SPV-LS, LLC v. The Estate of Nancy Bergman

United States Court of Appeals
For the Eighth Circuit
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No. 17-3177
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SPV-LS, LLC
lllllllllllllllllllllPlaintiff - Appellee
v.
Transamerica Life Insurance Company
lllllllllllllllllllllDefendant
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, also known as TLEG LLC; Financial Life Services, LLC; SPV II LLC
lllllllllllllllllllllThird Party Defendants
lllllllllllllllllll
The Representative of The Estate of Nancy Bergman
lllllllllllllllllllllThird Party Defendant - Appellant
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No. 17-3179
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SPV-LS, LLC
lllllllllllllllllllllPlaintiff - Appellant
v.
Transamerica Life Insurance Company
lllllllllllllllllllllDefendant
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, also known as TLEG LLC; Financial Life Services, LLC; SPV II LLC
lllllllllllllllllllllThird Party Defendants
The Representative of The Estate of Nancy Bergman
lllllllllllllllllllllThird Party Defendant - Appellee
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Appeals from United States District Court
for the District of South Dakota - Sioux Falls
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Submitted: October 16, 2018
Filed: January 8, 2019
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Before SHEPHERD, KELLY, and STRAS, Circuit Judges.
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SHEPHERD, Circuit Judge.
The Estate of Nancy Bergman (the Estate), through its personal representative,
appeals a district court order denying its motion for reconsideration of an adverse
grant of summary judgment. SPV-LS, LLC (SPV) cross-appeals the district court’s
denial of 28 U.S.C. § 1927 and Fed. R. Civ. P. 26(g)(3) sanctions against the Estate’s
attorneys. The district court had jurisdiction under 28 U.S.C. § 1332, and we have
jurisdiction pursuant to 28 U.S.C. § 1291. For the following reasons, we affirm in part
and reverse in part, remanding for further consideration the denial of sanctions against
attorney Gerald Kroll.
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I.
This case concerns a $10 million life insurance policy (the Policy) issued by
Transamerica Occidental Life Insurance Company (Transamerica) on the life of
octogenarian Nancy Bergman. While the Estate and SPV differ in their interpretations
of the motives underlying much of what happened, the basic facts are as follows.
Sometime prior to October 2006, Nancy’s grandson, Nachman Bergman,
approached her about procuring life insurance as part of an investment scheme.
Nachman explained that 82-year-old Nancy would apply for life insurance, which
would be funded by a group of investors led by Jacob Herbst. The investors would
then sell all acquired policies on the secondary market after the two-year contestability
period expired, giving Nancy a small share of the profits. Nancy agreed to participate
and Transamerica issued a $10,000,000 certificate of insurance to her in October
2006. In December 2006, Nancy executed a trust instrument establishing the N
Bergman Insurance Trust (the Trust) and appointing Nachman as its sole trustee and
primary beneficiary. Pursuant to paperwork filed by Nancy and Nachman,
Transamerica then issued the Policy in March 2007. The Policy certificate designated
the Trust as the Policy’s intended owner. The investors provided funds for Policy
premiums, which were paid through the Trust.
In 2009, Financial Life Services (FLS) contracted with the Trust to purchase the
Policy for $1,350,000. FLS is a life settlement provider—a company which purchases
life insurance policies for more than the cash surrender value but less than the amount
of death benefits payable under the policy, then collects the death benefits when the
insured individual dies. Shortly after executing the purchase agreement, FLS learned
that the Trust had failed to pay $64,500 in Policy premiums. FLS paid these premiums
to prevent the Policy from lapsing. FLS then learned that Nancy’s life expectancy was
materially longer than represented and that, contrary to the Trust’s representations,
investor funds, not family funds, had paid for the Policy. FLS found this significant
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because life insurance policies paid for by and intended to benefit strangers (stranger-
originated life insurance policies, or STOLIs), are worth less on the secondary market
than policies funded by the insured individual or her family members. This is
because, in the secondary insurance market, STOLIs are widely considered to be
indicia of fraud.
