MBIA Insurance Corporation v. Patriarch Partners VIII, LLC et al, No. 1:2009cv03255 - Document 85 (S.D.N.Y. 2012)
Court Description: OPINION: #102247 For the reasons set forth above, Patriarch's motion to compel production of various privileged materials is granted. It Is So Ordered. (Signed by Judge Robert W. Sweet on 8/23/2012) (ama) Modified on 8/27/2012 (jab).
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK - ---- -- --- -- ------ -- X MBIA INSURANCE CORPORATION, Plaintiff, 09 Civ. 3255 OPINION against PATRIARCH PARTNERS VIII, LLC, a Delaware limited liability company, and LD INVESTMENTS, LLC, a Delaware limited liability company, Defendants. ------- -- -- -- -- ---X A P PEA RAN C E S: for Plaintiff BINGHAM MCCUTCHEN LLP 399 Park Avenue New York, NY 10022-4689 By: Jeffrey Q. Smith, Esq. Susan F. DiCicco, Esq. Kevin J. Biron, Esq. Attorneys for Defendants BRUNE & RI CHARD LLP One Battery Park Plaza New York, NY 10004 By: Charles A. Michael, Esq. David Elbaum, Esq. Hillary Richard, Esq. Sweet, D.J. On July 27, 2012, Defendants Patriarch Partners VIII LLC and LD Investments, LLC ("Patriarch" wrote to the Court concerning a discovery dispute. According to Patriarch, Plaintiff MBIA Insurance Corporation ("MBIA") is inappropriately withholding materials in violation of this Court's opinion dated July 3, 2012 (the "July 3 Opinion"), which held that MBIA's attorney-client privilege is waived with respect to testimony of MBIA witnesses as to MBIA's intent concerning provisions of the Master Agreement and the Zohar I Indenture, as amended. MBIA Ins. . v. Pat arch Partners VIII See LLC, No. 09 Civ. 3255, 2012 WL 2568972, at *9 (S.D.N.Y. July 3, 2012). Upon the conclusions set forth below, Patriarch's motion to compel production of privileged documents concerning MBIA's intent and interpretation of the applicable agreements is granted. Prior Proceedings An opinion dated February 6, 2012 addressing the parties' cross-motions for summary judgment sets forth prior proceedings in this action. See MBIA Ins. v. Patriarch --------------~---------------- Partners VIII, LLC, No. 09 Civ. 3255, 2012 WL 382921 (S.D.N.Y. 1 Feb. 6, 2012). assumed. Familiarity with those prior proceedings is The parties have submitted their Joint Pretrial Order, which the Court signed on March 12, 2012. In the July 3 Opinion, this Court decided seven motions in limine that had been submitted in anticipation for trial. Trial is scheduled to begin on October 15, 2012. On July 27, 2012, Patriarch contacted the Court with respect to the present discovery dispute. Patriarch's letter was treated as a motion, which was marked fully submitted on August 22. The Relevant Facts In addition to detailing the prior proceedings, the February 6 opinion provides a detailed factual account of the dispute between MBIA and Patriarch. Accordingly, only a brief recapitulation of the relevant facts will be provided here. This action involves the interplay of several agreements including the Master Agreement, the Zohar I Indenture and the Third Supplemental Indenture. The central triable issues of fact in this action concern the extent of Patriarch's 2 obligations under these agreements, including whether the obtaining of a $750 million collateral balance in a Patriarch CDO called Zohar I was a condition necessary to trigger Patriarch's performance in obtaining ratings on junior notes Zohar I issued called Class B Notes. MBIA has claimed that Pat arch breached the Master Agreement by failing to request that rating agencies rate the Class B Notes. Patriarch has argued that it did not breach the Master Agreement because Patriarch had no obligation to request the ratings until the Zohar I collateral balance reached $750 million, an event that never occurred. Patriarch has supported this contention with language from Section 3.04 of the Master Agreement providing that Patriarch's contribution obligation "shall be subject to the following terms . . the rating of such Transferable Notes is at least 'Baa3' by Moody's and 'BBB-' by Standard & Poor's as contemplated by Section 7.13(b) of the Zohar Indenture." Patriarch contends that this condition, when read in conjunction with Section 7.13 of the Zohar I Indenture, which was amended by the Third Supplemental Indenture, limited Patriarch's obligation to seek a rating until the collateral balance reached $750 million. 