**11-3843-cv (L) SEC v. Lynn A. Smith, et al.**  UNITED STATES COURT OF APPEALS 1

FOR THE SECOND CIRCUIT 2 August Term, 2011 3 (Argued: March 13, 2012 Decided: March 18, 2013) 4 Docket Nos. 11-3843-cv(L), 11-3845-cv(con), 11-3848-cv (con), 5 11-3851-cv(con), 11-4238-cv(con) 6

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 7 8 SECURITIES AND EXCHANGE COMMISSION, 9 10 Plaintiff-Appellee , 11 12 v. 13 14 LYNN A. SMITH, LAUREN T. SMITH, GEOFFREY R. SMITH, TRUSTEE OF 15 THE DAVID L. AND LYNN A. SMITH IRREVOCABLE TRUST U/A 8/04/04, 16 17 Defendants-Appellants , 18 19 JILL A. DUNN, DAVID M. WOJESKI, 20 21 Non-Party Appellants , 22 23 MCGINN, SMITH & COMPANY, INCORPORATED, MCGINN, SMITH ADVISORS, 24 LLC, MCGINN SMITH CAPITAL HOLDINGS CORPORATION, FIRST ADVISORY 25 INCOME NOTES, LLC, FIRST EXCELSIOR INCOME NOTES, LLC, FIRST 26 INDEPENDENT INCOME NOTES, LLC, THIRD ALBANY INCOME NOTES, LLC, 27 TIMOTHY M. MCGINN, DAVID L. SMITH, NANCY MCGINN, 28 29 Defendants .* 30 31

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 32 33 B e f o r e: WINTER, LIVINGSTON, Circuit Judges , and RAKOFF, 34 District Judge .** 35

__________ 36 37 *The clerk of court is instructed to conform the caption in 38 accordance herewith. 39 40 **The Honorable Jed S. Rakoff of the United States District Court for 41 the Southern District of New York, sitting by designation. 42 43

1Appeal from an order of the United States District Court 1 for the Northern District of New York (David Homer, Magistrate 2 Judge ) imposing sanctions against several individual appellants 3 and authorizing a receiver to dispose of property owned by an 4 irrevocable trust. We dismiss in part, affirm in part, and 5 remand with regard to the disposition of the trust’s real 6 property. 7 8 JAMES D. FEATHERSTONHAUGH, 9 Featherstonhaugh, Wiley & Clyne, LLP, 10 Albany, New York, forDefendant11 AppellantLynn A. Smith. 12 13 STEPHEN B. HANSE, Featherstonhaugh, 14 Wiley & Clyne, LLP, Albany, New York, 15 forDefendants-AppellantsGeoffrey R. 16 Smith, Trustee of the David L. and 17 Lynn A. Smith Irrevocable Trust U/A 18 8/04/04, Lauren T. Smith and Geoffrey 19 R. Smith. 20 21 BENJAMIN ZELERMYER, Steinberg & 22 Cavaliere, LLP, White Plains, New 23 York, forNon-Party AppellantJill A. 24 Dunn, Esq. 25 26 FRED N. KNOPF, Wilson, Elser, 27 Moskowitz, Edelman & Dicker, LLP, 28 White Plains, New York, forNon-Party 29 AppellantDavid M. Wojeski. 30 31 KEVIN P. MCGRATH, Senior Trial 32 Counsel, Securities and Exchange 33 Commission, New York, New York, (Mark 34 D. Cahn, General Counsel, Michael A. 35 Conley, Deputy General Counsel, Jacob 36 H. Stillman, Solicitor, Christopher 37 Paik, Securities and Exchange 38 Commission, Washington, D.C. on the 39 brief ), for Plaintiff-Appellee

. 40 41 42

2WINTER, Circuit Judge : 1 This appeal arises out of a proceeding brought to remedy 2 securities fraud and recover assets -- to be distributed to 3 victims -- that were the fruits of the fraud. The issues 4 before us relate to enforcement of, and compliance with, an 5 order freezing various assets. 6 Appellants, the David L. and Lynn A. Smith Irrevocable 7 Trust U/A 8/04/04 (the “Trust”) and various individuals, appeal 8 from Magistrate Judge Homer’s 1order directing the disposition 9 of the Trust’s assets and sanctioning: (i) Lynn Smith, a 10 defendant in the action, and (ii) non-parties Jill Dunn, 11 attorney for the Trust, and David M. Wojeski, one-time trustee 12 of the Trust. The order against Lynn Smith provided that, in 13 the event of her failure to satisfy the sanctions against her, 14 a receiver would dispose of a piece of real property owned by 15 the Trust if doing so would maximize the return on that 16 property. 17 This appeal raises questions concerning our jurisdiction 18 to hear interlocutory appeals of sanctions orders; the 19 propriety of the sanctions imposed; and whether it was error 20 for the magistrate judge to give the receiver authority to 21 dispose of Trust assets without first providing notice and an 22 opportunity for the Trust to be heard. 23

