Case Title: Superpumper, Inc. v. Leonard

Citation: 137 Nev. Adv. Op. No. 43

Docket Number: 79355

State: nevada

Court: Nevada Supreme Court

Date: 2021-09-16T00:00:00Z

Document:
187 Nev., Advance Opinion 4
IN THE SUPREME COURT OF THE STATE OF NEVADA

SUPERPUMPER, INC., AN ARIZONA No. 79355,
CORPORATION; EDWARD BAYUK,

INDIVIDUALLY AND AS TRUSTEE OF

‘THE EDWARD WILLIAM BAYUK

LIVING TRUST; SALVATORE

‘MORABITO, AN INDIVIDUAL; AND FILED
SNOWSHOE PETROLEUM, INC., A

NEW YORK CORPORATION, SEP 16 2021
Appellants,

vs,
WILLIAM A. LEONARD, TRUSTEE
FOR THE BANKRUPTCY ESTATE OF
PAUL ANTHONY MORABITO,
Respondent.

    

 

Appeal from a final judgment and order awarding attorney fees
and costs in a tort action. Second Judicial District Court, Washoe County;
Connie J. Steinheimer, Judge, and Janet Berry, Senior Judge.

Affirmed.

Claggett & Sykes Law Firm and Micah S. Echols, Las Vegas; Hartman &
Hartman and Jeffrey L. Hartman, Reno; Robison, Sharp, Sullivan & Brust
and Frank C. Gilmore, Reno,

for Appellants.

Garman Turner Gordon and Gerald M. Gordon, Gabrielle A. Hamm, Erika
A. Pike Turner, and Teresa M. Pilatowiez, Las Vegas; Jones Lovelock and
Stephen A. Davis, Las Vegas,

for Respondent.

BEFORE THE SUPREME COURT, EN BANC.

We Rse

 
OPINION

By the Court, HARDESTY, C.J.:

In this appeal, we examine whether a state district court had
subject matter jurisdiction over a fraudulent conveyance action or whether
such an action is within the exclusive jurisdiction of the federal bankruptcy
‘court. We hold that the district court here had subject matter jurisdiction
‘over the action because there is concurrent federal and state jurisdiction
over fraudulent conveyance actions. We also conclude that, unlike subject
matter jurisdiction, a defect as to in rem jurisdiction is a defect that is
waived if not timely asserted. Accordingly, because the district court
properly exercised jurisdiction over the action and did not abuse its
discretion in its rulings on the discovery and evidentiary issues discussed
below, we affirm the district court's judgment.

FACTS AND PROCEDURAL HISTORY

In 2007, Paul Morabito and Consolidated Nevada Corporation
(CNC) filed a lawsuit against JH, Inc., Jerry Herbst, and Berry-Hinckley
Industries (collectively, the Herbsts). The Herbsts filed counterclaims
against Morabito and CNC and ultimately prevailed. The Herbsts were
awarded in excess of $149.4 million in damages. ‘Thereafter, the parties
entered into a settlement agreement for $85 million. By that time, Morabito
had already moved most of his assets out of his name. Morabito and CNC
defaulted on the settlement agreement, and, as a result, the Herbsts filed
an involuntary Chapter 7 bankruptcy petition against Morabito and CNC.
‘The bankruptcy court adjudicated Morabito as a Chapter 7 debtor.

In an attempt to collect on the settlement agreement, the
Herbsts filed a fraudulent transfer action under NRS Chapter 112 against
Morabito, as well as the transferees of his assets, in state district court. The

 

 

 
ane ie

transferees (appellants in this case) are Superpumper, Inc., an Arizona
corporation; Salvatore (Sam) Morabito, who is Paul Morabito'’s brother;
Edward Bayuk, individually and as trustee of the Bayuk Trust; and
Snowshoe Petroleum, Inc. a New York corporation (collectively, when
possible, Superpumper). Alll of the transferees received substantial assets
from Morabito.

After the bankruptcy court appointed respondent William A.
Leonard as Morabito's bankruptcy trustee (the Trustee), the Herbsts and
Superpumper stipulated to substitute the Trustee for the Herbsts and to
remove Morabito as a defendant in the state court action. Following an
eight-day bench trial, the state district court avoided all of Morabito's
transfers to Superpumper and awarded the Trustee the subject property or
the value thereof.

‘Superpumper appeals, arguing that the district court (1) did not
have subject matter jurisdiction over the underlying fraudulent conveyance
action, (2) did not have in rem jurisdiction over the Bayuk Trust, and
(3) erred in allowing attorney-client communications to be disclosed during
discovery and admitted into evidence at trial.

