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

Filing 305

ORDER granting in part and denying in part 274 Letter Motion to Compel. Consequently, the Trustee's letter-motion is GRANTED to the extent that TAM and Phoenix must produce documents sufficient to show all compensation paid or owed to Calama ri and Garg, directly or indirectly, by TAM, Phoenix, the Phoenix Entities, and/or 1/0 Capital, and otherwise DENIED. The TAM Parties may designate the compensation information "confidential" if they believe it qualifies for such treatmen t under the parties' Stipulated Protective Order (Dkt. No. 179). Production is to be made within 30 days of thisOrder. The Clerk of Court is respectfully directed to close the motion at Dkt. No. 274. (As further set forth in this Order.) (Signed by Magistrate Judge Barbara C. Moses on 1/8/2020) (cf)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
1/8/2020

U.S. BANK NATIONAL ASSOCIATION,
Plaintiff,
-against-

18-cv-4044 (BCM)
ORDER

TRIAXX ASSET MANAGEMENT LLC, et al.,
Defendants.
BARBARA MOSES, United States Magistrate Judge.
By letter-motion dated September 23, 2019 (Trustee Ltr.) (Dkt. No. 274), plaintiff U.S.
Bank National Association, in its capacity as trustee (Trustee) of the three collateralized debt
obligations at issue in this action (the Triaxx CDOs), requests an order compelling defendants
Triaxx Asset Management LLC (TAM), the CDOs' Collateral Manager, and Phoenix Real Estate
Solutions, Ltd. (Phoenix), which was retained by the Collateral Manager as an adviser and
consultant to the CDOs (collectively the TAM Parties), to produce documents and
communications showing the compensation of the TAM Parties' partners, owners, officers, and
directors (including Nicholas Calamari and Vishal Garg), as well as the partners, owners, officers
and directors of 1/0 Capital, LLC (1/0 Capital). Trustee Ltr. at 1. Defendants Pacific Investment
Management Company (PIMCO) and Goldman Sachs & Co., which hold notes issued by the
CDOs (the Noteholders), join in the request. Id. 1
Among the issues in this action is the propriety of various fee payments directed to
Phoenix by TAM, some of which TAM characterized as "Administrative Expenses," to be paid

1

The Trustee also sought to compel the TAM Parties to produce the Code of Ethics referenced in
TAM's March 12, 2015 and March 30, 2018 Form ADVs. See Trustee Ltr. at 1, 4. This portion
of the Trustee's letter-motion was granted from the bench on October 3, 2019. See Tr. of Oct. 3,
2019 Conf. (Dkt. No. 288) at 62:18.

by the Trustee before distributing any CDO proceeds to the Noteholders pursuant to the CDOs'
priority of payment waterfall (the Waterfall), and some of which it allegedly paid outside of the
Waterfall entirely – without notice to the Trustee – directly from funds that were recovered
through litigation against originators, sponsors, trustees, and servicers of the residential mortgage
backed securities (RMBS) held by the Triaxx CDOs and/or the mortgages underlying the RMBS,
and which were never deposited in the CDO accounts controlled by the Trustee. See Third
Amended Interpleader Complaint (TAC) (Dkt. No. 203) ¶¶ 1-11, 48-61. The Trustee alleges that
these arrangements violated the indentures and other documents governing the Triaxx CDOs (the
Governing Documents), as well as the Uniform Commerical Code. Id. ¶¶ 90-93.
Plaintiff argues that the compensation-related discovery it seeks is relevant to its
allegations that both TAM and Phoenix are indirectly owned and controlled (through 1/0 Capital)
by Calamari and Garg, TAC ¶¶ 86-88, such that the disputed payments "benefit both Garg and
Calamari." TAC ¶ 89. According to the Trustee, this "significant conflict of interest," Trustee
Ltr. at 2, helps explain why TAM failed to deliver the litigation proceeds to the Trustee to
distribute through the Waterfall and instead "improperly enriched Phoenix at the expense of the
CDOs and the Secured Parties," including the Noteholders. Id. ¶ 85. The Trustee further
contends that it needs compensation information to "demonstrate" the alleged conflict of interest
by showing that Garg and Calamari personally benefited from the challenged transactions.
Trustee Ltr. at 3.
By letter dated September 26, 2019 (TAM Ltr.) (Dkt. No. 276), the TAM Parties object
to the requested discovery, arguing that the Governing Documents acknowledge that the
Collateral Manager may have conflicts of interest, and therefore the Trustee's allegations are
"wholly gratuitous" and have "no bearing on any claim or defense in this case." TAM Ltr. at 2-3.
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Even if the alleged conflict were relevant, the TAM Parties argue, they have already produced
(or agreed to produce) documents sufficient to litigate that issue, including the actual payments
to Phoenix, as well as documents showing the TAM Parties' annual revenues and profits, "and
the percentage that come from work on behalf of the CDOs." Id. at 2. Moreover, according to the
TAM Parties, discovery into the personal compensation of non-parties such as Garg and
Calamari would be unduly invasive, and thus disproportionate to the needs of the case,
particularly since it would have "limited probative value." Id. at 3.
Given the broad scope of discovery permitted pursuant to Fed. R. Civ. P. 26(b)(1), the
Court is not prepared, at this juncture, to prohibit inquiry into facts that have been alleged by the
Trustee and/or the Noteholders and denied (either outright or for lack of sufficient knowledge or
information) by the TAM Parties, thus putting them presumptively at issue in this action.
Compare, e.g., TAC ¶ 89 ("The Collateral Manager, 1/0 Capital, and the Phoenix Entities share
the same office address, the same floor, and the same conference rooms, and payments to the
Phoenix Entities benefit both Garg and Calamari.") with TAM Ans. (Dkt. No. 211), ¶ 89
("Triaxx admits that TAM’s offices are located in this district, and otherwise denies knowledge
or information sufficient to form a belief as to the truth of the allegations in paragraph 89."). 2
Moreover, while the Court is sensitive to the privacy isues raised by the TAM Parties,
their concerns are somewhat overstated (and the cases they cite are largely inappoposite),