FLS discovered these facts before paying the Trust for the Policy and therefore
invoked a provision of the purchase agreement allowing it to rescind its purchase of
the Policy based on fraud in the procurement of the sale contract. It also requested
reimbursement of the premiums it paid. When its efforts to rescind the transaction
failed, FLS instead exercised its contractual right under the purchase agreement to
tender a reduced purchase price in light of the Trust’s misrepresentations as to
Nancy’s life expectancy and the Policy’s funding source. FLS tendered the
contractually-determined alternate purchase price of $610,500, which the Trust
rejected. FLS filed a breach of contract suit against the Trust in the Eastern District
of New York, seeking rescission of the purchase agreement and reimbursement of
advanced premiums. It continued to pay premiums to prevent the Policy from lapsing.
The New York district court ultimately entered judgment in FLS’s favor for
over a million dollars, including premium reimbursements, post-judgment interest,
and attorneys’ fees. Because the Trust admitted it could not pay, the district court
ordered a sale of the Policy—the Trust’s only asset—at auction to satisfy that
judgment. FLS submitted the winning—and only—bid of $1,194,522 and eventually
transferred the Policy to SPV.
Nancy Bergman died on April 6, 2014. SPV submitted a claim for death
benefits under the Policy to Transamerica on May 29, 2014. Transamerica refused to
pay SPV’s claim because it received competing claims from Nachman Bergman and
from Jacob Herbst’s wife Malka Silberman, both of whom claimed to be trustee of the
Trust. Seeking payment of the Policy proceeds, SPV filed a complaint against
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Transamerica for breach of contract in the United States District Court for the District
of South Dakota.1 In the same action, Transamerica asserted a statutory interpleader
under 28 U.S.C. § 1335, deposited the Policy death benefits of $10,000,000 with the
district court, and asked the court to determine the respective rights of SPV, the Trust,
and Nancy’s Estate. The Estate then asserted a cross-claim to the Policy proceeds
under N.J. Stat. Ann. § 17B:24-1.1, a New Jersey statute that allows the insured’s
estate to disgorge proceeds from the contractual beneficiary of a STOLI.
SPV moved for summary judgment on the Estate’s cross-claim on two grounds.
First, SPV asserted that, under South Dakota choice-of-law analysis, New York law
governed the case, making the Estate’s statutory claim irrelevant. Second, SPV
argued that STOLIs were legal in New York at the time the Policy was procured. The
Estate countered that New Jersey law should apply, that New York law was in accord
with New Jersey law, and that the Estate should prevail on public policy grounds.
The district court held that New York law applied. It found that, at the time the
Policy was procured, New York allowed STOLIs as long as the policy in question was
initially procured by the insured or someone with an insurable interest in the life of
the insured and that, under Kramer v. Phoenix Life Insurance Co., 940 N.E.2d 535
(N.Y. 2010), an insured could procure a policy with the intent to immediately assign
it to stranger investors. See id. at 551-52. The district court further found, as a matter
of law, that Nachman Bergman had an insurable interest in his grandmother’s life.
Based on these facts, the district court granted summary judgment against the Estate
and dismissed its claims to the Policy proceeds.
The Estate then filed a motion for reconsideration pursuant to Fed. R. Civ. P.
54(b) and raised a new argument: that Nancy Bergman only acted under nefarious
1
SPV filed this action in South Dakota rather than New York because neither
original party is a New York citizen. SPV’s parent company, South Dakota Trust
Company LLC, is a citizen of South Dakota and Transamerica is a citizen of Iowa.
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influence or coercion on the part of the investors. SPV countered that the Estate could
have raised this argument at summary judgment and failed to do so, and that the Estate
presented no new evidence raising a genuine issue of material fact. The district court
noted that the Estate had failed to raise this argument previously, but it nevertheless
held the Estate’s motion for reconsideration in abeyance and allowed it to conduct
limited further discovery. As the discovery deadline neared, the Estate filed a
supplemental submission in further support of its motion for reconsideration and
presented another new argument: judicial estoppel. The Estate contended that SPV
could not argue that the Policy was supported by an insurable interest because FLS,
SPV’s predecessor in interest, sought to rescind its purchase of the Policy based on
its STOLI status. SPV countered that neither it nor FLS had ever argued the Policy
was unsupported by an insurable interest and that all the information and evidence
upon which the Estate relied was available to it at summary judgment.