DISCUSSION

‘The district court had subject matter jurisdiction over the fraudulent
conveyance action

‘Superpumper’s argument regarding subject matter jurisdiction
is twofold. First, Superpumper asserts that the state district court did not
have jurisdiction over the entire case because fraudulent transfer
proceedings are within the exclusive jurisdiction of the bankruptey court.
Specifically, citing In re Gruntz, 202 F.3d 1074, 1080-81 (9th Cir. 2000),

 

Superpumper argues that bankruptcy courts have exclusive jurisdiction

over “core proceedings” and that a fraudulent conveyance action is a core

 

 
proceeding. Second, Superpumper contends that the Trustee lacked
standing to maintain the underlying action.

“Subject matter jurisdiction is a question of law subject to de
novo review.” Ogawa v. Ogawa, 125 Nev. 660, 667, 221 P.3d 699, 704 (2009).
Subject matter jurisdiction “can be raised by the parties at any time, or sua
sponte by a court of review, and cannot be conferred by the parties.”
Landreth v. Malik, 127 Nev. 175, 179, 251 P.3d 163, 166 (2011) (internal
quotation marks omitted). “(IIf the district court lacks subject matter
jurisdiction, the judgment is rendered void.” Id.

Federal district courts “have original and exclusive jurisdiction
of all cases under title 11,” which encompasses the federal bankruptey
provisions. 28 U.S.C. § 1334(a) (2005). However, “the district courts shall
have original but not exclusive jurisdiction of all civil proceedings arising
under title 11, or arising in or related to cases under title 11.” Id. at
§ 1334(b) (emphasis added). Federal district courts may refer all cases
arising under title 11 to bankruptcy judges. 28 U.S.C. § 157%(a). And
“{blankruptey judges may hear and determine all cases under title 11 and
all core proceedings arising under title 11.” Id. at § 157(bX1) (emphases
added). “[A} ‘core proceeding’ in bankruptcy is one that invokes a
substantive right provided by title 11 or . . a proceeding that, by its nature,
could arise only in the context of a bankruptey case.” Gruntz, 202 F.3d at
1081 (internal quotation marks omitted). In contrast, “[nlon-core
proceedings’ are those not integral to the restructuring of debtor-creditor
relations and not involving a cause of action arising under title 11.” Id.

Although Superpumper suggests otherwise, just because a
proceeding is considered “core” does not mean that it lies within the
exclusive jurisdiction of the bankruptcy court. Rather, whether a

 

 
on

proceeding is considered “core” determines the relationship between
Article I bankruptcy courts and Article III federal district courts, not state
courts, In Executive Benefits Insurance Agency v. Arkison, the United
States Supreme Court explained that bankruptcy courts are authorized to
enter final judgments in core proceedings, which the federal district court
may then review “under traditional appellate standards.” 573 U.S. 25, 33-
34 (2014). However, “for ‘non-core’ proceedings . ..{,] a bankruptcy court”
is merely authorized to “submit proposed findings of fact and conclusions of
law to the district court’ [which] must then review those proposed findings
and conclusions de novo and enter any final orders or judgments.” Id. at 34
(quoting 28 U.S.C. § 157(cX1)).

Thus, whether a matter is “core” or “non-core” determines
whether the bankruptcy court may enter a final judgment and the
appropriate standard of review for that judgment, not whether a state court
has jurisdiction over the matter. See Gruntz, 202 F.3d at 1081 (“ITIhe
separation of ‘core’ and ‘non-core’ proceedings ... creates a distinction
between those judicial acts deriving from the plenary Article I bankruptcy
power and those subject to general Article III federal court jurisdiction.”);
Hopkins v. Plant Insulation Co., 349 B.R. 805, 811 (Bankr. N.D. Cal. 2006)
(stating that “[28 U.S.C. §] 157(b) governs the division of responsibility
between Article III district courts and Article I bankruptcy courts in each
judicial district, and has nothing to say about the di
between state and federal courts”).

Instead, as the Bankruptcy Appellate Panel of the Ninth Circuit
noted in In re McCarthy, state and federal courts share concurrent
jurisdiction over certain “core” proceedings. 230 B.R. 414, 418 (B.A.P. 9th
Cir, 1999) (“The fact that a fraudulent transfer action might be a ‘core

   

ision of responsibility

 

 
ane

proceeding’ under 28 U.S.C. § 157(bX(2) does not equate to exclusive federal
jurisdiction, Rather, there is concurrent federal and state jurisdiction over
fraudulent transfer actions and many other core proceedings.” (citing 28
U.S.C. § 1334(b))}; see also In re Brady, Tex., Mun. Gas Corp., 936 F.2d 212,
218 (5th Cir. 1991) (“[T]he only aspect of the bankruptcy proceeding over
which the district courts and their bankruptcy units have exclusive
jurisdiction is the bankruptcy petition itself. In other matters arising in or
related to title 11 cases..., state courts have concurrent jurisdiction.”
(citation and internal quotation marks omitted)); Hopkins, 349 B.R. at 812
(concluding “that state courts retain concurrent jurisdiction over claims
brought” by a trustee to recover fraudulent conveyances).

