Zarrella et al v. Pacific Life Insurance Company

Filing 154

ORDER dismissing appeal and overruling objections re 137 Appeal of Magistrate Judge Order to District Court, filed by Zarrella Construction, Inc., Larry Zarrella. Signed by Judge James I. Cohn on 7/25/2011. (awe)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 10-60754-CIV-COHN/SELTZER
LARRY ZARRELLA, an individual,
ZARRELLA CONSTRUCTION, INC.,
a Florida Corporation, on Behalf of All
Others Similarly Situated,
Plaintiffs,
v.
PACIFIC LIFE INSURANCE COMPANY,
Defendant.
_________________________________/
ORDER DISMISSNG PLAINTIFFS’ PARTIAL APPEAL AND OVERRULING
OBJECTIONS TO ORDER OF MAGISTRATE JUDGE SELTZER ON PLAINTIFFS’
MOTIONS TO COMPEL DOCUMENTS PERTAINING TO STEPHEN DICKE
THIS CAUSE is before the Court on Plaintiffs Larry Zarrella and Zarrella
Construction, Inc.’s Partial Appeal From and Objections to Order of Magistrate Judge
Seltzer on Plaintiffs’ Motions to Compel Documents Pertaining to Stephen Dicke [DE
137] (“Appeal and Objections”). The Court has considered the Appeal and Objections,
Defendant Pacific Life Insurance Company’s Response [DE 147], Plaintiffs’ Reply [DE
149], Judge Seltzer’s Order [DE 109], the record in this case, and is otherwise advised
in the premises.
I. BACKGROUND
On May 10, 2010, Plaintiffs brought this class action for a variety of claims
arising out of individual life insurance policies Defendant sold to Plaintiffs for use in

Zarrella Construction’s 412(i) plans.1 See Complaint [DE 1]; Second Amended
Complaint [DE 69]. Plaintiff alleges that Defendant misrepresented that “(a) the
Policies were appropriate for use in funding 412(i) plans; (b) the premiums paid on the
policies were fully tax deductible; and (c) the purchaser could pay five annual premiums
and then purchase the policy for its suppressed cash value, while taking tax-free loans
against the policy.” Sec. Am. Compl. ¶ 1. Plaintiffs further allege that Defendant
“knew, or should have known, that it structured, marketed, and sold Policies posing
numerous material tax risks, including disqualification under § 412(i), the loss of tax
deductions for plan contributions, Internal Revenue Service (IRS) audits of the 412(i)
Plan and the concomitant fees and costs, and severe IRS financial penalties stemming
from the failure to qualify under § 412(i).” Id. at ¶ 2. Additionally, Plaintiffs allege that
the IRS determined that Defendant’s issuance of the policies under a 412(i) plan
constituted an abusive and illegal tax shelter and that, as a result, Plaintiffs suffered
substantial damages. Id.
During the course of discovery, Plaintiffs served Defendant with a request for
production of documents. Defendant produced over 16,000 pages of documents, but
withheld certain documents as privileged. On March 9, 2011, Plaintiffs filed their First
Motion to Compel Production of Documents [DE 55]. On April 21, 2011, they filed their
Renewed Motion to Compel Production of Documents and for Sanctions for Discovery
Misconduct [DE 71]. On May 31, 2011, Judge Seltzer granted in part and denied in part

