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

LAWRENCE L. PIERSOL, 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 Acc. 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:

SPV has failed the first prong of the Eighth Circuit's three-part test for Rule 37 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

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, 76 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.2d at 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 Silberman representation on October 14, 2016. Silberman has been without legal representation in this litigation since that time. Prior to Attorney Citron's involvement, another New York lawyer, Stuart Davis, attempted to locate a South Dakota lawyer for Silberman as Trustee.

On June 6, 2016 SPV filed a Motion to Strike Malka Silberman's Answer and Cross-Claim and For Other Sanctions, Doc. 289. Attorney Twersky had only been counsel of record two months. On November 29, 2016, in Doc. 440, as a sanction, the Court allowed SPV to renew its Motion for Summary Judgment with regard to Silberman. The time for filing dispositive motions had passed. The Court also entered an additional conditional sanction against Silberman if email and text production was not made. SPV was not satisfied with that sanction and moved for reconsideration, which was denied. The Court went on to say:

The Court's Order of November 29, 2016, was after the withdrawal of Attorneys Twersky and Moore which was on October 14, 2016. The Court at that time ruled that those lawyers were not being sanctioned by the Court. The Court has now reviewed all of these other claims that SPV makes for sanctions against Attorney Twersky even though the Court had already ruled that it was not awarding sanctions against Mr. Twersky. The Court is aware that it can sanction the lawyer even after that lawyer is no longer representing a party in the proceedings. The Court has reviewed the rest of the claims now made by SPV against Mr. Twersky and no sanctions are awarded. It appears that Twersky was in over his head in this litigation. Not only did he lack resources anywhere nearly comparable to SPV and its law firms, Attorney Twersky also got and apparently needed direction from United States District Judge Forrest and the Magistrate Judge on what was described by Judge Forrest as some basic privilege issues concerning the deposition of Attorney Citron. That resulted in what Judge Forrest described as a sanction, but the record in that miscellaneous proceedings, SPV-LS, LLC, Financial Life Services, LLC, SPV II LLC v. Andrew Citron, et al., NY., 16-00156, does not reflect any sanction being entered by the Court beyond that statement. No sanction is warranted against Attorney Aaron Twersky.

Defendant Silberman was clearly a difficult client. There, were both delays and lack of forthcoming regarding discovery that in fact was caused by the client and not her varying cast of lawyers. It appears that she at least claimed to know few of the facts surrounding this litigation. It also appears that her defense positions and strategy may have been directed by Jacob Herbst, her husband, and possibly the other shadow investors.

Attorney Brian Donahoe is the South Dakota counsel for the Estate of Nancy Bergman. Attorney Donahoe was involved as local counsel in the representation of the Estate beyond simply being on the pleadings. The Court has reviewed all of the proceedings concerning the request for sanctions against Attorney Donahoe and there is no basis for any sanctions and that request is denied.

Sanctions are also requested against the primary attorney for the Estate of Nancy Bergman, Gerald Kroll, a California attorney. It should be mentioned that there are two pending requests for sanctions by SPV against Attorney Kroll and two collateral proceedings that were brought in California as a result of the case before this Court, In re: Rule 45 Subpoena Issued to Gerald Kroll, Case No. 2:16-mc-00115-VAP-AGR, and In re: Rule 45 Subpoena Issued to Gerald Kroll, Case No. 2:16-mc-00131-VAP-AGR. No ruling has been made by the Court in California concerning those sanction requests.

In the course of this heavily discovered litigation which includes 31 depositions and thousands of pages of documents, there is no doubt that Attorney Kroll in some instances was not in compliance with discovery production rules, but the Court on balance finds no willful abuse of the judicial process by Attorney Kroll. Jaquette v. Black Hawk County, Iowa, 710 F.2d 455 (8th Cir. 1983) citing Roadway Express, Inc. v. Piper, 447 U.S. 752, 766 (1980). A possible exception is the claim by Attorney Foss and SPV that Attorney Kroll forged a retainer agreement and provided that forgery in discovery. Attorney Kroll at all times has adamantly denied that allegation. Attorney Foss claims that he had a document examiner verify that claim but no report of any document examiner has been produced. If the document was forged and even if at the time of production Attorney Kroll did know it was forged, if he later came to know of its falsity, then a reasonable remedial measure under Rule 3.3 of the Rules of Professional Conduct would be to promptly make a disclosure of the falsity to this Court. That issue did not prevent nor delay SPV from getting summary judgment in its favor. Despite that fact, if that claim is true, it would still warrant a sanction. The Court is not going to have a mini-trial on that issue as it is not clear to the Court from the record that the retainer produced was forged. Attorney Kroll moved, Doc. 511, to strike portions of the Declaration of Douglas Foss, Doc. 498. That motion is also denied. In addition, the Court finds that none of the attorneys in question violated the provisions of 28 U.S.C. § 1927 in that they did not multiply the proceedings unreasonably and vexatiously. The same cannot be said for their clients.

