int'l Banking Corp., 62 F.3d 1454 (D.C.Cir. 1995) (applying District of Columbia's choice of law rules in action arising under the Edge Act). Thus, General Star argues that the Edge Act, for purposes of privilege law, is the equivalent of diversity jurisdiction under 28 U.S.C. § 1332 because it merely offers access to the federal courts without providing the substantive law for disposition of the claims.

The Court need not reach this issue because, as described below, the result is the same under either body of law. Indeed, "New York law governing the attorney-client privilege is generally similar to accepted federal doctrine." Bowne of New York City, Inc. v. AmBase Corp., 150 F.R.D. 465, 470 (S.D.N.Y. 1993); accord Josephson v. Marshall, 2001 WL 815517, at *2 (S.D.N.Y. July 19, 2001). Because federal case law is much more comprehensive with respect to the particular issue raised by the parties — the application ...


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