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EXHIBIT A
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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.
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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
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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
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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.
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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
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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
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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
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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?
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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
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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
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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.
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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
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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 --
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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
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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
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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
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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.
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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.
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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