Free Response in Opposition to Motion - District Court of California - California

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Baker & McKenzie LLP 12544 High Bluff Drive, Third Floor San Diego, CA 92130 +1 858 523 6200

Ali M.M. Mojdehi, State Bar No. 123846 Janet D. Gertz, State Bar No. 231172 BAKER & McKENZIE LLP 12544 High Bluff Drive, Third Floor San Diego, CA 92130-3051 Telephone: +1 858-523-6200 Attorneys for Plaintiff/Appellee KISMET ACQUISITION, LLC

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA

In re JERRY LEE ICENHOWER dba Seaview Properties, and DONNA LEE ICENHOWER, Debtors. ALEJANDRO DIAZ-BARBA AND MARTHA MARGARITA BARBA DE LA TORRE, Defendants/Appellants, v. KISMET ACQUISITION, LLC, Plaintiff/Appellee.

Case No.: 3:08-CV-01446-BTM-BLM Bankruptcy Case No. 03-11155-LA-7 Chapter Number 7 Adv. Proc. No: 04-90392 Adv. Proc. No: 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] DATE: August 28, 2008 TIME 4:00 p.m. DEPT: 15 JUDGE: Hon. Barry Ted Moskowitz

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CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 V. III. IV. I. II.

TABLE OF CONTENTS Page STANDARD OF REVIEW ..................................................................................................... 2 THE DIAZ DEFENDANTS ASSERT A REVISIONIST FACTUAL BACKGROUND ..................................................................................................................... 4 1. Background - The Lonie Trust......................................................................... 4 2. The "Transfers" to Howell & Gardner............................................................. 5 3. The Diaz Defendants Enter the Scene ............................................................. 7 THE DIAZ DEFENDANTS ARE NOT ENTITLED TO A STAY OF RIGHT UNDER FED. R. BANKR. PROC 7062(D)............................................................................ 9 THE DIAZ DEFENDANTS ARE NOT ENTITLED TO A DISCRETIONARY STAY UNDER FED. R. BANKR. PROC. 8005................................................................... 12 A. Under Rule 8005, the Governing Law Requires Each Hilton Element to be Satisfied...................................................................................................................... 12 B. The Diaz Defendants Cannot Demonstrate Any Probability of Success on the Merits ......................................................................................................................... 15 1. The Court Has Subject Matter Jurisdiction Over Both Theories of Recovery Contained in the Judgment ............................................................ 18 2. The Presumption Against Extraterritoriality Has No Application Here........ 19 3. There Are No Facts Suggesting Comity Should Have Been Applied ........... 22 C. The Diaz Defendants' Claims of Irreparable Harm are of No Consequence ............ 25 D. The Public Interest Does Not Militate in the Diaz Defendants' Favor...................... 28 CONCLUSION...................................................................................................................... 29

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CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO EMERGENCY MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005]

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TABLE OF AUTHORITIES Page FEDERAL CASES Acevedo-Garcia v. Vera Monroig, 296 F.3d 13 (1st Cir. 2002)........................................................................................................7 Acton v. Fullmer (In re Fullmer), 323 B.R. 287 (Bankr. D. Nev. 2005) .....................................................................................2, 3 In re Adelphia Communications Corp., 361 B.R. 337 (S.D.N.Y. 2007)...................................................................................................3 Ariz. Contrs. Ass'n, Inc. v. Candelaria, 2008 WL 486002 ...................................................................................................................1, 4 BC Brickyard Assocs. V. Ernst Home Center Inc. (In re Ernst Home Center, Inc.), 221 B.R. 243 (BAP 9th Cir. 1998).............................................................................................2 Barclay v. Swiss Finance Corp. (In re Midland Euro Exchange), 347 B.R. 708 (C.D. Cal. 2006), and In re Maxwell Communications Corp., 170 B.R. 800 (S.D.N.Y. 1994) .......................................................................................................................13 Beck v. Fort James Corp. (In re Crown Vantage, Inc., 421 F.3d 963 (9th Cir. 2005) ...................................................................................................11 Blankenship v. Boyle, 447 F.2d 1280 (D.D.C. 1971) ....................................................................................................1 Brady v. Brown, 51 F.3d 810 (9th Cir. 1995) .........................................................................................10, 11, 16 In re Brun, 360 B.R. 669...............................................................................................................................3 Burnham v. Superior Court, 495 U.S. 604 (1990).................................................................................................................11 In re Calpine Corp., No. 05-60200 (BRL), 8 WL 207841 (Bankr. N.D.N.Y, Jan. 24, 2008) ....................................4 In re Capital West Investors, 180 B.R. 240 (N.D. Cal. 1995) ..............................................................................................1, 2 Colorado River Water Conservation Dist. v. United States, 424 U.S. 800 (1976)...................................................................................................................1 In re Consolidated Capital Equities Corp., 143 B.R. 80 (Bankr. N.D. Tex. 1992)........................................................................................1 County of Alameda v. Weinberger, 520 F.2d 344 (9th Cir.1975) ......................................................................................................8 ii
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005]

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TABLE OF AUTHORITIES Page In re Dial Industries, Inc. 137 Bankr. 247, 250-251 ...........................................................................................................6 Donovan v. Fall River Foundry Co., 696 F.2d 524 (7th Cir. 1982) .....................................................................................................1 E.E.O.C. v. Arabian American Oil Co., 499 U.S. 244 (1991).................................................................................................................12 Fall v. Easton, 215 U.S. 1 (1909).....................................................................................................................10 Feltman v. Warmus (In re American Way Serv. Corp.), 229 B.R. 496 (Bankr. S.D. Fla. 1999) .......................................................................................4 Flores v. DDJ, Inc (In re Enoch Packing Co.), 2007 U.S. Dist. LEXIS 40010 (E.D. Cal. May 31, 2007)..........................................................3 In re Forty-Eight Insulations, Inc., 115 F.3d 1294 (7th Cir. 1997) ...........................................................................................6, 7, 8 In re French, 440 F.3d 145 (4th Cir. 2006), cert. den., 127 S. Ct. 72 (2006)................................................14 French v. Liebmann (In re French), 320 B.R. 78 (D. Md. 2004) ........................................................................................................3 GMAM Investment Funds Trust I v. Globo Comunicacoes E participacoes S.A. (In re Globo Comunicacoes E Participacoes S.A.), 317 B.R. 235 (S.D.N.Y. 2004)...................................................................................................1 Gagan v. Sharer, 2005 U.S. Dist. LEXIS 27409 (D. Ariz. Nov. 1, 2005).............................................................1 Garcia-Mir v. Meese, 781 F.2d 1450 (11th Cir. 1986) .................................................................................................7 Gleasman v. Jones, Day, Reavis & Pogue (In re Gleasman), 111 B.R. 595 (Bankr. W.D. Tex. 1990).....................................................................................3 Golden Gate Restaurant Ass'n. v. City of San Francisco, 512 F.3d 1112 (9th Cir. 2008) ...................................................................................................5 Goldies Bookstore, Inc. v. Superior Court, 739 F.2d 466 ..............................................................................................................................2 Government Guarantee Fund of the Republic of Finland v. Hyatt Corp., 167 F.R.D. 399 (D.V.I. 1996) ....................................................................................................3 In re Grand Jury Proceedings, 873 F.2d 238 (9th Cir. 1989) ...................................................................................................16 iii
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005]