The district court ultimately denied the Estate’s motion for reconsideration
based on lack of evidence. It found that SPV had never argued the Policy lacked an
insurable interest and that all of the testimony from Nancy’s family members and an
examining doctor showed that Nancy was competent, strong-willed, and knew what
she was doing. It further reiterated that New York law, specifically Kramer,
controlled and that, even if the Policy was a STOLI, such policies were legal in New
York when the Policy was issued. SPV then sought sanctions against the Estate’s
attorneys, Brian Donahoe and Gerald Kroll, claiming that both attorneys had
“unreasonably and vexatiously multiplied the proceedings” in violation of 28 U.S.C.
§ 1927 and that Attorney Kroll had submitted a forged discovery document in
violation of Fed. R. Civ. P 26(g). The district court declined to impose sanctions.
The Estate now appeals the district court’s denial of its motion for
reconsideration, and SPV cross-appeals the district court’s denial of sanctions against
the Estate’s attorneys. We address each issue in turn.
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II.
The Estate has changed its position numerous times throughout the course of
this litigation. At summary judgment, it argued that New Jersey law, rather than New
York law, should apply, making the Policy an invalid STOLI. Alternatively, it argued
that, under New Jersey law, it should prevail on public policy grounds. However, the
Estate has conceded on appeal that New York law applies.
The Estate raised its current arguments for the first time in the district court in
connection with its motion for reconsideration, if it raised them at all. We therefore
treat its appeal as an appeal from the district court’s denial of that motion. A district
court has wide discretion over whether to grant a motion for reconsideration of a prior
order, In re Charter Commc’ns, Inc., Sec. Litig., 443 F.3d 987, 993 (8th Cir. 2006),
and “we will reverse a denial of a motion for reconsideration only for a clear abuse of
discretion.” Paris Limousine of Okla., LLC v. Exec. Coach Builders, Inc., 867 F.3d
871, 873 (8th Cir. 2017). “An abuse of discretion will only be found if the district
court’s judgment was based on clearly erroneous factual findings or erroneous legal
conclusions.” Mathenia v. Delo, 99 F.3d 1476, 1480 (8th Cir. 1996). For the reasons
set forth below, we conclude that the district court did not abuse its discretion in
denying the Estate’s motion for reconsideration.
“The scope of the motion for reconsideration is critical in our
determination . . . . A motion for reconsideration is not a vehicle to identify facts or
legal arguments that could have been, but were not, raised at the time the relevant
motion was pending.” Julianello v. K-V Pharm. Co., 791 F.3d 915, 923 (8th Cir.
2015). Nor may a motion for reconsideration serve to introduce evidence that the
movant could have produced before the district court decided the prior motion. Id. at
922; see also Hagerman v. Yukon Energy Corp., 839 F.2d 407, 414 (8th Cir. 1988)
(stating that motions for reconsideration cannot be used to introduce new evidence or
legal theories that “could have been adduced during pendency of the summary
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judgment motion” (quoting Rothwell Cotton Co. v. Rosenthal & Co., 827 F.2d 246,
251 (7th Cir. 1987))). A district court does not abuse its discretion in denying a
motion for reconsideration used for such an “impermissible purpose.” Julianello, 791
F.3d at 923. This is precisely the situation we find here.
