SPV-LS, LLC v. Transamerica Life Ins. Co.
| Decision Date | 08 January 2019 |
| Docket Number | No. 17-3177, No. 17-3179,17-3177 |
| Citation | 912 F.3d 1106 |
| Parties | SPV-LS, LLC, Plaintiff-Appellee v. TRANSAMERICA LIFE INSURANCE COMPANY, Defendant 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, Third Party Defendants The Representative of the Estate of Nancy Bergman, Third Party Defendant-Appellant SPV-LS, LLC, Plaintiff-Appellant v. Transamerica Life Insurance Company, Defendant 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, Third Party Defendants The Representative of the Estate of Nancy Bergman, Third Party Defendant-Appellee |
| Court | U.S. Court of Appeals — Eighth Circuit |
Lisa Louise Beane, Eric John Magnuson, ROBINS & KAPLAN, Minneapolis, MN, Douglas A. Foss, Svetlana K. Ivy, HARRIS & BEACH, Pittsford, NY, Brendan V. Johnson, U.S. Attorney, ROBINS & KAPLAN, Sioux Falls, SD, for Plaintiff-Appellee.
Herbert Beigel, HERBERT BEIGEL AND ASSOCIATES, Tucson, AZ, Brian James Donahoe, DONAHOE LAW FIRM, Sioux Falls, SD, Gerald L. Kroll, KROLL LAW CORPORATION, Santa Barbara, CA, for Third Party Defendants-Appellants.
Before SHEPHERD, KELLY, and STRAS, Circuit Judges.
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.
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 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 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., 15 N.Y.3d 539, 914 N.Y.S.2d 709, 940 N.E.2d 535 (2010), an insured could procure a policy with the intent to immediately assign it to stranger investors. See id., 914 N.Y.S.2d 709, 940 N.E.2d 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 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...
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