Case 2:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page1of21 Page ID #:8212 EXHIBIT A Case|2:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page2of21 PageID #:8213 1 UNITED STATES DISTRICT COURT Zz 3 CENTRAL DISTRICT OF CALIFORNIA 4 WESTERN DIVISION 5 6 JOYCE WALKER, ET AL., 7 8 PLAINTIFFS, 9 VS. CASE NO. CV 10-9198-JVS (RNBX) SANTA ANA, CALIFORNIA MARCH 20, 2012 i LIFE INSURANCE COMPANY OF THE SOUTHWEST, (9:50 A.M. TO 11:58 A.M.) Sr eas NR a as a ae ae a ae aes ee 12 (1:47 P.M. TO 2:13 P.M.) DEFENDANT. (S226 P.M. TO 3739 P.M.) 13 14 DISCOVERY CONFERENCE 15 BEFORE THE HONORABLE ROBERT N. BLOCK UNITED STATES MAGISTRATE JUDGE 16 17 APPEARANCES: SEE NEXT PAGE 18 COURT REPORTER: RECORDED; COURT SMART 19 COURTROOM DEPUTY: KERRI HAYS 20 TRANSCRIBER: DOROTHY BABYKIN 21 COURTHOUSE SERVICES 1218 VALEBROOK PLACE 22 GLENDORA, CALIFORNIA 91740 (626) 963-0566 23 24 PROCEEDINGS RECORDED BY ELECTRONIC SOUND RECORDING; TRANSCRIPT PRODUCED BY TRANSCRIPTION SERVICE. Case|2:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page3of21 Page ID #:8214 APPEARANCES: (CONTINUED) FOR THE PLAINTIFES: FOR THE DEFENDANT: KASOWITZ BENSON TORRES & FRIEDMAN BY: BRIAN P. BROSNAHAN JEANETTE T. BARZELAY ATTORNEYS AT LAW 101 CALIFORNIA STREET SUITE 2300 SAN FRANCISCO, CALIFORNIA 94111 WILMER CUTLER PICKERING HALE & DOOR BY: JONATHAN A. SHAPIRO JOEL FLEMING ATTORNEYS AT LAW 950 PAGE MILL ROAD PALO ALTO, CALIFORNIA 94304 Case|2:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page4of21 Page ID #:8215 1 INDEX 2 CASE NO. CV 10-9198-JVS (RNBX) MARCH 20, 2012 3 PROCEEDINGS: PLAINTIFFS' MOTION TO COMPEL; LSW'S MOTION FOR PROTECTIVE ORDER Case|2:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page5of21 Page ID #:8216 SANTA ANA, CALIFORNIA; TUESDAY, MARCH 20, 2012 9:50 A.M. THE CLERK: PLEASE REMAIN SEATED AND COME TO ORDER. THIS UNITED STATES DISTRICT COURT IS NOW IN SESSION. THE HONORABLE MAGISTRATE JUDGE ROBERT N. BLOCK PRESIDING. CALLING CASE NUMBER CV 10-9198, JOYCE WALKER, ET AL. VERSUS LIFE INSURANCE COMPANY OF THE SOUTHWEST. COUNSEL, PLEASE STATE YOUR APPEARANCES. MR. BROSNAHAN: GOOD MORNING, YOUR HONOR. BRIAN BROSNAHAN FOR THE PLAINTIFFS. MS. BARZELAY: JEANETTE BARZELAY FOR THE PLAINTIFES. MR. SHAPIRO: GOOD MORNING, JUDGE BLOCK. IT'S JONATHAN SHAPIRO FOR THE DEFENDANT LIFE INSURANCE OF THE SOUTHWEST. MR. FLEMING: AND JOEL FLEMING ALSO FOR LIFE INSURANCE COMPANY OF THE SOUTHWEST. THE COURT: ALL RIGHT. ALL RIGHT. COUNSEL, GOOD MORNING. LET'S START WITH MY TENTATIVE RULING. I'LL HEAR FROM PLAINTIFFS' COUNSEL FIRST. MR. BROSNAHAN: THANK YOU, YOUR HONOR. 5 WE APPRECIATE THE OPPORTUNITY TO ADDRESS THE COURT'S CONCERNS. Case|2:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page6of21 Page ID #:8217 5 1 I THINK THE QUICKEST WAY TO GET TO THE HEART OF THE 2 MATTER MIGHT BE IF I MAY ASK THE COURT A QUESTION ABOUT THE 3 TENTATIVE. 