Ritchie Risk-Linked Strategies Trading (Ireland), Ltd. v. Coventry First LLC

15-3214-cv
Ritchie Risk-Linked Strategies et al. v. Coventry First LLC et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED
BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY
MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE
NOTATION “SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
8th day of December, two thousand sixteen.
Present:
DEBRA ANN LIVINGSTON,
DENNY CHIN,
SUSAN L. CARNEY,
Circuit Judges.
_____________________________________
RITCHIE RISK-LINKED STRATEGIES TRADING
(IRELAND), LIMITED, RITCHIE RISK-LINKED
STRATEGIES TRADING (IRELAND) II, LIMITED,
Plaintiffs-Counter-Defendants-Appellants,
v. 15-3214
COVENTRY FIRST LLC, LST I LLC, MONTGOMERY
CAPITAL, INC.
Defendants-Counter-Claimants-Appellees,
THE COVENTRY GROUP, INC.,
Defendants-Counter-Claimants.*
_____________________________________
*
The Clerk of Court is respectfully directed to amend the official caption in this case to conform with the
caption above.
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For Plaintiffs-Counter-Defendants-Appellants: ERIC S. OLNEY (Alexandra A.E. Shapiro,
Fabien Thayamballi, on the brief), Shapiro
Arato LLP, New York, New York
For Defendants-Counter-Claimants-Appellees: ALLISON RUSHING (David A. Forkner,
Kenneth J. Brown, C. Bryan Wilson, Jason
Wu, on the brief), Williams & Connolly
LLP, Washington, DC
Appeal from a judgment of the United States District Court for the Southern District of
New York (Rakoff, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment of the district court is AFFIRMED.
Ritchie Risk-Linked Strategies Trading (Ireland), Limited (“Ritchie I”) and Ritchie
Risk-Linked Strategies Trading (Ireland) II, Limited (“Ritchie II”; collectively, “Ritchie”) appeal
from the entry of judgment against them on all their claims following a bench trial before the
United States District Court for the Southern District of New York (Rakoff, J.). Ritchie
contends that (1) the district court clearly erred in failing to find that certain testimony
demonstrated that the New York Attorney General’s office (the “NYAG”) had threatened an
action against LST I LLC (“LST”), placing LST in breach of its warranty under its agreements
with Ritchie I and II (the “Purchase Agreements”) that, to its knowledge, no legal action or
proceeding had been threatened against it (the “No Proceedings Warranty”); (2) the district court
improperly held that Ritchie had waived its claims by failing to provide the notice required by
the Purchase Agreements’ “Notice and Waiver Provision”; and (3) the district court improperly
entered judgment on all of its claims contrary to the terms of the pre-trial order. On appeal
following a bench trial, we review the district court’s findings of fact for clear error and its
conclusions of law de novo. Diesel Props S.R.L. v. Greystone Bus. Credit II LLC, 631 F.3d 42,
2
51-52 (2d Cir. 2011). We may affirm the district court’s judgment on any ground apparent
from the record. Freedom Holdings, Inc. v. Cuomo, 624 F.3d 38, 49 (2d Cir. 2010). In this
order, we assume the parties’ familiarity with the facts, the procedural history of the case, and
the issues on appeal.
A. Background
Coventry First LLC (“Coventry First”) is a leading participant in the secondary market
for life insurance, or the “life settlement” market, purchasing high-value life insurance policies
from individual policyholders and then reselling these policies to investors. LST is an affiliate
of Coventry First. Rather than purchasing life insurance policies directly from policyholders,
termed origination, LST acquires these policies from originators and then sells them on to
third-party investors. Ritchie I and Ritchie II are special purpose vehicles that were formed to
hold life insurance policies purchased from LST, which Ritchie then planned to package into
securities to sell to third-party investors. Pursuant to the Purchase Agreements, Ritchie
purchased in excess of 1,000 life insurance policies from LST between July 2005 and the end of
September 2006. LST acquired all of the life insurance policies it sold to Ritchie from
Coventry First.
In July 2005, the NYAG served a subpoena on Coventry First requesting an array of
documents relevant to an investigation by the NYAG into the life settlement industry. In March
2006, the NYAG served a second subpoena on Coventry First, posing interrogatories to
Coventry First, each of which focused on Coventry First’s broker compensation practices. The
cover letter to the 2006 subpoena stated that the NYAG “deem[ed] the information sought
relevant and material to a confidential investigation into” life settlement industry “practices
related to soliciting and providing bids” and whether those practices violated state and federal
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antitrust law. App’x 1474. Over the course of the summer of 2006, Coventry First engaged
with the NYAG a number of times with respect to the subpoena and the status of the overall
investigation. Throughout this time, Ritchie continued to purchase life insurance policies
sourced by Coventry First from LST.