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TABLE OF AUTHORITIES Page Gruntz v. County of Los Angeles (In re Gruntz), 202 F.3d 1074 (9th Cir. 2000) .................................................................................................11 Gushi Bros. Co. v. Bank of Guam, 28 F.3d 1535 (9th Cir. 1994) .............................................................................................12, 13 In re Hargis, 887 F.2d 77 (5th Cir.1989) ......................................................................................................15 Hartford Fire Ins., 509 U.S. at 799.........................................................................................................................14 Hebert v. Exxon Corp., 953 F.2d 936 (5th Cir. 1992) .....................................................................................................2 Hilton v. Braunskill, 481 U.S. 770 (1987)...................................................................................................................5 Hilton v. Guyot, 159 U.S. 113, 16 S. Ct. 139, 40 L. Ed. 95 (1895)....................................................................14 Hong Kong and Shanghai Banking Corp. v. Simon (In re Simon), 153 F.3d 991 (9th Cir. 1995) ...........................................................................11, 13, 14, 15, 16 In re Krause, 2007 Bankr. LEXIS 3049 ..........................................................................................................2 LaRouche v. Kezer, 20 F.3d 68 (2d Cir. 1994) ..........................................................................................................8 Lopez v. Heckler, 713 F. 2d 1432 (9th Cir. 1983, rev'd on other grounds, 469 US. 1082 (1984) .....................5, 6 In re Max Sugarman Funeral Home, Inc., 94 B.R. 16 (Bankr. D.R.I. 1988)................................................................................................2 Maxwell Commc'n Corp. PLC v. Societe Generale PLC (In re Maxwell Commc'n Corp.), 93 F.3d 1036 (2d Cir. 1996)...............................................................................................14, 16 Michigan Coalition of Radioactive Material Users, Inc. v. Griepentrog, 945 F.2d 150 (6th Cir. Mich. 1991) ...........................................................................................7 Miller v. LeSEA Broadcasting, Inc., 927 F. Supp. 1148 (E.D. Wisc. 1996)........................................................................................3 Mohammed v. Reno, 309 F.3d 95 (2d Cir. 2002).........................................................................................................8 Mujica v. Occidental Petroleum Corp., 381 F.Supp. 2d 1134 (C.D. Cal. 2005) ....................................................................................16 iv
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005]

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TABLE OF AUTHORITIES Page NLRB v. Westphal, 859 F.2d 818 (9th Cir. 1988) .....................................................................................................1 Natural Res. Def. Council, Inc. v. Winter, 502 F.3d 859 (9th Cir. 2007) .....................................................................................................5 O'Hagan v. U.S., 86 F. 3d 776 (8th Cir. 1996) ......................................................................................................2 Ohanian v. Irwin (In re Ohanian), 338 B.R. 839 (E.D. Cal. 2006)...........................................................................................2, 3, 7 Rolen v. Hansen Beverage Co. 193 Fed.Appx. 468, 472 (6th cir. 2006)...................................................................................14 Rose Townsend Trust v. Johnston (In re Johnston), No. 06-80040, 2007 WL 2684736 (Bankr. E.D. Wash. Sept. 7, 2007) .....................................6 San Diego Bev. & Kup v. United States, 997 F. Supp. 1343 (S.D. Cal. 1998)...........................................................................................2 Silicon Valley Bank v. Pon (In re Pon), 1994 U.S. Dist. LEXIS 2559 (N.D. Cal. Feb. 25, 1994) ...........................................................6 In re Skinner, 202 B.R. 867 (W.D. Va. 1996) ..................................................................................................2 Thomas v. City of Evanston, 636 F.Supp. 587 .........................................................................................................................7 United States v. Fitzgerald, 884 F. Supp. 376 (D. Idaho 1995) .......................................................................................7, 12 United States v. Krause (In re Krause), No. 05-17429, 2007 Bankr. LEXIS 3049 (Bankr. D. Kansas August 29, 2007).......................3 United States v. Mansion House Center Redevelopment Co., 682 F. Supp. 446 (E.D. Mo. 1988).............................................................................................2 United States v. Texas, 523 F. Supp. 703 (E.D. Tex. 1981)............................................................................................1 Wymer v. Wymer (In re Wymer), 5 B.R. 802 (B.A.P. 9th Cir. 1980)..........................................................................................3, 5 Yeganeh v. Sims (In re Yeganeh), 2006 U.S. Dist. LEXIS 32765 (N.D. Cal. May 12, 2006) .................................................2, 3, 7

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CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005]