4 THE COURT: OKAY. I MAY NOT ANSWER, BUT YOU CAN 5 ASK. 6 MR. BROSNAHAN: I JUST -- I DON'T UNDERSTAND HOW 7 THE TENTATIVE REQUIRES DENIAL OF THE MOTION UNLESS THE 8 COURT'S CONCERN TURNS ON THE WORD "RESOLD" IN THE QUOTE THAT 9 THE COURT PUT IN THE -- IN THE TENTATIVE, WHERE IT SAYS, 10 "IN DECEIT CASES THE VALUE OF AN ARTICLE IS 11 NORMALLY DETERMINED BY THE PRICE AT WHICH 12 IT COULD BE RESOLD IN AN OPEN MARKET OR BY 13 PRIVATE SALE IF ITS QUALITY OR OTHER 14 CHARACTERISTICS WHICH AFFECT ITS VALUE WERE 15 KNOWN." 16 OBVIOUSLY, IN A CASE LIKE THIS THE PLAINTIFFS CAN'T Le RESELL THE INSURANCE POLICY. 18 THE COURT: BUT THE QUESTION -- IT'S NOT A MATTER 19 OF RESELL. NO, THAT WASN'T IT. IT WAS WHAT WOULD THE VALUE 20 OF THE POLICY BE IF THESE ALLEGED NON-DISCLOSURES HAD BEEN 21 DISCLOSED. 22 NOW, IT SEEMS TO ME BASED ON THE CASES -- AND I'VE 23 READ EVERY SINGLE ONE OF YOUR CASES. AND NOT ONE OF THEM IS 24 EVEN CLOSE TO BEING ON POINT -- THAT IN ORDER TO ESTABLISH 25 THAT, IF THAT'S YOUR THEORY OF DAMAGES, YOU'RE GOING TO NEED Case|2:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page7of21 Page ID #:8218 AN EXPERT TO TESTIFY WHAT HE THINKS THESE POLICIES WOULD HAVE BEEN WORTH TO A PURCHASER IF THESE DISCLOSURES HAD BEEN MADE. LET ME GIVE YOU THIS EXAMPLE. JI THOUGHT OF A MORE CONCRETE EXAMPLE BECAUSE, LIKE I SAID, YOU CITED A BUNCH OF CASES THAT DON'T REALLY HELP ME FIND IN YOUR FAVOR. YOU KNOW, IN THE LAST COUPLE OF WEEKS APPLE RELEASED THE IPAD 3 OR CALLS IT "THE NEW IPAD," RIGHT? MR. BROSNAHAN: YES. THE COURT: AND THEY TOUTED A LOT OF ITS FEATURES. AND ONE OF ITS MOST TOUTED FEATURES IS IT'S THE FIRST APPLE PRODUCT THAT HAS THE CAPABILITY TO RECEIVE DATA VIA THE 4G NETWORK, RIGHT? MR. BROSNAHAN: YES. THE COURT: SUPPOSE SOMEONE DISCOVERED THAT THAT WASN'T TRUE, THE NEW IPAD DOESN'T ACTUALLY DOWNLOAD DATA AT 4G SPEEDS. IT REALLY DOWNLOADS THEM AT 3G SPEEDS LIKE THE IPAD 2. AND, SO, THERE WAS SOME ACTION BROUGHT. AND THE ISSUE BECAME WHAT WAS -- YOU KNOW, THEORY OF DAMAGES WAS THE ACTUAL VALUE. YOU KNOW, THAT IF APPLE HAD DISCLOSED THAT, NO, IT REALLY DOESN'T DO 4G SPEED, IT'S 3G SPEED. WELL, THE ANSWER TO THAT QUESTION HAS NOTHING WHATSOEVER TO DO WITH HOW MUCH PROFIT APPLE MADE ON ITS PRODUCT, WHETHER IT WAS $5 PER UNIT, A HUNDRED DOLLARS PER UNIT, $350 PER UNIT. IT HAS NOTHING WHATSOEVER TO DO WITH THE ACTUAL VALUE OF THAT PRODUCT IF THE ACCURATE Case|2:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page8of21 Page ID #:8219 REPRESENTATIONS HAVE BEEN MADE. SO, I TOTALLY REJECT YOUR THEORY OF RELEVANCE WITH 3 RESPECT TO ALL OF THESE AREAS OF THE DISCOVERY REQUEST THAT 4 YOU SAY ARE RELEVANT TO YOUR ACTUAL VALUE DAMAGES THEORY. S AND IF YOU WANT THAT DISCOVERY, YOU'RE GOING TO 6 HAVE TO GET IT FROM JUDGE SELNA BECAUSE YOU'RE NOT GETTING IT 7 FROM ME. 8 DO YOU HAVE ANY OTHER QUESTIONS? 