Jh, Inc. v. Paul Morabito ( 2020 )

FILED
NOT FOR PUBLICATION
MAY 14 2020
UNITED STATES COURT OF APPEALS MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: PAUL A. MORABITO, No. 19-15322
Debtor, D.C. No. 3:18-cv-00221-MMD
______________________________
JH, INC.; BERRY-HINCKLEY MEMORANDUM*
INDUSTRIES,
Plaintiffs-Appellees,
v.
PAUL A. MORABITO,
Defendant-Appellant.
Appeal from the United States District Court
for the District of Nevada
Miranda M. Du, Chief District Judge, Presiding
Submitted May 12, 2020**
San Francisco, California
Before: THOMAS, Chief Judge, and FRIEDLAND and BENNETT, Circuit
Judges.
*
This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
**
The panel unanimously concludes this case is suitable for decision
without oral argument. See Fed. R. App. P. 34(a)(2).
The district court affirmed a bankruptcy court judgment finding a debt owed
by Paul Morabito to Maryanna Herbst and related entities (collectively, “Herbst”)
non-dischargeable on the basis of fraud. Morabito appealed. We have jurisdiction
under 28 U.S.C. §§ 158(d)(1) and 1291, and we affirm.
1. The bankruptcy court did not abuse its discretion in disregarding
Morabito’s declaration under the sham affidavit doctrine. In settling litigation
regarding whether Morabito defrauded Herbst in connection with a business
transaction, Morabito verified that the contents of the parties’ stipulated
Confession of Judgment (the “COJ”), including factual recitations detailing
Morabito’s fraud, were “true and accurate.” He subscribed and swore to that
verification before a notary. Years later, when opposing Herbst’s summary
judgment motion in the non-dischargeability proceeding below, Morabito filed a
declaration that “clear[ly] and unambiguous[ly]” contradicted the COJ’s contents.
See Yeager v. Bowlin, 693 F.3d 1076, 1080 (9th Cir. 2012) (internal citation
omitted). Given the contradiction, the bankruptcy court acted within its discretion
in applying the sham affidavit doctrine. See Nelson v. City of Davis, 571 F.3d 924,
928 (9th Cir. 2009) (“The rationale underlying the sham affidavit rule is that a
party ought not be allowed to manufacture a bogus dispute with himself to defeat
summary judgment.”).
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2. The bankruptcy court properly applied Nevada issue preclusion law in
concluding that the COJ’s fraud recitations barred Morabito from relitigating
whether he defrauded Herbst. See Five Star Capital Corp. v. Ruby, 194 P.3d 709,
713 (Nev. 2008) (listing necessary factors for application of issue preclusion). The
COJ is a valid final judgment for issue preclusion purposes. The COJ incorporates
the same factual findings concerning Morabito’s fraud that the Nevada state court
made after a bench trial during which the parties “actually and necessarily
litigated” whether Morabito defrauded Herbst. See id. The litigated question is
identical to the fact issue presented to the bankruptcy court in the non-
dischargeability proceeding below. Finally, it is undisputed that Morabito was a
party to the state court litigation.
The COJ does not fall within the public policy prohibition on waivers of
bankruptcy protection. Although debtors may not “contract away the right to a
discharge in bankruptcy,” they ordinarily may stipulate to the factual basis for an
exception to discharge. See Hayhoe v. Cole (In re Cole), 226 B.R. 647, 651, 655
(B.A.P. 9th Cir. 1998) (internal citation omitted).
3. The bankruptcy court properly concluded that the fourth cause of
action was not mutually exclusive with the bankruptcy court’s determination, in
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granting summary judgment on Herbst’s first and second causes of action, that the
COJ established Morabito’s fraud as a matter of fact.
4. The bankruptcy court did not err in concluding that the $85 million
COJ is not an unenforceable penalty. Under Nevada law, “liquidated damage
provisions are prima facie valid,” Haromy v. Sawyer, 654 P.2d 1022, 1023 (Nev.
1982). Morabito bears the burden of establishing that the provision is a penalty,
see Mason v. Fakhimi, 865 P.2d 333, 335 (Nev. 1993), and he concedes that
liquidated damages clauses are appropriate when “contractual damages are
uncertain or immeasurable,” Khan v. Bakhsh, 306 P.3d 411, 414 (Nev. 2013). That
was the case here, as the settlement agreement included several non-monetary
obligations. Because a state court determined, after a full trial, that Herbst was
entitled to approximately $141 million in damages, $85 million of which were
compensatory, we cannot conclude that the $85 million COJ is “disproportionate to
the actual damages sustained” by Herbst as a result of Morabito’s breach of the
settlement that replaced the state court’s judgment. Mason, 865 P.2d at 335.
5. We decline Morabito’s invitation to consider materials outside the
record on appeal. See Fed. R. App. P. 10(a), (e). Accordingly, we GRANT
Herbst’s motion to strike Exhibits 45 and 46 of Morabito’s Excerpts of Record as
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well as Section (IV)(F)(9) of Morabito’s opening brief. And we DENY
Morabito’s motion to supplement the record.
AFFIRMED.
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