Case 3:08-cv-01446-BTM-BLM 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Debtors 17 18 19 20 21 22 23 24 25 26 27 28 v. KISMET ACQUISITION, LLC Appellee. Appellant, In re:
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Geraldine A. Valdez (Bar No. 174305) Kendra J. Hall (Bar No. 166836) PROCOPIO, CORY, HARGREAVES & SAVITCH LLP 530 B Street, Suite 2100 San Diego, California 92101 Telephone: 619.238.1900 Attorneys for Defendants Alejandro DiazBarba and Martha Margarita Barba de la Torre Stephen B. Morris (Bar No.126192) Mark C. Hinkley (Bar No. 138759) MORRIS & ASSOCIATES 444 West C Street, Suite 300 San Diego, California 92101 Telephone: 619.239.1300 Attorneys for Defendant Alejandro Diaz-Barba
D. Anthony Gaston (Bar No. 57074) Attorney At Law Corporate Center 550 West C Street, Suite 700 San Diego, California 92101 Telephone: 619.234.3103 Attorneys for Appellant Martha Margarita Barba de la Torre
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA Case No. 3:08-CV-01446-BTM-BLM Appeal from Bankruptcy Court (S.D. Cal) Bkr. Case No. 03-11155-LA7 Adv. Proc. No.: 06-90369 Adv. Proc. No.: 04-90392 ALEJANDRO DIAZ-BARBA; MARTHA MARGARITA BARBA DE LA TORRE REQUEST FOR JUDICIAL NOTICE IN SUPPORT OF MOTION OF DEFENDANTS/APPELLANTS MARTHA MARGARITA BARBA DE LA TORRE AND ALEJANDRO DIAZBARBA FOR STAY OF JUDGMENT PENDING APPEAL Date: August 28, 2008 Time: 4:00 p.m. Dept.: 15 Judge: Honorable Barry Ted Moskowitz
JERRY LEE ICENHOWER dba Seaview Properties, and DONNA LEE ICENHOWER,
Adv. Proc. No. 06-90369; 04-90392
115634/000000/954143.01
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Pursuant to Rule 9017 of the Federal Rules of Bankruptcy Procedure and Rule 201 of the Federal Rules of Evidence, Appellants Alejandro Diaz-Barba and Martha Margarita Barba de la Torre request this Court to take judicial notice of the following documents in support of their motion for stay of judgment pending appeal: EXHIBIT NO. 1 DOCUMENT NAME FILING DATE
Consolidated Findings of Fact and Conclusions June 2, 2008 of Law Order Approving Trustee's Motion Authorizing December 7. 2006 Sale of Assets Outside of Ordinary Course of Business Order on Motion to Consolidated Judgment Tentative Ruling Reporter's Transcript of Proceedings January 18, 2007 Alter or Amend July 30, 2008
Letter to the Honorable Louise De Carl Adler December 14, 2007 from Joel Hernandez Garcia Memorandum of Points and Authorities in November 28, 2006 Support of Motion to Dismiss Declaration of Fletcher W. Paddison November 28, 2006
DATED: August 15, 2008
PROCOPIO, CORY, HARGREAVES & SAVITCH, LLP
By: /s/ Geraldine A. Valdez Geraldine A. Valdez, Attorneys for Defendants Alejandro Diaz-Barba and Martha Margarita Barba de la Torre
2
Adv. Proc. No. 06-90369; 04-90392
115634/000000/954143.01
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Geraldine A. Valdez (Bar No. 174305) Kendra J. Hall (Bar No. 166836) Farzeen Essa (Bar No. 246971) PROCOPIO, CORY, HARGREAVES & SAVITCH LLP 530 B Street, Suite 2100 San Diego, California 92101 Telephone: 619.238.1900 Attorneys for Appellants Alejandro Diaz-Barba and Martha Margarita Barba de la Torre Stephen B. Morris (SBN 126192) Mark C. Hinkley (SBN 138759) MORRIS & ASSOCIATES 444 West C Street, Suite 300 San Diego, California 92101 Telephone: 619.239-1900 Attorneys for Appellant Alejandro Diaz-Barba
D. Anthony Gaston (Bar No. 57074) Attorney At Law Corporate Center 550 West C Street, Suite 700 San Diego, California 92101 Telephone: 619.234.3103 Attorneys for Appellant Martha Margarita Barba de la Torre
11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28
Bkr. No. 03-1155-LA7 Adv. Proc. No. 06-90369; 04-90392
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF CALIFORNIA In re: JERRY LEE ICENHOWER dba Seaview Properties, and DONNA LEE ICENHOWER, Debtors Adv. Proc. No.: 06-90369 Adv. Proc. No.: 04-90392 ALEJANDRO DIAZ-BARBA; MARTHA MARGARITA BARBA DE LA TORRE Appellants, v. KISMET ACQUISITION, LLC Appellee. Date: Time: Ctrm: Judge: August 28, 2008 4:00 p.m. 15 Honorable Barry Ted Moskowitz MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF MOTION OF DEFENDANTS MARTHA MARGARITA BARBA DE LA TORRE AND ALEJANDRO DIAZ-BARBA FOR STAY OF JUDGMENT PENDING APPEAL Case No. 3:08-CV-01446-BTM-BLM Appeal from Bankruptcy Court (S.D. Cal.) Bkr. Case No. 03-11155-LA7