9 MR. BROSNAHAN: I'D BE HAPPY TO ADDRESS THE COURT'S 10 ISSUE. I THINK THAT IN YOUR APPLE HYPOTHETICAL THE QUESTION 1] IS WHAT WOULD THAT PRODUCT HAVE SOLD FOR ON AN OPEN MARKET IF 12 IT'S -- IF THE FACT THAT IT WAS REALLY ONLY 3G WERE 13 DISCLOSED. 14 THE COURT: CORRECT. 15 MR. BROSNAHAN: IF IT SOLD FOR $400 WHEN NOBODY 16 KNEW THAT IT WAS ONLY 3G SPEED, THE QUESTION WOULD BE IF de EVERYONE KNEW THAT, WHAT WOULD IT SELL FOR. AND YOU WOULD 18 HAVE EXPERTS COME IN. AND THE EXPERTS WOULD ANALYZE 19 COMPETITIVE PRODUCTS. THEY WOULD ANALYZE THE COSTS. THEY 20 WOULD ANALYZE AN ENTIRE BUT/FOR WORLD AS WE HAVE IN ANTITRUST 21 CASES ALL THE TIME WHERE EXPERTS ANALYZE BUT/FOR WORLDS OF 22 WHAT A PRODUCT WOULD HAVE SOLD FOR UNDER DIFFERENT 23 CONDITIONS. AND THEY LOOK AT FINANCIAL DATA. THEY LOOK AT 24 COSTS. THEY LOOK AT COMPETITIVE PRODUCTS -- 25 THE COURT: I DISAGREE. WHAT DIFFERENCE DOES IT Case|2:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 PageQ9of21 Page ID #:8220 1 MAKE TO WHETHER APPLE MADE A LOT OF MONEY OR A LITTLE MONEY 2 ON ITS PRODUCT TO WHAT A PURCHASER WOULD BE WILLING TO PAY 3 FOR THAT PRODUCT. 4 MR. BROSNAHAN: WELL, THE QUESTION ISN'T WHAT A 5 PURCHASER WOULD BE WILLING TO PAY -- 6 THE COURT: WELL, ACCORDING TO THE CALIFORNIA 7 SUPREME COURT IT IS. 8 MR. BROSNAHAN: THE QUESTION IS WHAT THE MARKET -- Ps 9 THE COURT: THE MARKET VALUE AT THE TIME OF 10 PURCHASE. 11 MARKET VALUE -- YOU KNOW, I WAS AN ECON MAJOR. SO, 12 MARKET VALUE IS WHAT A WILLING PURCHASER IS WILLING TO PAY. 13 MR. BROSNAHAN: WELL, IT'S ALSO WHAT A WILLING 14 SELLER IS WILLING TO SELL. AND -- 15 THE COURT: I DON'T AGREE WITH THAT THEORY. LET'S 16 NOT WASTE ANY TIME BECAUSE, LIKE I SAID, YOU'RE NOT GOING TO de TALK ME OUT OF THAT PART OF MY TENTATIVE. 18 MR. BROSNAHAN: THAT'S FINE, YOUR HONOR. 19 IF I MAY, THOUGH, I'D LIKE TO POINT TO A COUPLE OF 20 THE REQUESTS THAT ARE WITHIN THE SCOPE OF THIS PART OF THE 21 TENTATIVE THAT HAVE BASES IN ADDITION TO JUST A PURE "ACTUAL 22 VALUE" THEORY. 23 ONE OF THEM HAS TO DO WITH THE OFFSET. WE'VE 24 REQUESTED -- 25 THE COURT: WHICH REQUEST ARE WE TALKING ABOUT? Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page10of21 PageID #:8221 MR. BROSNAHAN: WELL, THIS WOULD BE TOPIC NUMBER 33. AND THE DOCUMENT REQUESTS THAT GO ALONG WITH THAT WOULD BE NUMBER 100 AND NUMBER 110. THE COURT: OKAY. LET'S START WITH 100. MR. BROSNAHAN: NOW, ONE -- THIS DOCUMENT REQUEST SEEKS DOCUMENTS SUFFICIENT TO SHOW THE CURRENT AND GUARANTEED COST OF INSURANCE RATES FOR TERM PRODUCTS. THE COURT: HANG ON A SECOND. (PAUSE IN PROCEEDINGS. ) THE COURT: IN YOUR PLAINTIFFS' CONTENTION SECTION, MEET AND CONFER DISCUSSIONS, YOU EXPLAINED THAT THESE DOCUMENTS ARE RELEVANT TO YOUR ACTUAL VALUE