Wash. Nat'l Ins. Co. v. Obex Grp. LLC
| Decision Date | 01 May 2020 |
| Docket Number | No. 19-225-cv,August Term, 2019,19-225-cv |
| Citation | 958 F.3d 126 |
| Parties | WASHINGTON NATIONAL INSURANCE COMPANY, Petitioner-Appellee, v. OBEX GROUP LLC, and Randall Katzenstein, Respondents-Appellants. |
| Court | U.S. Court of Appeals — Second Circuit |
Helen B. Kim, Thompson Coburn LLP, Los Angeles, CA, for Respondents-Appellants.
Richard H. Epstein (Joseph L. Buckley and Matthew L. Lippert, on the brief), Sills Cummis & Gross P.C., New York, NY, for Petitioner-Appellee.
Before: Sack and Hall, Circuit Judges, and Rakoff, District Judge.1
In an arbitration to which the petitioner-appellee Washington National Insurance Company was a party, the arbitration panel summoned the respondents-appellants OBEX Group LLC and Randall Katzenstein to testify at a hearing and to bring with them specified documents. The respondents did not appear. The petitioner, invoking the court's diversity jurisdiction, then petitioned the United States District Court for the Southern District of New York to enforce the summonses under section 7.
The respondents moved to dismiss the petition. They argued that the court lacked subject matter jurisdiction because it was required to "look through" the section 7 petition to the parties to the underlying arbitration, which were not diverse. They further argued that even if the court were to look only to the parties to the petition, the court lacked jurisdiction because the petitioner had failed to join a necessary and indispensable party whose joinder would destroy diversity and the petition failed to meet the amount in controversy requirement. The district court disagreed and denied the motion.
The respondents next moved to quash the summonses. They argued that the summonses were invalid under section 7 because they required impermissible pre-hearing discovery and privileged information, and were duplicative, overbroad, and burdensome. The district court again disagreed and denied the motion.
On appeal, the respondents argue that the court erred in denying both motions. For the reasons set forth below, we conclude that the respondents' arguments are without merit. We therefore affirm the judgment of the district court.
The petitioner is Washington National Insurance Company ("WNIC"). In 2013, WNIC and its affiliate, Bankers Conseco Life Insurance Company ("BCLIC," together with WNIC, the "claimants"), sought reinsurance for certain "long term care blocks of business." Claimants' Demand for Arbitration, 11/21/2018, ¶ 10. Several reinsurance companies, including one called Beechwood Re Ltd. ("Beechwood"), were interested in providing the reinsurance.
Beechwood was founded by Murray Huberfeld, Mark Nordlicht, Moshe M. Feuer, Scott Taylor, and David Levy. According to the claimants, Feuer and Taylor had "sterling reputations." Id. ¶ 11. Huberfeld and Nordlicht, however, did not. Huberfeld had a criminal record, and Nordlicht had a reputation for "making speculative investments with unsavory companies." Id. ¶ 8. In addition, Huberfeld and Nordlicht owned and managed Platinum Partners, LP ("Platinum"), an investment fund which, according to the claimants, was known for making "high-risk and speculative investments" with "disreputable principals and companies," id. ¶ 2, and generally shunned by institutional investors like WNIC and BCLIC.
Further, according to the Claimants' Demand for Arbitration, Feuer and Taylor, in their discussions with the claimants about a potential reinsurance agreement, represented that they and Levy alone owned Beechwood. They did not disclose that Beechwood was in fact largely capitalized by Nordlicht. Nor, according to the claimants, did they disclose Beechwood's ties to Platinum, Huberfeld, or Nordlicht.
In February 2014, WNIC and BCLIC selected Beechwood to provide the reinsurance based on the "sterling reputations" of Feuer and Taylor and their representations that Beechwood would "expertly administer policy claims and prudently invest trust assets." Id. ¶ 11. Once the reinsurance agreement was finalized, however, Huberfeld and Nordlicht allegedly took "control of [the] reinsurance trust fund assets," id. ¶ 5, and used them as "Platinum's piggybank," id. ¶ 21. The claimants state that they were unaware of this arrangement until the summer of 2016, when it was reported in The Wall Street Journal .