1 The parties consented to have the issue of the asset freeze decided by a magistrate as provided by 28 U.S.C. § 636(c). 3We dismiss the appeals of Jill Dunn and David Wojeski for 1 lack of jurisdiction, affirm the sanction order as to Lynn 2 Smith, and remand to allow the Trust to contest the court’s 3 order regarding the disposition of Trust property and for the 4 magistrate judge to give additional guidance to the receiver as 5 to disposition of the Trust property. 6

BACKGROUND 7 The origins and provisions of the Trust, which was created 8 in August 2004, are central to the issues on appeal. David and 9 Lynn Smith created the Trust with themselves as donors and 10 their adult children as beneficiaries. The Trust was funded by 11 100,000 shares of stock held in Lynn Smith’s name. The shares 12 were worth approximately $4.5 million. The shares were not 13 given outright to the Trust but were transferred pursuant to an 14 annuity agreement that would pay the Smiths approximately 15 $490,000 per year beginning in 2015 and ending either when both 16 David and Lynn Smith died or when the Trust’s assets were 17 exhausted. As discussed infra , contrary to the district 18 court’s orders, the existence of this annuity was not revealed 19 until late July 2010, and its discovery gave rise to the 20 sanctions imposed. 21 In April 2010, the SEC filed the present complaint against 22 David Smith and various related individuals and corporations 23 alleging violations of the securities laws. Lynn Smith, his 24

4wife, was included in the action as a relief defendant 2and 1 later as a defendant under New York law who had received a 2 fraudulent conveyance. The SEC also moved to freeze the assets 3 of all of the defendants. In response, the district court 4 issued an order that, inter alia , froze Lynn Smith’s assets and 5 directed her to provide “an accounting [of her] own personal 6 assets, liabilities and general financial condition.” 7 Lynn Smith’s April 29 statement of accounts and list of 8 assets included no mention of any interest in the Trust or in 9 the annuity that was to be paid to her and David Smith by the 10 Trust. On May 26, she filed an affidavit stating explicitly 11 that she and David Smith “had no interest in or expectation of 12 an interest in the [Trust]. It exists solely, exclusively and 13 permanently for the benefit of our children.” Finally, at a 14 hearing concerning the asset freeze on June 10, Lynn Smith 15 stated that she had no ownership interest in the stock that was 16 transferred to the trust and that the funds in the Trust were 17 solely for the benefit of her children. 18 On July 7, 2010, after considering the blatantly 19 misleading information before it, the court released the freeze 20 on the Trust’s assets, concluding that David Smith had no 21

2 A relief defendant is an individual who “holds the subject matter of the litigation in a . . . possessory capacity.” Commodities Futures Trading Comm’n v. Walsh , 618 F.3d 218, 225 (2d Cir. 2010) (quotingSEC v. Colello , 139 F.3d 674, 676 (9th Cir. 1998)). In the context of securities enforcement actions, relief defendants are individuals who are not accused of having violated the securities laws themselves, but who are believed to be in possession of profits from such violations. They are named as parties to aid the recovery of funds to be paid to victims. Seeid. 5beneficial ownership in the trust. Shortly after the lifting 1 of the freeze, the Trust made several expenditures. Jill Dunn, 2 the Trust’s attorney, received $101,096 for lawyer’s fees and 3 costs; David Wojeski, then the sole trustee, received $8,098.50 4 in fees for his work as trustee; and the Trust purchased a 5 vacation home in New York from Lynn Smith for $600,000. 6 On July 20, Wojeski received a fax containing an e-mail 7 from an individual at Southtowns Financial Group that stated, 8 “[t]he first four pages [attached] are from the annuity 9 contract. The three pages after that are documents that were 10 in the file that I thought might be relevant.” The pages that 11 followed included a “Policy Delivery Receipt” for a “PRIVATE 12 ANNUITY CONTRACT,” which was signed by David Smith; the first 13 page of a private annuity agreement, which identified David and 14 Lynn Smith as annuitants; and a page providing the key terms of 15 the contract. The next day, July 21, Wojeski forwarded the fax 16 to Dunn via e-mail. 17 On July 22, during a teleconference with the court to 18 discuss the SEC’s intended motion to re-freeze the Trust’s 19 assets, the SEC attorneys informed the court that they were 20 going to offer evidence that the Smiths owed a significant 21 amount in gift taxes for transferring the stock to the Trust 22 and that the Trust also owed a capital gains tax. Dunn argued 23 that no gift tax was owed, but provided no supporting details 24 for that assertion. The SEC attorneys, David Stoelting and 25