And although the Gruntz court stated broadly that a
“bankruptcy court[ has] plenary power over core proceedings,” 202 F.3d at
1082, Gruntz did not overrule McCarthy, which stated that a core
proceeding “does not equate to exclusive federal jurisdiction,” 230 B.R. at
418. Gruntz is also distinguishable because there the state court acted in
derogation of a bankruptcy court automatic stay. 202 F.3d at 1077. Here,
however, the bankruptcy court lifted the stay specifically so that the Trustee
could pursue the underlying action, Further, a bankruptcy court's exercise
of jurisdiction is permissive, not mandatory. 28 U.S.C. § 157(bX1) provides
that a “[blankruptey judgel ] may hear and determine all cases under title
11 and all core proceedings arising under title 11.” (Emphasis added.)
There is no language in the statute or Gruntz that demands that core
proceedings be exclusively within the jurisdiction of bankruptcy courts as
against state courts. See Hopkins, 349 B.R. at 811 (stating that “[nlothing
in Gruntz indicates that a bankruptcy court lacks the power to decline
jurisdiction over core matters”). Therefore, assuming without deciding that

 

 
a fraudulent conveyance action is a core proceeding, we hold that the state
district court and the bankruptcy court shared concurrent jurisdiction over
this fraudulent conveyance action.

‘We also reject Superpumper’s argument that the district court,
lacked subject matter jurisdiction because the Trustee lacked standing.
“When a bankruptcy petition is filed, all of the debtor's property, other than
certain exceptions, becomes part of the bankruptey estate.” Tower Homes,
LLC v. Heaton, 132 Nev. 628, 632, 377 P.3d 118, 121 (2016) (citing 11 U.S.C.
§ 541(a) (2012)). “A bankruptcy trustee is charged with administering the
estate [including] recovering assets for the creditors’ benefit.” Id. at 633,
377 P.3d at 121. In Nevada “a creditor . .. may obtain . .. {alvoidance of [a
fraudulent] transfer.” NRS 112.210(1Xa). And 11 U.S.C. § 544(bX1)
provides that a “trustee may avoid any transfer of an interest of the debtor
in property . . . that is voidable under applicable law by a creditor holding
Further, courts have frequently held that a
trustee stands in the shoes of creditors. See Universal Church v. Geltzer,
463 F.3d 218, 222 n.1 (2d Cir. 2006) “(T]he Bankruptcy Code allows the
trustee to step into the shoes of a creditor under state law and avoid any
transfers such a creditor could have avoided.”); In re MortgageAmerica
Corp., 714 F.2d 1266, 1275 (Sth Cir. 1983) (“11 U.S.C. § 544[]] allows the
bankruptcy trustee to step into the shoes of a creditor for the purpose of

 

an unsecured claim .

asserting causes of action under state fraudulent conveyance acts for the
benefit of all creditors.”). ‘Thus, it is a trustee's obligation to recover
fraudulent conveyances for the estate, and the trustee has the authority to

 

 
—

do so under NRS 112,210(1a) and 11 U.S.C. § 544. Therefore, we conclude
that the Trustee had standing to maintain this fraudulent conveyance
action?

‘Superpumper also argues that the Herbsts did not assign their claim
to the Trustee, or that they could not do so under Nevada law. We reject
this argument. Although a fraud claim is not assignable, see Reynolds v.
Tufenkjian, 136 Nev. 145, 150, 461 P.3d 147, 152 (2020), Superpumper has
not cited authority for the proposition that a fraudulent conveyance claim
is not assignable, see 6A C.J.S. Assignments § 42 (2021 update) (“Unless it
is forbidden by statute or clearly limited by agreement or waiver, any claim
may be assigned except one to recover damages for personal injury or one
involving a close, personal, and highly confidential relationship.” (footnotes
omitted)). Further, there are significant differences between the two types
of claims. See, e.g., Sportsco Enters. v. Morris, 112 Nev. 625, 631, 917 P.2d
934, 937 (1996) (distinguishing the elements of a claim for fraudulent
conveyance from fraud). And Superpumper has not provided authority
demonstrating that trustees cannot substitute for a creditor in a fraudulent
conveyance action.