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TABLE OF AUTHORITIES Page STATE CASES Hurtado v. Superior Court, 11 Cal. 3d 574 (1974) ..............................................................................................................15 DOCKETED CASES Dynamic Finance Corp. v. Kipperman (In re North Plaza, LLC), Case No. 08-CV-1194............................................................................................................3, 6 FEDERAL STATUTES 11 U.S.C. § 541(a) .....................................................................................................................9, 13 11 U.S.C. § 544(b) ...............................................................................................................9, 10, 12 11 U.S.C. § 549....................................................................................................................9, 13, 14 11 U.S.C. § 550....................................................................................................................3, 10, 12 28 U.S.C. § 1409(a) .........................................................................................................................1 28 U.S.C. § 157(b)(1) ................................................................................................................1, 13 28 U.S.C. § 1334(e) .....................................................................................................................1, 9 MISCELLANEOUS Mathew Bender Practice Guide, Federal Pretrial Civil Procedure in California § 19.08[3][f] ................................................2, 5 Wright and Miller Fed. Procedure Civil 2d § 2904.........................................................................5 FEDERAL RULES Fed. R. App. Proc. 32.1................................................................................................................3, 6 Fed. R. Bankr. Proc. 8005....................................................................................................1, 3, 4, 6 Fed. R. Civ. Proc. 62.............................................................................................................. Passim Pursuant to Fed. R. Bankr. Proc. 8005.............................................................................................2 Fed. R. Civ. Proc. 1001 ..............................................................................................................4

Fed. R. Civ. Proc. 7062(d) ...........................................................................................................2 Fed. R. Civ. Proc. 8005 ................................................................................................... Passim vi

Baker & McKenzie LLP 12544 High Bluff Drive, Third Floor San Diego, CA 92130 +1 858 523 6200

CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005]

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Plaintiff and Appellee Kismet Acquisition, LLC ("Kismet"), hereby submits its Opposition to the Motion of Defendants Martha Barba and Alejandro Diaz-Barba ("Diaz Defendants") for Stay of Judgment Pending Appeal ("Stay Motion"). For the reasons set forth below, Kismet respectfully requests the Court to deny the Motion. The statutory predicates governing the determination of the Stay Motion are Fed. R. Bankr. Proc. 7062, which incorporates by reference Fed. R. Civ. Proc. 62, and Fed. R. Bankr. Proc. 8005, as they have been interpreted by the courts of the Ninth Circuit.1 As discussed below, there is no stay relief available to the Diaz Defendants under these Rules and their interpretive precedent. A stay pending appeal is an "extraordinary remedy." It should be used sparingly. Ariz. Contrs. Ass'n, Inc. v. Candelaria, No. CV07-02496, 2008 U.S. Dist. 2008 WL 486002 (D. Ariz. Feb. 19, 2008) (citing United States v. Texas, 523 F. Supp. 703, 729 (E.D. Tex. 1981). Here, there is no reason for granting a stay. As an initial matter, the Diaz Defendants incorrectly represent the standard of review governing the order of the Bankruptcy Court denying the stay as "pure de novo." [Stay Motion at 10, line 11.] In this respect, the law is crystal clear that the order of the Bankruptcy Court denying the stay is reviewed for abuse of discretion. Unfortunately for them, the Diaz Defendants' mistake regarding the applicable standard of review contaminates the integrity of the remaining analysis contained in their Stay Motion. See 19-206 Moore's Federal Practice ­ Civil § 206.01 ("[A]n argument on appeal based upon an incorrect standard of review must fail."). In addition to this initial error, the Stay Motion should otherwise be denied in light of the fact that the substantive arguments raised therein fail on the merits. First, the Diaz Defendants are not entitled to a stay "of right" upon the posting of a supersedeas bond pursuant to Fed. R. Bankr. Proc. 7062(d). Under Rule 8005, stays of a bankruptcy court order are entirely discretionary. Furthermore, the Bankruptcy Court's Findings of Fact and Conclusions of Law and Amended Judgment (collectively "Judgment") being appealed from is neither a monetary judgment nor it is As is otherwise set forth in the Bankruptcy Court's Judgment (as defined below), jurisdiction over the adversary proceedings arises under 28 U.S.C. § 1334(b). The actions are core proceedings pursuant to 28 U.S.C. §§ 157(b)(1) and (2)(B), (E), (F), and (O). Venue is in the Southern District of California pursuant to 28 U.S.C. § 1409(a). The instant appeal arises under 28 U.S.C. § 157(a)(1). 1
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO EMERGENCY MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2
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closely analogous to a monetary judgment. Rather, the relief granted is most closely identified with a mandatory injunction. Thus, the principles of Rule 7062(d) are inapplicable. Second, the Diaz Defendants' cannot obtain a discretionary stay upon appeal under Fed. R. Bankr. Proc 7062(a) where the Diaz Defendants' legal theory on appeal is founded on a misapprehension of the Bankruptcy Court's jurisdiction. The Diaz Defendants will thus be unable to demonstrate any likelihood of success on the merits--much less the requisite high probability of success needed to justify a discretionary stay under Rule 8005. Where, as here, the Diaz Defendants cannot present a satisfactory case for probability of success on the merits on appeal, they are not otherwise entitled to a "free ticket" for a stay on appeal based solely upon speculation that they will face "irreparable harm" from the execution of the Judgment. As such, the Diaz Defendants' request for a stay pending appeal should be denied. I. STANDARD OF REVIEW

