As it applies to property of the estate, the Bankruptcy Code is intended to apply to property located anywhere...including outside of the U.S. (9th Cir. 2014) - Published

This is the second case which the 9th recently decided in this matter.

The Diaz Defendants concede that they waived any objection they could have

raised under Stern v. Marshall, 131 S. Ct. 2594 (2011), to the bankruptcy court’s entry of final judgment. See Exec. Benefits Ins. Agency v. Arkison, 702 F.3d 553, 566–70 (9th Cir. 2012), aff’d on other grounds, 573 U.S. ___ (2014).

(interesting that the parties conceded that they could waive the objection)

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

bankruptcy court did not clearly err in finding that Martha Barba de la Torre purchased the villa in bad faith

In re Icenhower - 9th Cir. 2014