*Superpumper frames its argument about standing as a reason why
the district court lacked subject matter jurisdiction. However, this court
has never directly subscribed to the view that standing is an aspect of
subject matter jurisdiction, and some jurisdictions have held that they are
separate principles. See, e.g., Meredith Hoberock, Standing in Arkansas
Courts: Chubb Holds That Standing is Not a Component of Subject Matter
Jurisdiction, 64 Ark. L. Rev. 501, 508 (2011) (“The issue of standing in state
courts is a matter of state law, and thus state courts are not bound by
federal standing principles. Nonetheless, many state courts default to
federal standing rules by treating standing as jurisdictional. A few states,
however, do not treat standing as a component of subject-matter
jurisdiction.” (footnotes omitted)); cf: In re Guardianship of Herrick, 846
'N.W.2d 301, 310 (Neb. Ct. App. 2014) (providing that ‘It}he defect of
standing is a defect of subject matter jurisdiction”). Nonetheless, because
neither party has raised this issue and because we conclude that the
‘Trustee has standing here, we do not address whether standing and subject
matter jurisdiction are distinct principles other than to note that we do not
necessarily agree with Superpumper's treatment of standing as a part of
subject matter jurisdiction.

 

 
 

Superpumper waived its in rem jurisdiction argument
‘Superpumper also argues that the district court did not have

subject matter jurisdiction over the Bayuk Trust because only Edward
Bayuk was named in the trust's capacity, not the trust itself, seemingly
arguing simultaneously that the district court did not have in rem

 

jurisdicti
subject matter jurisdiction. In rem and quasi in rem jurisdiction, like

However, this argument conflates in rem jurisdiction with

personal jurisdiction, are forms of basis jurisdiction; they are distinct from
subject matter jurisdiction. See Leventhal v. Black & LoBello, 129 Nev. 472,
4T7 n.5, 305 P.3d 907, 910 n.5 (2013) (clarifying that in rem jurisdiction is
distinct from subject matter jurisdiction); see also In re Aboud Inter Vivos
Tr., 129 Nev. 915, 921, 314 P.3d 941, 945 (2013) (noting that a court needs
either in rem jurisdiction over the property or in personam jurisdiction over
the person in order to enter a judgment, but not both).

This distinction is crucial here because a defense of lack of
personal jurisdiction must be raised in a responsive pleading or else it is
waived, unlike subject matter jurisdiction, which may be raised at any time.
‘See NRCP 12(hX(1XB) (listing lack of personal jurisdiction as a defense that
is waived if not raised in a responsive pleading or made in a Rule 12 motion,
but not including lack of subject matter jurisdiction as a waivable defense);
Landreth, 127 Nev. at 179, 251 P.3d at 166. Given that in rem jurisdiction
is analogous to personal jurisdiction, other courts have held, and we agree,
that a defendant's objection to in rem or quasi in rem jurisdiction is likewise
waived if not timely asserted. See Gager v. White, 425 N.E.2d 851, 854, 856
(N.Y. 1981) (providing that in personam, in rem, and quasi in rem
jurisdiction are waived if not “raised... by a preanswer motion or by
pleading it as an affirmative defense”); see also 5B Charles Alan Wright,
Arthur R. Miller & A. Benjamin Spencer, Federal Practice and Procedure:

 

9

 

 
aa

Civil § 1351 (3d ed. 2021 update) (interpreting Federal Rule of Civil
Procedure 12(bX2), upon which NRCP 12 is modeled, as “sufficiently elastic
to embrace a defense or objection that the district court lacks in rem or
quasi-in-rem jurisdiction”). Thus, because Superpumper participated in
the litigation but did not raise lack of in rem or quasi in rem jurisdiction as
a defense in its answer or in a Rule 12 motion, we conclude that it is waived.

The district court did not abuse its discretion when it allowed attorney-client
‘communications to be disclosed in discovery and admitted into evidence at
trial

Finally, Superpumper argues that the district court improperly
permitted attorney-client communications to be disclosed in discovery and
admitted at trial. During discovery, the Trustee sent notice of its intent to
depose Dennis Vacco, Esq., Morabito's and Superpumper's attorney.
Superpumper filed a motion to partially quash the subpoena or for a
protective order to safeguard attorney-client communications between
acco, Superpumper, and Morabito, asserting the common interest
privilege. In the discovery commissioner's recommendation, which the
district court adopted in its entirety, he determined that the common
interest privilege does not apply to the communications. Thereafter, the
district court admitted the communications into evidence at trial.
“Discovery matters are within the district court's sound
discretion, and we will not disturb a district court's ruling regarding
discovery unless the court has clearly abused its discretion.” Canarelli v.
Eighth Judicial Dist. Court, 136 Nev. 247, 251, 464 P.3d 114, 119 (2020)
(internal quotation marks omitted). Similarly, the decision to admit
evidence is committed to the district court's discretion, “and we will not

interfere with the district court's exercise of discretion absent a showing of

10

 

 
palpable abuse.” M.C. Multi-Family Dev., LLC v. Crestdale Assocs., Ltd.,
124 Nev. 901, 913, 193 P.3d 596, 544 (2008).