The Diaz Defendants initially err as to the applicable standard of review of the Bankruptcy Court's order denying their request for a stay. The Diaz Defendants cite only to BC Brickyard Assocs. V. Ernst Home Center Inc. (In re Ernst Home Center, Inc.), 221 B.R. 243 (BAP 9th Cir. 1998), for the contention that de novo review of the Bankruptcy Court's order is proper. In re Ernst Home Center arose, however, out of an entirely different procedural posture and does not even discuss the standard for a district court's review of a bankruptcy court's order denying a stay. As has been set forth in Ohanian v. Irwin (In re Ohanian), 338 B.R. 839, 845-46 (E.D. Cal. 2006), Ernst is not authority for the proposition that de novo review will apply. Rather, the precedent is clear that the bankruptcy court's order denying the stay must be reviewed for abuse of discretion. Id. In light of the clear precedent on this point, this particular slip between the analytical cup and the lip is neither understandable nor excusable. The relief requested in the Stay Motion cannot withstand review under the abuse of discretion standard. The standard of review applicable to the Motion arises out of its procedural posture. Pursuant to Fed. R. Bankr. Proc. 8005, an application for a stay pending appeal of a final order of a bankruptcy court must ordinarily be presented in the first instance to the bankruptcy judge. Only when the application has been made to the bankruptcy judge and denied may a stay pending appeal 2
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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be sought in a district court. See Fed. R. Bankr. Proc. 8005. Any subsequent motion for a stay to the district court must discuss why the relief was denied by the bankruptcy judge. Id. Because Rule 8005 requires the bankruptcy judge to utilize discretion in determining the appropriateness of a stay, where the bankruptcy court has denied a stay under Rule 8005, the appellate court's review is limited to a simple determination of "whether the trial court abused its discretion." Wymer v. Wymer (In re Wymer), 5 B.R. 802 (B.A.P. 9th Cir. 1980); accord Flores v. DDJ, Inc (In re Enoch Packing Co.), 2007 U.S. Dist. LEXIS 40010 (E.D. Cal. May 31, 2007); Yeganeh v. Sims (In re Yeganeh), 2006 U.S. Dist. LEXIS 32765 (N.D. Cal. May 12, 2006); Ohanian v. Irwin (In re Ohanian), 338 B.R. 839, 844 (E.D. Cal. 2006); Dynamic Finance Corp. v. Kipperman (In re North Plaza, LLC), Case No. 08-CV-1194, Order Denying Appellants' Motion for Stay Pending Appeal (S.D. Cal. July 25, 2008) (Whelan, J.)2: Discretion will be found to have been abused only where the bankruptcy court's decision was arbitrary, fanciful, or unreasonable, which is another way of saying that discretion is abused only where no reasonable man would take the view adopted by the trial court. If reasonable men could differ as to the propriety of the action taken by the trial court, then it cannot be said that the trial court abused its discretion. Id. at 844. "The trial court's discretion is so great that it is sometimes said that the appellate court should not grant a stay of enforcement pending appeal after it has been denied by the trial court." In re Wymer, 5 Bankr. at 806. The abuse of discretion standard utilized in reviewing the propriety of the bankruptcy court's order denying a stay will, of course, encompass the District Court's broader review of the underlying merits of the appeal. Id. at 844, 848. In this instance, issues regarding the denial or extension of comity are reviewed for abuse of discretion. In re Manning, 236 B.R. at 19 (citing Remington Rand Corporation-Delaware v. Business Sys. Inc., 830 F.2d 1260, 1266 (3d Cir. 1987)); see also French v. Liebmann (In re French), 320 B.R. 78, 81 (D. Md. 2004). The question of subject matter jurisdiction, including the related question whether Congress may give extraterritorial effect to the statute in question, is an issue of law reviewed de novo. Id. The Opinion is attached as Exhibit "A" hereto. See Fed. R. App. Proc. 32.1; 9th Cir. Rule 36-3 (providing for citation to unpublished dispositions and orders issued on or after January 1, 2007). 3
2

CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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II.

THE DIAZ DEFENDANTS ASSERT A REVISIONIST FACTUAL BACKGROUND The Diaz Defendants have included in their Stay Motion approximately seven pages of

"Factual Background." Their "Factual Background" contains more than a few very egregious mischaracterizations.3 For example, notably absent from the Diaz Defendants' recitation are the numerous badges of fraud that came to the Diaz Defendants' attention prior to the close of the transaction, which are otherwise described in great detail in the Judgment. There is no mention of the conclusive fact pertaining to Diaz Defendants' and their attorney's actual knowledge of the Debtors' bankruptcy prior to the close of the 2004 transaction for the Villa Property, which, in and of itself, defeats any affirmative defense of good faith on the part of the Diaz Defendants. Most important, however, the Diaz Defendants fail to mention the essential history of these adversary proceedings and the genesis of the underlying claim that was ultimately vindicated by the Judgment. The Judgment is, in fact, the final step in what has been a very long and arduous road toward enforcing an earlier judgment of this District Court that was entered against the Debtors concerning the Villa Property. The Diaz Defendants are noticeably silent regarding the elaborate scheme used by the Debtors to defraud two courts. Nor do the Diaz Defendants elaborate on the Bankruptcy Court's findings as to the joint conspiracy between themselves and the Debtors to fraudulently transfer the Villa Property away from the jurisdiction of the Bankruptcy Court and thwart the investigative efforts of the Chapter 7 Trustee. That history, and the Diaz Defendants' active and knowing participation in the Debtors' fraudulent scheme, is otherwise detailed in the Judgment and thus is only briefly set forth herein as follows: 1. Background - The Lonie Trust

As is more fully detailed in the Judgment, Stephen E. Lonie, Diane C. Oney and Thomas E. Lonie, as trustees of the D. Donald Lonie, Jr. Family Trust (the "Lonie Trust"), were creditors of the Debtors in the underlying Chapter 7 case. The Trust had been established by D. Donald Lonie ("Mr. Lonie") on January 10, 1984 under Nevada state law. [See Judgment ¶1.] Mr. Lonie and the Trust
3

We pause to mention that Kismet does not fault appellate counsel for these egregious misstatements of fact, which are generally not supported by citations to the record. Appellate counsel is relatively new on the scene and perhaps has not had sufficient opportunity to validate the factual and evidentiary record in these proceedings, which is quite extensive. 4
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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had a history of business dealings with the Debtors concerning the beneficial interests in certain Real Property Trusts for two parcels of real property located in Mexico known as the Villa Property and the El Zafiro (the "El Zafiro Property"). [See id. ¶2.] The beneficial interests in the Villa and El Zafiro Properties (the "Real Properties") were held in two separate bank trusts known as "Fideicomiso Trusts" (the "Real Property Trusts"). [Id.] On March 24, 2000, the Lonie Trust, through its trustees, initiated suit against the Debtors in the Southern District of California regarding Mr. Lonie's interest in the Real Properties. See Stephen P. Lonie, Diane C. Oney, and Thomas E. Lonie Jr. Family Trust vs. Icenhower et al., Case No. 00CV-612-L (JAH) (the "District Court Litigation"). Id. ¶4. In the District Court Litigation, on March 11, 2002, the Lonie Trust filed a motion for summary judgment and a motion asking the District Court for a preliminary injunction to enjoin the disposition of any proceeds of any sale of either of the Real Properties. District Court Litigation, Docket Nos. 37-43 (the "District Court Motions"). The District Court Motions were scheduled to be heard on May 13, 2002. See id. ¶8. 2. The "Transfers" to Howell & Gardner

