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In re Icenhower

United States Court of Appeals, Ninth Circuit

July 3, 2014

IN THE MATTER OF: JERRY LEE ICENHOWER, etc., et al., Debtors, KISMET ACQUISITION, LLC, Plaintiff-Appellee,
v.
JERRY L. ICENHOWER; DONNA L. ICENHOWER; CRAIG KELLEY, Defendants, and ALEJANDRO DIAZ-BARBA; MARTHA MARGARITA BARBA DE LA TORRE, Defendants-Appellants

Argued and Submitted, Pasadena, California February 11, 2014.

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[Copyrighted Material Omitted]

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Appeal from the United States District Court for the Southern District of California. D.C. No. 3:08-cv-01446-BTM-BLM. Barry T. Moskowitz, District Judge, Presiding.

Bankruptcy

The panel affirmed the district court's affirmance of the bankruptcy court's judgment (1) invalidating the transfer to Alejandro Diaz-Barba and Martha Barba de la Torre (the " Diaz Defendants" ) of a Mexican coastal villa owned by debtors Jerry and Donna Icenhower and (2) requiring the Diaz Defendants to transfer the property to Kismet Acquisition, LLC, for the benefit of debtors' bankruptcy estate.

The debtors transferred the property to H& G, a shell company they had purchased. After the debtors filed for bankruptcy, H& G sold the property to the Diaz Defendants. The bankruptcy trustee filed a fraudulent conveyance action seeking to avoid the sale of the villa to H& G as a fraudulent pre-petition transfer. The bankruptcy trustee also filed an action seeking to avoid the sale to the Diaz Defendants on the basis that H& G was the debtors' alter ego and that the sale was an unauthorized postpetition transfer.

The panel affirmed the bankruptcy court's judgment on the postpetition transfer action. It held that the Diaz Defendants had waived any objection they could have raised to the bankruptcy court's Article III authority to enter final judgment. The panel held that since the bankruptcy court's judgment for Kismet was the same in both actions, the panel's judgment rendered the fraudulent conveyance action moot.

The panel held that the bankruptcy court did not err by exercising jurisdiction over Mexican land. The panel held that the local action doctrine was preempted by statute and that 28 U.S.C. § 1334(e) granted the bankruptcy court exclusive in rem jurisdiction over the villa interest. The panel also held that the bankruptcy court did not improperly apply U.S. law extraterritorially because Congress intended extraterritorial application of the Bankruptcy Code as it applies to property of the estate. Given the bankruptcy court's ruling that H& G was the debtors' alter ego and its substantive consolidation of H& G with the bankruptcy estate, the villa interest was property of the estate as of the petition date.

The panel held that the bankruptcy court did not abuse its discretion by failing to honor the contractual selection of a Mexican forum. The bankruptcy court also did not err by declining to abstain from ordering recovery of the property based on international comity because there was no true conflict of law. The panel held that Mexico was not a necessary and indispensable party. Distinguishing In re Tippett, 542 F.3d 684 (9th Cir. 2008), the panel held that the bankruptcy court did not err in applying U.S. law instead of Mexican law to determine whether the Diaz Defendants were good faith purchasers. Finally, the panel held that the bankruptcy court did not clearly err in finding that Martha Barba de la Torre purchased the villa in bad faith.

Edward I. Silverman (argued), Sandler Lasry Laube Byer & Valdez LLP, San Diego, California, for Defendant-Appellant Alejandro Diaz-Barba.

D. Anthony Gaston (argued), San Diego, California, for Defendant-Appellant Martha Margarita Barba de la Torre.

Mathieu G. Blackston and Jeffrey Isaacs, Procopio, Cory, Hargreaves & Savitch LLP, San Diego, California; Geraldine A. Valdez, Financial Law Group, La Jolla, California, for Defendants-Appellants.

Ali M.M. Mojdehi (argued), Janet D. Gertz, Brian W. Byun, and Allison M. Rego, Cooley LLP, San Diego, California, for Plaintiff-Appellee.

Before: Jerome Farris, N. Randy Smith, and Paul J. Watford, Circuit Judges. Opinion by Judge Farris.

OPINION

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FARRIS, Circuit Judge:

Alejandro Diaz-Barba and Martha Barba de la Torre (collectively, the " Diaz Defendants" ) challenge the bankruptcy court's and district court's orders invalidating the transfer to them of a Mexican coastal villa owned by Jerry and Donna Icenhower and requiring them to convey the property to Kismet Acquisition, LLC for the benefit of Debtors' bankruptcy estate. According to the Diaz Defendants, the bankruptcy court erred by: (1) exercising jurisdiction over Mexican land, contrary to the local action doctrine; (2) applying U.S. law extraterritorially; (3) declining to honor the forum selection clauses in the Mexican contracts effecting the property's sale; (4) declining to abstain from ordering recovery of the property based on international comity; (5) entering judgment without Mexico, allegedly a necessary and indispensable party, having been joined; (6) applying U.S. law, rather than Mexican law, to determine whether the Diaz Defendants were good faith purchasers of the property; and (7) finding that Martha Barba de la Torre purchased the property in bad faith. We affirm.

I.

A. Factual History

In 1995, Debtors purchased from D. Donald Lonie and the D. Donald Lonie, Jr., Family Trust their interest in Vista Hermosa, a coastal villa in Jalisco, Mexico. The interest conveyed was not fee simple, as Mexican law prohibits foreign nationals from owning title ...


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