6Kevin McGrath, then called Dunn to inquire as to why she 1 believed that the Smiths did not owe gift taxes from the 2 transfer to the Trust. Stoelting testified that Dunn told them 3 that no tax was owed because of “a private annuity agreement.” 4 Dunn, on the other hand, asserted that she told the attorneys 5 that the Trust was a “private annu-ity trust.” 3After the 6 call, the SEC attorneys contacted the original trustee for more 7 information, who sent a copy of the full annuity agreement to 8 the SEC and Dunn on July 27. 9 After receiving the agreement, the SEC sought 10 reconsideration of the prior order lifting the freeze on the 11 Trust’s assets in view of the Smiths’ interest in the Trust. 12 The Trust challenged the motion, arguing that reconsideration 13 was inappropriate because the SEC could have discovered the 14 annuity before the original proceeding to freeze the Trust’s 15 assets. In support, the Trust submitted affidavits from both 16 Dunn and Wojeski. Dunn’s affidavit asserted that she did not 17 disclose the agreement to the SEC on the telephone call of July 18 22. It stated that Dunn “could state with absolute certainty 19 that [she] did not make [the statement that there was a private 20 annuity agreement] because [she] did not know of the existence 21 of the private annuity agreement until [she] received it . . . 22 on July 27, 2010, the same day the SEC received it.” It 23

3 The other SEC attorney did not remember hearing Dunn say anything about an annuity agreement. However, the SEC attorney also testified that he was not paying attention during that part of the conversation. 7further stated that “[n]either I nor Mr. Wojeski had any 1 documents in our possession relating to the private annuity 2 other than the courtesy copy of the documents I received . . . 3 on July 27 . . . .” Wojeski’s affidavit stated that he first 4 learned of the existence of the annuity agreement in late July 5 when Dunn informed him that both she and the SEC had received 6 the agreement from the former trustee. 7 A hearing concerning the motion for reconsideration was 8 scheduled for November 16, 2010. The day before that hearing, 9 Dunn submitted a corrective affidavit stating that she had 10 recently discovered the July 21 e-mail from Wojeski containing 11 the documents referencing the annuity and that her prior 12 affidavit was incorrect. She stated that she did not recall 13 the documents when she composed her prior affidavit because, at 14 the time she received the e-mail, she was focusing her 15 attention on the Trust’s purchase of the New York vacation 16 home, other client matters, and personal issues. A day after 17 the hearing, Wojeski also submitted a corrective affidavit 18 stating that when he reviewed his first affidavit -- prepared 19 by Dunn -- he did not realize that the documents he had 20 received on July 20 were different from the contract produced 21 on July 27 and that he thought the two events had happened at 22 the same time. He also implied that the affidavit was not 23 incorrect, only imprecise, because he did learn of the annuity 24 in late July. 25

8The court granted the SEC’s motion and reinstated the 1 freeze on the Trust’s assets. The court found the SEC’s 2 evidence to be more credible. It specifically found that Dunn 3 had mentioned the annuity agreement during the telephone call 4 on July 22. Magistrate Judge Homer noted, interalia , the 5 logical consistency and probability of a reference by Dunn to 6 the private annuity agreement being elicited by questions from 7 the SEC concerning the reason Dunn believed no gift tax was 8 owed by Smith. The court also granted the SEC leave to move 9 for sanctions, which the Commission did. 10 After considering all parties’ arguments, the court 11 sanctioned Lynn Smith for her failure to disclose the annuity 12 in her list of accounts and assets and for her statements that 13 she had no present or future interest in the Trust. The court 14 found Lynn Smith’s argument that she had forgotten about the 15 annuity unconvincing in light of the considerable size of the 16 payments that she would receive from the annuity. The court 17 also found that Lynn’s efforts to preserve the assets of the 18 Trust were inconsistent with her alleged forgetfulness, noting 19 that no payments had been disbursed from the Trust to the named 20 trust beneficiaries, the Smith children, prior to 2010 and also 21 that Lynn had personally covered a year’s worth of her 22 daughter’s expenses even though they were of a type for which 23 the Trust was created. The court then sanctioned Lynn Smith 24 under both Rule 11(c)(3) and the inherent powers of the court. 25

