In re Paul Morabito

Case Type:
Consumer
Case Status:
Affirmed
Citation:
United States Bankruptcy Appellate Panel Case No. NV-20-2367-GTaB (9th Circuit, Sep 29,2020) Not Published
Tag(s):
Ruling:
The bankruptcy court decision to grant summary judgment was affirmed in full. The BAP also found that the decision to apply issue preclusion was appropriate under Nevada law, because the Trustee was substituted as a party in the state court action, which asserted the fraudulent transfer claims on behalf of the estate. The BAP found no genuine issue of material fact existed such that summary judgment was incorrect.
Procedural context:
The Trustee commenced an adversary proceeding in 2016 to avoid preference payments from Edward Bayuk (Bayuk) to Bank of America (BOA). In April 2019, the Trustee filed for summary judgment submitting a statement of facts which included stipulations from related proceedings and state court actions. Bayuk did not contest the facts but argued the state court judgment entered in violation of the automatic stay. The bankruptcy court held a hearing, denied Bayuk’s motion to dismiss, and entered an order granting summary judgment finding that issue preclusion based on the state court rulings applied. This appeal follows.
Facts:
In 2010, a Nevada state court found Paul Morabito (Debtor) and a corporation liable to JH, Inc., Jerry Herbs, and Berry-Hinckley Industries (Herbst Parties). After this ruling, the Debtor began to transfer his assets away from his ownership. One such transaction included transferring the Debtor’s 50% interest in a real estate holding company, Baruk Properties, LLC, to Bayuk in exchange for a promissory note. There were never payments made on the promissory note. Baruk Properties, LLC later merged with Snowshoe Properties, LLC (Snowshoe) to form the Edward William Bayuk Living Trust. After this transfer of interest, the Debtor entered into a settlement agreement with Bank of America, which included Snowshoe executing a limited guaranty. Bayuk paid BOA the amount the Debtor agreed to removing any liability of Snowshoe. Bayuk considered this payment as a payment on the promissory note. The Herbst Parties commenced an involuntary petition against the Debtor in 2013. In 2015 Trustee was elected. In the interim, the Herbst Parties commenced a fraudulent conveyance action in state court against numerous parties including the Debtor, Bayuk, and Snowshoe. The action sought to unwind previous transfers of the Debtor’s property. In May 2015 the parties stipulated to substituting the Trustee as plaintiff and removing the Debtor as a defendant. The Trustee filed an amended complaint asserting the bankruptcy estate's rights. The state court held a bench trial and entered findings of fact and conclusions of law in March 2019 avoiding the transfer of the Debtor’s properties, because the transfer was done with actual intent to hinder, delay, or defraud creditors with multiple badges of fraud present. Further, the state court determined the promissory note was illusory as no payments were made resulting in no reasonably equivalent value for the Debtor’s creditors.
Judge(s):
The Hons. Gan, Taylor, and Brand

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