OF DEATH BENEFIT THEORY. AND YOU ARGUED ACTUAL VALUE ON PAGE 77 -- THAT WAS IN YOUR MEET AND CONFER SESSION. SO, WHERE IN YOUR ARGUMENT DID YOU SAY THEY WERE RELEVANT TO SOMETHING OTHER THAN ACTUAL VALUE? MR. BROSNAHAN: CERTAINLY ON PAGE 77 WE SAY ON LINE 19 LINE 18: "MOREOVER, IN THE EVENT THAT PLAINTIFFS ARE = SUCCESSFUL IN SEEKING RESCISSION OF THE POLICIES AND A FULL REFUND OF WHAT THEY PAID LSW, LSW MAY SEEK TO ARGUE THAT BECAUSE IT PROVIDED DEATH BENEFIT PROTECTION TO CLASS MEMBERS WHILE THEIR POLICIES WERE IN FORCE, IT SHOULD BE ENTITLED TO A CREDIT OR OFFSET FOR THE VALUE OF THE DEATH Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page11of21 PageID #:8222 10 BENEFIT PROTECTION IT PROVIDED TO ITS POLICYHOLDERS. "LSW'S CHARGES FOR DEATH BENEFIT PROTECTION ON ITS TERM LIFE INSURANCE POLICIES MAY BE PROBATIVE OF THE AMOUNT OF ANY SUCH CREDIT OR OFFSET THAT LSW MAY SEEK." THE COURT: WELL, I MUST SAY I OVERLOOKED THAT AS A DISTINCTION BECAUSE THEN YOU CONCLUDE THE PARAGRAPH WITH "THUS, DOCUMENTS ARE DIRECTLY RELEVANT TO THE CLAIMS ALLEGED IN THE FAC AND PREMIUMS PROOF OF ACTUAL VALUE." WHAT'S LSW'S RESPONSE TO THAT POINT. MR. SHAPIRO: YOUR HONOR, A FEW RESPONSES. FIRST, OUR UNDERSTANDING WAS THIS WAS ACTUAL VALUE. BUT IN ANY EVENT, ARGUING THAT THIS DISCOVERY TO THE EXTENT THAT PLAINTIFFS ARE IS NECESSARY FOR THEM TO DEAL WITH AN ARGUMENT THAT WE HAVEN'T RAISED, WE WOULD SAY IT'S PREMATURE. AND IN ANY EVENT, THE COURT: WELL, THE COST OF -- BUT IT'S NOT GOING TO DO THEM ANY GOOD IF YOU RAISE IT PAST THE DISCOVERY CUT-OFF DATE. MR. SHAPIRO: WELL, FAIR ENOUGH, YOUR HONOR. AND THAT WOULD BE AT OUR TREMENDOUS PERIL. THE COURT: NO, NO. MAYBE I SHOULD ASK YOU NOW, ARE YOU WILLING TO STIPULATE YOU'RE NOT GOING TO RAISE THAT Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page12o0f21 PageID #:8223 1 ARGUMENT. AND IF YOU SAY NO, THEN THAT PUTS THIS -- MR. SHAPIRO: I WILL BE -- I'LL BE VERY CLEAR ON THE RECORD. WE ARE NOT GOING TO ARGUE THAT THERE'S AN OFFSET BASED ON THE COST OF TERM INSURANCE. THIS IS ABOUT A DIFFERENT PRODUCT, YOUR HONOR. THERE IS A COST OF INSURANCE COMPONENT FOR THE PERMANENT PRODUCT DISCLOSED IN THE POLICY THE COURT: ARE YOU GOING TO ARGUE -- AS I UNDERSTAND IT -- AND I DIDN'T -- IT DIDN'T JUMP OUT AT ME. AND WE CAN DO -- I WANT TO DO THESE ONE AT A TIME, THAT THEY ARE SAYING THAT IF THEY SEEK -- YOU KNOW, ONE REMEDY HERE WOULD BE RESCISSION, RIGHT? MR. SHAPIRO: YES, YOUR HONOR. THE COURT: AND THEY'RE SAYING AND IF YOU'RE GOING TO ARGUE THAT THE RESCISSION REMEDY SHOULD -- YOU SHOULD RECEIVE A CREDIT, YOU KNOW, UNDER WHATEVER THEORY, EXPERT TESTIMONY OR WHATEVER, FOR THE DEATH BENEFIT PROTECTION THAT THE PLAINTIFFS RECEIVED DURING THE PERIOD OF TIME THE POLICY WAS IN FORCE, THAT SOMEHOW THEY SHOULDN'T GET A HUNDRED PERCENT BACK OF WHAT THEY PAID FOR THE POLICY BECAUSE IF THEY HAD DIED THEY WOULD HAVE GOTTEN THE BENEFIT OF THE DEATH. MR. SHAPIRO: OH, ABSOLUTELY. THE COURT: AND, SO, IF YOU'RE GOING -- IF YOU'RE GOING TO MAKE -- MR. SHAPIRO: IN FACT, WE WOULD MAKE THAT ARGUMENT. Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page13o0f21 PageID #:8224 ARGUMENT. THE COURT: 12 OKAY. SOQ, YOU ARE GOING TO MAKE THAT SO, THE QUESTION BECOMES THEN DOES DOCUMENT REQUEST 100 SEEK INFORMATION RELEVANT TO THAT ARGUMENT OR NOT. BECAUSE ARGUMENT, BECAUSE WE'RE TALKING HERE THE ANSWER MIGHT BE YOU ARE GOING TO MAKE THAT BUT IT'S MR. SHAPI I'M AT SOME RISK OF GETTING LOST EXTENT IT HAS TO DO WITH TERM LIFE INSURANCE, STILL NOT RELEVANT. RO: IT'S STILL NOT RELEVANT, YOUR HONOR, -- AS I READ THIS. AND, YOU KNOW, IN THE DOCUMENT. BUT TO THE IT'S A FUNDAMENTALLY DIFFERENT PRODUCT IN PART BECAUSE IT'S UNDERWRITTEN ON THE BASIS THAT IT EXPIRES AS OPPOSED TO A PERMANENT PRODUCT WHICH IS WITH YOU, YOU KNOW, UNDER AGE 95 OR, YOU KNOW, GOD WILLING YOU LIVE BEYOND THAT. MAKE DIFFERENT ORANGES. INSURANCE COST OF INSURANCE THAT GOES UP OVER THE YEARS. ALL SET AT THE TIME OF PURCHASE. BUT THAT'S NOT TERM LIFE INSURANCE. COMPONENT INSURANCE, SO, THERE PRODUCT. THERE IS "S NO PART OF ANY ARGUMENT THAT WE WOULD THAT AN OFFSET HAS ANYTHING TO DO WITH AN ENTIRELY IT WOULD BE LIKE MATCHING APPLES AND CERTAINLY A MORTALITY COMPONENT, A COST OF THAT IS OBVIOUSLY PART OF THE PERMANENT LIFE PRODUCT. HERE. AND CERTAINLY ACTUARIES AND THERE IS, IN FACT, YOU KNOW, A FIXED AND THAT'S IT DOESN'T CHANGE AROUND. THAT'S THE MORTALITY -- AND THIS WOULD BE A Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page14of21 PageID #:8225 L3 1 PRIME EXAMPLE OF SOMETHING THAT BASED ON PUBLISHED 2 COMMISSIONER'S DATA ON WHEN PEOPLE DIE IN AMERICA -- PUBLIC 3 STUFF, THAT ACTUARIES COULD GO BACK AND FORTH ON WHAT THE 4 TRUE VALUE OF INSURANCE COVERAGE WAS IN THE CASE OF ONE OF 5 THE PLAINTIFFS -- 6 THE COURT: BUT SUPPOSE YOU HAVE DOCUMENTS -- I 7 MEAN, THAT YOU'VE ALREADY GET THOSE CALCULATIONS. 8 MR. SHAPIRO: WE DO. 9 THE COURT: SO, WHY SHOULDN'T YOU PRODUCE THEM. 10 MR. SHAPIRO: JUST NOT WITH RESPECT TO THE TERM 11 PRODUCT. WE WOULD PRODUCE THEM WITH RESPECT TO THE PERMANENT 12 LIFE INSURANCE, WHICH IS AN ENTIRELY DIFFERENT PRODUCT. 13 BECAUSE PERMANENT LIFE INSURANCE HAS TO BE UNDERWRITTEN FOR 14 SOMEONE WHO, LIKE MYSELF, PERSONALLY I'VE GOT A 20-YEAR 15 POLICY. AND MY INSURANCE COSTS ARE LOWER ON THE 20-YEAR 16 POLICY BECAUSE, YOU KNOW, ALL THINGS BEING EQUAL, I'M aly PROBABLY GOING TO OUTLIVE THAT 20 YEARS. 18 THE COURT: WELL, LET'S BACK UP. YOU JUST TOLD ME 19 THAT IF PLAINTIFFS SUCCEED IN OBTAINING RESCISSION OF THE 20 POLICIES, YOU ARE GOING TO ARGUE THAT THERE SHOULD BE SOME 21 CREDIT -- 22 MR. SHAPIRO: YES, SIR. 23 THE COURT: -- AFFORDED. 