On March 4, 2002, while the Debtors knew the District Court Motions were pending, the Debtors purported to transfer their interest in the Real Properties to defendant Howell & Gardner Investors, Inc. ("Howell & Gardner"), a corporation formed under the laws of the State of Nevada. Although Howell & Gardner was incorporated in December 2001, the entity was merely a shell until March 4, 2002 when it was sold by Laughlin International, Inc. to the Debtor, for $3,424, which the Debtor charged to his personal credit card. [See id. ¶8.] Howell & Gardner existed for no purpose other than to act as a sham company for the fraudulent conveyances of the Villa Property by the Debtors. [See id. ¶14.] There is no evidence that Howell & Gardner paid any consideration to the Debtors for the Villa Property. [See id. ¶ 16.] According to the purported agreement for the transfer of the Villa Property to Howell & Gardner, the Debtors retained a right to receive the proceeds of any sale of the Villa Property which is above $1.5 million (later amended to $1.4 million), and a right to buy the Villa Property back from Howell & Gardner. [Id. ¶17.] The transfer agreement also purported to give Mr. Icenhower management and control of the Villa Property, the right to all profits and 5
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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responsibility for all costs, notwithstanding the purported transfer to Howell & Gardner. [Id.]4 In the District Court Litigation, after the purported transfers to and through Howell & Gardner, the Debtors made explicit statements to the District Court that they were in still control of the Villa Property. Specifically, a settlement brief filed by the Debtors stated that, "the Icenhowers are able to hold the property while they seek the right buyer..." The brief then proceeded to offer a settlement option to the Lonie Trust which included a "transfer of the beneficial interest in the [Real Property Trust] for the Villa..." During subsequent proceedings before the District Court, including those referenced above which took place in October 2002, the Debtors represented to the District Court and to the Lonie Trust that they were in control of the Real Property Trust for the Villa Property and actively negotiated a sale of their interests to the Lonie Trust. In addition, the Debtors represented to the District Court through and including the District Court trial conducted in May 2003 that they were still in ownership and control of the beneficial interest in the Real Property Trust for the Villa Property. On November 24, 2003, the District Court entered a Memorandum of Decision and Order re: Damages and Directing Entry of Judgment (the "Memorandum"). [Plaintiff's Request for Judicial Notice (hereinafter "Plaintiff's RJN") Exhibit "1".] In the Memorandum, the District Court Judge made specific findings and rulings, including, without limitation: IT IS FURTHER ORDERED that [Debtors] shall re-register the lien on the Villa property within ten (10) days of the filing of this Order. [Debtors] shall submit evidence of the re-registration of the lien to [the Trust] within ten (10) days of the registration of the lien. Upon full payment of the damages in this matter, [the Trust] shall cause the lien to be released. ¶IT IS FURTHER ORDERED that full payment of the damages awarded shall be made within 60 days of the filing of this Order. ¶IT IS FURTHER ORDERED that in the event [Debtors] fail to pay to [the Trust] the full damages award within the time provided, defendants shall reconvey the [Real Property Trusts], free of any encumbrance, claim, lien or liability that has been placed on upon the property or occasioned by defendants' actions or inactions, to [the Trust] in accordance with the terms of the parties' underlying agreement. Id. The District Court also determined that the Debtors owe the Trust a debt in the sum of $1,356,830.32. [Id.]
4

Notably, the Diaz Defendants expressly conceded at trial that the transfer by the Debtors to Howell & Gardner is likely avoidable as a fraudulent transfer. [Id. ¶ 94.] 6
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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3.

