Kismet Acquisition, LLC v. Icenhower (In re Icenhower)
| Decision Date | 03 July 2014 |
| Docket Number | No. 10–55933.,10–55933. |
| Citation | 757 F.3d 1044 |
| Parties | In the Matter of Jerry Lee ICENHOWER, etc., et al., Debtors, Kismet Acquisition, LLC, Plaintiff–Appellee, v. Jerry L. Icenhower; Donna L. Icenhower; Craig Kelley, Defendants, and Alejandro Diaz–Barba; Martha Margarita Barba de la Torre, Defendants–Appellants. |
| Court | U.S. Court of Appeals — Ninth Circuit |
OPINION TEXT STARTS HERE
Edward I. Silverman (argued), Sandler Lasry Laube Byer & Valdez LLP, San Diego, CA, for Defendant–Appellant Alejandro Diaz–Barba.
D. Anthony Gaston (argued), San Diego, CA, for Defendant–Appellant Martha Margarita Barba de la Torre.
Mathieu G. Blackston and Jeffrey Isaacs, Procopio, Cory, Hargreaves & Savitch LLP, San Diego, CA; Geraldine A. Valdez, Financial Law Group, La Jolla, CA, for Defendants–Appellants.
Ali M.M. Mojdehi (argued), Janet D. Gertz, Brian W. Byun, and Allison M. Rego, Cooley LLP, San Diego, CA, for Plaintiff–Appellee.
Appeal from the United States District Court for the Southern District of California, Barry T. Moskowitz, District Judge, Presiding. D.C. No. 3:08–cv–01446–BTM–BLM.
Before: JEROME FARRIS, N. RANDY SMITH, and PAUL J. WATFORD, Circuit Judges.
Alejandro Diaz–Barba and Martha Barba de la Torre (collectively, the “Diaz Defendants”) challenge the bankruptcy court's and district court's orders invalidating the transfer to them of a Mexican coastal villa owned by Jerry and Donna Icenhower and requiring them to convey the property to Kismet Acquisition, LLC for the benefit of Debtors' bankruptcy estate. According to the Diaz Defendants, the bankruptcy court erred by: (1) exercising jurisdiction over Mexican land, contrary to the local action doctrine; (2) applying U.S. law extraterritorially; (3) declining to honor the forum selection clauses in the Mexican contracts effecting the property's sale; (4) declining to abstain from ordering recovery of the property based on international comity; (5) entering judgment without Mexico, allegedly a necessary and indispensable party, having been joined; (6) applying U.S. law, rather than Mexican law, to determine whether the Diaz Defendants were good faith purchasers of the property; and (7) finding that Martha Barba de la Torre purchased the property in bad faith. We affirm.
In 1995, Debtors purchased from D. Donald Lonie and the D. Donald Lonie, Jr., Family Trust their interest in Vista Hermosa, a coastal villa in Jalisco, Mexico. The interest conveyed was not 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 received 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. A fideicomiso trust may be created only with a permit issued by the Mexican Ministry of Foreign Affairs. See id.
On March 24, 2000, the Lonies sued Debtors in the Southern District of California, seeking, inter alia, a determination of the parties' respective rights and interests in the Villa interest and injunctive relief. On November 24, 2003, the district court entered judgment for the Lonies, directing Debtors either to pay damages of $1,356,830.32 or to return the Villa interest.
On March 4, 2002, while the Lonies' action against them was pending, Debtors purchased H & G, a shell company created by Laughlin International, Inc. The same day, Debtors executed an agreement to transfer the Villa interest, along with another property interest, to H & G in exchange for $100,000 and H & G's assumption of $140,000 of debt. However, the bankruptcy court found “no evidence that H & G paid any of the recited consideration,” and it noted that, even after the sale, Mr. Icenhower retained “absolute control over the operation of the Villa Property” and “the right to all rental income from the villa.” Further, in light of H & G's lack of capitalization beyond $3,424 contributed by Debtors, and the fact that Craig Kelley, its president and sole officer and director, served in a purely titular capacity and took orders from Mr. Icenhower, the bankruptcy court concluded that “H & G had no real corporate existence apart from Mr. Icenhower” and “had no business purpose other than as a sham company to hold the Debtors' assets.”