24 MR. SHAPIRO: YES, SIR. JUST LIKE, FOR EXAMPLE -- 25 THE COURT: AND WHAT POLICIES ARE WE TALKING -- Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page15o0f21 PageID #:8226 14 WHEN YOU SAY RESCISSION OF THE POLICIES, WHAT POLICIES ARE WE REFERRING TO? MR. SHAPIRO: ONLY PERMANENT POLICIES ARE THE ONLY ONES IN THE CASE -- PERMANENT LIFE INSURANCE. THE COURT: IS THAT RIGHT? MR. BROSNAHAN: Y ra S. PROVIDER AND PARAGON. THE COURT: PROVIDER AND PARAGON. LET'S BE SPECIFIC. SO, IF PLAINTIFFS -- IF PLAINTIFFS OBTAIN RESCISSION OF PROVIDER AND PARAGON POLICIES, LSW WILL SEEK A CREDIT -- WHAT? -- FOR THE VALUE OF THE DEATH PROTECTION PROVIDED DURING THE PERIOD OF TIME THE POLICIES WERE IN FORCE? MR. SHAPIRO: YES. YOU SAID IT NOW PERFECTLY TWICE IN THE SENSE THAT THERE IS ECONOMIC VALUE, YOUR HONOR, TO BE THE COURT: NO. I UNDERSTAND. AND THAT'S WHAT YOU WERE REFERRING TO IN THOSE LINES THAT YOU MENTIONED -- MR. BROSNAHAN: YES, YOUR HONOR. THE COURT: -- TO ME. OKAY. SO, THE QUESTION PRESENTED IS DOCUMENT REQUEST NUMBER 100 -- SO, FORGET ABOUT ACTUAL VALUE, PLAINTIFFS' DAMAGES THEORY, BECAUSE I REJECT IT -- NOT THAT I REJECT THE THEORY. JI REJECT THEIR ARGUMENTS THAT HOW WE -- YOU KNOW, I Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page1i6of21 PageID #:8227 WON'T REPEAT MYSELF. BUT NUMBER 100 "DOCUMENTS SUF AND GUARANTEED INCLUDED, BUT INSURABLE TABL 15 SAYS, FICIENT TO SHOW YOUR CURRENT COST OF INSURANCE RATES, NOT LIMITED TO, YOUR COSTS OF ES FOR ANY AND ALL TERM LIFE INSURANCE PROD NOW, WE WERE J WHICH ARE NOT THE SAME A a MR. SHAPIRO: THE COURT: SO FOR INFORMATION REGARDIN UCTS THAT YOU SELL." UST REFERRING TO PERMANENT POLICIES, S TERM POLICIES. THAT'S CORRECT, YOUR HONOR. , HOW DOES -- SINCE THIS REQUEST ASKS G TERM INSURANCE PRODUCTS, NOT rg ERMANENT INSURANCE PROD RELEVANT TO THIS CREDIT UCTS, HOW IS THIS INFORMATION THEORY? MR. BROSNAHAN: BECAUSE THE COST OF INSU THE COURT WOULD BE CERTA MORE FAIR AND REASONABLE YOUR HONOR, THIS IS RELEVANT RANCE PER TERM IS A MORE FAIR -- OR INLY FREE TO CONCLUDE THAT IT WAS A MEASURE OF OFFSET THAN THE COST OF INSURANCE THAT'S BUILT I BY ASSUMPTION, NTO THE FRAUDULENT PRODUCTS. IF RESCISSION IS BEING GRANTED, THE COURT HAS CONCLUDED THAT PURCHASING THE POLICIES. WE KNOW THAT T IN THE ILLUSTRATIONS. T COMPLAINING ABOUT. THE PLAINTIFFS WERE DEFRAUDED IN HE COST OF INSURANCE IS NOT DISCLOSED HAT'S ONE OF THE CHARGES THAT WE ARE Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page17of21 PageID #:8228 16 WE ALSO KNOW FROM VARIOUS DOCUMENTS THAT THEY LOAD MARGINS INTO THEIR COST-OF-INSURANCE CHARGES SO THAT THOSE CHARGES ARE INFLATED. THEY'RE NOT A TRUE MEASURE OF -- THE COURT: ALL RIGHT. JUST -- YOU KNOW, YOU'RE STARTING TO WANDER ON ME NOW. I WANTED TO UNDERSTAND -- WE'RE FOCUSING ON NOW THESE LINES YOU POINTED OUT, THE