3 MBIA is of the view that the Master Agreement and the Third Supplemental Indenture established that Patriarch's obligation to seek the ratings was not conditioned on the collateral balance reaching $750 million. In the briefing pertaining to the parties' cross motions for summary judgment, MBIA supported this contention with affidavits from two fact witnesses - Michael Murtagh ("Murtagh lt ) and Amy Mauer-Litos ("Mauer-Litos") - as well as Robert Chiperfield ("Chiperfield"), who served as MBIA's outside counsel with respect to the negotiation and drafting of the Master Agreement. In the Pretrial Order, MBIA listed these three individuals, along with Ram Wertheim ("Wertheim") who served as MBIA's General Counsel, as potential witnesses. Patriarch's Motion To Compel Production Of Documents Is Granted The July 3 Opinion decided a motion addressing whether MBIA, by of limine ring the testimony of Murtagh, Mauer-Litos, Chiperfield and Wertheim had waived its attorneyclient privilege. The July 3 Opinion surnrnariz the substance of the dispute as follows: The February 6 Opinion concluded that a fact issue for trial concerned the scope of Patriarch's obligations under 4 the Master Agreement and t relationship between the Master Agreement and Section 7.13(b) of the Zohar I Indenture, as amended. In the PTO, MBIA has identi ed four witnesses whose testimony Pat arch anticipates will include extrinsic evidence on these issues. The witnesses MBIA has identified include Robert Chiperfield ("Chiperf ld"), lead transactional counsel who negotiated the relevant documents, Ram Wert im ("Wertheim"), MBIA's General Counsel, and Michael Murtagh ("Murtagh") and Amy Mauer Litos ("Mauer-Litos"), two fact witnesses. Patriarch contends that, in offering this evidence, MBIA has placed its contracting intent and interpretation at issue and waived the attorney-client privilege that may have attached to documents bearing on those issues. MBIA Ins. Co 2012 WL 2568972, at *5. The July 3 Opinion then noted that, because MBIA placed its intent and understanding of the Master Agreement "at issue," it waived its attorney- ient privilege and that, as a matter of fairness, Patriarch is entitled to obtain documents capable of rebutting MBIA's assertions regarding the Master Agreement. Id. at *7 8. MBIA's various other objections concerning the waiver of its attorney-client privilege were found to be without merit. at *9. Id. The July 3 Opinion concluded: MBIA has demonstrated its intention to place the opinion of counsel at issue. In opposing Patriarch's summary judgment motion, MBIA sought to introduce various affidavits re ecting its witnesses' intent and interpretation of the Master Agreement and Indenture. In one of the affidavits MBIA submitt with respect to the summary judgment motion, Mauer-Litos made factual assertions about what "MBIA expected Pat rch" to do pursuant to the Master Agreement, what she "believed" about the relationship between Section 5 7.13(b) the Indenture and the Master Agreement, and what she "intended" when she signed the Third Supplemental Indenture. In another affidavit, Murtagh of red similar factual assertions about his intent and interpretation of the Master Agreement and Thi Supplemental Indenture. Similar to Mauer-Litos and Murtagh, Chiperfield has made I assertions about his "understanding" of t Master Agreement as well as what was "intended" by the rt s in the Agreement. As such, MBIA has placed the opinion of counsel at issue and impliedly waived the attorney-client privilege. Patriarch is ent led to obta all documents that are potentially capable of rebutting MBIA's factual assertions with respect to the Master Agreement ยง 3.04 as contemplated by Section 7.13(b) of the Zohar Indenture and the ird Indenture Section 7.13(b) altering the deadline a er the collateral balance exceeds $750 million. For the reasons expressed above, MBIA has waived the attorney-client vilege with respect to any testimony of MBIA witnesses as to its intent with respect to the provisions of t Master Agreement and the Third Indenture submitted to counter Pat arch's contentions. If no such testimony will be proffered, no waiver will be enforced. Id. at *7-9. In its July 27 letter, Patriarch stated that, following July 3 Opinion, it contacted MBTA's counsel to request production of withheld documents. MBIA responded that it would not be producing any documents because MBIA only ends to proffer testimony from witnesses to counter 6 Patriarch's contention that under the operative agreements, Patriarch had no obligation to seek the ratings until t collateral balance reached $750 million. MBIA represented that it has reviewed all documents previously withheld on the basis of privilege and determined that no such documents related to this limited issue exist. Pat rch objected to MBIA's cision not to produce any documents, prompting MBIA to reiterate its refusal to produce any withheld documents on the ground that none of them specifically concerns (i) the relationship tween Section 7.13(b) of the Indenture and Patriarch's obligation under the Master Agreement to seek the requi relationship, if any, between Pat ratings, (ii) the arch's obligation to seek the ratings and the language in Section 3.04 of the Master Agreement providing that Pat Notes arch's obligation is subject to the Class B ing rated