JAMES L. COTT, United States Magistrate Judge.
In this reinsurance case, this New York-based Court must decide an issue of first impression concerning Montana privilege law. The issue arises out of two related miscellaneous actions that were recently transferred to this Court from the District of Montana. In these actions, defendants contend that certain documents that plaintiffs seek in discovery in the underlying action, AmTrust North America, Inc. v. Safebuilt Insurance Services, Inc., No. 14-CV-9494 (CM) (JLC), are privileged under Montana Code Annotated § 33-28-108(3). By its own terms, this statute deems the sought-after information to be confidential. For the reasons explained below, however, the Court concludes that the documents are not privileged and are therefore discoverable.
A complex program of insurance, reinsurance, and reinsurance of reinsurance forms the backdrop of this case. The Court assumes familiarity with the underlying facts of the parties' dispute and will not review those facts in detail here.
Plaintiffs served Pacific Re's regulatory and corporate counsel, Moulton Bellingham, P.C., a Montana-based law firm, with a subpoena on October 9, 2015. See Affidavit of Service, Oct. 14, 2015, Case No. 16-MC-169, Dkt. No. 7-1, at 10.
See id. at 9. On November 23, 2015, Moulton Bellingham responded to the subpoena by producing 154 pages of documents, including an examination report completed by the Office of the Montana State Auditor, Commissioner of Securities and Insurance ("CSI") and orders of supervision by which CSI exercised control over the affairs of Pacific Re. See Letter, Nov. 23, 2015, Case No. 16-MC-169, Dkt. No. 4-2, at 3.
Under Montana law, CSI is required to examine captive insurance companies' books and records at least once every five years. See Mont. Code Ann. § 33-28-108(1)(a). At the conclusion of the examination, CSI produces a verified report of its findings and transmits a copy of the report to the company. See Mont. Code Ann. §§ 33-28-108(2), 33-1-409(1)-(2).
By letters dated January 8, 2016, and January 14, 2016, Moulton Bellingham sought to claw back the report and other CSI-related documents it had produced, stating that they were "confidential" under Montana Code Annotated § 33-28-108 and had been "inadvertently disclosed" in response to the subpoena. See Letter, Jan. 8, 2016, Case No. 16-MC-169, Dkt. No. 7-5; Letter, Jan. 14, 2016, Case No. 16-MC-169, Dkt. No. 7-10. On February 10, 2016, plaintiffs commenced a miscellaneous action in the U.S. District Court for the District of Montana to enforce the subpoena. See Motion to Enforce Subpoena and Compel Discovery, Feb. 10, 2016, Case No. 16-MC-169, Dkt. No. 1.
Before any decision in the miscellaneous action, plaintiffs noticed, by subpoena dated March 2, 2016, a deposition of CSI to obtain information about, among other things, the creation of Pac Re 5-AT, CSI's examination of Pacific Re, and orders of supervision issued to Pacific Re. See Subpoena, Mar. 2, 2016, Case No. 16-MC-170, Dkt. No. 2-1, at 6. The deposition was scheduled for March 14, 2016. See id. at 3.
On March 10, 2016, before the deposition took place, defendants commenced a separate miscellaneous action in the Montana federal district court.
In the Montana district court, the parties consented to the jurisdiction of a magistrate judge to resolve these miscellaneous actions in accordance with 28 U.S.C. 636(c) and Rule 73 of the Federal Rules of Civil Procedure. See Consent Form, Mar. 11, 2016, Case No. 16-MC-169, Dkt. No. 25; Consent Form, Mar. 24, 2016, Case No. 16-MC-170, Dkt. No. 6. On April 8, 2016, the parties appeared for oral argument before Magistrate Judge Carolyn S. Ostby, who issued a written order four days later. See Order, Apr. 12, 2016, Case No. 16-MC-169, Dkt. No. 30. After summarizing the dispute and reviewing the parties' positions,
The miscellaneous actions were transferred on April 27, 2016. See ECF entry, Case No. 16-MC-169, Dkt. No. 32; Case No. 16-CV-170, Dkt. No. 16. That day, the Honorable Colleen McMahon, the presiding judge in the underlying action, ordered that the undersigned would decide both miscellaneous actions given the parties' prior consent to the jurisdiction of a magistrate judge in Montana. See Order, Apr. 27, 2016, Case No. 16-MC-169, Dkt. No. 33.