9She was ordered to repay the Trust $944,848, which included the 1 $600,000 that the Trust paid to purchase the New York vacation 2 home, and to pay the SEC $51,232 in attorney and expert fees. 3 The court also sanctioned Wojeski and Dunn for their 4 statements that they first learned of the annuity agreement on 5 July 27, rather than on July 20 and 21 respectively. The 6 magistrate judge found that it was not credible that Dunn 7 ignored a client’s e-mail for six days. Moreover, he found 8 that Dunn’s explanation that she did not remember reading the 9 e-mail to be incredible because the documents were of such 10 importance that Dunn must have immediately known their 11 significance. Finally, the court elaborated on its prior 12 finding that Dunn had told the SEC attorneys about the annuity 13 on July 22 by finding that the false statements were made 14 deliberately because: (i) it was improbable that Dunn had 15 ignored a client e-mail for at least six days, (ii) Dunn’s 16 first reference to a “private annuity trust” came the day after 17 Wojeski sent an e-mail disclosing the trust to her, and (iii) 18 the financial stakes for Dunn -- over $100,000 -- provided 19 ample motivation to conceal the Trust’s existence. Dunn was 20

10sanctioned under Rule 11(c)(3), 428 U.S.C. § 1927, 5and the 1 inherent power of the court. She was ordered to pay $5,355, 2 the amount she had been paid by the Trust after July 21. She 3 was also publicly admonished and reported to the New York State 4

Bar. 5 With regard to Wojeski, the court noted that his affidavit 6 had the effect of corroborating Dunn’s false affidavit. The 7 court also rejected Wojeski’s contention that the original 8 affidavit, in stating that he first learned of the agreement 9 from Dunn in late July, was simply imprecise rather than false. 10 In doing so, the court noted that the original affidavit stated 11 not only that Wojeski had learned about the agreement in late 12 July, which was not necessarily incorrect, but also that he 13 learned that information from Dunn, which was clearly untrue. 14 Therefore, the court found that not only had Wojeski made a 15 false statement in his original affidavit, but that it was 16 disingenuous for him to say that his original affidavit was an 17 imprecise reference to him receiving the fax on July 20. 18 Wojeski was sanctioned under both Rule 11(c)(3) and the 19

4 By making a representation to the court, whether by pleading, written motion, or other paper, one certifies that the “the factual contentions have evidentiary support.” Fed. R. Civ. P. Rule 11(b). Rule 11(c)(3) provides, “[o]n its own, the court may order an attorney, law firm, or party to show cause why conduct specifically described in [an] order has not violated Rule 11(b).” If a court determines that a Rule 11(b) violation has occurred, it may “impose an appropriate sanction on any attorney, law firm, or party that violated the rule or is responsible for the violation.” Rule 11(c)(1).

5 Section 1927 provides, “Any attorney . . . of the United States . . . who so multiplies the proceedings in any case unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct.” 11inherent power of the court. He was ordered to repay $13,384, 1 the amount he had received from the Trust in payment and 2 reimbursements after July 20; was publicly admonished; and was 3 reported to the state licensing authority for accountants. 4 Finally, the court authorized the receiver, who had 5 previously been appointed to oversee the corporations owned by 6 David Smith and his co-defendants, to proceed in whatever 7 manner he deemed best to maximize the return on the vacation 8 property that the Trust had purchased from Lynn Smith if she 9 did not repay the $600,000 by September 1, 2011. The order 10 stated: 11 [I]f Lynn Smith fails to return to the 12 Receiver by September 1, 2011 the full amount 13 of the $600,000.00 sale price of the property 14 plus closing costs, the Receiver may proceed 15 in whatever manner he deems economically most 16 feasible to maximize the return on this 17 property. This may include the sale or 18 rental of the property, or portions thereof, 19 depending on the receiver’s determination of 20 market conditions. Lynn Smith and the Trust 21 shall cooperate reasonably with the Receiver 22 and any designee to facilitate the sale or 23 rental of the property. 24 25 This appeal followed. 26

DISCUSSION 27 a) Appellate Jurisdiction 28 Our appellate jurisdiction is generally limited to final 29 decisions of district courts, those that “end[] the litigation 30 on the merits and leave[] nothing for the court to do but 31 execute the judgment.” SeeCunningham v. Hamilton Cnty., Ohio , 32

12527 U.S. 198, 204 (1999) (quoting Van Cauwenberghe v. Biard , 1 486 U.S. 517, 521-22 (1988)). This limitation accords 2 deference to trial judges, prevents piecemeal litigation, and 3 conserves the resources of both the opposing party and the 4 judiciary by preventing numerous successive appeals. See 5 Firestone Tire & Rubber Co. v. Risjord , 449 U.S. 368, 374 6 (1981). 7 An exception to this general rule is the collateral order 8 doctrine, seeCunningham, 527 U.S. at 204, under which federal 9 appellate courts have jurisdiction over “decisions that are 10 conclusive, that resolve important questions separate from the 11 merits, and that are effectively unreviewable on appeal from 12 the final judgment in the underlying action.” Id. (quoting 13 Swint v. Chambers Cnty. Comm’n , 514 U.S. 35, 42 (1995)). 14 However, the collateral order doctrine is not one requiring a 15 fact-specific, case-by-case analysis. Rather, it is applied 16 categorically. Therefore, even if a particular appeal 17 satisfies the three conditions, we still lack jurisdiction if 18 the appeal is of a type that does not generally fall within the 19 doctrine. SeeCunningham, 527 U.S. at 206 (“Perhaps not every 20 discovery sanction will be inextricably intertwined with the 21 merits, but we have consistently eschewed a case-by-case 22 approach to deciding whether an order is sufficiently 23 collateral.”). 24
25