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TABLE OF CONTENTS Page I. INTRODUCTION ....................................................................................................................... 1 II. FACTUAL BACKGROUND..................................................................................................... 2 A. The Villa Property........................................................................................................... 2 B. Icenhower Induces Diaz To Purchase The Villa Property.............................................. 3 C. The Diaz Family Purchases The Villa Property ............................................................. 5 D. The Avoidance Actions................................................................................................... 6 E. Kismet Enters The Picture .............................................................................................. 6 F. Pre-Trial Rulings And The Judgment ............................................................................. 7 III. THE DIAZ FAMILY IS ENTITLED TO A DISCRETIONARY STAY WITHOUT A BOND.................................................................................................................................... 9 A. Standard of Review....................................................................................................... 10 B. The Diaz Family Will Likely Succeed On The Merits ................................................. 10 (a) H&G is the alter ego of the Debtors, nunc pro tunc to the petition date. ........................................................................................ 12 (b) The assets of H&G are hereby substantively consolidated with the assets of the bankruptcy estate nunc pro tunc to the petition date. ..................................................................................................... 12 1. This Court Lacks Subject Matter Jurisdiction to Determine Real Property Rights in Mexico. ............................................................................. 12 (a) Title to Real Property Can only Be Decided by a Court in the Jurisdiction Where the Property is Located........................................ 12 (b) U.S. Courts Particularly Lack Jurisdiction to Determine Real Property Rights in Foreign Countries.................................................. 13 2. The Bankruptcy Code Avoidance Sections Do Not Apply Extraterritorially. ............................................................................................. 15 3. The Judgment Should Be Reversed In That It Disregards The International Comity Doctrine and Mexico's Calvo Doctrine. ....................... 16 (a) Mexico Has a Strong Policy Against Allowing Foreign Powers to Decide Issues Related to Mexican Real Property. .......................... 17 (b) Mexican Fraudulent Conveyance Laws Differ From those in the United States........................................................................................ 19 C. The Diaz Family Will Suffer Irreparable Harm............................................................ 19 D. Kismet Will Not Suffer Substantial Harm if the Stay is Granted ................................. 21 E. Public Interest Considerations Mandate the Issuance of a Stay ................................... 21 IV. THE COURT HAS DISCRETION TO REQUIRE A BOND................................................ 22 V. THE DIAZ FAMILY IS ENTITLED TO A STAY AS A MATTER OF RIGHT IF IT POSTS A BOND..................................................................................................................... 23 VI. EVEN IF THE COURT DETERMINES THE JUDGMENT IS SIMILAR TO AN INJUNCTION, THE DIAZ FAMILY IS ENTITLED TO A STAY UNDER RULE 62(C)........................................................................................................................................ 24 VII. CONCLUSION...................................................................................................................... 25
i
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TABLE OF AUTHORITIES Page(s) FEDERAL CASES ACC Bondholders v. Adelphia Communications Corp. (In re Adelphia Communications Corp.) 361 B.R. 337 (Bankr. S.D.N.Y. 2007) ........................................................................ 19, 20, 21 Argentine Republic v. Amerada Hess Shipping Corp. 488 U.S. 428, 102 L. Ed. 2d 818, 109 S. Ct. 683 (1989) ........................................................ 15 Asociacion De Reclamantes, v. United Mexican States 735 F.2d 1517 (DC Cir. 1984) .......................................................................................... 14, 18 Barclay v. Swiss Finance Corporation Limited (In re Midland Euro Exchange et al) 347 B.R. 708 (Bankr. C.D. Cal. 2006) .................................................................................... 15 Bermudez v. Reid 720 F.2d 748 (2d Cir. 1983) .................................................................................................... 21 Casey v. Adams 102 U.S. at 67-68..................................................................................................................... 