The Estate moved for reconsideration based primarily on a new
argument—nefarious coercion—and asserted judicial estoppel for the first time in a
supplemental filing.2 However, in its June 23, 2016 order holding the Estate’s motion
for reconsideration in abeyance, the district court correctly recognized that the Estate
could have raised its nefarious coercion argument in response to SPV’s motion for
summary judgment, yet it failed to do so. The same can be said for the Estate’s
judicial estoppel argument, which it had not yet raised when the district court issued
the June 23 order. Nevertheless, the district court held the motion for reconsideration
in abeyance pending further discovery, giving the Estate an opportunity to uncover
and submit new evidence supporting its claims. Instead, the Estate presented an
argument to the district court based solely on conjecture and accusations and failed
to present new evidence which supported its motion. Because the Estate sought to use
its motion for reconsideration for the impermissible purpose of introducing new
arguments it could have raised earlier, see Hagerman, 839 F.2d at 414 (stating that a
motion for reconsideration should not “serve as the occasion to tender new legal
theories for the first time” (quoting Rothwell, 827 F.2d at 251)), and because the
2
The Estate raises several other arguments for the first time before this Court,
contending that Nachman Bergman lacked an insurable interest in his grandmother’s
life and that the district court should have certified the question of whether an
insurable interest existed at procurement of the policy to the New York Court of
Appeals. As a general rule, a party may not raise an issue for the first time on appeal.
Trs. of Electricians’ Salary Deferral Plan v. Wright, 688 F.3d 922, 926 (8th Cir.
2012). We therefore decline to review the district court’s decision based on these
arguments. We note, however, that, even if the Estate had preserved these arguments,
the New York Court of Appeals does not accept certified questions from federal
district courts. See N.Y. Comp. Codes R. & Regs. tit. 22, § 500.27(a).
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Estate then failed to support those arguments with any evidence even after receiving
additional time for discovery, we cannot say the district court abused its discretion in
refusing to reconsider its summary judgment ruling. See Julianello, 791 F.3d at 922-
23 (finding no abuse of discretion in the district court’s dismissal of plaintiffs’
complaint and denial of their motion to reconsider the scope of leave to amend that
complaint when all the evidence plaintiffs presented in support of their motion for
reconsideration was available to them when they opposed the defendant’s motion to
dismiss).
III.
SPV sought sanctions against the Estate’s attorneys under 28 U.S.C. § 1927 and
Rule 26(g)(3) of the Federal Rules of Civil Procedure. It asserts on appeal that the
district court improperly failed to impose these sanctions. We affirm the district
court’s denial of § 1927 sanctions against both attorneys and its denial of Rule 26
sanctions against Attorney Donahoe, but we reverse the district court’s denial of Rule
26 sanctions against Attorney Kroll and remand that issue for further consideration.
“We review the denial of a motion for sanctions for an abuse of discretion,
affording the district court substantial deference and finding an abuse of discretion
only if the court ‘bases its ruling on an erroneous view of the law or a clearly
erroneous assessment of the evidence.’” C.H. Robinson Worldwide, Inc. v. Lobrano,
695 F.3d 758, 763 (8th Cir. 2012) (quoting Monarch Fire Prot. Dist. v. Freedom
Consulting & Auditing Servs., Inc., 644 F.3d 633, 639 (8th Cir. 2011)).
A.
28 U.S.C. § 1927 permits courts to impose monetary sanctions on an attorney
who “multiplies the proceedings in any case unreasonably and vexatiously.” Courts
should construe § 1927 strictly and impose sanctions only “when attorney conduct,
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viewed objectively, manifests either intentional or reckless disregard of the attorney’s
duties to the court.” Lee v. L.B. Sales, Inc., 177 F.3d 714, 718 (8th Cir. 1999). The
district court found that any multiplication of proceedings in this case stemmed not
from the attorneys’ conduct but from their clients’ conduct. SPV fails to argue with
any specificity what the Estate’s attorneys did to warrant § 1927 sanctions and, thus,
cannot establish that the district court based its ruling on an erroneous view of the law
or evidence. We therefore find no abuse of discretion in the district court’s denial of
§ 1927 sanctions.
B.
