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You are here: Home / Archives for Week's Best Posts

Week's Best Posts

Third Circuit Vacates and Remands Order Quashing Subpoena of Documents for Use in Litigation in Germany

August 28, 2018 by Rob DiUbaldo

The Third Circuit has vacated and remanded a district court’s decision quashing a subpoena issued pursuant to 28 U.S.C. § 1782, which allows a party to procure discovery for us in a foreign proceeding, finding that the district court had misunderstood certain facts and not given adequate consideration to others.

The discovery in question was sought in connection with a trade-secret dispute being litigated in a German court between Biomet, Inc. and Heraeus Kulzer GmbH. Biomet initiated a section 1782 action in the Eastern District of Pennsylvania to subpoena the production of all documents produced in a prior, related matter that were in the possession of two law firms (neither representing Biomet or Heraeus) in Philadelphia. Section 1782 provides in part that “[t]he district court of the district in which a person resides or is found may order him to . . . to produce a document or other thing for us in a proceeding in a foreign or intentional tribunal, including criminal investigations conducted before formal accusation.” Heraeus objected to the discovery request, arguing that the subpoena did not comply with section 1782, as interpreted by the Supreme Court in Intel Corp. v. Advanced Micro Devices. The district court quashed the subpoena.

On appeal, the Third Circuit found that the subpoena did comply with the statute, rejecting an argument that section 1782 did not apply to these documents because they were held by law firms rather than Heraeus, which was the real party in interest, as the plain language of the statute did not require the court “to consider a principal-agent relationship, or whether the documents being held by the subpoenaed party belong to a foreign party.” The court then looked at the Intel factors and found that the district court’s consideration of these factors was “cursory and conclusory” and “relied upon an incomplete understanding of the pertinent facts surrounding the German proceeding.” Specifically, the Third Circuit found that the district court erred in finding that Biomet had delayed in requesting the documents, incorrectly placed the burden on Biomet to show that the German court would be receptive to this discovery, and erred by flatly rejecting the discovery based on concerns regarding the disclosure of proprietary information without requiring the parties to negotiate regarding the scope of the discovery or the entry of an appropriate protective order. The Third Circuit thus remanded the matter to the district court for reconsideration, while particularly stating that “it will be within the District Court’s discretion to grant or deny the motion to quash the subpoena.

In re Biomet Orthopaedics Switzerland GmbH Under 28 U.S.C. § 1782 for Order to Take Discovery for Use in Foreign Proceeding, No. 17-3787 (3d Cir. Aug. 6, 2018).

This post written by Jason Brost.

See our disclaimer.

Filed Under: Discovery, Week's Best Posts

An Update on the Implementation of the US-EU Covered Agreement

August 27, 2018 by Rob DiUbaldo

We have previously reported on the NAIC’s strategy of assisting the states in the implementation of the Covered Agreement through revisions to the Credit for Reinsurance Model Law and the Credit for Reinsurance Model Regulation (“the Models”). The Reinsurance Task Force of the Financial (E) Committee exposed drafts of proposed revisions to the Models on June 21. By the NAIC’s Summer National Meeting in Boston early this month, the Reinsurance Task Force had received eighteen comment letters on the exposure drafts from regulators, trade associations, insurance/reinsurance companies, and other interested parties. The meeting package for the Task Force’s August meeting included pertinent written materials. The Task Force heard limited oral statements at its meeting and proceeded to move the Model exposure drafts to the next step. According to the summary of this meeting, revised exposure drafts are anticipated in mid-September, with another comment period, followed by possible final consideration at the NAIC’s Fall National Meeting in November of this year.