The same day, the parties submitted a joint letter requesting an expedited decision on the transferred actions. See Letter, Apr. 27, 2016, Case No. 14-CV-9494, Dkt. No. 203. On April 28, 2016, the Court scheduled oral argument for May 9, 2016. See Order, Apr. 28, 2016, Case No. 14-CV-9494, Dkt. No. 204. Aware that time constraints could be an impediment, the Court nonetheless indicated that it was receptive to receiving amicus briefing from CSI and stated that such briefing could take the form of a letter to the Court. See id. In an email to plaintiffs' counsel, however, CSI declined the invitation. See Email, May 3, 2016, Case No. 14-CV-9494, Dkt. No. 205-1. The Court held oral argument on May 9, 2016, and ruled from the bench that the documents in dispute were discoverable, indicating that this written decision would follow.
In a diversity case such as this one, "the existence of a privilege is to be determined by reference to state law." Application of Am. Tobacco Co., 880 F.2d 1520, 1527 (2d Cir.1989); Fed. R. Evid. 501. The parties agree that the law of Montana, not New York, applies to the privilege issue presented by the pending motions. See Plaintiffs' Reply Brief, Mar. 11, 2016, Case No. 16-MC-169, Dkt. No. 21 ("Pl. Reply"), at 10 n. 3 (stating that "Montana law controls"); Defendants' Brief in Opposition to Plaintiffs' Motion to Enforce Subpoenas
As defendants assert the evidentiary privilege, they carry the burden of showing that a privilege applies. See State ex rel. Burlington N. R. Co. v. Dist. Court of Eighth Judicial Dist. of State of Mont. In & For Cty. of Cascade, 239 Mont. 207, 779 P.2d 885, 892 (1989); Kelley v. Billings Clinic, No. 12-CV-74 (BLG) (SHE) (CSO), 2013 WL 2422705, at *2 (D.Mont. June 3, 2013) ("[A] person withholding subpoenaed information under a claim of privilege or other protection bears the burden of proof on that claim.").
Defendants argue that the documents in dispute are privileged under Montana Code Annotated § 33-28-108(3). See Def. Opp. at 12. In relevant part, this statute provides as follows:
Mont. Code Ann. § 33-28-108(3). This provision is found in chapter 28 of Title 33 of the Montana Code Annotated. Title 33 governs insurance and insurance companies generally. See Shattuck v. Kalispell Reg'l Med. Ctr., Inc., 362 Mont. 100, 261 P.3d 1021, 1026 (2011). Chapter 28 governs captive insurance companies, including "protected cell captive insurance companies" like Pacific Re, in particular. See Mont. Code Ann. § 33-28-101(8); Compl. ¶ 2.
For three reasons, the Court concludes that the documents in question are not privileged under § 33-28-108(3). First, the application of principles of statutory interpretation do not support a privilege.
As far as the Court is aware, there is no Montana case law interpreting § 33-28-108(3), and the parties have cited none. Nevertheless, we are guided by principles of statutory interpretation that Montana courts follow. "Statutory interpretation is a `holistic endeavor' that must consider the statute's text, language, structure, and object." Fliehler v. Uninsured Employers Fund, 310 Mont. 99, 48 P.3d 746, 748 (2002). The goal "is to ascertain and give effect to the legislative intent." See id. (citing Mont. Code Ann. § 1-2-102). "If the words of the statute are clear and plain, we discern the intent of the legislature from the text of the statute." See id. At the same time, "statutory construction should not lead to an absurd result if a reasonable interpretation can avoid it." Van der hule v. Mukasey, 349 Mont. 88, 217 P.3d 1019, 1021 (2002).
