PASADENA, Calif. (CN) - A couple must face sanctions for failing to cooperate with an order to turn over a Mexican coastal villa after a bankruptcy, the 9th Circuit ruled.
Alejandro Diaz-Barba and Martha Margarita Barba De La Torre had paid $1.5 million for an interest in Villa Vista Hermosa in Jalisco, Mexico, after the previous owners filed for bankruptcy in December 2003.
The bankruptcy trustee tried to overturn the Diazes' acquisition as an unauthorized post-petition transfer, but the bankruptcy court agreed in November 2006 to let Kismet Acquisition buy the estate's assets.
After a bench trial in June 2008, the court ordered that the property be reconveyed to a fideicomiso trust, which is an "arrangement wherein a Mexican bank holds title to property and a foreign national is granted the right to its use."
Kismet was named the sole beneficiary, and the court gave until Sept. 13, 2008, to undo the avoided transfer.
The Diazes nevertheless objected, claiming that Kismet's power of attorney was in a conflict of interest, as the persons nominated to act on their behalf worked at the same law firm as Kismet's counsel.
Kismet suggested that, rather than execute a power of attorney, the Diazes should appear before a notary public in Mexico to execute the transfer documents. A few days later, Kismet sent the Diazes a document proposing that a Mexican company, Axolotl Immobiliaria S. de R.oL. CV, as its assignee, act as beneficiary of the fideicomiso.
The Diazes rejected the document, however, claiming that it should have specified Kismet as the beneficiary of the fideicomiso for the benefit of the bankruptcy estate.
In a new version of the transfer agreement, Kismet said that the bankruptcy court would continue to maintain jurisdiction.
The Diazes again objected that the document named Axolotl as the beneficiary.
After further delay, the court ordered the Diazes to show why they should not be held in contempt. The next day, the bankruptcy court ordered Diaz-Barba to document his attempts at compliance.
Diaz-Barba claimed that his attorneys told him that signing the transfer documents would violate Mexican law, and that he sought to block the transfer of the villa through an amparo - a Mexican proceeding designed to ensure that an individual's constitutional rights are not violated.
Documents between the Diazes and their attorney then showed that the couple "sought to delay and obstruct" the implementation of the deal. Diaz-Barba told his attorney, "I will not sign anything that executes a trust agreement ... I will not cooperate with these brigands, making a mockery of Mexican law and attempting to circumvent it," according to court documents.
His attorney responded: "I understand that but we don't need to reveal it to [Kismet's counsel] yet. Better let him think we are preparing to cooperate while we get our ducks in a row in Mexico. Therefore, [to] the extent [we] can point to defects, we can send back the draft document t and make them change it again causing delay."
The Diazes also allegedly tried to have Mexican officials intervene in the matter, and court documents show that Diaz-Barba asked his attorney to lobby Ambassador Joel Garcia to sign a document stating that compliance with the order would be impossible under Mexican law.