13A statutory exception to the final order requirement is 1 found in 28 U.S.C. § 1292, which provides appellate 2 jurisdiction over appeals of preliminary injunctions. 3 Jurisdiction under this provision extends to issues that are 4 “inextricably bound up with” those injunctions. Lamar Adver. 5 of Penn, LLC v. Town of Orchard Park , 356 F.3d 365, 371 (2d 6 Cir. 2004) (citing 28 U.S.C. § 1292(a)(1)). Review of such 7 issues is “a narrowly tailored exception to the final judgment 8 rule,” Amador v. Andrews , 655 F.3d 89, 95 (2d Cir. 2011), and 9 issues will be deemed inextricably intertwined with appellate 10 review of preliminary injunctions only where “review of ‘the 11 otherwise unappealable issue is necessary to ensure meaningful 12 review of the appealable one.’” Id. (quoting Britt v. Garcia , 13 457 F.3d 264, 273 (2d Cir. 2006)). 14 Applying these principles to the present matter, we agree 15 with the SEC that we lack jurisdiction over the appeals of Dunn 16 and Wojeski. However, we have jurisdiction over the appeal of 17 Lynn Smith. 18 1. Appeals of Dunn and Wojeski 19 Dunn and Wojeski argue that we have jurisdiction over 20 their appeals under the collateral order doctrine. 21 In Cunningham, the Supreme Court, addressing an appeal of 22 sanctions imposed under Fed. R. Civ. P. 37(a), 6held that “a 23

6 Rule 37 provides for sanctions, including costs and reasonable attorney’s fees, against parties or persons unjustifiably resisting discovery. SeeRule 37 advisory committee’s note on 1970 amendments. 14sanctions order imposed on an attorney is not a ‘final 1 decision’ under § 1291,” and is therefore not immediately 2 appealable. 527 U.S. at 202-03, 210. In reaching this 3 conclusion, the Court relied heavily on the fact that review of 4 sanctions orders could not remain entirely separate from the 5 merits of the underlying litigation because the propriety of 6 those orders may require courts to inquire into the importance 7 of information sought, the adequacy of responses, and the 8 truthfulness of those responses. Seeid. at 205-06. 9 Therefore, review of the sanctions “would differ only 10 marginally from an inquiry into the merits.” Id. at 206. 11 The Court also pointed out that an attorney’s appeal from 12 a sanction order fails to satisfy the third prong of the 13 collateral order doctrine because those orders are not 14 unreviewable on appeal of a final judgment. Seeid. at 206-09. 15 Despite the fact that attorneys are not parties to the 16 underlying case, the “effective congruence of interests between 17 clients and attorneys counsels against treating attorneys like 18 other nonparties for purposes of appeal.” Id. at 207. 19 Moreover, unlike civil contempt orders for defiance of a 20 district court’s enforcement order, which are considered final 21 and therefore appealable, Dynegy Midstream Servs. v. 22 Trammochem, 451 F.3d 89, 92 (2d Cir. 2006), sanctions orders do 23 not seek to compel compliance with existing court orders, but 24 are available as a deterrent to delaying tactics and the 25

15imposition of unnecessary costs on adversaries. Willy v. 1 Coastal Corp. , 503 U.S. 131, 138-39 (1992). Allowing immediate 2 appeal of those orders would be counterproductive because it 3 would allow the sanctioned party to cause additional delays and 4 costs. Cunningham , 527 U.S. at 207-09. 5 As noted, Cunninghamaddressed appellate jurisdiction only 6 with regard to Rule 37 sanctions. Therefore, our appellate 7 jurisdiction turns on whether the holding in Cunninghamalso 8 applies to sanctions imposed under Rule 11, 28 U.S.C. § 1927, 9 and the inherent power of the court. 10 Several other circuits have held that Cunninghamprecludes 11 interlocutory appeals of sanctions imposed under these other 12 sources of authority. SeeDouglas v. Merck & Co. , 456 F. App’x 13 45 at *47 n.1 (2d Cir. Jan. 23, 2012) 7(Slip Op.) (citing 14 Stanley v. Woodford , 449 F.3d 1060, 1063-65 (9th Cir. 2006) (§ 15 1927 and inherent power sanctions); Comuso v. National R.R. 16 Passenger Corp. , 267 F.3d 331, 339 (3d Cir. 2001) (abrogating 17 precedent or appealability of Rule 11 and discovery sanctions 18 and holding inherent power sanctions not immediately 19 appealable); Empresas Omajede, Inc. v. Bennazar-Zequeira , 213 20

