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SPV-LS, LLC v. Transamerica Life Insurance Co.

United States District Court, D. South Dakota, Southern Division

August 23, 2017

SPV-LS, LLC, Plaintiff,
v.
TRANSAMERICA LIFE INSURANCE COMPANY, Defendant and Third-Party Plaintiff,
v.
NACHMAN BERGMAN, as Trustee of The N Bergman Insurance Trust dated December 18, 2006; MALKA SILBERMAN, as Successor Trustee of The N Bergman Insurance Trust dated December 18, 2006; LIFE TRADING TRUST, dated August 8, 2007; T-LEG, LLC, a/k/a TLEG LLC; FINANCIAL LIFE SERVICES, LLC; SPVII LLC; and THE REPRESENTATIVE OF THE ESTATE OFNANCY BERGMAN, Third-Party Defendants.

          MEMORANDUM OPINION AND ORDER REGARDING SANCTION CLAIMS AND DIRECTING DRAFTING OF FINAL JUDGMENT

          Lawrence L. Piersol United States District Judge.

         The background facts of this case are summarized in this Court's Memorandum Opinion granting the Plaintiffs Motion for Summary Judgment, Doc. 225, filed April 14, 2016, and the Court's Memorandum Opinion Granting Plaintiffs Motion for Summary Judgment, Doc. 482, filed April 5, 2017. Still pending before the Court are various claims by SPV for sanctions against some of the lawyers who have represented Third-Party Defendants in this litigation.

         SPV is asking for monetary damages for sanctions against Aaron Twersky, who was the last of a series of lawyers who represented Silberman, who was the successor trustee of The N Bergman Insurance Trust. Sanctions were also requested against attorneys representing the Estate of Nancy Bergman, that being Brian Donahoe as the local South Dakota counsel, and attorney Gerald Kroll, the California lawyer who was the primary counsel for The Estate of Nancy Bergman.

         STANDARD OF REVIEW

In the Eighth Circuit, district court impositions of sanctions are. governed by the abuse of discretion standard. Perkins v. General Motors Corp., 965 F.2d 597, 602 (8th Cir. 1992) (upholding district court's imposition of sanctions under Federal Rules of Civil Procedure 11 and 26); Gallagher v. Magner, 619 F.3d 823, 844 (8th Cir. 2010) ("We review an order denying discovery sanctions for an abuse of discretion.") (citation omitted). "[T]he district courts [are given] a large amount of discretion in regulating and sanctioning misconduct which occurs in proceedings before it." Good Stewardship of Christian Center v. Empire Bank, 341 F.3d 794, 797 (8th Cir. 2003) (citing Hunt v. City of Minneapolis, Minn, 203 F.3d 524, 527 (8th Cir. 2000)). See Bunting v. Sea Ray, Inc., 99 F.3d 887, 890 (8th Cir. 1996) (holding that "[t]he conduct of discovery is committed to the trial court's sound discretion." The trial court did not "condone" obstructionist tactics in refusing to grant sanctions). Specific to when deciding whether to dismiss a case as a sanction for discovery abuses, "the district court must balance its 'need to advance its burdened docket against the consequence of irrevocably extinguishing [a] litigant's claim.' " Empire Bank, 341 F.3d at 797 (citation omitted). While a district court is advised to first consider lesser sanctions, Keefer v. Provident Life and Ace. Ins. Co., 238 F.3d 937, 941 (8th Cir. 2000), "[t]he futility of lesser sanctions is a further consideration in the district court's balancing calculation." Empire Bank, 341 F.3d at 797 (citing First Gen. Res. Co. v. Elton Leather Corp., 958 F.2d 204, 206 (8th Cir. 1992)). Moreover, imposing a sanction on a litigant "is proper only if just and expressly related to the particular claim." MacGregor v. Mallinckrodt, Inc., 373 F.3d 923, 935 (8th Cir. 2004) (citing Keefer, 238 F.3d at 941).