13 Ellenwood v. Marietta Chair Co. 158 U.S. 105 (1895) ................................................................................................................ 13 Equal Employment Opportunity Comm. v. Arabian American Oil Co. 499 U.S. 244 (1991) ................................................................................................................ 15 Feller v. Brock 802 F.2d 722 (4th Cir.1986) .................................................................................................... 21 Foley Bros., Inc. v. Filardo 336 U.S. 281 (1949) ................................................................................................................ 15 Goldie's Bookstore, Inc. v. Superior Court of State of Cal. 739 F.2d 466 (9th Cir. 1984) ................................................................................................... 23 Hartford Fire Ins. Co. v. California 509 U.S. 764 (1993) ................................................................................................................ 17 Hebert v. Exxon Corp. 953 F.2d 936 (5th Cir. 1992) ................................................................................................... 23 Hilton v. Braunskill 481 U.S. 770, 107 S.Ct. 2113, 95 L.Ed.2d 724 (1987) ........................................................... 24 Hughes v. Arnod No. 2:08-00490 JAM, 2008 WL 2169511 (E.D. Cal. May 22, 2008)....................................... 9 ii
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In re Advanced Mining Sys. Inc. 173 B.R. 467 (Bankr. S.D.N.Y. 1994) .................................................................................... 20 In re Bridgeport 132 B.R. 81 (Bankr. D.Conn. 1991)........................................................................................ 19 In re Calphine Corp. No. 05-60200 (BRL), 2008 WL 207841 (Bankr. S.D.N.Y., January 24, 2008) ..................... 19 In re Capital West Investors 180 B.R. 240 (Bankr. N.D. Cal. 1995) .................................................................................... 23 In re Country Squire Associates of Carle Place, L.P. 203 B.R. 182 (2nd Cir. 1996) .................................................................................................. 20 In re Ernst Home Center 221 B.R. 243 (9th Cir. BAP 1998) .......................................................................................... 10 In re Forty Eight Insulations, Inc. 115 F.3d 1294 (7th Cir. 1997) ................................................................................................. 10 In re Issa Corp. 142 B.R. 75 (Bankr. S.D.N.Y. 1992) ...................................................................................... 19 In re Max Sugarman Funeral Home, Inc. 94 B.R. 16 (Bankr. D.R.I.1988) ........................................................................................ 22, 23 In re Maxwell 93 F.3d 1036 (2d Cir. 1996) .................................................................................................... 17 In re Maxwell Commc'n Corp. 170 B.R. 800 (S.D.N.Y. 1994) ................................................................................................ 15 In re Maxwell Communication Corporation 186 B.R. 807 (S.D.N.Y 1995) ................................................................................................. 15 In re Skinner 202 B.R. 867 (Bankr. W.D. VA. 1996)............................................................................. 19, 22 In re Slater 200 B.R. 491 (E.D.N.Y. 1996) ................................................................................................ 20 In re Sphere Holding Corp. 162 B.R. 639 (Bankr. E.D.N.Y.1994) ..................................................................................... 22 In re Suprema Specialties, Inc. 330 B.R. 93 (S.D.N.Y. 2005) .............................................................................................. 9, 22 In re Trans World Airlines, Inc. 18 F.3d 208 (3rd Cir. 1994)....................................................................................................... 9 iii