investment grade as contemplated by Section 7.13(b) of the Zohar Indenture or (iii) the effect, if any, of the Third Supplemental Indenture on Patriarch's rating obligation. Patriarch is requesting that the Court compel MBIA to all withheld documents concerning the scone of 7 Patriarch's obligations under the Master Agreement, Section 7.13(b) of the Zohar I Indenture and the Third Supplemental Indenture. According to Patriarch's interpretation of t 3 Opinion, MB July is only excused from producing these mate als in the event that MBIA chooses to present no testimony concerning its intent and interpretation of the agreements. Patriarch contends that MEIA has not made that choice and should be required to produce the requested documents. According to ME the July 3 Opinion provides that if MEIA intends to proffer testimony to rebut Patriarch's contention that Patriarch had no obligation to seek t ratings on the Class B Notes until the collateral required lance reached $750 million, then MEIA must produce any previously withheld privileged documents concerning that issue. MBIA resents that this is the only issue as to which MEIA intends to prof testimony regarding its contracting intent and interpretation and that MBIA has reviewed all documents that it thheld as privileged and determined that none of those documents concern this issue. According to MEIA, the July 3 Opinion held that MEIA has waived attorney-client privilege with respect to the issue of whether the collateral balance reaching $750 Ilion was a condition to Patriarch's obligation and then 8 only to the extent MBIA of rs tr 1 testimony to rebut Patriarch's contentions on that subject. confirmed that Because MBIA has does not intend to proffer any testimony regarding its contracting intent and interpretation except to rebut any extr sic evidence Patriarch may submit in support of its contentions on the issue and that MBIA only intends to prof r such rebuttal testimony from non-lawyer witnesses, MBIA contends that it should be not obligated to produce any privileged materials. As was not in the February 6, 2012 opinion as well as the July 3 Opinion, a central issue for trial is the scope of Pat Ins. arch's obligations under the Master Agreement. See MBIA ., 2012 WL 2568972, at *3 (citing MBIA Ins. Corp., 2012 WL 382921, at *23). Although MBIA contends that the July 3 Opinion addressed the attorney-client privilege issue with respect to only those documents discussing whether Patriarch's obligation to seek a rating was conditioned on the collateral balance reaching $750 million, the passages from the applicable portion of July 3 Opinion quoted above note that the July 3 Opinion was not so narrowly constrained. In addressing the attorney-client privilege issue, the July 3 Opinion recognized ~that a fact issue for tr 1 concerned the scope of Patr 9 rch's obligations under the Master Agreement and the relationship between the Master Agreement and Section 7.13(b) of the Zohar I Indenture, as amended," MBIA Ins. Corp., 2012 WL 2568972, at *5, and the opinion concluded that "MBlA, by placing at issue its contracting intent and interpretation of the Master Agreement, has waived atto client privilege." Id. As such, the degree to which MBIA has waived its attorney-client privi ge is broader than MBlA suggests. Additionally, the question of whether Patriarch had an obligation to seek a rating before the collateral balance reached $750 million relates to the broader question of the overall scope of Patriarch's obli Notes under the agreements at issue. ions concerning the Class B While MBlA has stated that it intends to proffer testimony regarding only its contracting intent and interpretation as to the $750 million trigger, MBlA's argument that Patriarch's rating obligation was not conditioned on the collateral balance reaching $750 million is bas on MBlA's claimed contracting intent and interpretation that Patriarch was obligated under the applicable agreements to seek a rating p or to the Zohar I collateral reaching that level. Fairness requires that MBIA produce any documents that are 10 capable of rebutting MB 's theory as to the scope of Patriarch's obligations under these agreements, irrespective of whether those obligations are directly tied to the $750 million collateral threshold. Accordingly, should MBIA elect to present testimony as to its contracting ent and interpretation of the agreements at issue, Patriarch is entitled to discovery of documents concerning the scope of Patriarch's obligations under Section 3.04 of the Master Agreement and Section 7.13(b) of the Indenture, as amended. Conclusion For t reasons set forth above, Patriarch's motion to compel production of various privileged materials is granted. It is so ordered. New York, NY August 2012 2-3, ROBERT W. SWEET U.S.D.J. 11
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