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Universitas Education, LLC v. Nova Group, Inc.

United States District Court, Second Circuit

July 2, 2013

UNIVERSITAS EDUCATION, LLC, Petitioner,
v.
NOVA GROUP, INC., Respondent. NOVA GROUP, INC., Petitioner,
v.
UNIVERSITAS EDUCATION, LLC, Respondent.

OPINION AND ORDER

HENRY PITMAN, Magistrate Judge.

I. Introduction

These actions arise out of the efforts of Universitas Education, LLC ("Universitas") to confirm a multimillion dollar arbitration award entered in its favor and to collect the resulting judgment entered against Nova Group, Inc. ("Nova Group"). Universitas has undertaken discovery in aid of execution pursuant to Rule 69 of the Federal Rules of Civil Procedure. By notice of motion dated January 25, 2013, non-parties Caldwell Life Strategies Corporation, Caldwell Funding Corporation, Caldwell Life Holdings LLC, Caldwell Life Strategies LLC, Ridgewood Finance II LLC, Ridgewood Finance Inc., Plainfield Asset Management LLC, Max Holmes, Steven Segaloff, Adam Balinsky and Veronica Cranny (collectively, the "Movants") move to quash the subpoenas that Universitas served on them (Docket Item 212).[1]

For the reasons set forth below, the Movants' motion to quash is denied in part and granted in part.

II. Background

The facts underlying the arbitration award are set forth in the Memorandum Order of the Honorable Laura Taylor Swain, United States District Judge, dated June 5, 2012. Universitas Educ., LLC v. Nova Grp., Inc., 11 Civ. 1590 (LTS)(HBP), 2012 WL 2045942 (S.D.N.Y. June 5, 2012).

Nova Group is the trustee, sponsor and fiduciary of Charter Oak Trust Welfare Benefit Plan ("Charter Oak Trust"). Two life insurance policies on Sash A. Spencer's life - totaling approximately $30 million - were placed in the Charter Oak Trust. Universitas is the sole, irrevocable beneficiary of the proceeds in the Charter Oak Trust. After Mr. Spencer's death in 2009, the life insurance carrier paid the insurance proceeds into the Charter Oak Trust. Universitas then commenced an arbitration against Nova Group to determine its entitlement to the insurance proceeds. On January 24, 2011, the arbitrator rendered an award in favor of Universitas.

On June 5, 2012, Judge Swain confirmed the arbitration award in favor of Universitas. Universitas Educ., LLC v. Nova Grp., Inc., supra, 2012 WL 2045942. Judgment against Nova Group was entered in the amount of $30, 181, 880.30 on June 7, 2012 (Docket Item 41).

For reasons it has never explained, Nova Group has refused to pay the judgment despite the fact that it had received the proceeds of the policies. In an effort to locate these insurance proceeds, Universitas served subpoenas duces tecum on non-parties Caldwell Life Strategies Corporation, Caldwell Funding Corporation, Caldwell Life Holdings LLC, Caldwell Life Strategies LLC (collectively, "Caldwell"), Ridgewood Finance II LLC, Ridgewood Finance Inc. (collectively, "Ridgewood") and Plainfield Asset Management LLC ("Plainfield"), and subpoenas ad testificandum on non-party individuals Max Holmes, Steven Segaloff, Adam Balinsky and Veronica Cranny (collectively, the "Individuals") (Affirmation of Stephen T. Heiser, Esq., dated January 25, 2013 (Docket Item 215) ("Heiser Aff.") Exs. 1-11).

On or about December 31, 2011, Caldwell Life Strategies Corporation sold all of its assets to an unaffiliated company. It currently does not have any employees. Caldwell Funding Corporation, Caldwell Life Holdings LLC, Caldwell Life Strategies LLC, Ridgewood Finance II LLC and Ridgewood Finance Inc. either no longer exist or were fully merged with Caldwell Life Strategies Corporation. According to the Movants, Caldwell Life Strategies Corporation is the only appropriate party upon which a subpoena can be served.

Adam Balinsky was Senior Vice President of Business Development and In-House Counsel for Caldwell Life Strategies Corporation from September 2007 through December 2008, and was President of Caldwell Life Strategies Corporation from January 2009 through April 2012. Mr. Balinsky is no longer employed by Caldwell. Veronica Cranny was Chief Compliance Officer of Caldwell Life Strategies Corporation from October 2006 through April 2012, and she too is no longer employed by Caldwell.