The language of § 33-28-108(3), if interpreted literally, would provide sweeping protections to almost any record that played any part in a CSI examination. Ordinary business records, and copies of those records in the company's control, that were exchanged in the course of an examination would receive protection, even if the records were relevant to pending litigation and otherwise discoverable. After all, this "recorded information" (the business records) would be "disclosed to the commissioner or [another] person in the course of an examination" and, accordingly, would become "confidential" and "not subject to subpoena." See Mont. Code Ann. § 33-28-108(3). Under this reading, it is unclear if even a court-ordered subpoena would be sufficient to compel the production of such ordinary business records from the company.
To avoid the anomalous results that a literal interpretation of § 33-28-108(3) would yield, the Court interprets this statute to protect documents in the possession of CSI — not the examined company. During the course of an examination, CSI collects sensitive information from captive insurance companies, including information related to the companies' "affairs, transactions, accounts, records, and assets." Mont. Code Ann. § 33-28-108(1)(a). The confidentiality protections of § 33-28-108(3) seek to protect company information that is in the control of CSI and, thus, a court order or the company's written consent is generally required for CSI to release this information. The purpose of the statute, however, is not to provide a shield for examined companies to use in discovery, which is how defendants are attempting to use it here.
The Court's interpretation of the statute is consistent with its provision that documents "may not be made public by the commissioner or an employee or agent of the commissioner." See Mont. Code Ann. § 33-28-108(3). Notably absent from this list is any mention of the examined company and its agents. This clause seems to reflect the Montana legislature's intent of prohibiting CSI from freely releasing sensitive information about examined companies.
The Court also notes that, although Montana Code Annotated § 33-28-108(3) provides that the documents are "confidential," this subsection does not expressly create a privilege. "If the information sought is confidential but not privileged, [Rule] 26 does not limit disclosure of otherwise discoverable information." Steinberg v. Mount Sinai Med. Ctr., Inc., No. 12-CV-51 (SLT) (VMS), 2014 WL 1311572, at *2 (E.D.N.Y. Mar. 31, 2014) (collecting cases). "A non-disclosure or `confidentiality' provision in a statute may not always create an evidentiary privilege, especially if the legislature did not `explicitly create an evidentiary privilege.'" Van Emrik v. Chemung Cty. Dep't of Soc. Servs., 121 F.R.D. 22, 25 (W.D.N.Y.1988) (quoting Am. Civil Liberties Union of Mississippi, Inc. v. Finch, 638 F.2d 1336, 1339 (5th Cir.1981)); United States v. Phoenix Union High Sch. Dist., 681 F.2d 1235, 1237 (9th Cir.1982) (confidentiality statute "prohibit[s] voluntary public disclosure" but "not disclosure pursuant to a legitimate legal inquiry").
Here, it is revealing that, unlike § 33-28-108(3), another section of Title 33 deems certain documents not only "confidential" but also "not discoverable or admissible as evidence in any private action." See Mont. Code Ann. § 33-1-409(6)(a).
Although no court has specifically interpreted § 33-28-108(3), courts have interpreted similarly worded statutes from other states. See City of Sterling Heights Gen. Employees' Ret. Sys. v. Prudential Fin., Inc., No. 12-CV-5275, 2015 WL 1969368, at *4 (D.N.J. Apr. 30, 2015) ("[E]ach state has enacted a confidentiality statute with respect to the conduct of insurance examinations."). In cases of first impression such as this one, Montana courts "may properly look to interpretations under similar acts from other jurisdictions." Martinell v. Montana Power Co., 268 Mont. 292, 886 P.2d 421, 428 (1994); N. Pac. Ins. Co. v. Stucky, 377 Mont. 25, 338 P.3d 56, 63-64 (2014) (looking to case law from other states' courts to help decide issue of first impression); Montana Petroleum Tank Release Comp. Bd. v. Crumleys, Inc., 341 Mont. 33, 174 P.3d 948, 957-58 (2008) (same).