The Diaz Defendants Enter the Scene

During the Summer of 2003, at approximately the same time as the District Court trial commenced, Mr. Diaz first met the Debtor at a coffee shop in Pacific Beach. They were introduced through a business associate of the Debtors and friend of Mr. Diaz's, Eugene Kocherga, who had a close familiarity with the Villa Property and its history. [See Judgment ¶ 27.] Mr. Diaz testified that he learned at that time that the Debtor was the "manager" of the Villa Property. [Id. ¶ 27.] Over the next few months, Mr. Diaz entered into negotiations with the Debtor (on behalf of himself and his mother, Ms. Barba) concerning a potential purchase of the Villa Property by himself and Ms. Barba, ultimately commencing due diligence upon final agreement on the price. [See id. ¶¶ 28-29.] At this same time, the Debtor asked Mr. Diaz for a personal loan in the amount of $100,000. Shortly after receiving this loan from Mr. Diaz, and during the due diligence period, on December 15, 2003, the Debtors filed for bankruptcy. [Id. ¶ 30.] Mr. Diaz. testified that he was "shocked" when he received a Notice of Commencement of Chapter 7 Bankruptcy Case in the mail. [Id. ¶ 32.] Mr. Diaz otherwise testified at trial that he informed Ms. Barba of the Debtors' bankruptcy at or about this same time. When Mr. Diaz inquired of the Debtor regarding the bankruptcy, he was informed by the Debtor that "he had lost a big judgment to the Lonie Trust." [Id.] During that conversation, Mr. Diaz was promised by the Debtor that the $100,000 personal loan would be deducted from the purchase price of the Villa Property. [Id. ¶ 32.] The Diaz Defendants jointly retained a Mexican lawyer to conduct due diligence on the transaction for the Villa Property. By any measure, the due diligence was shockingly inadequate. [See id. ¶¶ 33-35.] Not even the most basic step was taken to obtain a resolution by Howell & Gardner shareholders authorizing the transaction. [Id. ¶ 35.] The transaction for the transfer of the Villa Property from Howell & Gardner to the Diaz Defendants was otherwise highly irregular. Only $25,000 of the consideration was paid to Howell & Gardner. The remainder was paid (per the instruction of the Debtor, Jerry Icenhower) to other entities, one of which had the distinctly familiar name of "Icenhower Investments." [See id. ¶ 39.] Each of these payments was made to the same bank, located in Visalia, California. The purported officer and director of Howell & Gardner played only a passive role in the transaction, taking his 7
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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direction from the Debtor. [Id. ¶ 38.] There were numerous other "red flags" that should have caused the Diaz Defendants to investigate the voidability of the transfer to Howell & Gardner. [See Judgment ¶¶ 103-05; see also Plaintiff's Demonstrative Trial Exhibit, "Diaz Red Flags," Plaintiff's RJN, Exhibit "2".] On January 12, 2004, the Debtors first disclosed their transfer of the Villa Property to Howell & Gardner at the first meeting of creditors. [See Judgment ¶ 44.] Having received insufficient earlier, at the continued meeting of creditors on March 22, 2004, the Trustee questioned the Debtors further about this matter. [Id.] On or about June 7, 2004, the closing of the sale of the Villa Property to the Diaz Defendants took place in San Diego, California. [Id. ¶ 38.] The sale was recorded in the Mexican Registry on September 8, 2004. [Id. ¶ 42.] The evidence at trial demonstrated that the June 2004 closing of the sale was a "hurried up" transaction, timed with the goal of outfoxing the Trustee and defeating the jurisdiction of the Bankruptcy Court over the Villa Property. The Bankruptcy Court specifically found that Mr. Diaz proceeded with the Villa Property transaction because "he believed the clear title in the Mexican Public Registry would defeat the Trustee." Id. ¶ 106. In addition to finding that the Diaz Defendants were aware of the Debtors' bankruptcy, the Bankruptcy Court found that "Mr. Diaz conspired with Mr. Icenhower to use the clear title in Mexico to defeat the Trustee." Id. ¶ 107 (emphasis added). The Villa Property is currently used a commercial income property by the Diaz Defendants, not a "vacation home." [Cf. Motion at 1, lines 12-13; 20, line 20.] Subsequent to acquiring the Villa Property, the Diaz Defendants have rented it out to the public, advertising it as a "hotel." [See Plaintiff's RJN, Exhibit "3" Villa Vista Hermosa, Puerta Vallarta Hotel/Villa, available at http://villavistahermosa.com/tourint.htm (last visited August 22, 2008): The villa accommodations include six guest rooms with bathrooms, a two bedroom suite with bathroom, a sumptuous open air palapa suite (with his and hers bathrooms),and a two bedroom "granny flat" with its own kitchenette, as well as staff residences. The main house is in the colonial style with expansive living and dining spaces. Employees of the villa will cater to your every need. These talented individuals include a fulltime gourmet chef and a cheerful staff. They will ensure your stay at the villa is comfortable, enjoyable and convenient. 8
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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see also Judgment ¶ 107 ("The Diaz Defendants cannot complain about the inequities of being ordered to return their cherished vacation home to the estate when the evidence shows they are renting to the public.").] III. THE DIAZ DEFENDANTS ARE NOT ENTITLED TO A STAY OF RIGHT UNDER FED. R. BANKR. PROC 7062(d) The Diaz Defendants contend that they are entitled to receive a stay as a matter of right under Fed. R. Bankr. Proc. 7062(d), provided that they post a supersedeas bond. [Motion at 23, lines 2526.] Suggesting that the Amended Judgment is "comparable to" a money judgment, the Diaz Defendants boldly claim that "if the Court is unwilling to grant a discretionary stay without a bond, it must set the amount of the bond in accordance with Federal Rule of Bankruptcy Procedure 7062(d). [Id. at lines 26-27.] This is an inaccurate statement of the applicable law. First of all, in contrast to Rule 62(d), Federal Rules of Civil Procedure, a stay under Rule 8005 is discretionary and does not accord the appellant a stay pending appeal as of right upon the filing of a supersedeas bond. Furthermore, the provisions of Rule 62(d) are not even applicable to the Judgment in these adversary proceedings. Fed. R. Civ. Proc. 62(d) provides that "[w]hen an appeal is taken the appellant by giving a supersedeas bond may obtain a stay subject to the exceptions contained in subdivision (a) of this rule." Rule 62(a) provides that "[u]nless otherwise ordered by the court, an interlocutory or final judgment in an action for an injunction or in a receivership action, or a judgment or order directing an accounting in an action for infringement of letters patent," shall not be stayed pending appeal. The Ninth Circuit strictly limits the application of Rule 62(d) to monetary judgments. See NLRB v. Westphal, 859 F.2d 818 (9th Cir. 1988) (citing Donovan v. Fall River Foundry Co., 696 F.2d 524 (7th Cir. 1982)); see also In re Capital West Investors, 180 B.R. 240, 242 (N.D. Cal. 1995) (stating that "the Seventh and Ninth Circuits have given clear effect to the limitation (of the stay of right to appeals from money judgments"). Courts necessarily utilize a comparability test for judgments that do not neatly fit into the specific named categories articulated under Rule 62(a) and (d), determining which type they are more closely analogous to. This application does not assist the Diaz Defendants here. No amount of shoehorning and legal maneuvering will fit the "square peg" of the quintessentially equitable 9
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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Judgment into the "round hole" of a money judgment. The cases cited by the Diaz Defendants are instructive and demonstrate the requirement for a very close equivalency to a monetary judgment to be deemed "comparable." In Capital West, the appellants were unsuccessful in attempting to argue that a supersedeas stay would apply to an order confirming a chapter 11 plan. The court held that the order was not the "equivalent" of a money judgment, but instead accomplished a distribution of rights among the parties to the bankruptcy. Id. In Hebert v. Exxon Corp., 953 F.2d 936 (5th Cir. 1992), the Fifth Circuit extended a stay of right to a declaratory judgment that required the defendant to pay a specific sum of money. The court aptly reasoned that the applicability of Rule 62(d) turned not on the distinction between a declaratory or money judgment but rather "whether the judgment involved is monetary or nonmonetary." Id. at 938. United States v. Mansion House Center Redevelopment Co., 682 F. Supp. 446, 450 (E.D. Mo. 1988) simply stands for the unremarkable proposition that a foreclosure action on a deed of trust or mortgage--which represents the liquidation of the collateral for a sum certain owed in default of a loan obligation--has equivalency to a money judgment.5 The policy underlying the limitation of Rule 62(d) to money judgments provides further guidance as to why a stay upon supersedeas bond is inapplicable to these proceedings. Courts have restricted the application of Rule 62(d) to judgments for money "because a bond may not adequately compensate a non-appealing party for loss incurred as a result of the stay of a non-money judgment." Hebert, 953 F.2d at 938 (citing Westphal, 859 F.2d at 819). In this respect, a stay of right is unavailable where the transfer of an asset is involved, as a bond cannot compensate for the loss of use of the asset by the appellee during the duration of the appeal. In this respect, the supersedeas bond must be a "kind for kind security to guaranty the [money] judgment" Id. (quoting United States v. United States Fishing Vessel MAYLIN, 130 F.R.D. 684, 686 (S.D. Fla. 1990)). The Diaz Defendants' unsupported proposition that actions "pertaining to possession of real property" should always benefit from a stay of right upon posting of a supersedeas bond is belied by the substantial