         DISCUSSION

         Federal Rule of Civil Procedure 37 " 'provides generally for sanctions against parties or persons unjustifiably resisting discovery.' " § 2281 History and Purpose of Rule, 8B Fed. Prac. & Proc. Civ. § 2281 (3d ed.) (quoting Advisory Committee Note to 1970 amendments of Rule 37, 78 F.R.D. at 538). In the Eighth Circuit, "[I]mposition of discovery sanctions requires 'an order compelling discovery, a willful violation of that order, and prejudice to the other party.' Mallinckrodt, 373 F.3d at 934 (quoting Chrysler Corp. v. Carey, 186 F.3d 1016, 1019 (8th Cir. 1999)). See Guifu Li v. A Perfect Day Franchise, Inc., 281 F.R.D. 373, 390 (N.D. Cal. 2012) ("As a condition precedent to imposing sanctions pursuant to Federal Rule of Civil Procedure 37 the Defendants must have violated a Court Order."); Fed. Prac & Proc,, supra at § 2282 ("The general scheme of [] [R] ule [37] is that ordinarily sanctions can be applied only for a failure to comply with an order of the court.) Defendants had to be forced by motion to comply but ultimately, after much effort by SPV and the Court, the Estate did ultimately substantially comply in the proceedings before this Court. Nachman Bergman, as an individual and Trustee did only partially comply and the sanction of dismissal of his claims was and is again granted. Compliance by Malka Silberman individually and as Trustee will be discussed only in regard to the period of representation by Attorney Twersky. See:

Doc. 312, Order Granting in Part and Denying in Part Plaintiff and Third-Party Defendants' Motion to Compel, Docket No. 196, dated June 28, 2016
Doc. 305, Order on Plaintiffs and Third-Party Defendants' Motion to Compel, Docket No. 237, dated June 28, 2016
Doc. 342, Order on Motion to Compel Brian Donahoe to Comply with Subpoena, Docket No. 252, dated August 11, 2016
Doc. 327, Order on Plaintiffs and Third-Party Defendants' Motions to Compel Attorneys Pamela Reiter and Ronald Parsons to Comply with Subpoenas, Docket No. 255, dated July 15, 2016
Doc. 309, Order on Plaintiffs and Third-Party Defendants' Motion to Compel Attorney Alan Peterson to Comply with Subpoena, Docket No. 258, dated June 29, 2016
Doc. 310, Order on Plaintiffs and Third-Party Defendants' Motion to Compel Attorney Matthew Dorothy to Comply with Subpoena, Docket No. 261, dated June 29, 2016
Doc. 311, Order on Plaintiffs and Third-Party Defendants' Motion to Compel and for Sanctions Against Third-Party Defendant Nachman Bergman, Docket No. 278, dated June 30, 2016
Doc. 472, Memorandum Opinion and Order on Plaintiffs and Third-Party Defendants' Motion to Compel, filed March 6, 2017

         SPV has failed the first prong of the Eighth Circuit's three-part test for Rule 3 7 sanctions-an order compelling discovery. See Countryside Cas. Co. v. Orr, 523 F'.2d 870, 872 n. 3 (8th Cir. 1975) ("The sanctions found in Fed.R.Civ.P. 37 are the only relief available for failure to make discovery.") (citations omitted).

         Under Federal Rule of Civil Procedure 11, district court impositions of sanctions are reviewed under the deferential "abuse of discretion" standard. Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 405, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990). "A district court would necessarily abuse its discretion if it based its ruling on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Id. A Rule 11 sanction might

be warranted when a pleading is "presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation, " Fed.R.Civ.P. 11(b)(1), contains allegations or factual contentions that lack evidentiary support, Fed.R.Civ.P. 11(b)(3), or contains denials of factual contentions that are not warranted on the evidence. Fed.R.Civ.P. 11(b)(4).