2

As another example, compare PIMCO Ans. (Dkt. No. 212) ¶ 100 ("TAM's owners are lining
their pockets by using Phoenix . . . and the other Phoenix Entities as agents to siphon funds out
of the CDO Collateral that would otherwise be available to pay Noteholders in the CDOs, such
as PIMCO"); with Phoenix Ans. (Dkt. No. 219) ¶ 8 ("Phoenix denies the allegations in paragraph
100. Phoenix’s work has enabled the noteholders to secure millions of dollars in litigation
recoveries.").
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because the only "personal financial information" sought by the Trustee is information
concerning the compensation of the TAM Parties' principals by the TAM Parties themselves. Cf.
Solow v. Conseco, Inc., 2008 WL 190340, at *4 (S.D.N.Y. Jan. 18, 2008) (quashing subpoena for
information concerning non-party Macklowe's overall "financial condition" because "Conseco's
knowledge of Plaintiff's and Macklowe's relative financial wherewithal at the time of the
auction" was relevant to the parties' claims and defenses, but "Macklowe's actual financial
situation" was not); Arias-Zeballos v. Tan, 2007 WL 210112, at *2 (S.D.N.Y. Jan. 25, 2007)
(quashing subpoena seeking financial records concerning defendant's purchase of an apartment
after court struck the underlying allegations from the plaintiff's complaint); Davis v. Ross, 107
F.R.D. 326, 327 (S.D.N.Y. 1985) (denying defamation plaintiff's request for discovery into the
"net worth and annual income" of defendant Diana Ross because, under New York law, such
discovery "will become necessary only in the event plaintiff obtains . . . a special verdict"
entitling her to punitive damages); Taylor v. Metro. Transportation Auth., 2019 WL 2766502, at
*3 (S.D.N.Y. July 2, 2019) (denying defendant's request, in employment discrimination case, for
all of plaintiff’s "personnel records from her other places of employment," where there were less
intrusive ways to verify her past employment history).
That said, the Trustee's request for information concerning the compensation of all of the
"partners, owners, officers, and directors" of TAM, Phoenix, its affiliates, and 1/0 Capital, see
Trustee Ltr. at 1, is overbroad. Consequently, the Trustee's letter-motion is GRANTED 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, and otherwise DENIED. The TAM Parties may designate the compensation
information "confidential" if they believe it qualifies for such treatment under the parties'
4

Stipulated Protective Order (Dkt. No. 179). Production is to be made within 30 days of this
Order.
The Clerk of Court is respectfully directed to close the motion at Dkt. No. 274.
Dated: New York, New York
January 8, 2020
SO ORDERED.

________________________________
BARBARA MOSES
United States Magistrate Judge

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