The written comments did not contain significant opposition to the Model revisions, but did contain some constructive suggestions for changes to the exposure drafts at both conceptual and detailed wording levels. The major themes of the written comments include:

  1. Desire for uniformity – Perhaps the most widely voiced comment was a desire for uniformity in the implementation of the Covered Agreement. This principle found expression in three topics:
    • Primacy of the Model Law – Several commentators suggested that significant substantive requirements be contained in the Model Law rather than in the Model Regulation, in order to foster a greater likelihood that the overall requirements would remain uniform, with minimal substantive variation from state to state.
    • Regulatory discretion – Several commentators suggested that although it is customary to reserve discretion to individual state insurance commissioners to make customizations or other changes to a model, that such individual discretion is not desirable in situations, such as this, in which uniformity of treatment is an important goal. In particular, comments called out the discretion of individual state commissioners to impose additional requirements for states to qualify as Reciprocal Jurisdictions, and discretion in determining certain requirements for non-EU reinsurers.
    • Certified Reinsurers – One commentator implicitly questioned the future utility of the Certified Reinsurer status, and the potential interplay between that concept and the new Reciprocal Jurisdiction concept. If there is a lack of uniformity in this area, such differences might have a significant impact on the broader reinsurance market.
  2. Equal treatment – Concern was voiced that there should be equal treatment for EU and non-EU domiciled reinsurers, including US domiciled reinsurers. Some commenters suggested that the current exposure drafts would permit different treatment for reinsurers with different domiciles. One commentator suggested recognizing as a Reciprocal Jurisdiction U.S. states that meet certain NAIC accreditation requirements.
  3. Solvency – The exposure drafts provide authority for state commissioners to deal with additional collateral issues with respect to reinsurers subject to rehabilitation or liquidation proceedings. A number of comments suggested that, when applicable, such considerations should be exercised by the appropriate rehabilitation or insolvency proceeding court instead of a state commissioner.
  4. Effective date – Several commentators noted ambiguity in the effective date provisions of the revised Models and a desire to coordinate the effective date of the Model revisions with the effective date of the Covered Agreement’s reinsurance collateral provisions.

Perhaps the most interesting issue in discussion is whether and the extent to which to permit individual state insurance commissioners discretion in the implementation of the revised Models, in particular in determining the requirements for finding a particular jurisdiction to be a Reciprocal Jurisdiction. While it is customary, given the state-based system of insurance regulation, to afford individual state commissioners discretion in the implementation of Model Laws and Model Regulations, there appears to be a strong desire, if not a need, for more strict uniformity in the implementation of the Covered Agreement, and in the regulation of reinsurance activity throughout the broader market. It will be interesting to see how these somewhat competing interests are resolved.

Overall, it appears that this process is “on track” compared to the expectations of the NAIC stated earlier this year, with very good consensus emerging as to not only the broad lines of the amendments to the Models, but also of the wording of such amendments.

This post written by Rollie Goss.
See our disclaimer.

Filed Under: Accounting for Reinsurance, Reinsurance Regulation, Week's Best Posts

Minority Shareholders Utilize 28 USC § 1782 to Issue Subpoenas in Aid of Criminal Action They Plan to File Against Company Director in Luxembourg

August 21, 2018 by Michael Wolgin

A group of minority shareholders of Acheron Portfolio Corporation Luxembourg S.A. have convinced a federal district court in New York to permit them to subpoena several large banks for documents in aid of the shareholders’ plan to file a criminal action in Luxembourg against the director of Acheron, Jean-Michel Paul. The shareholders allege that Paul improperly failed to disclose his ownership interest in Litai, a company that Acheron hired to administer life insurance policies in which Acheron had invested. The petitioners assert Paul’s ownership interest in Litai created a conflict of interest with his position at Acheron.

The petitioners applied to the court under 28 U.S.C. § 1782 for permission to issue the subpoenas. Section 1782 serves two purposes: “providing efficient means of assistance to participants in international litigation in our federal courts and encouraging foreign countries by example to provide similar means of assistance to our courts.” There are three statutory prerequisites to obtaining relief under section 1782. “First, the person from whom discovery is sought must reside or be found in the district of the district court where the application is made; second, the discovery must be for use in a proceeding before a foreign tribunal; and third, the application must be made by the foreign tribunal or “any interested person.”

Once the statutory requirements are met, the district court has “wide discretion” whether to issue the discovery orders. Generally, the court should consider four discretionary factors: (1) whether the documents are within the foreign tribunal’s jurisdictional reach, (2) the nature of the foreign tribunal, the character of the proceedings underway abroad, and the receptivity of the foreign government or court abroad to U.S. federal court assistance, (3) whether the section 1782 request conceals an attempt to circumvent foreign proof-gathering restrictions or other policies of a foreign country or the United States, and (4) whether the subpoena contains “unduly intrusive or burdensome requests.”