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Keller v. Malice 838 F.Supp. 1163 (D. S.D. Tex. 1993).................................................................................... 12 LaRouche v. Kezer 20 F.3d 68 (2d Cir. 1994) ........................................................................................................ 10 Livingston v. Jefferson 15 F. Cas. 660 (C.C.D. Va.1811) ............................................................................................ 12 Lopez v. Heckler 713 F.2d 1432 (9th Cir.1983) ............................................................................................ 10, 24 Louisville & N.R.R. v. Western Union Telegraph Co. 234 U.S. 369 (1914) ................................................................................................................ 12 Lynch v. California Public Utilities Com'n No. C-04-0580, 2004 U.S. Dist. LEXIS 6022 (N.D. Cal. April 9, 2004) ........................... 9, 10 Mohammed v. Reno 309 F.3d 95 (2d Cir. 2002) ................................................................................................ 10, 21 O'Hagan v. U.S. 86 F.3d 776,783 (8th Cir. 1996) .............................................................................................. 19 Oakey v. Bennett 52 U.S. 33 (1850) .............................................................................................................. 13, 14 S.E.C. v. Platforms Wireless Intern. Corp. No. 04cv2105JM(AJB), 2008 WL 281112 (S.D.Cal. Jan. 31, 2008)...................................... 24 Sarei v. Rio Tinto, PLC 456 F.3d 1069,1086 (9th Cir. 2006) ........................................................................................ 17 Southwest Voter Registration Education Project v. Shelley 344 F.3d 914 (9th Cir.2003) ...................................................................................................... 9 Thapa v. Gonzales 460 F.3d 323 (2d Cir. 2006) .................................................................................................... 24 Tucker Anthony Realty Corp. v. Schlesinger 888 F.2d 969 (2d Cir. 1989) .................................................................................................... 19 United States v. Mansion House Center Redevelopment Co. 682 F.Supp. 446 (E.D. Mo. 1988) ........................................................................................... 23
OTHER STATE CASES Clarke v. Clarke 178 U.S. 186 (1900) ............................................................................................................... 13 iv
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Holt v. Guerguin 163 S.W. 10 (1914) ........................................................................................................... 13, 14 In re County Squire Assocs. Of Carle Place, L.P. 203 B.R. 182 (B.A.P. 2d Cir. 1996) ........................................................................................ 22 FEDERAL STATUTES 11 U.S.C. § 544(A) .................................................................................................................................... 8 § 549 .......................................................................................................................................... 8 § 550(a)(1) and § 551 ................................................................................................................ 8 § 550(A)(2)................................................................................................................................ 8 Bankruptcy Code Chapter 7 ..................................................................................................................... 4, 5, 6, 15 § 502(h) ............................................................................................................................... 2, 21 § 547 ........................................................................................................................................ 15 § 548 .................................................................................................................................. 15, 16 § 7062(d) ................................................................................................................................. 24 Federal Rule of Civil Procedure Rule 62 ...................................................................................................................................... 9 Rule 62(c) ................................................................................................................................ 24 Rule 62(d)................................................................................................................................ 23 Rule 7062 ............................................................................................................................ 9, 23 Rule 8005 .......................................................................................................... 9, 10, 19, 22, 24 Federal Civil Code, Article 773 .............................................................................................. 17, 18 CALIFORNIA STATUES California Code of Civil Procedure § 917.4 ..................................................................................................................................... 23 OTHER AUTHORITIES Divxnetworks, Inc. v. Gericom AG No. 04cv2537 WQH................................................................................................................ 24 Mexican Law: a Treatise for Legal Practitioners and International Investors, § 41.29 ..................................................................................................................................... 18 Mexican Real Estate Company "Impulsora de Chamela" ("IC") ................................................... 6