OFFSET FOR THE VALUE OF DEATH BENEFIT PROTECTION. OKAY. SO, MY QUESTION IS -- WHICH WAS SORT OF BURIED IN THAT PARAGRAPH I THOUGHT YOU WERE TALKING ABOUT YOUR ACTUAL VALUE DAMAGES THEORY. BUT NOW YOU'VE GOTTEN ME FOCUSED ON IT. AND I STATED THE ISSUE PRECISELY ACCORDING TO MR. SHAPIRO. SO, THE QUESTION IS, ARE THE DOCUMENTS SOUGHT BY = NUMBER 100 OR SOME SUBSET OF THOSE DOCUMENTS IF IT WAS NARROWED RELEVANT TO THIS CREDIT ISSUE? THAT'S THE ONLY QUESTION. MR. BROSNAHAN: YES. SO, THE QUESTION IS HOW IS THE COURT GOING TO DETERMINE THE AMOUNT OF THE OFFSET. THE COURT: RIGHT. MR. BROSNAHAN: AND THEY WILL ARGUE -- AND I THINK MR. SHAPIRO HAS ALREADY INDICATED -- THAT THEY WOULD ARGUE THAT THE CORRECT AMOUNT OF THE CREDIT IS THE COST-OF-INSURANCE CHARGE THAT IS FOUND IN THE PROVIDER AND PARAGON POLICIES. AND WE WILL SAY, NO, YOUR HONOR. THAT IS NOT A Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page18o0f21 PageID #:8229 17 CORRECT MEASURE OF THE OFFSET BECAUSE THOSE CHARGES ARE INFLATED BY THE FRAUD. AND TO FIND THE CORRECT AMOUNT OF THE CREDIT, YOU a] HAVE TO LOOK AT OTHER SOURCES. ONE WOULD BE THE COST OF TERM E INSURANCE WHICH IS NOT INFLATED BY THE FRAUD. ANOTHER WOULD BE REQUEST NUMBER 110, WHICH LOOKS TO THE ACTUARY -- IT'S THE MORTALITY TABLES THAT THEY USE WHICH ESTABLISH THE ACTUARIALLY FAIR COST OF THE DEATH BENEFIT COMPONENT. BUT THAT DOESN'T BUILD IN THEIR EXPENSES OR ANY AMOUNT OF PROFIT IN IT. BUT I THINK THE COURT SHOULD BE ABLE TO LOOK AT BOTH OF THOSE ALTERNATIVE MEASURES TO CONSIDER WHAT IT BELIEVES IS THE CORRECT AMOUNT OF THE OFFSET. BECAUSE THE COST-OF-INSURANCE CHARGE IN THE PROVIDER AND PARAGON ARE INFLATED BY THE FRAUD. (PAUSE IN PROCEEDINGS. ) THE COURT: SO, 110 IS THE MORTALITY TABLES USED IN PRICING IUL. MR. BROSNAHAN: YES. THAT WOULD BE PARAGON AND PROVIDER. THE COURT: THAT IS PARAGON AND PROVIDER. MR. BROSNAHAN: YES. THOSE ARE THE MORTALITY TABLES. THE COURT: AS OPPOSED TO 100 WHICH TALKS ABOUT TERM. Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page19o0f21 PageID #:8230 18 1 MR. BROSNAHAN: RIGHT. WE BELIEVE WE SHOULD BE 2 ABLE TO ADDUCE EVIDENCE OF BOTH OF THOSE BECAUSE THE 3 MORTALITY TABLES DON'T HAVE ANY EXPENSE OR PROFIT LOAD IN 4 THEM. TERM DOES. IT HAS EXPENSE AND PROFIT LOADS IN IT, BUT 5 THEY'RE DIFFERENT FROM PROVIDER AND PARAGON BECAUSE PROVIDER 6 AND PARAGON'S ARE INFLATED BY THE FRAUD. 7 WE THINK THE COURT SHOULD BE ABLE TO SEE BOTH OF a 8 THOSE SETS OF NUMBERS IN DECIDING WHAT IS THE APPROPRIATE 9 AMOUNT OF THE OFFSET. 10 THE COURT: AND IN YOUR ARGUMENT SECTION ON 110, 11 "BECAUSE PARAGON PROVIDED A BUNDLE OF DIFFERENT 12 ATTRIBUTES INCLUDING THE PURE INSURANCE 13 PROTECTION PROVIDED BY THE DEATH BENEFIT, 14 PLAINTIFFS ARE ENTITLED TO SELL AT THE ACTUAL 15 VALUE OF THIS ATTRIBUTE OF THE POLICIES BY 16 REFERENCE TO THE MORTALITY TABLES." de AND YOU DID ARGUE ABOUT THE OFFSETS. 