Although Superpumper argues the district court erred in
determining that the common interest privilege does not apply to the
communications at issue here, we need not reach its arguments regarding
the contours of the privilege. This is apparent because Superpumper has
not met its threshold burden of articulating its claim of privilege. See NRCP
26(b(5XA) (providing that a party claiming a privilege “must ..

 

expressly
make the claim...and...deseribe the nature of the documents,
communications, or tangible things” so as to “enable other parties to assess
the claim”); see also In re Foster, 188 F.3d 1259, 1264 (10th Cir. 1999)
(stating that “[a] party claiming the attorney-cli
applicability... [and] must bear the burden as to specific questions or
documents, not by making a blanket claim” (citation omitted)). As the
discovery commissioner noted in his recommendation, Superpumper failed
to “identifly] specific information or documents that [it] believels) are
protected.” On appeal, as below, Superpumper has not identified what
communications are privileged. Superpumper’s blanket invocation of

 

t privilege must prove its

privilege is insufficient to demonstrate that the communications are
privileged.

Further, Superpumper has not demonstrated how the
admission of any of the communi
v. Rowatt, 126 Nev. 446, 465, 244 P.3d 765, 778 (2010) (stating that an error
“not affectling] a party's substantial rights” does not require reversal unless
“but for the alleged error, a different result might reasonably have been
reached”); see also NRCP 61. Indeed, Superpumper does not specify or point
to anything in the record that would demonstrate that a different result

tions at trial was prejudicial. See Wyeth

 

ul

 

 
would have occurred if the communications were not admitted. Thus, we
hold that the district court did not abuse its discretion when it admitted the
allegedly privileged communications into evidence.
CONCLUSION
We conclude that the state district court had concurrent

jurisdiction with the bankruptcy court over the fraudulent conveyance

 

action, and thus the district court had proper subject matter juris
over this action. We also conclude that the Trustee had standing to
maintain this fraudulent conveyance action. Additionally, because in rem
jurisdiction is akin to personal jurisdiction and lack thereof must be alleged
in a preanswer motion or responsive pleading, we further conclude that
Superpumper waived this argument, as it failed to do so. Lastly, we
conclude that the district court did not abuse its discretion in allowing
attorney-client communications to be disclosed in discovery or admitting the
communications into evidence at trial, as Superpumper failed to meet its
burden of demonstrating that the communications are privileged or that it

was prejudiced by the admission of the communications.

SSuperpumper also argues that exhibit 145, which contained one of
these communications, was improperly admitted because it was hearsay
and lacked foundation. We conclude that the admission of the exhibit does
not warrant reversal, as Superpumper does not show how this alleged
evidentiary error substantially affected its rights. See Hallmark v.
Eldridge, 124 Nev. 492, 505, 189 P.3d 646, 654 (2008) (stating that “claims
of prejudice concerning errors in the admission of evidence [are reviewed]
based upon whether the error substantially affected the rights of the
appellant” such that, “but for the error, a different result might reasonably
have been expected” (internal quotation marks omitted))..

 

12

 

 
Accordingly, we affirm the district court's judgment.‘

hte CJ.
ii

 

    

fardesty
We concur:

: M 1d.
Parraguirre Stiglich
Cadish
Pickering Herndon

‘Although Superpumper also appealed from the district court's order
awarding attorney fees and costs, it fails to cogently argue how the award
was improper other than to suggest that, if we were to vacate the district
court's judgment, the award must also be vacated. Because we affirm the
district court’s judgment and Superpumper has failed to show how the
district court's decision to award attorney fees and costs was an abuse of
discretion, we decline to consider this argument. See Edwards v. Emperor's
Garden Rest., 122 Nev. 317, 330 n.38, 130 P.3d 1280, 1288 n.38 (2006)
(stating that this court need not consider claims that are not cogently
argued or supported by relevant authority); see also Gunderson v. D.R.
Horton, Inc., 130 Nev. 67, 80, 319 P.3d 606, 615 (2014) (reviewing an award
of attorney fees and costs for an abuse of discretion).

13