26 27 28 v
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Appellants Martha Margarita Barba De La Torre and Alejandro Diaz-Barba (collectively, "the Diaz Family") respectfully submit their Memorandum Of Points And Authorities In Support Of Emergency Motion For Stay Of Judgment Pending Appeal, as follows: I. INTRODUCTION The purpose of this motion is to request a stay of the judgment in the above cases pending an appeal to be filed by the Diaz Family. The appeal is from the judgment of the Bankruptcy Court in two consolidated adversary proceedings avoiding an unauthorized post-petition real property transfer (the "Villa Property") from the Debtor in the underlying bankruptcy proceeding to the Diaz Family (the "Avoidance Actions"). As part of the judgment, the Bankruptcy Court directed Defendants Alejandro Diaz ("Alex") and his elderly mother Martha Margarita Barba De La Torre ("Martha"), two Mexican citizens, to transfer their beloved family vacation home in Mexico, the Villa Property, to Kismet Acquisition LLC, ("Kismet"), a Delaware LLC formed by two German citizens to gain access to the U.S courts. The Diaz Family paid $1.4 million for the Villa Property and satisfied all requirements to establish clear title under Mexican law. The Bankruptcy Court reasoned that, although the Diaz Family paid more than fair market value for the Villa Property, Alex had conducted insufficient due diligence in the United States with respect to the transferor to allow him to take advantage of the "good faith purchaser" defense. It did not find that Alex had colluded or conspired with the Debtors in any way. If Alex committed any crime, it was that of naivete for believing that the laws of his own country governed a transfer of real property located there. This Court has discretion to grant a stay pending appeal and it need not require the posting of a supersedeas bond. As addressed below, a discretionary stay is appropriate in this case. First, the Diaz Family is likely to prevail on the merits. The Diaz Family's appeal will raise important issues regarding the subject matter jurisdiction of the Bankruptcy Court, and whether the judgment can stand given its direct impact on real property owned by Mexican citizens in Mexico and Mexico's strong policy against allowing foreign powers to decide issues affecting ownership of real property in Mexico. The Court's determination on these issues at the 1
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trial level is reversible because it was premised on an entirely different theory of the case than that which the Court ultimately adopted in rendering its judgment. Second, absent a stay the Diaz Family will suffer irreparable harm. If Kismet demolishes the Villa Property, the appeal will become moot and the Diaz Family will never be able to recover what they have lost in the event the Court ultimately reverses the Bankruptcy Court. The two German property developers that formed Kismet did so solely for the purpose of purchasing the Avoidance Actions from the bankruptcy trustee. Kismet has made no secret of its intentions. The reason it went to such extraordinary lengths to wrest this property from its reluctant owner is because it obstructs Holes 2 and 5 of a golf course development it is building which will ultimately surround the Villa Property. Third, Kismet will suffer no harm if a stay is granted. The Villa Property is protected by an injunction issued by the Bankruptcy Court. Additionally, as consideration for its purchase of the Avoidance Actions from the bankruptcy trustee, Kismet agreed to pay all the unsecured claims against the bankruptcy estate in full. Under Bankruptcy Code section 502(h), once the Diaz Family turns over the Villa Property, it will have such an unsecured claim for the $1.4 million it paid for the property. Therefore, as a practical matter, Kismet will have to satisfy that claim before it obtains an interest in the Villa Property, Kismet is in no danger of going out of pocket while all rights are finally adjudicated. Finally, public policy is strongly against the potentially unnecessary forfeiture of homes and disturbance of the status quo. Accordingly, given the significant legal issues in this case, as well as the unique considerations involved when a judgment directly impacts real property located in a foreign country, a stay of the judgment herein is just and proper. II. FACTUAL BACKGROUND The Villa Property