Following the Journal and other publications' reports of Beechwood's ties to Platinum, the claimants began their own audit and investigation. According to the claimants, the investigation revealed, among other things, that Beechwood had "engaged in a continuous stream of misrepresentations ... concerning Beechwood's ownership structure, the nature and value of assets in the trusts, [and] Beechwood's relationship with Platinum," id. ¶ 35, to trick the claimants "into indirectly investing with Platinum," id. ¶ 42.
The claimants brought an arbitration claim against Beechwood alleging fraud and seeking approximately $134 million in damages. During the arbitration, the claimants sought documents and testimony from one of Platinum's broker-dealers, OBEX Securities LLC, and Randall Katzenstein, the president and chief executive of OBEX Group LLC, the parent company of OBEX Securities LLC. Katzenstein and OBEX Group LLC (together, the "respondents") are the respondents in this action.
The arbitration panel issued subpoenas duces tecum to the respondents on February 22, 2018, requiring them to appear as witnesses at a hearing on March 26, 2018, and to bring with them documents identified in the instructions appended to the subpoenas. The respondents filed objections to the subpoenas on March 14, 2018.
The following week, the claimants and respondents agreed to narrow a set of search terms that the respondents would use to locate the subpoenaed documents. While so doing, the claimants reserved their right to "come back to [the respondents]" if the terms did not "yield the appropriate responsive documents," Email message from Richard Epstein to Helen Kim, March 19, 2018, Joint App'x at 288, and the respondents made clear that they were not waiving any of their objections to the subpoenas. In addition, the claimants requested that the respondents produce the documents without appearing for a hearing. The respondents agreed. The parties agreed also to extend the subpoenas' deadline.
On April 11, 2018, the respondents responded to the subpoenas, producing 14,814 pages of documents. They asserted that the production cost them $15,700.25 in attorney's fees and costs.
Approximately four months later, in a document produced by a different non-party to the arbitration, the claimants received a copy of an email that purportedly was responsive to the OBEX and Katzenstein subpoenas but was not included in the respondents' April 11, 2018 production. The claimants informed the respondents of the missing email and suggested that they run a narrow search to locate any other responsive documents excluded from the April production.
The respondents refused. They asserted that the email was not responsive to the narrowed list of search terms to which the parties had agreed in March, and they already had "fully complied" with their obligations vis-à-vis the subpoenas. Email message from Helen Kim to Richard Epstein, August 8, 2018, Joint App'x at 296. The respondents then announced that they would not "incur any further costs in connection with this subpoena unless ordered by a court." Id .
Following this exchange, the claimants asked the arbitration panel to issue summonses to the respondents requiring them to appear at a hearing and to bring with them all responsive documents. The panel did so on August 24, 2018, ordering the respondents to appear before it for such a hearing at the offices of Proskauer Rose LLP in New York City on October 15, 2018.
The respondents replied that they would be willing to comply with the summonses and provide the requested documents – again without a hearing – if the claimants would reimburse them for the cost of production. According to the respondents, the claimants refused. The respondents then served written objections to the summonses on the claimants' counsel on October 1, 2018. They allegedly informed the claimants that they could not appear on the scheduled day because Katzenstein would be out of the country. WNIC contends that the respondents had no intention of appearing regardless of the date in light of their earlier unequivocal refusal to produce any additional documents absent a court order.
In any event, the arbitration panel held the hearing as scheduled on October 15, 2018, with a court reporter present. The panel was prepared to receive testimony and documentary evidence from the respondents and to rule on any evidentiary issues. The respondents, however, did not appear. The panel therefore issued an order granting the claimants leave to pursue judicial intervention to obtain the respondents' compliance with the summonses.
On October 22, 2018, WNIC filed a petition in the United States District Court for the Southern District of New...
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