5

In re Max Sugarman Funeral Home, Inc., 94 B.R. 16 (Bankr. D.R.I. 1988), also cited by the Diaz Defendants, provided no analysis whatsoever, otherwise disagrees with the narrow construction followed in the Ninth and Seventh Circuits, and thus is not persuasive. 10
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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weight of authority. In fact, a judgment affecting the possession of real property (as opposed to a mortgage foreclosure action) will generally never be able to be treated "kind for kind" with money because of the issues concerning compensation for the appellee's loss of the use of the property during the pendency of the appeal. This is particularly true where, as here, income-producing commercial property is involved. See, e.g. Government Guarantee Fund of the Republic of Finland v. Hyatt Corp., 167 F.R.D. 399 (D.V.I. 1996) (denying motion for stay of order to vacate hotel property, holding that "the posting of mere money by Hyatt in this case cannot adequately ensure that [appellee] would be adequately compensated for the lost possession and use of its property and lost income from the operation of the Hotel during the pendency of an appeal"); Miller v. LeSEA Broadcasting, Inc., 927 F. Supp. 1148 (E.D. Wisc. 1996) (denying motion for stay of order requiring defendant to sell television station property, holding that "where a party has been ordered to do or perform an act, the monetary value of a delay in performance is not so readily ascertained"). In all practicality, as applied to core proceedings in bankruptcy cases, the supersedeas stay rarely applies. See Gleasman v. Jones, Day, Reavis & Pogue (In re Gleasman), 111 B.R. 595, 599 (Bankr. W.D. Tex. 1990) (observing that the nature of bankruptcy proceedings is such that supersedeas stays are seldom applicable, because most bankruptcy court rulings adjust the relative rights of parties to property) (footnotes omitted). Furthermore, where the property involved is "property of the estate" subject to recovery and/or turnover, the suitability of a supersedeas bond is even more remote. Such a judgment concerning property of the estate is "in the nature of equitable or injunctive relief, notwithstanding the fact that it is not technically an injunction as referenced in Rule 62(c)" United States v. Krause (In re Krause), No. 05-17429, 2007 Bankr. LEXIS 3049 at *6 (Bankr. D. Kansas August 29, 2007). Although judgments on avoidance actions can take the form of monetary judgments, the Judgment here specifically calls for recovery of the property. Throughout these proceedings, Kismet has demanded recovery of the property and has eschewed a monetary judgment. The provisions of Section 550 of the Bankruptcy Code provide the prevailing plaintiff in an avoidance action the choice of whether to receive recovery of a money judgment or recovery of the property itself. The statute, in prescribing alternatives, is purposefully flexible to accomplish its remedial goal. In re 11
CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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Brun, 360 B.R. 669, 674; Feltman v. Warmus (In re American Way Serv. Corp.), 229 B.R. 496 (Bankr. S.D. Fla. 1999). The policy behind providing the prevailing plaintiff this choice recognizes the troublesome valuation difficulties that necessarily exist with fraudulently transferred real or personal property assets and to otherwise ensure that the plaintiff captures any increase in the value of the property that may have occurred subsequent to the date of the fraudulent transfer. These same considerations serve to negate the applicability of a stay to the Diaz Defendants conditioned upon the posting of a bond. The proper amount of such a bond would be incalculable and Kismet would be left with unjust exposure to significant risk of loss. The proper analysis of the Diaz Defendants' right to a stay is under the test for a discretionary stay under Fed. R. Bankr. Proc. 8005. As explained below, the Diaz Defendants fail that test. IV. THE DIAZ DEFENDANTS ARE NOT ENTITLED TO A DISCRETIONARY STAY UNDER FED. R. BANKR. PROC. 8005 In bankruptcy cases, stays pending appeal of "all types of judgments, orders or decrees of a bankruptcy judge, including orders granting, denying or dissolving injunctions, are governed by Bankruptcy Rule 8005." 10-7062 Collier on Bankruptcy ¶ 7062.05 (15th ed. rev. 2008). Rule 8005 expressly provides that "[n]otwithstanding Rule 7062 but subject to the power of the district court and the bankruptcy appellate panel [to condition the stay], the bankruptcy judge may suspend or order the continuation of other proceedings in the case under the Code or make any other appropriate order during the pendency of an appeal on such terms as will protect the rights of all parties in interest."6 A stay of a final order on the merits of a dispute is, however, "an extraordinary device which should be sparingly granted." Ariz. Contrs. Ass'n, Inc. v. Candelaria, 2008 WL 486002 at *56. A. Under Rule 8005, the Governing Law Requires Each Hilton Element to be Satisfied In determining whether a discretionary stay should be granted from an appeal to a district court or bankruptcy appellate panel from the final order of the bankruptcy court under Fed. Rule

6

As such, Section VI of the Stay Motion, arguing for an alternative analysis under Rule 62(c) apart from Rule 8005, is founded on an incorrect statement of the law and is thus disregarded. 12

CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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Bankr. Proc. 8005, virtually all courts utilize the four factors used in determining whether to grant a stay pending appeal of a preliminary injunction under Federal Rule Civ. Proc. 62(c). That familiar four-part test articulated by the Supreme Court in Hilton v. Braunskill, 481 U.S. 770, 776 (1987), has been adopted by virtually all the circuit courts of appeal, including the Ninth Circuit. That test is: (1) whether the stay applicant has made a strong showing that he is likely to succeed on the merits; (2) whether the applicant will be irreparably injured absent a stay; (3) whether issuance of the stay will substantially injure the other parties interested in the proceeding; and (4) where the public interest lies. Id. Because the burden of meeting this standard lies with the moving party and is a heavy one, in respect to a stay of a final order on the merits, "more commonly stay requests will not meet this standard and will be denied." Wright, Miller & Kane, Federal Practice and Procedure Civil 2d § 2904 (West Pub. 1995 & Supp. 2008); see also 2 Matthew Bender Practice Guide, Federal Pretrial Civil Procedure in California § 19.08[3][f] (noting that the moving party bears the burden of proof as to each element of the test). Although under Rule 8005 the four enumerated factors utilized in determining the applicability of a stay are identical to those used for determination of a stay of a preliminary injunction pending appeal, see In re Wymer, 5 B.R. 806 (B.A.P. 9th Cir. 1980) (adopting the standard for discretionary stays of a preliminary injunction under the predecessor to Rule 8005), the practical application of these four factors in a case arising under the Bankruptcy Code is very different. In the context of a stay pending injunction under Rule 62(c), courts often apply several alternative formulations of this traditional test in a "sliding scale" fashion, with the strength of any one factor varying inversely with the strength of the remaining factors. See, e.g., Lopez v. Heckler, 713 F. 2d 1432 (9th Cir. 1983, rev'd on other grounds, 469 US. 1082 (1984).7
7