Plainfield Asset Management LLC is in the process of winding down its operations and liquidating its investments. According to the Movants, Plainfield does not have a direct or indirect ownership interest in the Caldwell-related entities or the Ridgewood-related entities; rather, it is the asset manager of another entity that owns Caldwell Life Strategies Corporation. Max Holmes is the Founder and Chief Investment Officer of Plainfield, and was never employed by Caldwell. Steven Segaloff was Deputy General Counsel of Plainfield, and was never employed by Caldwell.

Ridgewood Finance Inc., Grist Mill Capital, LLC ("Grist Mill") and Avon Capital, LLC ("Avon Capital") entered into an agreement under which Ridgewood Finance Inc. provided financing to Grist Mill Capital and Avon Capital for the premium payments and expenses of life insurance policies held by the Charter Oak Trust and Avon Insurance Trust, including the two insurance policies that were the subject of the underlying arbitration (Declaration of Michael Barnett, Esq. in Support of Universitas' Opposition to the January 25 Motion to Quash Subpoenas (Docket Item 221) ("Barnett Decl.") Ex. F (the "Credit Agreement")). Grist Mill, Avon Capital, Charter Oak Trust and Avon Insurance Trust are entities that are closely related to Nova Group. As collateral for this loan, Ridgewood Finance Inc. took a security interest in the life insurance policies held by Charter Oak Trust and Avon Insurance Trust.

On or about May 26, 2009, Grist Mill paid Ridgewood a sum of money in connection with the two insurance policies that were the subject of the underlying arbitration. The record does not disclose what motivated Grist Mill to make this payment or what, if anything, Grist Mill received in return for this payment. In any event, Universitas does not appear to suggest that this payment was improper. On March 21, 2010 and July 27, 2010, Ridgewood Finance II LLC (the successor in interest to Ridgewood Finance Inc.) sent notices of default to the attention of Grist Mill, Benistar, [2] Avon Capital, Nova Group and Halloran & Sage LLP[3] (Barnett Decl. Ex. D). On or about September 30, 2010, Grist Mill, Avon Capital, Charter Oak Trust and Avon Insurance Trust entered into a settlement agreement with Ridgewood Finance II LLC (Barnett Decl. Ex. C). Pursuant to this agreement, Grist Mill and Avon Capital transferred to Ridgewood Finance II LLC certain life insurance policies (Barnett Decl. Ex. C). Because the policies that were the subject of the underlying arbitration were paid out in 2009, they were not included among the policies that were transferred as part of the settlement agreement.

Given Ridgewood's role as a lender to entities closely associated with Nova Group and its role in funding the premium payments for insurance policies held by the Charter Oak Trust, Universitas served identical subpoenas for documents on Ridgewood, Caldwell and Plainfield and served subpoenas for depositions on the Individuals.

In response to Universitas' subpoenas, Ridgewood, Caldwell and Plainfield produced: (1) the February 2007 Credit Agreement and its closing binder which includes related transaction documents, legal opinions, lien documents, certificates and organizational documents; (2) documents reflecting the May 2009 payment from Grist Mill to Ridgewood concerning the insurance policies that were the subject of the underlying arbitration; (3) the notices of default; (4) the September 30, 2010 settlement agreement and documents demonstrating that no money was exchanged in connection with that agreement; (5) documents sufficient to show all payments made by Nova Group and its related entities to Ridgewood after May 1, 2009; (6) documents sufficient to show payments Ridgewood made in connection with the insurance policies underlying the Credit Agreement between January 30, 2007 and December 30, 2011; (7) documents reflecting the involvement of certain individuals related to Nova Group under the Credit Agreement and (8) documents reflecting all known bank accounts associated with the Movants and Nova Group and entities affiliated with it (Memorandum of Law in Support of Motion to Quash Subpoenas (Docket Item 216) ("Movants' Mem.") at 4-5). The Movants also provided Universitas with "several charts and explanations... to further explain everything in a clear and straightforward manner" (Movants' Mem. at 5). As detailed below, Universitas maintains that this production is not sufficient and that the Movants have failed to produce certain categories of documents that were requested in its subpoenas.

The Movants also asked that Universitas withdraw the subpoenas issued to the Individuals. In exchange, the Movants offered to submit an affidavit concerning the documents produced (Heiser Aff. ¶ 28). They also offered Universitas the opportunity to have an "off the record" conversation with a representative of the Movants (Heiser Aff. ¶ 30). Universitas has not accepted either of these alternatives and has not withdrawn the subpoenas (Heiser Aff. ¶ 35).

Ultimately, the Movants and Universitas were unable to informally resolve their disputes, and ...


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