U.S. Bank National Association v. Triaxx Asset Management LLC

Background

U.S. Bank National Association, acting as trustee for three collateralized debt obligations referred to as the Triaxx CDOs, filed a letter-motion seeking discovery. Discovery is the process by which parties obtain information and documents relevant to the case. U.S. Bank sought documents and communications showing compensation paid to the partners, owners, officers, and directors of Triaxx Asset Management LLC (TAM), Phoenix Real Estate Solutions, Ltd. (Phoenix), and 1/0 Capital, LLC, including Nicholas Calamari and Vishal Garg.

The litigation concerns payments TAM directed to Phoenix. Some payments were described as administrative expenses and paid before distributions under the CDO payment system. U.S. Bank also alleged that some payments were made outside that system from litigation-recovery funds that were never deposited into accounts controlled by the trustee. U.S. Bank alleged that these arrangements violated the documents governing the CDOs and the Uniform Commercial Code.

U.S. Bank argued that compensation information was relevant to its allegations that TAM and Phoenix were indirectly owned and controlled through 1/0 Capital by Calamari and Garg, and that the disputed payments benefited them. U.S. Bank said the information would help show an alleged conflict of interest and personal benefit. Pacific Investment Management Company and Goldman Sachs & Co., which hold notes issued by the CDOs, joined the request.

The parties’ positions

TAM and Phoenix opposed the requested discovery. They argued that the governing documents recognized that the collateral manager could have conflicts of interest, making the allegations irrelevant. They also stated that they had produced or agreed to produce information about the payments to Phoenix, their annual revenues and profits, and the percentage attributable to work for the CDOs.

The TAM parties further argued that personal compensation information for nonparties such as Calamari and Garg was unduly invasive and disproportionate to the needs of the case because it had limited value in proving the allegations.

Court’s analysis and ruling

Judge Barbara Moses applied the broad discovery standard in Federal Rule of Civil Procedure 26(b)(1). She concluded that the court would not, at that stage, bar inquiry into facts alleged by U.S. Bank or the noteholders and denied by the TAM parties. She recognized the privacy concerns but found them overstated because the request concerned compensation paid by the relevant entities to their principals, rather than the principals’ overall financial condition.

The court found the request for compensation information covering all partners, owners, officers, and directors of TAM, Phoenix, their affiliates, and 1/0 Capital overbroad. It therefore granted the letter-motion 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. The court otherwise denied the letter-motion.

The court allowed the TAM parties to designate the compensation information as confidential if they believed it qualified under the parties’ stipulated protective order. Production was due within 30 days. The Clerk of Court was directed to close the motion at docket entry 274. The opinion also states that a separate request for the TAM parties’ Code of Ethics had already been granted from the bench on October 3, 2019.