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A 412(i) plan is an employer-sponsored defined benefit plan that provides
retirement and death benefits to its participants under § 412(i) of the Internal Revenue
Code. 26 U.S.C. § 412(i) (2000) (amended as 26 U.S.C. § 412(e)(3) (2006)).
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the motions. With respect to Stephen Dicke’s August 12, 2002 opinion letter regarding
the valuation of a Pacific Life Flex XII life insurance policy when distributed from a
qualified retirement plan [DE 57-1] (“Dicke Letter”), Judge Seltzer found as follows:
[A]ttorney Dicke’s August 12, 2002 opinion letter is not an attorney-client
privileged communication because Pacific Life and Dicke did not intend that
it be kept confidential. Ronce (Pacific Life’s vice president and in-house tax
counsel) avers in his declaration that the opinion letter contains no attorneyclient privileged designation and that “[i]t was understood that the opinion
letter would not be a confidential communication but rather that it could be
shared with potential purchasers of Pacific Life policies and their tax and
legal advisors to assist them in discussing the issue raised in the opinion
letter.” Ronce Decl. at ¶¶ 8, 9 (DE 61-3). Indeed, the opinion letter itself
expressly states in two places: “[Pacific Life] may make this letter available
in its entirety to potential purchasers and users of a Policy, and to their tax
and legal advisors, to assist in discussing the issues raised in this letter.”
Opinion Letter at 2 and 15 (DE 57-1). See Aronson v. McKesson, No. 99-CV
20743, 2005 WL 934331, at *3-5 (N.D. Cal. Mar. 31, 2005) (finding attorneyclient communications were not confidential because at the time made an
agreement existed providing for disclosure of the communications to a third
party).
May 31st Order at 5-6. On June 10, 2011, Plaintiffs filed an Amended Motion for Partial
Reconsideration of Magistrate Seltzer’s Order [DE 119], which Judge Seltzer denied on
June 15, 2011 [DE 122].
Plaintiffs now bring their arguments before the undersigned, requesting an order
reversing Judge Seltzer’s decision pertaining to the Dicke Letter. Plaintiffs argue,
“Since the Dicke letter is not a confidential attorney-client communication, because
Pacific Life and its attorneys intended it that way, any and all communications between
Pacific Life and the Scriber Hall firm which led to the preparation of the Dicke Letter can
also not be privileged.” Appeal & Obj. at 5.

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II. DISCUSSION
Pursuant to 28 U.S.C. § 636(b)(1)(A), a magistrate judge may decide
non-dispositive motions. Upon objection by a party, the district court may reconsider
any pretrial matter where it has been shown that the magistrate judge’s order is “clearly
erroneous or contrary to law.” See 28 U.S.C. § 636(b)(1); Massey v. United Transp.
Union, 868 F. Supp. 1385, 1388 (S.D. Ga.1994) (stating that magistrate judge’s order
will be set aside when clearly erroneous or contrary to law), aff’d, 65 F.3d 183 (11th
Cir.1995). Accordingly, unless Magistrate Judge Seltzer’s determinations with respect
to the matters at issue were clearly erroneous, or contrary to law, those determinations
shall not be disturbed.
Plaintiffs’ argument begins with the premise that the Dicke Letter was not
attorney-client privileged and ends with the conclusion that any communications leading
up to the preparation of the letter therefore must also not be privileged. The
undersigned agrees with Judge Seltzer that this logic is flawed.
In support of their argument, Plaintiffs cite two non-controlling cases: V. Mane
Fils S.A. v. International Flavors & Fragrances, Inc., 249 F.R.D. 152 (D.N.J. 2008), and
Weil v. Investment/Indicators Research & Management, 647 F.2d 18 (9th Cir. 1981).
Both cases held that a party who disclosed an attorney-client privileged opinion letter
relinquished the privilege as to the letter and all of the communications leading up to it.
Weil, 647 F.3d at 23-24; V. Mane, 349 F.R.D. at 154-55. Neither case applies here,
because there has been no disclosure of any attorney-client privileged information.
Though the Dicke Letter was disclosed, the parties agree that the Dicke Letter was not
attorney-client privileged. See Appeal & Obj. at 5; Resp. at 6. Therefore, disclosure did
not waive any privilege, and Judge Seltzer’s determinations were not clearly erroneous.
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III. CONCLUSION
Based on the foregoing, it is hereby
ORDERED AND ADJUDGED that Plaintiffs Larry Zarrella and Zarrella
Construction, Inc.’s Partial Appeal to Order of Magistrate Judge Seltzer on Plaintiffs’
Motions to Compel Documents Pertaining to Stephen Dicke [DE 137] is DISMISSED,
and Plaintiffs’ Objections to that Order [DE 137] are OVERRULED.
DONE AND ORDERED in Chambers at Fort Lauderdale, Florida, on this 25th
day of July, 2011.

Copies provided to:
Counsel of record via CM/ECF

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