On October 26, 2006, the NYAG filed a complaint (the “NYAG Action”) against
Coventry First alleging pervasive fraud in Coventry First’s procurement practices. On
November 7, 2006, Ritchie I and Ritchie II each sent notices terminating the Purchase
Agreements and advising LST that Ritchie was considering it to have breached the No
Proceedings Warranty. This warranty provides that:
no action, suit or proceeding . . . [is] now pending, or to the Seller’s knowledge,
threatened, against or affecting the Seller or its assets or properties: . . .
(b) seeking to prevent the consummation of any of the transactions
contemplated by this Agreement[] or (c) seeking any determination or ruling
that might materially and adversely [a]ffect the performance by the Seller of its
obligations under, or the validity or enforceability of, this Agreement.
App’x 1302.
Ritchie filed the present action on February 6, 2009, alleging that LST had breached
certain provisions of the Purchase Agreements, including the No Proceedings Warranty, causing
it damages in excess of four hundred million dollars.
B. The No Proceedings Warranty
Ritchie argues, first, that the district court clearly erred by ignoring specific conversations
between attorneys for Coventry First and the NYAG in determining that LST had not breached
the No Proceedings Warranty. Ritchie focuses its argument on several lines of testimony in
which Assistant Attorney General David Axinn testified that, around February 2006, he had a
conversation about the status of the industry investigation with counsel for Coventry First and
4
informed counsel in the course of that conversation that Coventry First appeared to be involved
in “potential serious wrongdoing” and that the NYAG “could very well potentially follow up
with an action.” App’x 876. Ritchie contends that in this communication the NYAG
“threatened” an action, placing LST in breach of the No Proceedings Warranty, and that the
district court clearly erred in failing to directly address the import of Axinn’s testimony.1
In evaluating the merits of this argument, it is worth recalling that the clear error standard
applies not only to a district court’s decisions as to witness credibility but also to its handling of
submitted evidence or the inferences it draws from the available evidence.2 Diesel Props, 631
F.3d at 52. Moreover, “[w]here there are two permissible views of the evidence, the
factfinder’s choice between them cannot be clearly erroneous.” Id. So long as the available
facts support the district court’s interpretation, even if they might also conceivably support the
contrary position, we will not overturn the considered finding of the district court.
Here, the district court drew several factual inferences from the submitted evidence that
undercut the proposition that, prior to October 2006, the NYAG’s investigation was anything
more than ordinary course for industry-wide governmental investigations. The district court
highlighted, in particular, the absence of evidence suggesting that the NYAG made clear in any
of its multiple conversations with counsel for Coventry First in the spring and summer of 2006
that an action against Coventry First was in the offing. Rather, the district court pointed to
substantial evidence to the contrary. In fact, Axinn himself testified to the serious efforts
Coventry First made to comply with the March 2006 subpoena, and did not contradict the
characterization of the NYAG’s interactions with Coventry First as generally
1
Ritchie does not contest the district court’s conclusion that the NYAG’s investigation did not itself constitute
an “action, suit or proceeding” under the No Proceedings Warranty.
2
We assume, with the parties, that the district court’s decision should be reviewed for clear error.
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non-confrontational. The district court also specifically credited the testimony of Reid Buerger,
a Coventry First executive and a member of the family controlling Coventry First, that he asked
the attorneys representing Coventry First in September 2006 to clarify the status of the
investigation with the NYAG and that the attorneys reported back that Coventry First was neither
a focus nor target of the investigation.
Ritchie points to no substantial evidence suggesting that the evidence cited by the district
court did not support its conclusions regarding the status of the NYAG investigation. Instead,
Ritchie argues that the district court should have given substantial weight to other pieces of
evidence. But this evidence, even if given the weight Ritchie ascribes to it, merely shows that
there was a serious ongoing investigation of the life settlement industry and that Coventry First,
as a major participant in that industry, was a subject of that investigation. This evidence is
entirely consistent with the view adopted by the district court. Certainly none of it indicates
that the district court “failed to synthesize the evidence in a manner that accounts for conflicting
evidence.” See Doe v. Menefee, 391 F.3d 147, 164 (2d Cir. 2004). Finding no clear error in
the district court’s factual determinations, we affirm its conclusion that LST was not in breach of
the No Proceedings Warranty at any time relevant to this case and hold that the district court
therefore properly entered judgment for LST on this point.3
C. The Notice and Waiver Provision
At the invitation of the parties, the district court separately considered whether Ritchie
had waived its claims by failing to provide the notice required under the Purchase Agreements.
The Notice and Waiver Provision provides, in relevant part:
3
Given this conclusion, we need not definitively construe the No Proceedings Warranty in its totality.