7 However, the panel in Douglas , which was faced with an interlocutory appeal of sanctions imposed under the district court’s inherent power, chose not to consider whether Cunninghamcategorically precluded interlocutory appeals of inherent-power sanctions because the specific facts of that case did not satisfy the collateral order test. SeeDouglas , 456 F. App’x 45 at *47. 16F.3d 6, 9 n.4 (1st Cir. 2000) (inherent power sanctions)). 8In 1 addition, we have also suggested that in the wake of Cunningham 2 “a sanctions order against an attorney does not satisfy the 3 requirements of the collateral order doctrine.” New Pac. 4 Overseas Grp. (U.S.A.) v. Excal Int’l Dev. Corp. , 252 F.3d 667, 5 670 (2d Cir. 2001). However, like Cunningham , that case 6 directly addressed sanctions imposed only under Rule 37. 9See 7 id. 8 We conclude that Cunninghamapplies to appeals of 9 sanctions imposed under Rule 11 as well as under the district 10 court’s inherent powers because, like Rule 37 sanctions, these 11 appeals will often implicate the merits of the underlying 12 action. Sanctions based on these other authorities often 13 require courts to evaluate the completeness or truthfulness of 14 responses and whether a party’s claims are without merit. See 15

8 The reasoning for concluding that Cunninghamprecludes immediate appeals of sanction orders has differed slightly among the circuits. For example, the Third Circuit has asserted that the Supreme Court created “a per serule that sanctions orders are inextricably intertwined with the merits of the case.” Comuso , 267 F.3d at 339. On the other hand, the Ninth Circuit has looked to the rationale used by the Court in Cunninghamand concluded that the “reasons underlying Cunningham ’s bar against immediate appeal from Rule 37(a) sanctions orders apply equally” to other types of sanctions. Stanley , 449 F.3d at 1064 (quoting Cato v. Fresno City , 220 F.3d 1073, 1074 (9th Cir. 2000)). The latter reasoning leaves open the possibility that some types of sanctions may be immediately appealable if the rationale underlying the Cunninghamdecision does not apply. We need not address these issues because, as discussed infra , the reasoning applied in Cunninghamapplies to the types of sanctions present in this matter.

9 We note that, in a recent opinion, two members of a panel stated in separate concurring opinions that we have jurisdiction over the immediate appeal of Rule 11 sanctions. SeeKiobel v. Millson , 592 F.3d 78, 87 (2d Cir. 2010) (Cabranes, J. , concurring); id. at 107 (Jacobs, C.J. , concurring). However, neither opinion discussed Cunningham , both relying entirely on precedent preceding that decision. Seeid. at 87, 107. 17e.g. , Lawrence v. Richman Grp. of CT LLC , 620 F.3d 153, 156 (2d 1 Cir. 2010) (Rule 11); Revson v. Cinque & Cinque, P.C. , 221 F.3d 2 71, 78-79 (2d Cir. 2000) (inherent powers and § 1927). 3 The fact that the particular sanctions before us were 4 imposed in the context of an ancillary proceeding, and required 5 evaluation of the accuracy and truthfulness of appellants, does 6 not alter the analysis. Although the particular issue giving 7 rise to the sanctions here -- Lynn Smith’s monetary interest in 8 the Trust -- does not necessarily implicate the merits of the 9 underlying securities fraud prosecution, ancillary proceedings 10 often do implicate the underlying claims. See, e.g. , Commodity 11 Futures Trading Comm’n v. Walsh , 618 F.3d 218, 225 (2d Cir. 12 2010) (to freeze the assets of a relief defendant the 13 government must show that they are likely to succeed in 14 disgorging the funds, which requires, in part, that the assets 15 are ill-gotten, which deals directly with the merits of the 16 underlying action). Therefore, sanctions in these contexts 17 also “often will be inextricably intertwined with the merits of 18 the action,” Cunningham , 527 U.S. at 205, and, even if that is 19 not necessarily the case here, the requisite categorical 20 analysis is not altered. 21 Finally, the particular sanctions here do not meet the 22 third prong of the collateral order doctrine. As was the case 23 in Cunningham, the fact that Dunn and Wojeski are not parties 24 to this action, and are no longer acting as the attorney and 25

