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Kismet Acquisition, LLC v. Icenhower

August 18, 2009


The opinion of the court was delivered by: Honorable Barry Ted Moskowitz United States District Judge


Defendants-Appellants Alejandro Diaz-Barba and Martha Barba (the "Diaz Family") have appealed a judgment of the bankruptcy court, as well as orders of the bankruptcy court finding them in civil contempt and assessing monetary sanctions pursuant to the contempt orders. Plaintiff-Appellee Kismet Acquisition, LLC ("Kismet") moves the Court to dismiss Defendants-Appellants' appeals and assess further sanctions for bringing frivolous appeals. For the reasons set forth below, the Court DENIES Plaintiff-Appellee's Motion to Dismiss and Request for Sanctions.


A. Background Facts

In or about 1995, D. Donald Lonie and the Lonie Family Trust (the "Lonies") sold a leasehold interest*fn1 in a piece of real property, the Villa Vista Hermosa (the "Villa Property"), to Jerry and Donna Icenhower (the "Icenhowers" or "Debtors"). (Pl.-Appellee's Mem. P. & A., Ex. B. at 20--21.)

On March 24, 2000, the Lonies commenced an action against the Icenhowers in the United States District Court for the Southern District of California seeking a determination of their rights and interests in the Villa Property and injunctive relief. (Id. at 21.)

On March 4, 2002, the Icenhowers transferred their interest in the Villa Property to Howell & Gardner ("H&G"), a Nevada corporation. (Id. at 24.) On September 2, 2002, this transfer was recorded in the Mexican Registry. (Id. at 25.)

On November 24, 2003, the district court entered judgment in favor of the Lonies. The district court directed the Icenhowers to either: (1) pay damages in the amount of $1,356,830.32 and reregister a lien on the Villa Property as security for the damages until paid by a date certain; or (2) reconvey the Villa Property to the Lonies, free of any encumberance, claim, lien, or liabilities placed on the Property as a result of the Icenhowers' actions or inactions. (Id. at 21--22.)

Martha Barba and her son, Alejandro Diaz-Barba, (the "Diaz Family"), are citizens of Mexico and residents of San Diego County, California. (Id. at 25.) Mr. Diaz first met Mr. Icenhower during the summer of 2003. (Id. at 26.)

In late 2003 and early 2004, Mr. Icenhower and Mr. Diaz began discussing the possible sale of the Villa Property from H&G to Mr. Diaz. (Id.) At some point during this time period, they agreed upon a purchase price and Mr. Diaz began conducting due diligence. (Id.) While Mr. Diaz was conducting due diligence, Mr. Icenhower asked Mr. Diaz for a personal loan of $100,000, which Mr. Diaz agreed to. (Id.)

On June 7, 2004, H&G and the Diaz Family executed a formal purchase agreement for the Villa Property. (Id. at 28.)*fn2

B. Bankruptcy Case

On December 15, 2003, the Icenhowers filed for bankruptcy protection. (Id. at 22.) On August 23, 2004, the Trustee of the bankruptcy estate commenced a fraudulent transfer action against H&G to recover the Icenhowers' transfer of the Villa Property to H&G ("Fraudulent Transfer Action"). (Id. at 30.)

In or about February, 2005, the Trustee learned that H&G had subsequently transferred the Villa Property to the Diaz Family. (Id.) The Trustee then amended his complaint to add the Diaz Family as Defendants in the Fraudulent Transfer Action. (Id.)

On August 3, 2006, the Trustee also filed a second, alternative action against H&G, seeking to determine that H&G was the Icenhowers' alter ego and/or for substantive consolidation of the Icenhowers and H&G nunc pro tunc to the petition date, and to avoid and recover the post-petition transfer of the Villa Property ("Alter Ego Action"). (Id. at 31.)

On July 5, 2006, Kismet filed a Notice of Transfer with the bankruptcy court, indicating that it had purchased the Lonies' claims against the estate. (Id.) Kismet is a limited partnership formed by non-Mexican nationals to develop real estate projects in Mexico. (Pl.-Appellee's RJN, Ex. 1 at 5.)

Kismet then negotiated with the Trustee to purchase all of the estate's assets, including assignment of the Fraudulent Transfer and Alter Ego Actions, in exchange for payment of an amount sufficient to pay all the creditors in full except its own claims, which Kismet voluntarily subordinated. (Pl.-Appellee's Mem. P. & A., Ex. B. at 31.) On December 7, 2006, the bankruptcy court entered an order approving an Asset Purchase Agreement allowing Kismet to be substituted in for the Trustee as the real party-in-interest. (Id. at 31--32.) Kismet remains the only creditor to be paid by the estate. (Id. at 32.)

1. Appeal 1 (08cv1446 and 08cv1572)

The bankruptcy judge subsequently consolidated the Fraudulent Transfer Action and the Alter Ego Action (together, the "Avoidance Actions") and issued a decision on June 2, 2008. (Id. at 9.) The bankruptcy court issued two alternative rulings. First, the Bankruptcy Court found that H&G was the alter ego of the Icenhowers. (Id. at 10.) As a result, even though the Icenhowers transferred the Villa Property to H&G prior to the bankruptcy petition, the Property remained a part of the Icenhowers' bankruptcy estate at the time Mr. Icenhower filed his petition. (Id.) The Court therefore ruled that the subsequent transfer of the Villa to the Diaz family was avoidable as an unauthorized post-petition transfer. (Id.)

Alternatively, the bankruptcy court ruled that even if the Villa Property was not a part of the bankruptcy estate at the time that Mr. Icenhower filed his petition, the transfer from the Icenhowers to H&G was avoidable as a fraudulent transfer and, therefore, recoverable from the Diaz family, the "immediate or mediate" transferee. (Id. at 11.)

Accordingly, the bankruptcy court ruled that Kismet was entitled to recover the Villa Property. (Id.) The bankruptcy court ordered the Diaz family to take all actions necessary to undo the avoided transfer and to reconvey the property to a fideicomiso trust for the benefit of Kismet. (Id.) The bankruptcy court also provided for the alternative of a money judgment in favor of Kismet at Kismet's sole option. (Id. at 12.) In connection with its June 2, 2008 decision, the bankruptcy court issued a "Consolidated Judgment" (Id. at 9--12), summarizing its order, and "Consolidated Findings of Fact and Conclusions of Law" (Id. at 19--51), entering its findings of fact and explaining the legal reasoning behind its order.

On July 29, 2008, the bankruptcy court filed an order granting in part and denying in part Defendants-Appellants' Motion to Amend the Consolidated Judgment. (Id. at 53--54.) In connection with its order, the bankruptcy court also issued an "Amended Consolidated Judgment" ("ACJ"). (Id. at 56--59.) The ACJ clarified that the transfer or sale of the Villa Property to Kismet actually referred to the transfer or sale of the beneficial interest in a fideicomiso bank trust formed to hold title to the Villa Property, since Kismet is not a Mexican national entitled to hold title to coastal real property under Mexican law. (Id. at 62.)

Additionally, the ACJ affirmed that the preliminary injunction entered in the Avoidance Actions would continue in effect until the Diaz Family fully complied with the ACJ. (Pl.-Appellee's RJN, Ex. 1 at 6.) The ACJ also directed Defendants to take actions to transfer or reconvey the property within ten days, rather than thirty days, as ...

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