Clark v. United Parcel Service, Inc., 460 F.3d 1004, 1008 (8th Cir. 2006). Furthermore, "Rule 11 sanctions are imposed only in response to claims that are not 'warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law." MHC Inv. Co. v. Racom Corp., 323 F.3d 620, 623 (8th Cir. 2003) (quoting Fed.R.Civ.P. 11(b)(2)). Fatal to SPV's claim that Rule 11 has application here, however, "Rule 11 expressly does not apply to disclosures and discovery requests or responses subject to Rules 2[6] through 37." Ideal Instruments, Inc. v. Rivard Instruments, Inc., 243 F.R.D. 322, 334 (N.D. IA. 2007) (citing Fed.R.Civ.P. 11(d) (emphasis in original). See Perkins, 965 F.2d at 601-02 (upholding Rule 11 sanctions based on motion practice unrelated to discovery). No basis has been shown for Rule 11 sanctions.

         Unlike sanctions imposed under Rule 11, which are imposed at a court's discretion, Federal Rule of Civil Procedure 26 "requires sanctions if a violation of the rule is found." Books are Fun, Ltd. v. Rosebrough, 239 F.R.D. 532, 550 (S.D. IA. 2007) (citations omitted). "Rule 26(g) sanctions are designed 'to deter abuse and compensate the opposing party for all expenses, whenever incurred, that would not have been sustained had the opponent conducted itself properly.' " Id. (quoting Johnson Int'l Co. v. Jackson Nat'l Life Ins. Co., 19 F.3d 431, 439 n. 10 (8th Cir. 1994) (internal quotations and citation omitted)). Rule 26(g) sanctions are proper " 'when the signing of [a discovery request] is incomplete, evasive or objectively unreasonable under the circumstances.' " Id. (quoting st. Paul Reinsurance Co. Ltd. v. Commercial Fin. Corp., 198 F.R.D. 508, 515 (N.D. Iowa 2000)) (alteration in original). See Oregon RSA No. 6, Inc. v. Castle Rock Cellular of Oreg. Ltd. Partnership, 16 F.3d 1003, 1007 (9th Cir. 1996) (using "an objective standard to determine whether a party or attorney has responded or objected to a discovery request for an improper purpose."). "The most obvious situation where sanctions are appropriate occurs when a party or its attorney submits a false discovery document." Rosebrough, 239 F. R. D. at 551 (citing Perkins, 965 F.2d at 600 n. 5). Submitting a false discovery document-or fabricating evidence-"has been referred to as 'the most egregious misconduct' which justifies a finding of fraud upon the Court." Interpreter Services, Inc. v. BTB Technologies, Inc., No. CIV 10-4007, 2011 WL 6935343, at *8 (D.S.D. Dec. 29, 2011) (quoting In re Coordinated Pretrial Proceedings in Antibiotic Antitrust Actions (Antitrust Actions), 538 F.2d 180, 195 (8th Cir. 1976), abrogation on other grounds recognized by Briscoe v. County of St. Louis, Missouri, 690 F.3d 1004, 1011 n. 2 (8th Cir. 2012)). For a court to find such a fraud has been committed, it "must be supported by clear, unequivocal and convincing evidence." Antitrust Actions, 538 F.2dat 195 (citing Barr Rubber Products Co. v. Sun Rubber Co., 425 F.2d 1114, 1120 (2nd Cir. 1970), cert, denied 400 U.S. 878, 91 S.Ct. 118, 27 L.Ed.2d 115 (1970)).

         With regard to the claims against Aaron Twersky, some more history is necessary. Malka Silberman as Successor Trustee of The N Bergman Insurance Trust, was represented at the inception of this litigation in 2014 by Andrew Citron. Attorney Citron never made an appearance in the litigation but secured the representation for Silberman by the South Dakota law firm of Johnson, Heidepriem, & Abdallah. The Johnson, Heidepriem firm, through their attorneys, Pamela Bollweg and Ronald Parsons of Sioux Falls appeared for Malka Silberman on September 25, 2014, and withdrew from that representation on October 20, 2015. Silberman was next represented by Attorney Matthew Dorothy beginning on November 19, 2015, and that representation lasted until April 8, 2016. Next, after Attorney Dorothy, Silberman was represented by attorney Aaron Twersky who made his appearance in the litigation on April 8, 2016, and that representation continued until he and local counsel, James Moore of Woods, Fuller, Shultz & Smith moved on August 16, 2016, to be allowed to withdraw. The Court allowed their withdrawal from the ...


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