18trustee for the Trust does not render the issues unreviewable 1 on appeal. The Supreme Court squarely rejected a similar 2 concern with regard to the appeals of attorneys, seeid. at 3 206-07, and its reasoning is equally applicable to Wojeski as a 4 trustee. Trustees, like attorneys, act on behalf of a party 5 and have a fiduciary duty to that party. SeeBlack’s Law 6 Dictionary “trustee” (9th ed. 2009); Saltzman v. Comm’r , 131 7 F.3d 87, 90 (2d Cir. 1997) (“[P]ursuant to the inexorable 8 dictates of trust law, [the trustees] owed the trust 9 beneficiaries the absolute duty of undiluted loyalty.”). 10 Therefore, the appeals of Dunn and Wojeski also fail to satisfy 11 the final prong of the collateral order doctrine. We, 12 therefore, dismiss these appeals. 10 13 2. Appeal of Lynn Smith 14 We conclude that we have jurisdiction over Lynn Smith’s 15 appeal under 28 U.S.C. § 1292(a)(1) because the sanctions order 16 against her is inextricably intertwined with the order of 17 injunction against the Trust. 18 An appeal is inextricably bound up with an injunction if 19 the court cannot resolve the issue of the injunction without 20 considering the additional appeal. SeeLamar Adver. , 356 F.3d 21 at 372. Here, the order directing the receiver to sell or 22

10 Like the Court in Cunningham , we recognize that our conclusion may create hardships for Dunn and Wojeski. However, that fact does not serve to grant jurisdiction. SeeCunningham , 527 U.S. at 209-10 (“Should these hardships be deemed to outweigh the desirability of restricting appeals to ‘final decisions,’ solutions other than an expansive interpretation of § 1291’s ‘final decision’ requirement remain available.”). 19rent the property owned by the Trust was contingent on whether 1 Lynn Smith satisfied the order of sanctions against her by the 2 specified date. Therefore, if the order of disgorgement 3 against Lynn Smith is invalid, the court’s order regarding the 4 disposal of the Trust’s property is moot. Lynn Smith’s appeal 5 is, therefore, inextricably bound up with the Trust’s appeal of 6 the injunction, 11and we have jurisdiction over her appeal. 7 b) Sanctions Against Lynn Smith 8 We review a lower court’s imposition of sanctions for 9 abuse of discretion. SeeStorey v. Cello Holdings, LLC , 347 10 F.3d 370, 387 (2d Cir. 2003). A court abuses its discretion 11 when it bases “its ruling on an erroneous view of the law or on 12 a clearly erroneous assessment of the evidence.” Id. at 387-88 13 (internal citations and quotations omitted). “An assessment of 14 the evidence is clearly erroneous where the reviewing court ‘is 15 left with the definite and firm conviction that a mistake has 16 been committed.’” Wolters Kluwer Fin. Servs., Inc. v. 17 Scivantage , 564 F.3d 110, 113 (2d Cir. 2009) (quoting Zervos v. 18 Verizon N.Y., Inc. , 252 F.3d 163, 168 (2d Cir. 2001)), and the 19 imposition of sanctions was “made with[out] restraint and 20 discretion.” Schlaifer Nance & Co. v. Estate of Warhol , 194 21 F.3d 323, 334 (2d Cir. 1999). 22

11 Wojeski also asserts that his appeal is inextricably bound up with the injunction against the Trust; however, he does not explain how the order of sanctions against him in any way affects the injunction against the Trust. His only argument is that the sanctions order was issued in the context of a preliminary injunction proceeding. However, 28 U.S.C. § 1292(a) provides jurisdiction over orders, not over proceedings, and there is nothing in Wojeski’s briefs that would suggest that review of his appeal is vital to deciding the appeal of the Trust. 20Under Rule 11(c)(3) and the inherent power of the court, 1 sanctions are appropriate where an individual has made a false 2 statement to the court and has done so in bad faith. SeeIn re 3 Pennie & Edmonds LLP , 323 F.3d 86, 90 (2d Cir. 2003) (Rule 4 11(c)(3)); DLC Mgmt. Corp. v. Town of Hyde Park , 163 F.3d 124, 5 136 (2d Cir. 1998) (inherent power). Lynn Smith argues that 6 she did not make any false statements, that there was 7 insufficient evidence that she acted in bad faith, and that 8 disgorgement is not an appropriate sanction. We address those 9 arguments in turn. 10 Whether Lynn Smith made false statements, and whether she 11 did so in bad faith, are questions of fact that will not be 12 disturbed unless clearly erroneous. SeeAgiwal v. Mid Island 13 Mortg. Corp. , 555 F.3d 298, 302 (2d Cir. 2009). The findings 14 of the magistrate judge on these issues were certainly not 15 clearly erroneous. 16 Lynn Smith was ordered to list her accounts and assets. 17 The annuity in question is clearly an asset. SeeBlack’s Law 18 Dictionary, “asset” (9th ed. 2009) (defined as something that 19 is owned and has value). The fact that her children were 20 listed as the sole beneficiaries of the Trust hardly means that 21 the Trust as arranged was for the sole benefit of the children. 22 Viewing the Trust as a whole, it was undoubtedly created, at 23 least in part, to benefit Lynn and David Smith because, as Lynn 24 Smith acknowledges in her brief, it allowed them to defer 25

