Kismet Acquisition, LLC v. Diaz-Barba (In re Icenhower)

• Decision Date: 26 June 2014
• Docket Number: Nos. 12–56329,12–56418.,s. 12–56329
• Parties: In re Jerry L. ICENHOWER, dba Seaview Properties; Donna L. Icenhower, Debtors, Kismet Acquisition, LLC, Plaintiff–Appellee, v. Alejandro Diaz–Barba; Martha Margarita Barba De La Torre, Defendants–Appellants. In re Jerry L. Icenhower, dba Seaview Properties; Donna L. Icenhower, Debtors, Kismet Acquisition, LLC, Plaintiff–Appellee, v. Alejandro Diaz–Barba; Martha Margarita Barba De La Torre, Defendants–Appellants.
• Court: U.S. Court of Appeals — Ninth Circuit

755 F.3d 1130

In re Jerry L. ICENHOWER, dba Seaview Properties; Donna L. Icenhower, Debtors,

Kismet Acquisition, LLC, Plaintiff–Appellee,

v.Alejandro Diaz–Barba; Martha Margarita Barba De La Torre, Defendants–Appellants.

In re Jerry L. Icenhower, dba Seaview Properties; Donna L. Icenhower, Debtors,

Kismet Acquisition, LLC, Plaintiff–Appellee,

v.Alejandro Diaz–Barba; Martha Margarita Barba De La Torre, Defendants–Appellants.

Nos. 12–56329, 12–56418.

United States Court of Appeals,

Ninth Circuit.

Argued and Submitted Feb. 11, 2014.

Filed June 26, 2014.

Edward I. Silverman (argued), Sandler, Lasry, Laube, Byer & Valdez, LLP, San Diego, CA, for Defendant–Appellant/Cross–Appellee Alejandro Diaz–Barba.

D. Anthony Gaston (argued), Law Offices of D. Anthony Gaston, San Diego, CA, for Defendant–Appellant/Cross–Appellee Martha Margarita Barba De La Torre.

Janet D. Gertz (argued) and Ali M.M. Mojdehi, Cooley LLP, San Diego, CA, for Plaintiffs–Appellees/Cross–Appellants.

Appeal from the United States District Court for the Southern District of California, Barry T. Moskowitz, District Judge, Presiding. D.C. Nos. 3:08–cv–02326–BTM–BLM, 3:08–cv–02329–BTM–BLM, 3:08–cv–02409–BTM–BLM, 3:08–cv–02410–BTM–BLM, 3:09–cv–00329–BTM–BLM, 3:09–cv–00330–BTM–BLM, 3:09–cv–00331–BTM–BLM, 3:09–cv–00332–BTM–BLM, 3:09–cv–00432–BTM–BLM, 3:09–cv–00457–BTM–BLM.

Before: JEROME FARRIS, N. RANDY SMITH, and PAUL J. WATFORD, Circuit Judges.

OPINION

FARRIS, Circuit Judge:

This appeal arises from contempt sanctions issued by the bankruptcy court against defendants Alejandro Diaz–Barba and Martha Margarita Barba De La Torre (collectively, the “Diazes”) for failing to transfer a Mexican coastal villa to plaintiff Kismet Acquisition, LLC. The district court confirmed that the Diazes' conduct was sanctionable, but remanded for consideration of appropriate sanctions. The Diazes appealed the conclusion that their conduct was sanctionable, and Kismet cross-appealed part of the district court's decision reversing the bankruptcy court.

We have jurisdiction pursuant to 28 U.S.C. § 158(d)(1). Despite the district court's partial remand to the bankruptcy court to recalculate the amount of fees and costs, immediate review is proper: this appeal concerns primarily legal questions regarding the propriety of the bankruptcy court's contempt orders, the factfinding to be conducted by the bankruptcy court on remand is not related to a central issue raised on appeal, and the Panel's decision might dispose of the case and obviate the need for factfinding. See In re Lehtinen, 564 F.3d 1052, 1057 (9th Cir.2009); In re Dyer, 322 F.3d 1178, 1187 (9th Cir.2003); In re Bonner Mall P'ship, 2 F.3d 899, 904 (9th Cir.1993). We affirm.

I.

A. The bankruptcy court's underlying judgment.

Debtors Jerry and Donna Icenhower owned an interest in Villa Vista Hermosa, a coastal villa in Jalisco, Mexico. Their interest was not a fee simple, as Mexican law prohibits foreign nationals from owning title to land within 100 kilometers of the border or 50 kilometers of the coast. See Brady v. Brown, 51 F.3d 810, 814, 817 n. 8 (9th Cir.1995). Rather, Debtors held the beneficial interest in a fideicomiso trust—an arrangement wherein a Mexican bank holds title to property and a foreign national is granted the right to its use. See id. at 814. A fideicomiso trust may be created only with a permit issued by the Mexican Ministry of Foreign Affairs. See id.

On March 4, 2002, Debtors purchased H & G, a shell company, and transferred the Villa interest to H & G. On December 15, 2003, Debtors filed for bankruptcy protection. On June 7, 2004, H & G sold the Villa interest to the Diazes for $1.5 million.

On August 23, 2004, the bankruptcy trustee filed an action seeking to avoid the transfer of the Villa interest from Debtors to H & G as a fraudulent conveyance. On August 3, 2006, the trustee filed an action seeking to avoid the transfer from H & G to the Diazes as an unauthorized postpetition transfer. H & G did not appear in either action. By agreement approved by the bankruptcy court on November 30, 2006, Kismet purchased the estate's assets and was substituted for the trustee.