Debtors filed for bankruptcy protection on December 15, 2003. In a closing ceremony in San Diego on June 7, 2004, H & G sold the Villa interest to the Diaz Defendants for $1.5 million. Although H & G was represented by Mr. Kelley, the closing was controlled by Mr. Icenhower.
Prior to the closing, numerous red flags had arisen. First, although the Villa interest was purportedly sold by H & G, Mr. Icenhower was able to lower the purchase price to account for a debt he personally owed Mr. Diaz. Second, the Diaz Defendants were on notice of Debtors' bankruptcy and of the possibility of litigation to avoid Debtors' transfer of the Villa interest to H & G and to tie Debtors to H & G. Third, the Villa interest was essentially H & G's only asset, but its sale was not authorized by a shareholder resolution, as required by Nevada law and H & G's Articles of Incorporation. Finally, the Diaz Defendants were instructed to pay most of the consideration to entities other than H & G, including an entity associated with Mr. Icenhower.
In January 2004, Debtors disclosed to their creditors their March 2002 sale of the Villa interest to H & G. On August 23, 2004, the bankruptcy trustee filed an action to avoid the sale from Debtors to H & G, alleging that the sale was a fraudulent pre-petition transfer (the “fraudulent conveyance action”). On August 3, 2006, the trustee filed an action to avoid the sale from H & G to the Diaz Defendants, alleging that H & G was Debtors' alter ego and that the sale from H & G to the Diaz Defendants was an unauthorized postpetition transfer (the “postpetition transfer action”). 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 in both actions.
Following a bench trial, on June 2, 2008, the bankruptcy court issued consolidated findings of fact and conclusions of law in the two actions. First, the court ruled for Kismet in the postpetition transfer action. The court found that H & G was Debtors' alter ego and substantively consolidated H & G with the bankruptcy estate, such that the Villa interest was part of the estate nunc pro tunc to the petition date. As such, the transfer of the interest to the Diaz Defendants was an unauthorized postpetition transfer avoidable under § 549(a). The Diaz Defendants had no defense to avoidance under § 549(c) since they were aware of Debtors' bankruptcy prior to the closing. Further, as initial transferees of the interest, they were strictly liable under § 550(a)(1) to return the interest or its value to the estate.
Alternatively, the bankruptcy court held that Kismet was entitled to judgement on the fraudulent conveyance action. Pursuant to § 544(b)(1) and California law, Debtors' transfer of the Villa interest to H & G was avoidable as a fraudulent transfer. Under § 550(a)(2), Kismet could recover the Villa interest from the Diaz Defendants, subsequent transferees not in good faith.
The bankruptcy court ruled that, under either action, Kismet was entitled to recover “either the Villa Property or its value at the time of judgment from any combination of transferees.” However, “the equities favor an order directing the return of the Villa Property where it appears Mr. Diaz conspired with Mr. Icenhower to use the clear title in Mexico to defeat the Trustee.”
On the same day it issued its decision, the court issued a separate judgment. In the postpetition transfer action, the Diaz Defendants were ordered:
[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.
A substantially similar order was issued in the fraudulent conveyance action. Finally, the court “reserve[d] jurisdiction to issue any and all orders necessary to carry out and enforce this judgment.” On July 30, 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 extended the deadline for compliance. The bankruptcy court's judgment was affirmed by the district court on May 21, 2010.
Our role in a bankruptcy appeal is “essentially the same” as that of the district court, In re Caneva, 550 F.3d 755, 760 (9th Cir.2008) (quoting Parker v. Cmty. First Bank, 123 F.3d 1243, 1245 (9th Cir.1997)), thus we “directly review the bankruptcy court's decision,” id. We review findings of fact for clear error and conclusions of law and of mixed questions of law and fact de novo. Banks v. Gill Distrib. Ctrs., Inc., 263 F.3d 862, 867 (9th Cir.2001). Matters committed to the bankruptcy court's discretion, such as whether to abstain based on comity or to enforce a forum selection clause, are reviewed for abuse of discretion. Vasquez v. Rackauckas, 734 F.3d 1025, 1036 (9th Cir.2013); Fireman's Fund Ins. Co. v. M.V. DSR Atl., 131 F.3d 1336, 1338 (9th Cir.1997).
We affirm the bankruptcy court's judgment on the postpetition transfer action. We need not decide whether the bankruptcy court had authority to...
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