“Control” Equals “Legal Right to Obtain”
Nebraska Supreme Court Tightens Discovery Obligations for LLC Members in Bajjuri v. Karney

Introduction

On 20 June 2025 the Nebraska Supreme Court, in Bajjuri v. Karney, 319 Neb. 273, confronted a chronic refusal by two limited liability company (LLC) members to produce business records. The plaintiffs—Pranay Bajjuri and other investors—alleged that Anand Karney and Sudha Karney (together, “the Karneys”) orchestrated a fraudulent investment scheme through several single-purpose LLC’s. After 18 months of stalled discovery and a disobeyed order to compel, the district court entered default judgment for \$2.2 million and awarded \$180,645.68 in attorney’s fees under Nebraska Rule of Discovery 6-337 (Rule 37). The Karneys appealed, arguing lack of control over the requested documents and insufficient warning of harsh sanctions. The Supreme Court affirmed, announcing two key propositions:

1. For discovery purposes, “control” includes a party’s legal right to obtain documents—LLC members or managers cannot disown records that the Nebraska Uniform Limited Liability Company Act (§ 21-139) entitles them to access.
2. Persistent, willful discovery abuse justifies “terminating” sanctions—default judgment plus fees—even when lesser sanctions have not previously been imposed, if the record shows prejudice, warnings, and bad faith.

Summary of the Judgment

• Sanctions Affirmed. Default judgment and attorney’s fees against the Karneys were proper exercises of discretion.
• No Abuse of Discretion. The Supreme Court reiterated the six-factor test governing Rule 37 sanctions and found each factor satisfied.
• Definition of Control. Citing § 21-139 and earlier Nebraska precedent, the Court held that LLC members “were empowered to obtain LLC records” and thus had “possession, custody, or control.”
• Notice Adequate. Multiple court orders and explicit warnings placed the Karneys on notice that default judgment and fees could be imposed.
• Motion to Alter or Amend. Properly denied; the original sanction order was sound.

Analysis

1. Precedents Cited

• Eletech, Inc. v. Conveyance Consulting Group, 308 Neb. 733 (2021) – reaffirmed six-factor test and upheld dismissal for discovery abuse; heavily relied on to measure the Karneys’ conduct.
• Eddy v. Builders Supply Co., 304 Neb. 804 (2020) – described goals of discovery and deterrent purpose of sanctions.
• Hill v. Tevogt, 293 Neb. 429 (2016) – articulated punitive, deterrent, and prophylactic functions of Rule 37 sanctions.
• Rhodes v. Edwards, 178 Neb. 757 (1965) – early authority that “control” means ability to secure documents even if not in physical possession; cited to reject the Karneys’ “lack-of-control” argument.
• Statutory authority: Neb. Rev. Stat. § 21-139 (member inspection rights) provided the linchpin for the Court’s expansion of “control.”

2. Legal Reasoning

a. Standard of Review. Discovery sanctions are reviewed for abuse of discretion. A ruling is untenable if it unfairly deprives a litigant of a substantial right. The Court found the sanctions well within the permissible range.

b. Application of Six Sanction Factors.

1. Prejudice/Surprise. Plaintiffs could not prepare for trial without the LLC financials; subpoenas yielded only fragments.
2. Importance of Evidence. The records were “at the root” of fraud and unjust enrichment claims, making compliance essential.
3. Warning. Three separate orders explicitly threatened default; the March 2023 order quoted § 25-824’s fee-shifting language.
4. Consideration of Lesser Sanctions. The Court deemed lesser remedies futile given 18 months of non-compliance.
5. History of Abuse. The Karneys “frustrated discovery at every stage,” invoking protective-order objections, ignoring deadlines, and producing nothing at an evidentiary hearing.
6. Willfulness/Bad Faith. The Karneys’ selective retrieval of documents when advantageous (e.g., property sales) undermined their claim of helplessness.

c. The “Control” Doctrine Expanded. Rule 6-334 requires production if documents are in the party’s “possession, custody, or control.” Historically, Nebraska followed the federal interpretation—control exists when a party has the legal right to obtain the documents. The Court infused that principle with § 21-139, underscoring that LLC members and managers always possess such a right for company records material to their interests. Accordingly, the Karneys’ claim that co-defendant Amogh Karney held the documents was legally insufficient.

d. Alignment with Statutory Fee-Shifting (§ 25-824). Although Rule 37 alone authorized fees, the Court referenced § 25-824 (frivolous or dilatory conduct) as further justification, noting the defendants’ “continued abuses of civil discovery procedures.”

3. Potential Impact of the Decision

• Clarifies “Control” for LLC Parties. Nebraska litigants can expect courts to deem corporate/LLC records within a member’s control, triggering mandatory production.
• Elevates Risk of Default Sanctions. Courts may leap directly to terminating sanctions when parties exhibit sustained recalcitrance, without stepping through lesser penalties.
• Integration of Substantive Corporate Statutes in Procedural Context. The decision intertwines § 21-139 (LLC governance) with discovery rules, signaling more cross-pollination between substantive and procedural doctrines.
• Guidance for Trial Courts. The opinion functions as a template for sanction orders, meticulously applying the six-factor rubric.
• Strategic Implications for Counsel. Attorneys must now anticipate that “lack of possession” defenses will be scrutinized for legal access rights; failure to pursue internal company records may invite sanctions against both client and counsel.

Complex Concepts Simplified

Rule 6-337 (Rule 37)

Nebraska’s counterpart to Federal Rule 37; allows courts to impose penalties—including default judgment—when a party disobeys discovery orders.

Default Judgment as a “Terminating Sanction”

A drastic remedy that decides liability against the non-complying party without trial, reserved for egregious misconduct.

Possession, Custody, or Control

• Possession: Physical holding of the document.
• Custody: Practical ability to access and produce the document.
• Control: Legal right to obtain the document (e.g., via contractual or statutory authority).

LLC Member Inspection Right (§ 21-139)

Statute granting LLC members the right to inspect and copy company records for proper purposes; forms the backbone of the Court’s control analysis.

Six-Factor Sanctions Test

A judicial checklist in Nebraska for determining appropriate discovery sanctions—prejudice, importance, warnings, lesser sanctions, history, and willfulness.

Conclusion

Bajjuri v. Karney fortifies Nebraska’s discovery regime by coupling procedural rules with substantive corporate law. The Supreme Court’s message is unambiguous: litigants who possess a legal pathway to records cannot stonewall production and then plead powerlessness. Defiance will trigger severe consequences, including default judgment and hefty fee awards. For practitioners, the case is both a cautionary tale and a practical guide—know your client’s statutory rights to documents, cooperate early, and heed court warnings. For the law, the decision cements the principle that “control” follows legal entitlement, not mere physical custody, thereby broadening the reach of Nebraska discovery and streamlining the path toward just, efficient resolution of disputes.