In or about 1995, D. Donald Lonie and the D. Donald Lonie, Jr., Family Trust (the "Lonie Creditors") entered into an agreement with Debtors Jerry Icenhower ("Icenhower") and Donna Icenhower (collectively, the "Debtors") for the sale of their interest in the Villa Property, a 2
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beautiful coastal villa in Mexico called the Villa Vista Hermosa. The Villa Property is located in the village of Chamela in the Municipality of La Huerta, State of Jalisco, Mexico, overlooking the ocean. See, Request for Judicial Notice ("RJN"), Exh. 1, Consolidated Findings of Fact and Conclusions of Law ("FF&CL") entered on June 2, 2008 at ¶3.1 Under Mexican law, a foreign national may not directly hold title to coastal real property in Mexico, but may lease or acquire rights of use on such property by forming a fideicomiso bank trust to hold title to the real property. Therefore, the Lonie Creditors sold only a leasehold interest or right of use to the Villa Property to the Debtors who are U.S. citizens (the "Villa Property Interest"). Id. at ¶3, fn. 4. In return for their interest in the Villa Property, the Debtors executed two promissory notes in favor of the Lonie Creditors, who recorded a lien to secure the note. Subsequently, the Lonie Creditors agreed to release the lien to enable the Debtors to sell the Villa Property Interest to a third party. The sale fell through and a dispute arose between the Debtors and the Lonie Creditors. Id. at ¶4. On March 24, 2000, the Lonie Creditors commenced an action against the Debtors in the United States District Court for the Southern District of California (the "District Court Litigation"). Id. at ¶4. On March 4, 2002, the Debtors purchased a Nevada corporation, H&G, and transferred their Villa Property Interest to that entity. Id. at ¶8. B. Icenhower Induces Diaz To Purchase The Villa Property
Alex, a citizen of Mexico, first met Icenhower through a childhood friend, Eugene Kocherga ("Eugene"). Eugene's family formerly owned the Vista Property and Alex and Eugene had spent many happy summers there together. Id. at ¶27. In 2003, Eugene was planning his wedding and was determined to get married in his childhood home. He made some inquiries to determine the new owners of the Villa Property to see if they would agree to allow him to hold his wedding there. He was introduced to Icenhower who told him that he was the property manager for the Villa Property. Id. As Eugene was making preparations to rent the Villa Property, he had several meetings with Icenhower.
1
During one of these meetings in San Diego, Eugene introduced Alex to
The references to the Appendix/docket refer to Adversary Proceeding #04-90392. The Diaz Family's appeal will also include Adversary Proceeding #06-90369-LA. 3
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Icenhower. Later Eugene and Alex visited the Villa Property together and Alex met Icenhower again. Alex remembered the Villa Property fondly and found it even nicer than he remembered. Icenhower mentioned that the house was possibly for sale at a selling price of $3 million dollars. Alex indicated that he was interested in the house, but not at that price. Id. at ¶¶27-28. After the wedding, Icenhower contacted Alex several times to ask him if he was still interested in purchasing the Villa Property. He told Alex that he was only managing the house for H&G which, he said, comprised of a group of investors from Nevada. Icenhower dropped the asking price a little each time he spoke with Alex. Finally, he advised Alex that the lowest price H&G would accept for the Villa Property Interest was $1.5 million. Alex informed his mother, Marth, of this opportunity to purchase the Villa Property. Martha agreed to become a co-owner with Alex. Alex told Icenhower that he was interested in purchasing the Villa Property for $1.5 million and made a check out to H&G for $25,000.00 as a sign of good faith. Id. at ¶¶29 & 39. Alex then requested his friend and attorney/notary, Mr. Eduardo Sanchez Acosta ("Sanchez") to start the legal process and necessary due diligence to purchase the Villa Property. While Alex and Sanchez were conducting their due diligence, Martha became very ill and had absolutely no involvement whatsoever in the transaction. On November 24, 2003, the Court entered judgment in favor of the Lonie Creditors in the District Court Litigation. On December 15, 2003, the Debtors filed for protection under chapter 7 of the Bankruptcy Code. Id. at ¶5. Gerald H. Davis was appointed as trustee (the "Trustee").
