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Life Receivables Trust v. Syndicate 102 at Lloyd's of London

United States Court of Appeals for the Second Circuit

October 23, 2008, Argued; November 25, 2008, Decided

Docket No. 07-1197-cv

Opinion

 [*212]  WESLEY, Circuit Judge:

This appeal places squarely before us a question that has divided the circuits: 2 Does section 7 of the Federal Arbitration Act ("FAA"), 9 U.S.C. § 7, authorize arbitrators to compel pre-hearing document discovery from entities not parties to the arbitration proceeding? The Eighth Circuit has held  [**2] that it does, see In re Arbitration Between Sec. Life Ins. Co. of Am., 228 F.3d 865, 870-71 (8th Cir. 2000); the Third Circuit has determined that it does not, see Hay Group, Inc. v. E.B.S. Acquisition Corp., 360 F.3d 404, 407 (3d Cir. 2004); and the Fourth Circuit has concluded that it may -- where there is a special need for the documents, see Comsat Corp. v. Nat'l Sci. Found., 190 F.3d 269, 275 (4th Cir. 1999). Like the Third Circuit, we hold that section 7 does not enable arbitrators to issue pre-hearing document subpoenas to entities not parties to the arbitration proceeding, and therefore reverse the order of the United States District Court for the Southern District of New York (Owen, J.).

BACKGROUND

This case arises from the somewhat macabre market for contingent cost insurance which mitigates the risk in purchasing the life insurance policies of still-living individuals. Life Settlements Corp. d/b/a Peachtree Life Settlements ("Peachtree") purchases life insurance policies  [**3] from elderly insureds, offering them, while still of this world, a cash payment at a discount to the face value of the policies. Peachtree's purchase price is based on a variety of factors, perhaps the most important of which is its own independent estimate of the insured's life expectancy. Upon purchase, Peachtree becomes the new policy owner and beneficiary, and continues to pay premiums until the insured dies.

Peachtree buys some life insurance policies for its own account, and others for the accounts of related entities, including Life Receivables Trust (the "Trust"), a special purpose vehicle created for this objective. In these instances, after Peachtree performs the actuarial and financial legwork needed to purchase the policy, it transfers its interest in the policy to the Trust, but continues to receive contractual fees, although it does not hold a financial interest in or beneficially own the Trust. The Trust, on the other hand, pays the premiums on the policy while the insured remains alive in order to keep the policies in force. Upon the insured's demise, the Trust is paid the "net death benefit" on the policy.

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549 F.3d 210 *; 2008 U.S. App. LEXIS 24977 **; 45 A.L.R. Fed. 2d 727

LIFE RECEIVABLES TRUST, Claimant, LIFE SETTLEMENTS CORPORATION, doing business as Peachtree Life Settlements, Movant-Appellant, - v. - SYNDICATE 102 AT LLOYD'S OF LONDON, Respondent-Appellee.

Prior History:  [**1] Appeal from an order of the United States District Court for the Southern District of New York (Owen, J.) enforcing an arbitral subpoena under section 7 of the Federal Arbitration Act, 9 U.S.C. § 7. We reverse, holding that section 7 does not authorize an arbitrator to compel pre-hearing document discovery from non-parties to the arbitration.

Life Receivables Trust v. Syndicate 102 at Lloyd's of London (In re Life Settlements Corp.), 2007 U.S. Dist. LEXIS 98461 (S.D.N.Y., Mar. 12, 2007)

CORE TERMS

arbitrators, documents, subpoena, discovery, non-party, parties, pre-hearing, policies, arbitration agreement, arbitration panel, courts, arbitration proceedings, entities, life expectancy, district court, third party, insured, attend, subpoena power, authorize, summons, terms

Civil Procedure, Arbitration, Federal Arbitration Act, General Overview, Discovery & Disclosure, Discovery, Subpoenas, Governments, Legislation, Interpretation