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Us Bank National Association, A National Association As Securities Intermediary For Lima Acquisition Lp v. Phl Variable Insurance Company

November 5, 2012


The opinion of the court was delivered by: James C. Francis IV United States Magistrate Judge


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 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.


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," 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).*fn1 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 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.


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 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 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 ...

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