The Court's interpretation of § 33-28-108(3) is consistent with the majority of cases that have interpreted similar insurance-examination statutes. See, e.g., Maple Creek Commons Homeowners Ass'n v. State Farm Fire & Cas. Co., No. 1:08-CV-475 (TWP), 2012 WL 14022, at *2-5 (S.D.Ind. Jan. 4, 2012) (Ind. Code Ann. § 27-1-3.1-15 did not create an evidentiary privilege); Heritage Healthcare Services, Inc. v. Beacon Mut. Ins. Co., No. PC 02-7016, 2007 WL 1234481 (R.I.Super.Ct. Apr. 17, 2007) (R.I. Gen. Laws Ann. § 27-13.1-5(f) does not create an evidentiary privilege for the examined insurance company); Continental Insurance, 2006 WL 6157628, 2006 N.Y. Misc. LEXIS 9430, at *7-9 (N.H. Rev. Stat. Ann. § 400-A:37(IV-a)(b) and 215 Ill. Comp. Stat. Ann. 5/132.5(f) do not create evidentiary privileges for company); Miller v. Liberty Mut. Fire Ins. Co., No. 2:03-CV-2325, 2004 WL 897086, at *3-4 (S.D.W.Va. Apr. 27, 2004) (W. Va. Code Ann. § 33-2-9(4) does not create evidentiary privilege); see also City of Sterling Heights, 2015 WL 1969368, at *4-6 (declining to recognize federal "insurance examination privilege").
For example, in Continental Insurance v. Garlock Sealing Technologies, the New York Supreme Court analyzed whether New Hampshire and Illinois insurance-examination statutes created an evidentiary privilege for the examined insurance company. See 2006 WL 6157628, 2006 N.Y. Misc. LEXIS 9430, at *7-8. The Illinois law, which more closely resembles the language of § 33-28-108(3),
See id. at *8 (quoting 215 Ill. Comp. Stat. Ann. 5/132.5(f)). The New York court found that both the Illinois and New Hampshire statutes prohibited the state agency from disclosing company records, but that the statute's protection did not extend to information in the company's control. See id. at *8-9. The court explained that, while "[c]ertainly these statutes are intended to prohibit the investigative body from publically disclosing materials that it obtained during the course of an investigation," it made "no sense ... to construe these statutes to also protect the subject of the investigation from providing discovery of documents which, but for the investigation, would be discoverable." Id. Although documents produced by the company for the investigation might be subject to "other privileges, like attorney work product," the statutes themselves did not create a new privilege. See id.
In Miller v. Liberty Mutual, the U.S. District Court for the Southern District of West Virginia reached a similar conclusion. The West Virginia statute at issue read as follows:
Miller, 2004 WL 897086, at *3 (quoting W. Va. Code Ann. § 33-2-9(4)). Like the New York court in Continental, the West Virginia court found that the applicable statute "require[s] the Insurance Commissioner to maintain the confidentiality of information submitted in connection with an examination, but those sections do not extend a blanket protection of confidentiality to insurance company records." Id. at *4. The court concluded that the documents at issue could be sought "from the insurance company, but not from the Insurance Commissioner." Id.