Shortly thereafter, Alex learned of the Icenhower bankruptcy. Id. at ¶31. Alarmed, Alex called Icenhower to inquire about the bankruptcy. Icenhower explained that he and the Lonie Creditors were in a dispute over a big land development project in Ensenada, Mexico. The Lonie Creditors wanted to collect on a note that Icenhower assured Alex was already liquidated. Alex asked if the Villa Property was involved in this dispute. Icenhower assured him that he had sold it long before the dispute had arisen and that it was not involved in the bankruptcy. Id. at ¶32. /// /// 4
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The Diaz Family Purchases The Villa Property
Sanchez had completed eight months of due diligence and then presented Alex with a report certifying his findings that there were no outstanding liens on the Villa Property. The report indicated that Icenhower had formerly owned the Villa Property but that he had transferred it to H&G, a corporation in good standing, two years earlier. Id. at ¶34. Alex received the additional assurances provided for under Mexican law that the Villa Property was free and clear of any liens and encumbrances. Under Mexican law, a seller or buyer of real property is required to obtain a certificate from the Public Registry of Property, stating who the owner of the property is and if the property is free of any lien or deed affecting the free disposition of the land. Only after the Public Registry of Property certifies that the seller is the actual owner and that the property is free of liens and claims, will a Public Notary attest and certify, through a deed, the sale/purchase of the property. Once the process is finished, the Notary Public sends the final deed to the Public Registry for registration, and a certified formal deed is delivered to the buyer. All liens or claims must be registered with the Mexican
government to have any effect, and a notary's certification of no liens is considered a final and conclusive finding of clear title. With respect to Alex's purchase of the Villa Property, both the Public Registry of Property and the Notary Public confirmed that the owner of the Villa Property Interest was H&G and had been so for two years. They also confirmed that H&G was current with its obligations. Accordingly, on or about June 7, 2004, Alex and H&G closed the sale of the Villa Property. Upon Icenhower's instruction, Alex transferred the purchase price for the property to the following third-party entities: (1) $675,000 to Buckeye International Funding, Inc.; (2) $398,663 to Western Financial Assets, Inc. and (3) $191,567 to Icenhower Investments, via a bank account controlled by Icenhower's brother, Hobart Icenhower. Id. at ¶¶37-39. Because Alex and Martha are Mexican citizens, they may hold legal title to the Villa Property, not merely a beneficial interest. Therefore, they did not merely obtain an assignment of the ficeicomiso trust from H&G. Rather, the Banco Nacional de Mexico, S.A. conveyed legal
5
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title to the Villa Property directly to the Diaz Family by way of an Escritura dated August 5, 2004 (the "Diaz Escritura"), and the fideicomiso trust was dissolved and terminated. The Diaz Family paid approximately $1.4 million for the Villa Property. According to an appraisal commissioned by the Bankruptcy Trustee in September 2004, the Villa Property was worth $1,284,209. D. The Avoidance Actions
On August 23, 2004, The Trustee commenced a fraudulent transfer action against H&G to avoid and recover the Debtors' transfer of their Villa Property Interest to H&G (the "Fraudulent Transfer Action"). The Trustee was unaware of the subsequent transfer of the Villa Property to the Diaz Family. Id. at ¶44. In February 2005, upon learning of the transfer, the Trustee amended the complaint to add the Diaz Family as defendants and also obtained injunctive relief restraining the Diaz Family from transferring or encumbering the Villa Property. Id. at ¶45. On August 3, 2006, the Trustee filed a second action against H&G and the Icenhowers seeking a determination that: (1) H&G was the alter ego of the Debtors; and (2) to substantively consolidate the Debtors and H&G nunc pro tunc to the date of filing of the bankruptcy petition (the "Alter Ego Action"). (The August 23, 2004 action and the August 3, 2006 actions are collectively referred to as the "Avoidance Actions"). Id. at ¶48. E. Kismet Enters The Picture
While the Icenhower bankruptcy was proceeding in the United States, two German property developers, Wolfgang and Dieter Hahn (the "Hahns"), purchased a majority shareholder interest in a Mexican Real Estate Company "Impulsora de Chamela" ("IC"). IC owns more than 350 hectares of land that completely surrounds the Villa Property. Through IC, the Hahns are developing a golf resort in Mexico called "Tambora". When completed, Tambora will surround the Villa Property, with Holes 2 through 5 of the golf course wrapping around the property. The Villa Property is of tremendous strategic value to the Hahn Brothers and they desperately want to obtain it. However, the Villa Property has great sentimental value to the Diaz Family and they were unwilling to sell it to the Hahns.
