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Ambac Financial Services, LLC v. Bay Area Toll Authority

November 30, 2010

AMBAC FINANCIAL SERVICES, LLC, PLAINTIFF,
v.
BAY AREA TOLL AUTHORITY, AND ORDER DEFENDANT.



The opinion of the court was delivered by: Richard J. Holwell, District Judge:

MEMORANDUM OPINION

On August 5, 2010, Magistrate Judge Ronald L. Ellis issued a Memorandum and Order (the "Order") holding that Wisconsin privilege law applied to certain documents requested by defendant Bay Area Toll Authority ("BATA") and that plaintiff Ambac Financial Services ("AFS") had not waived the applicable privilege. BATA timely filed objections to the Order in this Court on August 18, 2010, asserting that (1) New York privilege law should have applied and (2) even assuming Wisconsin law applied, AFS had failed to carry its burden of demonstrating that the communications sought fell within the applicable privilege. For the reasons that follow, Judge Ellis's Order is AFFIRMED.

BACKGROUND

I.Substantive Claims

The First Amended Complaint (the "Complaint") alleges a single claim for breach of contract stemming from an interest-rate-swap agreement (the "Agreement") between AFS and BATA. (Compl. ¶¶ 1, 21-24.) Under the Agreement, one of the parties was obligated to pay a lump sum upon early termination of the Agreement. The lump sum was to be calculated by the "Market Quotation" method, but if that quote was not obtained in good faith, the "Loss" method would be used. (Id. ¶ 12.) On July 22, 2009, BATA terminated the Agreement early. (Id. ¶ 13.) The next day, BATA determined that the proper amount to send to AFS was $104,579,900 using the Market Quotation method. (Id. ¶ 14.) The complaint alleges that this quotation was not obtained in good faith, and that the proper amount was to be calculated in accordance with the Loss method, resulting in an owed amount of $156,622,354. (Id. ¶¶ 15-17.) The single claim for relief seeks damages in excess of $50,000,000, the difference between the two amounts. (Id. ¶ 24.)

II.The Discovery Dispute

The instant dispute stems from BATA's Second Request for the Production of Documents (the "Request"), dated April 7, 2010. (Sills Decl. Ex. C.) The Request seeks various communications between AFS or its affiliates and Wisconsin's Office of the Commissioner of Insurance ("OCI"), including communications concerning (1) the value or method of valuation regarding any derivatives transactions to which AFS or its affiliates were a party; (2) any amounts due or paid to AFS or its affiliates in connection with derivatives transactions; (3) this action; and (4) AFS's "financial condition or the financial condition of [AFS's] affiliates." (Id.) The Request followed press reports that OCI was engaged in extensive regulatory supervision over Ambac Assurance Corporation ("Ambac"), AFS's Wisconsin-incorporated parent. (See Def.'s Objections at 2.) OCI engaged in this supervision because Ambac's business was experiencing significant actual and anticipated losses. In the course of its regulatory activities, OCI approved the creation of a segregated account for Ambac's most troubled financial guaranty insurance policies and successfully petitioned for an order directing the rehabilitation of the segregated account under Wisconsin state law in Wisconsin state court. (Affidavit of Kimberly A. Shaul dated August 2, 2010 ("First Shaul Affidavit") ¶ 5.)

On June 14, 2010, AFS informed OCI of the Request. (Id. ¶ 8.) Shortly afterwards, OCI informed Ambac and AFS that it believed that the requested communications were subject to OCI's privilege under Wis. Stat. § 601.465, which provides, in relevant part:

The office may refuse to disclose and may prevent any other person from disclosing any of the following:

(a) Testimony, reports, records and information that are obtained, produced or created in the course of an inquiry under § 601.42.

(b) Except as provided in § 601.44(6) to (10), testimony, reports, records and information that are obtained, produced or created in the course of an examination under § 601.43.

Wis. Stat. § 601.465; (see also First Shaul Affidavit ¶ 9.) OCI instructed Ambac and its affiliated entities not to disclose the requested communications via letter on June 29, 2010. (First Shaul Affidavit ¶ 9.)

On July 15, 2010, BATA requested a conference with Judge Ellis concerning an anticipated motion to compel AFS to produce documents responsive to the Request. (See Sills Decl. Ex. K.) On July 23, 2010, AFS and OCI submitted letters asserting that BATA was not entitled to the requested discovery. (See Sills Decl. Exs. L-M.) BATA replied to AFS and OCI's letters on August 2, 2010. (Sills Decl. Ex. N.) Judge Ellis's Order, dated August 5, 2010, held that Wisconsin privilege law applied to the documents requested by BATA and that AFS had not waived ...


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