Kismet Acquisition, LLC v. Icenhower (In Re Icenhower)
2014 U.S. App. LEXIS 12618
| 9th Cir. | 2014Background
- Debtors (Jerry and Donna Icenhower) held a beneficial interest in a Mexican coastal villa via a fideicomiso (Mexican trust) that restricts foreign ownership near the coast.
- While a California suit by the Lonies against Debtors was pending and Debtors later filed bankruptcy, Debtors transferred the villa interest to H&G, a thinly capitalized shell controlled by Mr. Icenhower.
- After Debtors’ bankruptcy petition, H&G (substantively consolidated with the estate as Debtors’ alter ego) sold the villa interest to Alejandro Diaz-Barba and Martha Barba de la Torre (the Diaz Defendants) in a San Diego closing.
- The bankruptcy trustee (later Kismet Acquisition, LLC) sued to avoid the transfers as a fraudulent prepetition conveyance and as an unauthorized postpetition transfer; the bankruptcy court ruled for Kismet and ordered reconveyance of the villa interest to a fideicomiso for the estate’s benefit or, alternatively, monetary relief.
- The bankruptcy and district courts affirmed; the Ninth Circuit reviewed de novo legal questions and for clear error on facts, and affirmed the postpetition-transfer judgment in favor of Kismet.
Issues
| Issue | Plaintiff's Argument (Kismet) | Defendant's Argument (Diaz) | Held |
|---|---|---|---|
| Whether bankruptcy court had in rem jurisdiction over Mexican land (local-action doctrine) | §1334(e) gives exclusive jurisdiction over debtor’s property wherever located | Local-action doctrine forbids exercising jurisdiction over foreign-state land | Held for Kismet: §1334(e) preempts local-action doctrine because villa was estate property after H&G was consolidated with estate |
| Whether Bankruptcy Code was applied extraterritorially | Bankruptcy Code and §1334 apply to property of the estate wherever located | Application to Mexican property is extraterritorial and improper under Morrison | Held for Kismet: Congress intended extraterritorial reach for estate property (In re Simon) |
| Whether Mexican forum-selection clauses should be enforced | Centralization of bankruptcy core proceedings justifies refusing foreign forum clauses | Contractually agreed Mexican forums should be honored | Held for Kismet: forum clauses not enforced because matters were core bankruptcy proceedings and centralization outweighs clause |
| Whether international comity/abstention required declining relief | Mexican law allows fideicomiso-based transfers; no true conflict exists | Comity requires deference to Mexican legal regime and courts | Held for Kismet: no true conflict; bankruptcy remedy compatible with Mexican fideicomiso system |
| Whether Mexico was a necessary/indispensable party | Relief can be fashioned and complete in Mexico’s absence; court tailored remedy to fit fideicomiso system | Mexico is immune and its interests in coastal land make it indispensable | Held for Kismet: Mexico not necessary; court could award reconveyance or monetary substitute |
| Whether U.S. law (Bankruptcy Code) or Mexican law governs good-faith purchaser defense | Bankruptcy Code ( §§549(c), 550(b) ) applies, especially given closing in San Diego | Mexican law should govern good-faith purchaser status for Mexican property transfers | Held for Kismet: applying U.S. law was permissible; Tippett distinguishable and Diaz failed to show error |
| Whether Martha purchased in bad faith | Trustee: Martha had notice of red flags via her attorney/son and is charged with that notice | Martha insulated from the transaction and lacked actual knowledge | Held for Kismet: not clearly erroneous to impute attorney/agent notice to Martha; she purchased in bad faith |
Key Cases Cited
- Brady v. Brown, 51 F.3d 810 (9th Cir. 1995) (explaining fideicomiso trust constraints on foreign ownership of Mexican coastal land)
- City of Milwaukee v. Illinois & Michigan, 451 U.S. 304 (U.S. 1981) (statutory preemption of common-law jurisdictional limitations)
- Morrison v. National Australia Bank Ltd., 130 S. Ct. 2869 (U.S. 2010) (two-part test for extraterritorial application of U.S. statutes)
- In re Simon, 153 F.3d 991 (9th Cir. 1998) (Bankruptcy Code applies to property of the estate wherever located)
- In re Tippett, 542 F.3d 684 (9th Cir. 2008) (distinguishable bankruptcy preemption/context for bona fide purchaser issues)
- Hilton v. Guyot, 159 U.S. 113 (U.S. 1895) (foundation for international comity principles)
- Stern v. Marshall, 131 S. Ct. 2594 (U.S. 2011) (limits on bankruptcy court’s constitutional authority to enter final judgments)