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Notwithstanding any provision of this Agreement to the contrary, if an
Authorized Officer of either party has actual knowledge of any such breach, but
does not deliver notice of its intention to invoke or avail itself of the remedies
afforded by this Agreement with respect to such within 30 Business Days of
obtaining such actual knowledge, then such breach (and all claims with respect
to any resulting damages [or] losses relating thereto or arising therefrom or in
connection therewith) shall have been waived by such party in all respects and
such party will thereafter have no right to take any action, invoke any remedy or
recover any losses or damages with respect thereto.
App’x 1309.
The district court concluded that, by operation of this provision, Ritchie’s failure to provide LST
notice of breach with respect to representations and warranties other than the No Proceeding
Warranty resulted in its waiver of any claim arising out of those representations and warranties.
Accordingly, the district court found that entry of final judgment on all Ritchie’s claims was
appropriate. Ritchie now contends that notice was excused because it would have been futile.
In particular, Ritchie argues that notice was futile because LST would have been unable to
replace any of the policies affected by its several alleged breaches.
Ritchie cites little case law supporting this argument. In fact, under New York law the
futility defense appears to be available only in limited cases, if at all. See Filmline
(Cross-Country) Prods., Inc. v. United Artists Corp., 865 F.2d 513, 518-19 (2d Cir. 1989). And
the closely related frustration defense does not relieve a party of its contractual obligations, but
rather serves only to foreclose a counterparty’s insistence on satisfaction of a condition precedent
where that counterparty was the cause of the non-compliance it complains of. See A.H.A. Gen.
Constr., Inc. v. N.Y.C. Hous. Auth., 92 N.Y.2d 20, 31 (1998).
Granted, there is precedent for permitting a party to invoke a futility defense in the
context of notice and cure provisions. But even were the Notice and Waiver Provision here a
notice and cure provision, the futility defense is availing only when the other party expressly
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repudiates performance under the contract, or otherwise makes clear that it no longer seeks to
perform its obligations. See Bausch & Lomb Inc. v. Bressler, 977 F.2d 720, 727-28 (2d Cir.
1992). In any case, the Notice and Waiver Provision is not a notice and cure provision; rather,
under this provision, the party failing to provide notice affirmatively waives all claims for
damages resulting from the alleged breach if it had actual knowledge of the breach and failed to
provide notice within thirty business days. It is undisputed that, as of November 2006, Ritchie
knew about the NYAG Action and failed to give notice of breach with respect to any provision
of the contract other than the No Proceedings Warranty. Because “a written agreement that is
complete, clear and unambiguous on its face must be enforced according to the plain meaning of
its terms,” Greenfield v. Philles Records, Inc., 98 N.Y.2d 562, 569 (2002), the district court
properly relied on the Notice and Waiver Provision to enter judgment against Ritchie on all of
these alternative claims.4
D. The Pretrial Order
Ritchie argues, finally, that whatever the merits of LST’s reliance on the Notice and
Waiver Provision, the district court impermissibly ruled on Ritchie’s claims that LST breached
representations and warranties other than the No Proceedings Warranty because the parties had
agreed to carve these claims out of the bench trial in their joint pretrial order. Rule 16(e) of the
Federal Rules of Civil Procedure provides that a “court may modify the order issued after final
pretrial conference only to prevent manifest injustice.” At the same time, as we explained in
HBE Leasing Corp. v. Frank, 22 F.3d 41 (2d Cir. 1994), under Rule 16, “[a] trial court is given
broad discretion in managing a trial, and this discretion includes a certain amount of latitude to
4
Given our resolution of this issue, we need not reach the parties’ arguments with respect to the impact of the
two separate amendments to each of Ritchie I and II’s Intercreditor Agreements on the viability of Ritchie’s
claims in this case.
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deviate from the terms of the pretrial order.”5 Id. at 45. We therefore review a district court’s
decision to modify a pretrial order only for abuse of discretion. Id.
Upon review, we find no abuse of discretion in the district court’s decision to rule on
Ritchie’s alternative claims of breach. This is not a case in which the district court’s previously
unannounced modification of a pretrial order takes a party by surprise and effectively
undermines its ability to make its case. To the contrary, the parties specifically identified “a
series of separate contractual provisions under which [Ritchie’s] claim was waived” as one of the
issues to be tried before the district court. App’x 502. The district court, in accordance with
the pretrial order, allowed these defenses to be tried and then merely concluded that, once tried,
the success of these defenses was also sufficient to bar Ritchie’s untried claims. To the degree
that this mode of proceeding departed from the strict terms of the pretrial order, we discern no
abuse of discretion in it.
* * *
We have considered Ritchie’s remaining arguments and find them to be without merit.
Accordingly, we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
5
Stylistic changes to the relevant subsections of Rule 16 have been made since HBE Leasing, but these
changes do not modify the essential holding of that case. See Fed. R. Civ. P. 16 advisory committee’s note to
2007 amendment.
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