18 SO, BEFORE WE COME BACK TO 101, JUST FOCUSING ON 19 110, WHY ISN'T THAT INFORMATION RELEVANT TO THIS OFFSET 20 ISSUE? 21 MR. SHAPIRO: IT'S FOCUSING ON 110 -- 22 THE COURT: YES. 23 MR. SHAPIRO: -- WHICH IS NOT THE TERM. 24 THE COURT: RIGHT. 25 MR. SHAPIRO: WE HAVE A WEAKER ARGUMENT. Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page 20of21 PageID #:8231 19 THE COURT: OKAY. MR. SHAPIRO: BECAUSE IT'S NOT TERM. THEY ARE HERE -- THIS REQUEST IS DIRECTED -- IT IS DIRECTED TO THE PRODUCTS AT ISSUE, OR IT COULD BE NARROWED, AT LEAST TO PARAGON AND PROVIDER, THE PRODUCTS AT ISSUE. WE UNDERSTOOD THIS TO BE UNDER ACTUAL VALUE REQUEST. THE COURT: SO DID I BASED ON WHAT -- MR. SHAPIRO: YES. THE COURT: -- WHEN YOU MET AND CONFERRED, YOU KNOW MR. SHAPIRO: SO, IF I MAY, YOUR HONOR, TAKE MY SHOT AT WHY IT'S NOT RELEVANT. THE COURT: YES. MR. SHAPIRO: THE IRRELEVANCE OF THIS ONE -- CARVED OUT-- IS NOT LIKE IRRELEVANT FROM SPACE, WHICH IS EFFECTIVELY, YOUR HONOR, OUR ARGUMENT WITH THE TERM. HERE, THIS CASE HAS BEEN SUSTAINED ON THE BASIS OF FOUR ALLEGED LIES IN THE PRODUCT LITERATURE. NONE -- THE COURT: BUT THOSE FOUR LIES MIGHT STILL BE SUFFICIENT TO -- I MEAN, I'M NOT GOING TO SPECULATE. AT THE END OF THE DAY IF THEY GET RESCISSION, RIGHT? SO, IT DOESN'T REALLY MATTER TO ME -- IT DOESN'T HAVE TO RELATE TO THE FOUR ALLEGED LIES. IF AT THE END OF THE DAY THE REMEDY IS RESCISSION, THEN, THE ISSUE BECOMES WHAT OFFSET, IF ANY, IS Case P:10-cv-09198-JVS -RNB Document 204-2 Filed 04/17/12 Page 21 of21 PageID #:8232 20 LSW ENTITLED TO FOR THE DEATH BENEFIT PROTECTION IT PROVIDED DURING THE PERIOD OF TIME THE POLICIES WERE IN FORCE. IF NUMBER 110 WERE LIMITED PARAGON POLICIES, {= LEAST ARGUABLY RELEVANT TO THAT ISSUE. MR. THE MR. THAT IN TERMS THE TO THE PROVIDER AND PARAGON POLICIES, SO, SHAPIRO: THEY WOULDN'T. COURT: THEY WOULD. TO THE PROVIDER AND WHY WOULDN'T THOSE MORTALITY TABLES BE AT SHAPIRO: NO. AND WE'VE BEEN THINKING ABOUT IT OF THE ACTUAL VALUES, CALL IT THE -- COURT: SO, 110 THEN I WOULD GRANT WITH RESPECT NOW, LET'S GO BACK TO 101, RIGHT? WHICH WASN'T DIRECTED TO THE PARAGON AND PROVIDER POLICIES. IT'S DIRECTED TO TERM INSURANCE. PLAINTIFFS HAVE ARTICULATED A THEORY. IT'S NOT MY FUNCTION IN RULING ON A LIMINE RULING. DISCOVERY MOTION TO MAKE IT AN IN YOU KNOW, THIS IS NOT THE SAME AS MY SAYING, YOU KNOW, YOUR COSTS ARE NOT RELEVANT TO THEIR ACTUAL VALUE BECAUSE I LOOKED AT THEIR CASES. SUPPORT THEM AT ALL. BUT AND THOSE CASES DON'T NOW THEY'VE ARTICULATED A THEORY THAT THEY SAY THEY WOULD ARGUE THAT THE VALUE OF THE DEATH BENEFIT PROTECTION IS 5 -- SHOULD BE MEASURED, YOU KNOW, IF THAT'S AN ATTRIBUTE OF THE POLICY THAT THE EVIDENCE OF THE COST OF PROVIDING IT IN A TERM POLICY IS = RELEVANT. IT'S NOT APPLES