Lincoln National Life Insurance Company v. Imperial Premium Finance Company, LLC
778 F.3d 1205
| 11th Cir. | 2015Background
- Imperial Premium Finance specialized in financing life-insurance premiums via high-interest, short-term loans that allowed Imperial to foreclose and obtain policies upon borrower default; the structure was designed to evade state insurable-interest restrictions and facilitate stranger-originated life insurance (STOLI) investments.
- Barton Cotton obtained a $5 million Lincoln policy in a trust; Imperial loaned the trust $335,000 with large origination fees and floating interest, which ballooned the balance; Cotton later died and Lincoln refused the death benefit, alleging STOLI-related fraud in procurement.
- The Cotton trustee sued Lincoln; Lincoln counterclaimed for fraud and related claims. Lincoln subpoenaed Imperial under Rule 30(b)(6). Imperial’s employees invoked the Fifth Amendment and Imperial designated outside economist John Norris as its corporate representative.
- Imperial provided Norris with voluminous documents and limited briefing through a single in-house lawyer; Norris testified at a deposition and at trial but repeatedly could not answer questions on topics adverse to Imperial and admitted he had not sought additional information between deposition and trial.
- The jury awarded the $5 million death benefit to the trust; the district court, finding Imperial had acted in bad faith by selectively preparing an evasive 30(b)(6) witness to shield harmful facts, imposed sanctions of $850,000 against Imperial (shifting attorney’s fees that Imperial would otherwise have recovered).
- Imperial appealed, arguing waiver/estoppel, compliance with subpoenas, and that the sanctions violated due process and were unrelated to the harm; the Eleventh Circuit affirmed.
Issues
| Issue | Plaintiff's Argument (Lincoln/Trust) | Defendant's Argument (Imperial) | Held |
|---|---|---|---|
| Whether the court could impose sanctions sua sponte despite no party seeking them | Court may and should sanction bad-faith conduct even if not requested by a party | Lincoln’s failure to object to Norris’s deposition/trial waived sanctions; estoppel should bar sanctions | Court may impose sua sponte sanctions under its inherent power; waiver by a party does not bind the court; sanctioning was proper upon finding bad faith |
| Whether Imperial complied with Rule 30(b)(6) and whether its conduct warranted sanctions | Norris’s testimony revealed selective preparation and deliberate ignorance amounting to bad faith; Imperial used the witness to shield harmful facts | Imperial properly prepared a corporate designee and complied with subpoenas; any gaps were due to employees invoking Fifth Amendment | District court’s finding that Imperial selectively prepared Norris in bad faith was not clearly erroneous; selective, one-sided preparation violates Rule 30(b)(6) and justified sanctions |
| Whether the $850,000 sanction violated due process or was unrelated to harm caused | Sanction is excessive, unrelated to actual prejudice; Imperial’s conduct was limited to witness testimony | Imperial’s broader STOLI conduct caused the litigation; sanction tailored to prevent Imperial from obtaining shifted attorney’s fees and thus related to harm | Sanction was within the court’s discretion, reasonably tailored to prevent Imperial from benefiting from its inequitable conduct and did not violate due process |
Key Cases Cited
- Chambers v. NASCO, Inc., 501 U.S. 32 (1991) (courts possess inherent power to sanction bad-faith conduct, including awarding attorney’s fees)
- Roadway Express, Inc. v. Piper, 447 U.S. 752 (1980) (court may assess attorney’s fees on finding of bad faith)
- United States v. Rylander, 460 U.S. 752 (1983) (privilege against self-incrimination cannot be used both to shield and to advantage a party)
- Barnes v. Dalton, 158 F.3d 1212 (11th Cir. 1998) (bad faith is required to invoke inherent sanctioning power)
- Eagle Hosp. Physicians, LLC v. SRG Consulting, Inc., 561 F.3d 1298 (11th Cir. 2009) (review of inherent-power sanctions for abuse of discretion)
- In re Mroz, 65 F.3d 1567 (11th Cir. 1995) (distinguishing inherent-power sanctions from contempt sanctions)