Likewise, in Maple Creek v. State Farm, the Indiana court held that a draft examination report was discoverable, despite defendants' claim that it was privileged under Indiana law. The state statute there provided that:
Maple Creek, 2012 WL 14022, at *2 (quoting Ind. Code Ann. § 27-1-3.1-15). The Maple Creek court concluded that the statute did not prevent the insurance company itself from disclosing a draft report, even if the state regulator was prohibited from doing so. See id. at *3. The court determined that the report was discoverable in part because, unlike the statutes in question, provisions elsewhere in the Indiana law had expressly made documents "undiscoverable, privileged, or beyond the reach of a court order." See id. at *4. Thus, the
Finally, in Heritage v. Beacon, the Superior Court of Rhode Island held that a Rhode Island state statute did not create an evidentiary privilege for the examined company. The Rhode Island statute provided:
Heritage, 2007 WL 1234481 (quoting R.I. Gen. Laws Ann. § 27-13.1-5(f)). The court determined that the purpose of this provision was to shield from public disclosure company documents in the hands of the state insurance agency, not the company. See id. It found that a broader interpretation of the statute "would allow [the company] to assert a privilege with respect to every document reviewed or disclosed to [the state agency], even if they otherwise would not be privileged." Id. According to the court, the statute simply sought to ensure that "persons beyond the examined company's control will not cause it harm by disclosing sensitive information which may otherwise be privileged." Id. As such, "[t]his rationale simply has no application to the case where the Plaintiff seeks disclosure directly from the examined company." Id.
Although there appears to be a general consensus among courts interpreting similar statutes in other states, there is not unanimity. Defendants direct the Court to two cases interpreting an analogous California insurance-examination statute. See Def. Opp. at 26, 28 (citing Rowe v. Bankers Life & Cas. Co., No. 09-CV-491, 2011 WL 1897181 (N.D.Ill. May 18, 2011); Gallimore v. State Farm Fire & Cas. Ins. Co., 102 Cal.App.4th 1388, 126 Cal.Rptr.2d 560 (2002)). These cases are related: The federal district court in Rowe concluded that insurance-examination documents were privileged under California Insurance Code § 735.5, in large part because the state trial court had reached that conclusion in Gallimore and the appellate state court left that conclusion undisturbed when it reversed the trial court on other grounds. See Rowe, 2011 WL 1897181, at *4-6.
If this Court were interpreting the California statute, Gallimore would carry great weight, as it did for the Rowe court. See McCarthy v. Olin Corp., 119 F.3d 148, 154 (2d Cir.1997) ("While a federal court is not bound by lower state court decisions, they do have great weight in informing the court's prediction on how the highest court of the state would resolve the question.") (internal quotation marks and alternations omitted). But the California statute is not at issue here and, in any event, the Court does not find the California trial court's reasoning to be persuasive. Although the California court's ruling might accord with
In sum, a review of case law interpreting similar statutes from other states supports the conclusion that the Montana statute does not prohibit disclosure of the documents at issue.
Finally, it is worth noting that CSI, the state regulator charged with enforcing § 33-28-108, has been largely cooperative with plaintiffs, despite defendants' privilege-based objections. "Under the case law, it is clear that, when faced with problems of statutory construction, the court must show deference and respect to the interpretations given the statute by the officers and agencies charged with [its] administration." State By & Through Dep't of Highways v. Midland Materials Co., 204 Mont. 65, 662 P.2d 1322, 1325 (1983).
Here, CSI expressly declined to submit any formal administrative interpretation of § 33-28-108. While CSI's conduct alone plainly does not amount to such an interpretation, it is still telling that CSI appeared at a deposition to discuss Pacific Re, even after defendants urged it not to appear. See SDNY Transcript at 29. Moreover, at the deposition, CSI freely discussed the allegedly privileged documents over defendants' objections. If CSI believed that the disputed documents were privileged under § 33-28-108(3), it presumably would have resisted questions about them at its deposition.
Although the Court has ruled that the CSI report and related documents are not privileged, they will nevertheless be subject to the terms of the stipulated protective order that is in place in the underlying action. See Stipulation and Protective Order, May 4, 2015, Case No. 14-CV-9494, Dkt. No. 50. At oral argument, plaintiffs agreed to this condition. See SDNY Transcript at 14.
For all these reasons, plaintiffs' motion to enforce the October 9, 2015 subpoena issued to Moulton Bellingham, P.C. is granted and defendants' motion to quash the March 2, 2016 subpoena issued to CSI is denied.