Here, the shareholders overcame the fact that no action was pending by submitting a sworn statement that they “intend to file a criminal complaint against Paul in the Luxembourg Criminal Court and have articulated a specific legal theory on which they intend to rely.” Paul and Litai argued that it was “clear” that the shareholders had no “basis for bringing a criminal complaint in a Luxembourg court and therefore this application is simply a fishing expedition.” The court, however, determined that it was not tasked with considering the merits of the foreign proceeding when presented with an application under section 1782. Although it acknowledged that Paul and Litai “may be right” that the shareholders would ultimately fail, it nevertheless granted their request to issue the subpoenas to the banks. In re Application of Furstenberg Finance SAS, No. 18-mc-44 (USDC S.D.N.Y. July 12, 2018) (Memorandum Opinion & Order) & (Final Order)

This post written by Benjamin E. Stearns.

See our disclaimer.

Filed Under: Discovery, Week's Best Posts

Court Enforces Forum Selection And Choice Of Law Clauses In Worker’s Compensation Reinsurance Participation Agreement

August 20, 2018 by Michael Wolgin

Plaintiff AGL Industries, Inc. (AGL), a steel fabrication and erection business, enrolled in a workers’ compensation insurance policy with Defendant Continental Indemnity Company and a reinsurance participation agreement (RPA) with Defendant Applied Underwriters Captive Risk Assurance Company, Inc. After Continental canceled the workers’ compensation insurance policy, AGL sued in New York for breach of contract and related claims and obtained emergency injunctive relief. Defendants then removed the case to federal court, which then granted a motion by Defendants to transfer venue to Nebraska based on the RPA’s forum selection and choice of law clauses. The federal court rejected AGL’s argument that the RPA was void ab initio because it was “an illegal workers’ compensation policy” in violation of New York insurance law. The court found that AGL did not assert that the forum selection clause was the result of fraud or misrepresentation, and therefore, at worst, the clause was severable from the RPA. Moreover, the Court found unpersuasive AGL’s sole argument against enforcing the forum selection clause that transferring the action to Nebraska would violate New York’s public policy in favor of “granting insureds access to the courts of the State of New York for all disputes regarding policies written in and for residents of the State [of New York].” AGL Industries Inc. v. Continental Indemnity Co., Case No. 17-4179 (USDC E.D.N.Y. July 18, 2018).

This post written by Gail Jankowski.

See our disclaimer.

Filed Under: Jurisdiction Issues, Reinsurance Avoidance, Week's Best Posts

Florida Federal Court Dismisses Reinsurer’s Agent From Breach of Contract Lawsuit

August 14, 2018 by John Pitblado

In this case, the ceding company, VIP Universal Medical Insurance Group Ltd. (“VIP”), brought an action in Florida federal court against its reinsurer, BF&M Life Insurance Company Ltd. (“BF&M”), and International Reinsurance Managers LLC (“IRM”), BF&M’s agent, alleging breach of a reinsurance contract, in which BF&M reinsured VIP for medical claims in excess of $200,000. It was alleged that BF&M refused to pay a claim for $139,000 and that IRM had “directed the non-payment” of such claim. IRM moved to dismiss, arguing that it cannot be held liable for breach of contract, where it is not party to a contract.

The Florida federal court agreed with IRM, noting that under Florida law, “an agent for a disclosed insurer is not liable to the insured on the insurance contract.” The court noted that even taking the allegations — that IRM acted as agent and “directed” the non-payment of the claim — as true, they do not state a claim for breach of contract against IRM. The court then held that IRM, as agent to the reinsurer, was not a proper party in VIP’s breach of contract claim because IRM was not a party to the reinsurance contract at issue. Thus, IRM’s motion to dismiss was granted.

VIP Universal Medical Insurance Group Ltd. v. BF&M Life Insurance Company Ltd., et al., No. 17-24633 (USDC S.D. Fla. July 18, 2018).

This post written by Jeanne Kohler.

See our disclaimer.

Filed Under: Brokers / Underwriters, Contract Interpretation, Week's Best Posts

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