21capital gains taxes. Similarly, the payments to Lynn Smith 1 under the annuity contract were contingent on the Trust 2 retaining sufficient assets to make those payments. These 3 facts clearly establish that Lynn Smith had an ongoing 4 substantial interest in the Trust whether or not it was 5 technically an ownership interest. 12 6 The court’s finding that Lynn Smith acted in bad faith in 7 not revealing her interest in the Trust is amply supported by 8 the record. First, the size of the annuity payments is easily 9 sufficient to support an inference that Lynn Smith did not 10 simply forget about the annuity, but rather purposely chose to 11 omit it. Second, Lynn Smith concededly supported her daughter 12 for approximately a year, despite the fact that the stated 13 purpose of the Trust was to provide financial assistance to the 14 Smiths’ children when needed. This provision of means to the 15 daughter supports a finding that Lynn Smith was seeking to 16 preserve the Trust’s assets so as to protect her future 17 payments under the annuity agreement and was fully aware of her 18 interest in the Trust. Finally, the fact that Lynn Smith sold 19 her vacation home to the Trust soon after the original asset 20 freeze was lifted indicates a motive to falsify the required 21 reports in order to gain access to the Trust’s funds. While 22 these facts may not compel as a matter of law a finding that 23

12 We have already upheld the freeze on the Trust's assets based on the finding that the Trust was for the benefit of David Smith. SeeSmith v. SEC , 432 F. App'x 10, 12 (2d Cir. 2011). 22Lynn Smith made false statements to the court in bad faith, we 1 are not “left with the definite and firm conviction that a 2 mistake has been committed.” Wolters Kluwer , 564 F.3d at 113 3 (internal quotations omitted). Indeed, the record carries a 4 circumstantial stench that only heroic credibility findings in 5 her favor would dissipate. 6 Finally, with regard to Lynn Smith’s claim that 7 disgorgement is not a proper sanction, we note that “[d]istrict 8 courts are given broad discretion in tailoring appropriate and 9 reasonable sanctions.” O’Malley v. N.Y.C. Transit Auth. , 896 10 F.2d 704, 709 (2d Cir. 1990); Wright & Miller, Federal Practice 11 & Procedure § 1336.3 (“[F]ederal courts retain broad 12 discretionary power to fashion novel and unique sanctions to 13 fit the particular case.”). In the present context -- 14 proceedings initiated to preserve assets in order to compensate 15 victims of the alleged fraud -- it was entirely appropriate for 16 the court to require Lynn Smith to disgorge herself of funds 17 she obtained after that freeze was lifted in substantial 18 reliance upon her false statements. 19 c) Order Authorizing the Disposition of Trust Property 20 21 The order authorizing the receiver to dispose of the 22 vacation home was issued as part of the sanction order. 23 Therefore, it is also reviewed under an abuse of discretion 24 standard. SeeUnited States v. Seltzer , 227 F.3d 36, 39 (2d 25 Cir. 2000). 26

23The Trust argues that the lower court abused its 1 discretion because it did not provide the Trust with notice 2 that the court intended to give the receiver the authority to 3 dispose of Trust assets and an opportunity to be heard prior to 4 issuing the order. In addition, the Trust also makes various 5 substantive arguments that were not addressed in the district 6 court. Those arguments include the contention that this order 7 usurps the role of the trustee and forces the Trust to bear the 8 costs of Lynn Smith’s actions even though the Trust was not 9 accused of wrongdoing. In response, the SEC asserts that the 10 Trust will not bear any additional costs because the receiver 11 was instructed to dispose of the property only if doing so 12 would maximize the return on that property. The SEC also 13 asserts that the Trust’s other arguments are unavailing in 14 light of the fact that the veil of the Trust’s separate legal 15 existence has been pierced as to David Smith. 16 The Trust also raises concerns that the order gives very 17 little direction to the receiver as to how he or she is to 18 determine what course of action to take. This, the Trust 19 argues, gives the receiver nearly complete discretion and 20 precludes effective judicial review. 21 We believe it appropriate to allow the magistrate judge to 22 consider the Trust’s arguments in the first instance. We in no 23 way suggest that the district court should determine that its 24 prior order with regard to the Trust is inappropriate. We 25

24leave that to its sound discretion. However, the court should 1 provide additional guidance to the receiver concerning how to 2 determine whether to dispose of the property, if at all. 3

CONCLUSION 4 For the foregoing reasons, we dismiss the appeals of Dunn 5 and Wojeski, affirm the sanctions against Lynn Smith, and 6 remand for further proceedings in accordance with this opinion. 7 8

25