Fed. R. Civ. P. 26(g)(1) requires attorneys and pro se litigants to certify that
every disclosure is “complete and correct at the time it was made” and that every
discovery request, response, and objection is consistent with the Federal Rules of Civil
Procedure, nonfrivolous, not submitted for an improper purpose, and not unreasonable
or unduly burdensome. Fed. R. Civ. P. 26(g)(3) imposes “appropriate” sanctions on
attorneys or parties who violate Rule 26(g)(1). Such sanctions may include monetary
penalties, such as expenses and attorneys’ fees, Johnson Int’l Co. v. Jackson Nat. Life
Ins. Co., 19 F.3d 431, 438 (8th Cir. 1994), and are particularly appropriate when an
attorney submits a forged discovery document. See Perkins v. Gen. Motors Corp.,
965 F.2d 597, 600 n.5 (8th Cir. 1992). Unlike § 1927 sanctions, these sanctions are
nondiscretionary. Fed. R. Civ. P. 26(g)(3); Perkins, 965 F.2d at 600 n.5; see also
Rojas v. Town of Cicero, 775 F.3d 906, 909 (7th Cir. 2015) (“Rule 26(g)(3) gives the
judge discretion over the nature of the sanction but not whether to impose one.”);
Chudasama v. Mazda Motor Corp., 123 F.3d 1353, 1372 (11th Cir. 1997) (“The
decision whether to impose sanctions under Rule 26(g)(3) is not discretionary.”).
SPV’s key evidence supporting Rule 26(g) sanctions is an allegedly-forged
discovery document and the associated metadata produced by Attorney Kroll. SPV
presents no evidence that Attorney Donahoe participated in this violation of Rule
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26(g)(1). We therefore decline to find that the district court abused its discretion in
denying Rule 26(g) sanctions against Attorney Donahoe.
In response to a discovery request, Attorney Kroll provided SPV with a
redacted copy of the retainer agreement between himself and the Estate’s personal
representative. After filing a motion to compel production in a related proceeding
against Attorney Kroll in the United States District Court for the Central District of
California, SPV obtained an unredacted draft of the same retainer agreement. This
draft showed Attorney Kroll would receive a contingency fee if either the Estate or the
Trust prevailed in obtaining the death benefits payable under the Policy, supporting
SPV’s theory that the Estate and Trust were controlled by the same parties in interest.
When SPV produced the unredacted draft to the district court, the Estate claimed that
draft was not a correct copy and produced its own unredacted copy of the retainer
agreement. The Estate’s copy omitted the provision awarding Attorney Kroll a
contingency fee if the Trust prevailed.
SPV requested Rule 26(g)(3) sanctions based on document metadata, taken
directly from Attorney Kroll’s computer by his e-discovery vendor. The metadata
showed that the retainer agreement produced by the Estate, while purportedly signed
by the Estate’s personal representative in August 2015, was not created until July 20,
2016—two days before Attorney Kroll produced the document to the court.
Therefore, SPV argued, the document was forged. The district court acknowledged
that fabricating discovery documents is grounds for sanctions, see SPV-LS, LLC v.
Transamerica Life Ins. Co., No. CIV 14-4092, 2017 WL 3668765, at *3 (Aug. 23,
2017), but it denied sanctions against Attorney Kroll. It did so under the mistaken
belief that SPV relied on a document examiner’s report to prove forgery, stating that
SPV should have produced that report. However, SPV never claimed that it relied on
a document examiner’s report; in fact, it indicated that it never consulted a document
examiner and relied solely on the document’s metadata. Because the district court
based its denial of sanctions on SPV’s failure to introduce a nonexistent report into
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evidence, it clearly conducted an erroneous assessment of the evidence. See, e.g.,
MDU Res. Grp. v. W.R. Grace & Co., 14 F.3d 1274, 1280 (8th Cir. 1994) (finding the
district court clearly conducted an erroneous assessment of evidence when it
misunderstood the purpose for which the evidence was offered). It therefore abused
its discretion in denying Rule 26(g) sanctions against Attorney Kroll on this basis.
IV.
The district court’s denial of the Estate’s motion for reconsideration is affirmed.
Its denial of § 1927 sanctions against Attorneys Donahoe and Kroll and its denial of
Rule 26(g) sanctions against Attorney Donahoe are likewise affirmed. The district
court’s denial of Rule 26(g) sanctions against Attorney Kroll is reversed. The matter
is remanded to the district court for further proceedings on the motion for Rule 26(g)
sanctions against Attorney Kroll consistent with this opinion.
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