United States District Court, S.D. New York
U.S. BANK NATIONAL ASSOCIATION, Plaintiff,
TRIAXX ASSET MANAGEMENT LLC, et al., Defendants.
BARBARA MOSES, United States Magistrate Judge.
letter-motion dated September 23, 2019 (Trustee Ltr.) (Dkt.
No. 274), plaintiff U.S. Bank National Association, in its
capacity as trustee (Trustee) of the three collateralized
debt obligations at issue in this action (the Triaxx CDOs),
requests an order compelling defendants Triaxx Asset
Management LLC (TAM), the CDOs' Collateral Manager, and
Phoenix Real Estate Solutions, Ltd. (Phoenix), which was
retained by the Collateral Manager as an adviser and
consultant to the CDOs (collectively the TAM Parties), to
produce documents and communications showing the compensation
of the TAM Parties' partners, owners, officers, and
directors (including Nicholas Calamari and Vishal Garg), as
well as the partners, owners, officers and directors of 1/0
Capital, LLC (1/0 Capital). Trustee Ltr. at 1. Defendants
Pacific Investment Management Company (PIMCO) and Goldman
Sachs & Co., which hold notes issued by the CDOs (the
Noteholders), join in the request. Id.
the issues in this action is the propriety of various fee
payments directed to Phoenix by TAM, some of which TAM
characterized as "Administrative Expenses," to be
paid by the Trustee before distributing any CDO proceeds to
the Noteholders pursuant to the CDOs' priority of payment
waterfall (the Waterfall), and some of which it allegedly
paid outside of the Waterfall entirely - without notice to
the Trustee - directly from funds that were recovered through
litigation against originators, sponsors, trustees, and
servicers of the residential mortgage backed securities
(RMBS) held by the Triaxx CDOs and/or the mortgages
underlying the RMBS, and which were never deposited in the
CDO accounts controlled by the Trustee. See Third
Amended Interpleader Complaint (TAC) (Dkt. No. 203)
¶¶ 1-11, 48-61. The Trustee alleges that these
arrangements violated the indentures and other documents
governing the Triaxx CDOs (the Governing Documents), as well
as the Uniform Commerical Code. Id. ¶¶
argues that the compensation-related discovery it seeks is
relevant to its allegations that both TAM and Phoenix are
indirectly owned and controlled (through 1/0 Capital) by
Calamari and Garg, TAC ¶¶ 86-88, such that the
disputed payments "benefit both Garg and Calamari."
TAC ¶ 89. According to the Trustee, this
"significant conflict of interest," Trustee Ltr. at
2, helps explain why TAM failed to deliver the litigation
proceeds to the Trustee to distribute through the Waterfall
and instead "improperly enriched Phoenix at the expense
of the CDOs and the Secured Parties," including the
Noteholders. Id. ¶ 85. The Trustee further
contends that it needs compensation information to
"demonstrate" the alleged conflict of interest by
showing that Garg and Calamari personally benefited from the
challenged transactions. Trustee Ltr. at 3.
letter dated September 26, 2019 (TAM Ltr.) (Dkt. No. 276),
the TAM Parties object to the requested discovery, arguing
that the Governing Documents acknowledge that the Collateral
Manager may have conflicts of interest, and therefore the
Trustee's allegations are "wholly gratuitous"
and have "no bearing on any claim or defense in this
case." TAM Ltr. at 2-3.
the alleged conflict were relevant, the TAM Parties argue,
they have already produced (or agreed to produce) documents
sufficient to litigate that issue, including the actual
payments to Phoenix, as well as documents showing the TAM
Parties' annual revenues and profits, "and the
percentage that come from work on behalf of the CDOs."
Id. at 2. Moreover, according to the TAM Parties,
discovery into the personal compensation of non-parties such
as Garg and Calamari would be unduly invasive, and thus
disproportionate to the needs of the case, particularly since
it would have "limited probative value."
Id. at 3.
the broad scope of discovery permitted pursuant to
Fed.R.Civ.P. 26(b)(1), the Court is not prepared, at this
juncture, to prohibit inquiry into facts that have been
alleged by the Trustee and/or the Noteholders and denied
(either outright or for lack of sufficient knowledge or
information) by the TAM Parties, thus putting them
presumptively at issue in this action. Compare,
e.g., TAC ¶ 89 ("The Collateral Manager,
1/0 Capital, and the Phoenix Entities share the same office
address, the same floor, and the same conference rooms, and
payments to the Phoenix Entities benefit both Garg and
Calamari.") with TAM Ans. (Dkt. No. 211),
¶ 89 ("Triaxx admits that TAM's offices are
located in this district, and otherwise denies knowledge or
information sufficient to form a belief as to the truth of
the allegations in paragraph 89.").
while the Court is sensitive to the privacy isues raised by
the TAM Parties, their concerns are somewhat overstated (and
the cases they cite are largely inappoposite), because the
only "personal financial information" sought by the
Trustee is information concerning the compensation of the TAM
Parties' principals by the TAM Parties themselves.
Cf. Solow v. Conseco, Inc., 2008 WL 190340,
at *4 (S.D.N.Y. Jan. 18, 2008) (quashing subpoena for
information concerning non-party Macklowe's overall
"financial condition" because "Conseco's
knowledge of Plaintiff's and Macklowe's relative
financial wherewithal at the time of the auction" was
relevant to the parties' claims and defenses, but
"Macklowe's actual financial situation" was
not); Arias-Zeballos v. Tan, 2007 WL 210112, at *2
(S.D.N.Y. Jan. 25, 2007) (quashing subpoena seeking financial
records concerning defendant's purchase of an apartment
after court struck the underlying allegations from the
plaintiff's complaint); Davis v. Ross, 107
F.R.D. 326, 327 (S.D.N.Y. 1985) (denying defamation
plaintiff's request for discovery into the "net
worth and annual income" of defendant Diana Ross
because, under New York law, such discovery "will become
necessary only in the event plaintiff obtains . . . a special
verdict" entitling her to punitive damages); Taylor
v. Metro. Transportation Auth., 2019 WL 2766502, at *3
(S.D.N.Y. July 2, 2019) (denying defendant's request, in
employment discrimination case, for all of plaintiff's
"personnel records from her other places of
employment," where there were less intrusive ways to
verify her past employment history).
said, the Trustee's request for information concerning
the compensation of all of the "partners, owners,
officers, and directors" of TAM, Phoenix, its
affiliates, and 1/0 Capital, see Trustee Ltr. at 1,
is overbroad. Consequently, the Trustee's letter-motion
is GRANTED to the extent that TAM and Phoenix must produce
documents sufficient to show all compensation paid or owed to
Calamari and Garg, directly or indirectly, by TAM, Phoenix,
the Phoenix Entities, and/or 1/0 Capital, and otherwise
DENIED. The TAM Parties may designate the compensation
information "confidential" if they believe it
qualifies for such treatment under the parties'
Stipulated Protective Order (Dkt. No. 179). Production is to
be made within 30 days of this Order.
Clerk of Court is respectfully directed to close the motion
at Dkt. No. 274.
 The Trustee also sought to compel the
TAM Parties to produce the Code of Ethics referenced in
TAM's March 12, 2015 and March 30, 2018 Form ADVs.
See Trustee Ltr. at 1, 4. This portion of the
Trustee's letter-motion was granted from the bench on
October 3, ...