The Ninth Circuit, for example uses at least three "alternative" tests of this type. For example, to prevail the moving party must show either (1) "a strong likelihood of success on the merits" and "the possibility of irreparable injury to plaintiff if preliminary relief is not granted" or (2) "that serious 13

CASE NO. 3:08-CV-01446-BTM-BLM; BANKR. ADV. NOS. 04-90392; 06-90369 OPPOSITION BY PLAINTIFF KISMET ACQUISITION, LLC TO MOTION OF DEFENDANTS MARTHA BARBA AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL [FED. R. BANKR. PROC. 7062, 8005] SDODMS1/692905.2

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Courts of this circuit, as well as those of other circuits, generally agree that under Rule 8005 a traditional sliding scale formulation is not appropriate for use in making the determination of whether a stay should be granted pending the appeal of a bankruptcy court order. See Rose Townsend Trust v. Johnston (In re Johnston), No. 06-80040, 2007 WL 2684736 (Bankr. E.D. Wash. Sept. 7, 2007) (rejecting the movants' citations to cases, such as Lopez v. Heckler, 713 F. 2d 1432, that did not rely upon F.R.B.P. 8005); compare In re Forty-Eight Insulations, Inc., 115 F.3d 1294, 1301 (7th Cir. 1997) (stating that if the movant failed to make the requisite threshold showings of both a "strong" likelihood of success on the merits and irreparable harm, the stay should be denied without further analysis). The reason for the rejection of the standard sliding scale analysis under Fed. R. Bankr. Proc. 8005 relates to the procedural posture of an appeal, i.e., whether it is from a final order of a bankruptcy court on the merits; or from a preliminary determination, not on the merits. See, e.g., Dynamic Finance Corp. v. Kipperman (In re North Plaza, LLC), Case No. 08-CV1194, Order Denying Appellants' Motion for Stay Pending Appeal (S.D. Cal. July 25, 2008) (Whelan, J.)8: A "sliding scale" approach, which often results in disproportionately weighting the "irreparable harm" prong, is appropriate for preliminary injunctions because a court deals with the dispute on first impressions, relies on a less-than-developed factual and legal record, and will ultimately revisit the issue down the road. In contrast, where-as here-a court has taken extensive evidence and briefing and issued a determination on the merits, an interest in finality arises. Under Rule 8005, therefore, the substantial weight of authority in the Ninth Circuit requires that, each element of the test must be proved by the moving party by a preponderance of the evidence. See, e.g., Silicon Valley Bank v. Pon (In re Pon), 1994 U.S. Dist. LEXIS 2559 at * 6 (N.D. Cal. Feb. 25, 1994) (citing In re Dial Industries, Inc., 137 Bankr. 247, 250-251 (Bankr. N.D. Ohio 1992)). The Diaz Defendants' contrary suggestion that they need not make a strong showing of likely success on the merits of the appeal [Motion at 10], misstates the governing law under Rule legal questions are raised and that the balance of hardships tips sharply in its favor." Golden Gate Restaurant Ass'n. v. City of San Francisco, 512 F.3d 1112, 1116 (9th Cir. 2008) (quoting Natural Res. Def. Council, Inc. v. Winter, 502 F.3d 859, 862 (9th Cir. 2007); Lopez v. Heckler, 713 F.2d at
1435.
8

The Opinion is attached as Exhibit "A" hereto. See Fed. R. App. Proc. 32.1; 9th Cir. Rule 36-3 (providing for citation to unpublished dispositions and orders issued on or after January 1, 2007). 14

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8005. See Thomas v. City of Evanston, 636 F.Supp. 587, 590-91 (An appellant's failure to meet their burden of persuasion regarding even one of these factors requires denial of the stay);9 see also, e.g., Ohanian v. Irwin (In re Irwin), 338 B.R. AT 839; Yeganeh v. Sims, 2006 WL 1310447 (N.D. Cal. May 12, 2006) at *19 (failure to prove likelihood of success on the merits alone is grounds for denial of the stay). Tellingly, even the lead case cited by the Diaz Defendants for their proposed "relaxed" standard, In re Forty Eight Insulations, 115 F.3d at 1301, holds that a stay pending appeal of a final judgment requires a "strong" and "substantial" showing of success on the merits and that failure to meet this burden alone requires denial of the stay. Id. at 1301. B. The Diaz Defendants Cannot Demonstrate Any Probability of Success on the Merits The likelihood of success on the merits is a threshold issue, normally "the most important" factor in the determination of whether a stay may be granted. United States v. Fitzgerald, 884 F. Supp. 376, 377 (D. Idaho 1995) (citing Garcia-Mir v. Meese, 781 F.2d 1450, 1453 (11th Cir. 1986)). Indeed, "[t]he sine qua non of the stay pending appeal standard is whether the movants are likely to succeed on the merits." Wright, Miller & Kane, Federal Practice and Procedure: 16A Jurisdiction 3d § 3954 & n.10.1 (West Supp. April 2008) (quoting Acevedo-Garcia v. Vera Monroig, 296 F.3d 13, 16 (1st Cir. 2002)). A movant seeking a stay pending review on the merits of a final judgment will necessarily have greater difficulty in demonstrating a likelihood of success on the merits. "In essence, a party seeking a stay must ordinarily demonstrate to a reviewing court that there is a likelihood of reversal." Michigan Coalition of Radioactive Material Users, Inc. v. Griepentrog