Attorney Twersky requested a sanction against the Krasnerman entities and their attorneys in his Declaration in Opposition to the Krasnerman Entities' Motion for Sanctions Against Aaron Twersky. There is a related matter which is also of concern to the Court. There is a separate proceeding filed on March 24, 2017, by SPV with the heading being: In the Supreme Court of the State of New York, County of New York, SPV-LS, LLC, Financial Life Services LLC, SPV II LLC v. Andrew Citron, Revas Chachanashvili Law Group PLLC, Gerald Kroll, Kroll Law Corporation, Eli Fixler, David Graubard and Kera & Graubard LLP, Index Number 152783/2017. The New York State lawsuit arises primarily out of the same dispute over the 10 million dollars of life insurance proceeds and the expense of pursuing that claim. There are six causes of action with there being claims against Gerald Kroll and others in the First, Second, Third, and Fifth Claims, with the Fourth claim being against Kroll Law Firm and others. The relief claimed is:

The lawsuit was brought by Gregory T. Casmento of the law firm of Locke Lord LLP, New York, New York. Attorney Casamento did not appear of record in the South Dakota litigation but he was involved in some of the out of court work regarding this South Dakota litigation. Attorney Casamento was counsel of record with Attorney Foss in SPV-LS, LLC v. Twersky, S.D.N.Y. Civil Docket #l:16-mc-00262-Pl, re Motion to Compel Aaron Twersky to Comply with Subpoena and also in S.D.N.Y. Civil Docket #l:16-mc-00156-Pl-AJP, SPV-LS, LLC v. Nelson Bloom, Andrew Citron, Stuart Davis and interested party Malka Silberman. In addition, SPV-LS, LLC is the common client in both instances and Attorney Foss certainly had knowledge of the initiation of the New York litigation. The claim for relief for the sanctions before this Federal Court in South Dakota are as follows:

The income lost from delay is the 35% per annum that SPV claims to make off of these life insurance settlement investments (Doc. 487).

This Court was not advised by Attorney Foss of the lawsuit filed by SPV on March 24, 2017. Mr. Foss filed the present motion for sanctions against Twersky, Kroll and Donahoe on April 27, 2017, and has followed that filing on the sanction subject with numerous other filings. The Court first learned of the New York state proceedings against Attorney Kroll and others in a response from Attorney Kroll on June 24, 2017, in his Opposition to Motion for Sanctions. The Court is concerned with not being advised at the time of filing this sanction motion of the previously filed SPV New York state lawsuit which significantly duplicates the claims with regard to Attorney Kroll in the matter that is before this Court. An explanation that other parties and acts are alleged in addition to those of Attorney Kroll and Kroll Law Corporation would be correct, but that does not diminish the duty of disclosure. There is, however, no basis for a sanction of either SPV or its attorneys and that motion is denied.

The Court recognizes that SPV has had to persist in order to recover what it had contracted and paid for, the $10,000,000.00 in proceeds from the life insurance policy on the life of Nancy Bergman. The transaction when entered into was legal under applicable New York law. Once policy proceeds were available, SPV was met with claims from Nachman Bergman as Trustee of The N. Bergman Insurance Trust and Malka Silberman as the Successor Trustee, that they did not sell the life insurance policy at all but that the claimed sale was a forgery. That claim that was at the core of the defense has been shown to be a lie. The other basis for the claim was a respectable if incorrect claim that New Jersey law was applicable. The Estate of Nancy Bergman was in a better position in that if SPV and the related entities failed to prove up their claim, the Estate could step in. That claim also failed.

It is for state legislatures to determine whether or not life insurance policies can be purchased in this manner, often referred to as STOLI. New York subsequently prohibited this practice. Look at what the practice has given rise to here: an elderly retired school teacher was convinced by her grandson Nathan that if she went along with the various insurance applications, which amounted to five policies issued for $35 million in death benefits, and medical exams, she would get something out of it. Nancy's grandson Nathan got $130,000 from this undertaking and it appears that Nancy got nothing. Nancy's estate was represented to be about $175,000, consisting mainly of her dwelling when she died at age 89.

The lack of candor of the Defendants themselves necessitated extensive discovery. It is speculation to say whether or not the Court would have granted summary judgment at some earlier date if discovery had been more forthcoming.

Now that the sanctions motions have been ruled upon, the Court will next enter an appealable Judgment. The Court will direct the payment of the $10,000,000 and accrued interest1 to SPV-LS, LLC, pursuant to SPV's Motion to Release Insurance Proceeds, Doc. 484, unless the Defendants post a cash bond in the amount of $49,833.29.2 The Estate of Nancy Bergman has already attempted to appeal.3

IT IS ORDERED: