Kismet Acquisition v. Alejandro Diaz-Barba
755 F.3d 1130
| 9th Cir. | 2014Background
- Debtors owned a beneficial interest in a Mexican coastal villa via a fideicomiso; that interest was transferred to H&G prepetition and then sold to the Diazes postpetition. Trustee (later substituted by Kismet) sued to avoid the transfers and won; the bankruptcy court ordered the Diazes to reconvey the fideicomiso interest to Kismet or its assignee, or face monetary relief.
- Kismet drafted transfer documents and an assignee (Axolotl, a Mexican corporation) to receive the property; the Diazes repeatedly objected, delayed, and solicited Mexican officials, asserting Mexican-law impediments and filing an amparo.
- The bankruptcy court found the Diazes obstructed the transfer, held them in contempt, and imposed compulsory daily fines and compensatory sanctions, plus attorney fees; the Diazes appealed and the district court affirmed most rulings but vacated some sanctions and remanded fee calculations.
- On appeal to the Ninth Circuit the court reviewed jurisdictional and due-process questions de novo and contempt findings for abuse of discretion / clear error; it also considered waiver and crime-fraud exceptions to privilege.
- The Ninth Circuit affirmed: the bankruptcy court retained jurisdiction to substitute Axolotl, due process was satisfied (Diazes failed to present contrary evidence or request live testimony), the ACJ was sufficiently specific, Mexican law did not excuse compliance, privilege waiver/crime-fraud findings were proper, and notice for certain compulsory sanctions was deficient until December 4.
Issues
| Issue | Plaintiff's Argument (Kismet) | Defendant's Argument (Diazes) | Held |
|---|---|---|---|
| Jurisdiction to substitute Axolotl as transferee after appeal | Court may supervise and modify supervisory aspects to effectuate transfer; substitution was necessary given changed facts | Appeal divests court of power to alter judgment post-appeal | Court retained supervisory jurisdiction; substitution to Mexican corporate assignee was proper |
| Due process re contempt based on affidavits | Affidavits and record supported contempt; Diazes had burden to produce evidence of inability to comply | Contempt improperly imposed without live evidentiary hearing | No due-process violation: Diazes failed to raise factual dispute or request live testimony |
| Specificity of the ACJ to support contempt | ACJ specifically ordered transfer to Kismet or assignee, so contemptable if disobeyed | ACJ too vague about steps under Mexican law and beneficiary identity | ACJ was specific and unambiguous as to required transfer and acceptable assignee |
| Foreign-law impossibility defense (Mexican law) | Compliance was possible; ACJ respected Mexican fideicomiso procedures and required acts only in conformity with Mexican law | Mexican law made compliance illegal/impossible; execution would violate Mexican procedures and possibly incur liability | Diazes did not prove legal impossibility; Brady and related law suggest compliance did not violate Mexican law |
| Factual findings of contempt before Nov 25 | Kismet: record shows deliberate delay and obstruction | Diazes: they took reasonable steps and faced foreign-law barriers | Findings not clearly erroneous; evidence showed delay and obstructive conduct |
| Attorney-client privilege waiver / crime-fraud exception | Mr. Diaz invoked advice of counsel to justify obstruction; communications furthered obstructive scheme | Privilege bars disclosure of legal advice; no crime/fraud shown | Privilege pierced: testimony and conduct indicated counsel was consulted to further obstruction; voluntary invocation waived privilege on subject matter |
| Notice required before compulsory daily sanctions (Nov 26–Dec 4 period) | Occupation violated injunction; sanctions appropriate retroactively | Diazes lacked adequate notice that continued occupation would trigger compulsory fines | Court lacked adequate notice basis until Dec 4; district court correctly vacated compulsory sanctions for Nov 26–Dec 4 |
Key Cases Cited
- Brady v. Brown, 51 F.3d 810 (9th Cir. 1995) (fideicomiso transfer order does not necessarily violate Mexican law)
- Padilla v. Ylst, 222 F.3d 1184 (9th Cir. 2000) (limits on altering judgment after appeal; supervisory exceptions exist)
- Peterson v. Highland Music, Inc., 140 F.3d 1313 (9th Cir. 1998) (courts ordinarily should not base contempt solely on affidavits)
- United States v. Rylander, 656 F.2d 1313 (9th Cir. 1981) (burden shifts to alleged contemnor to produce evidence of inability to comply)
- In re Dyer, 322 F.3d 1178 (9th Cir. 2003) (civil contempt requires violation of a specific and definite order)
- In re Napster, Inc. Copyright Litig., 479 F.3d 1078 (9th Cir. 2007) (crime-fraud exception standards for piercing privilege)
- Weil v. Inv./Indicators, Research & Mgmt., Inc., 647 F.2d 18 (9th Cir. 1981) (voluntary disclosure of privileged communication waives privilege as to same subject)
- Int'l Union, United Mine Workers v. Bagwell, 512 U.S. 821 (1994) (due process requires opportunity to avoid or limit punitive contempt fines)