On June 2, 2008, following a bench trial, the bankruptcy court ruled for Kismet in both actions. On the same day, the court issued a separate judgment, ordering the Diazes, under 11 U.S.C. § 550(a):

[a] to take all actions necessary to execute and deliver any and all documents needed to undo the avoided transfer, and to take all actions necessary to cause the property to be reconveyed to a fideicomiso trust naming [Kismet] as the sole beneficiary for the benefit of the bankruptcy estate; or

[b] alternatively, at [Kismet]'s sole option made upon proper noticed motion, the court reserves jurisdiction to enter a monetary judgment in favor of Kismet, and against Defendants, in an amount necessary to make the estate whole at the time of judgment.

On July 29, 2008, the court filed an Amended Consolidated Judgment, in which it clarified that the Villa interest was an interest in a fideicomiso trust, not a fee simple, and required the Diazes to comply within 10 days. Following denials of a stay pending appeal by both the bankruptcy court and district court, the Diazes faced a compliance deadline of September 13, 2008.

B. Initial attempts by Kismet to effect the transfer.

Following the bankruptcy court's issuance of the ACJ, Kismet took the initiative in preparing documents by which the Diazes would transfer the Villa interest. On August 7, 2008, Kismet provided the Diazes a draft power of attorney to be used to convey the Villa interest to Kismet or its assignee. The Diazes objected that the power of attorney involved a conflict of interest, as the persons nominated to act on their behalf worked at the same law firm as Kismet's counsel, and impermissibly allowed Kismet to transfer the Villa interest to persons beyond the jurisdiction of U.S. courts.

On September 4, 2008, Kismet proposed that, rather than execute a power of attorney, the Diazes appear before a notary public in Mexico to execute appropriate transfer documents. On September 9, Kismet sent the Diazes a proposed transfer instrument that named a Mexican company, Axolotl Inmobiliaria S. de R.oL. C.V., Kismet's assignee, as the beneficiary of the fideicomiso. The Diazes rejected this document two days later, arguing that it should have specified Kismet as the beneficiary of the fideicomiso “for the benefit of the bankruptcy estate” and included language explicitly referencing the bankruptcy case. On September 26, Kismet circulated a new version of the transfer agreement that stated that the bankruptcy court would continue to maintain jurisdiction over the ACJ. Again, the Diazes objected that the document named Axolotl as beneficiary. Also on September 26, counsel for Ms. Barba de la Torre wrote to Kismet, “[M]y client is advised by Mexican counsel that the specific performance portion of the Bankruptcy Court judgment (i.e. undoing of the avoided transaction) cannot at least at this stage of these proceedings, be accomplished under Mexican law.”

On September 29, following an ex parte application by Kismet, the bankruptcy court ordered the Diazes to show cause why they should not be held in contempt. On September 30, the bankruptcy court ordered Mr. Diaz to submit to a deposition and produce documents relevant to his and Ms. Barba de la Torre's attempts to comply with the ACJ. At his deposition, Mr. Diaz testified that counsel had advised him that signing the transfer documents would violate Mexican law. He also testified that, pursuant to advice of counsel, he sought to enjoin transfer of the Villa interest through an amparo—a Mexican proceeding to ensure that an individual's constitutional rights are not violated by a Mexican official. The Diazes also submitted declarations from two of their attorneys stating that Mexican law prevented them from complying with the ACJ.

Arguing that these statements waived attorney-client privilege, Kismet moved on October 15 to compel discovery of communications with counsel regarding the “impossibility” defense or correspondence with Mexican officials. The bankruptcy court granted Kismet's motion on October 22. The Diazes produced responsive documents on November 7.

C. The Diazes' continued delay and obstruction.

The disclosed documents indicate that, rather than make a good faith effort to comply with the ACJ, the Diazes sought to delay and obstruct its implementation. On September 8, Mr. Diaz told his counsel: “I will not sign anything that executes a trust agreement.... I will not cooperate with these brigands, making a mockery of [M]exican law and attempting to circumvent it.” Mr. Diaz's counsel responded:

I understand that but we don't need to reveal it to [Kismet's counsel] yet. Better to let him think we are preparing to cooperate while we get our ducks in a row in Mexico. Therefore, [to] the extent [we] can point to defects, we can send back the draft document and make them change it again causing delay.

In another email, Mr. Diaz's counsel noted that her objection to a proposed transfer document “should throw a wrench in the works.”

One means by which the Diazes sought to obstruct the bankruptcy court's judgment was by soliciting intervention by Mexican officials. As Mr. Diaz's attorney stated in an email: “I think the only thing we can do now is work with the Mexican authorities to try to ensure that the order cannot be accomplished.” On September 4, Mr. Diaz instructed his counsel to lobby Ambassador Joel Hernandez Garcia, a legal advisor in the Mexican Ministry of Foreign Affairs, to sign a document stating that compliance with the ACJ would be impossible under Mexican law. The next day, Ambassador Garcia agreed to sign a more limited form of such a declaration, omitting any statement that the Diazes would be subject to penalties in Mexico if they complied with the ACJ.

On August 6, 2008, Mr. Diaz contacted the Ministry of Foreign...