6
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The Hahns were not going to give up that easily. Then, by a stroke of luck, they found a way to out-maneuver Alex and seize the Villa Property. Ironically, Alex himself informed the Hahns of the Lonie Creditors' claims against the Icenhowers, the bankruptcy and the existence of the Avoidance Actions. By virtue of Alex's unwitting disclosures, these two German citizens came up with a scheme to use the United States Bankruptcy Court to accomplish their goal to wrest a home located in Mexico from its reluctant Mexican citizen owners. In July 2006, because the Hahns are not U.S. citizens, they set up two shell Delaware corporations, Kismet Acquisitions, LLC and Kismet Acquisitions II, LLC ("Kismet"), to gain access to the bankruptcy court. They convinced the Lonies to sell Kismet their $1,385,950.65 claim arising from the district court litigation. Next, they entered into an agreement with the Trustee on behalf of Kismet, to purchase the Avoidance Actions (the "Purchase Agreement"). In return for the Avoidance Actions, Kismet agreed to pay an amount sufficient to pay all creditors in full, except for Kismet's own claim, which it agreed to subordinate to those of the other creditors. On December 7, 2006, the Court entered an order approving the Purchase Agreement. (See, RJN Exh. 2, Order Approving Sale of Assets and Exh A thereto.) F. Pre-Trial Rulings And The Judgment
On November 29, 2006, the Diaz Family filed a Motion to Dismiss for Lack of Subject Matter Jurisdiction and Failure to State a Claim or, in the Alternative, to Abstain. See Docket # 183-187. The basis for the motion was the Bankruptcy Court's lack of subject matter jurisdiction to determine real property rights in Mexico and the strong policy considerations involved in deciding issues related to Mexican real property which require abstention on the grounds of international comity. On February 13, 2007, the Bankruptcy Court issued its order denying the Diaz Family's jurisdictional challenge. On April 21, 2008, the Bankruptcy Court conducted a four-day bench trial of the Avoidance Actions. On June 2, 2008, the Bankruptcy Court entered judgment against the Diaz Family and its Findings of Fact and Conclusions of Law in support of the Judgment. (See RJN Exh. 1). Preliminarily, the Bankruptcy Court found that Kismet is entitled to Judgment on its claims in the Alter Ego Action. Therefore, according to the Bankruptcy Court's judgment, the 7
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Villa Property is property of the estate, permitting it to rule that the transfer to the Diaz Family is avoidable under 11 U.S.C. § 549 as an unauthorized post petition transfer. Id. at 80-83. The Bankruptcy Court went on to rule that alternatively, Kismet is entitled to judgment on the Fraudulent Transfer Action in that the Debtors' transfer of the Villa Property to H&G is avoidable under 11 U.S.C. § 544(A), pursuant to California law and that recovery of the Villa Property from the Diaz Family is permitted pursuant to 11 U.S.C. § 550(A)(2). Id. at 26-33. As indicated in the Bankruptcy Court's Amended Consolidated Judgment, the Bankruptcy Court provided Kismet at its sole option, the following remedies: *** (e) Plaintiff is entitled to recover and preserve pursuant to 11 U.S.C. § 550(a)(1) and § 551 the Villa Property from the Diaz Defendants as the initial transferees of the avoided postpetition transfer. Within ten days of entry of this judgment, Defendants are hereby ordered and directed 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 Plaintiff as the sole beneficiary for the benefit of the bankruptcy estate; or (f) Alternatively, at Plaintiff'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. 2. Alternatively, even if the Villa Property is not property of the bankruptcy estate nunc pro tunc to the petition date, judgment is entered in favor of Plaintiff and against the Defendants on the remaining claims in the amended complaint in adversary proceeding 04-90392. It is hereby adjudged and decreed that *** Plaintiff is entitled to recover and preserve pursuant to 11 U.S.C. §§ 550(a)(1) and (a)(2) and § 551 the avoided fraudule
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