Cerna v. Lewis et al

Filing 13

ORDER that the Bankruptcy Court's Order is affirmed. Signed by Judge Miranda M. Du on 11/14/2018. (Copies have been distributed pursuant to the NEF - LH)

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UNITED STATES DISTRICT COURT

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DISTRICT OF NEVADA

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***

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In re:

Case No. 2:17-cv-01273-MMD

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C.F. Tournament Canyon, LLC,

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Debtor.

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ORDER

YSMAEL CERNA, individually,
Plaintiff,

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v.
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JIHAD ANTHONY ZGHEIB, et al.,
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Defendants.
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YSMAEL CERNA,
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Appellant,
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v.
KIRK LEWIS, JIHAD ANTHONY ZGHEIB,
et al.,

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Defendants.
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I.

SUMMARY

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Appellant Ysmael Cerna appeals the United States Bankruptcy Court for the District

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of Nevada’s (“Bankruptcy Court”) April 20, 2017 order (“Order”) denying relief and

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dismissing fourteen of Appellant’s fifteen causes of action. The Court has reviewed

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Appellant’s opening brief (ECF No. 8)1 and Appellee Kirk Lewis’s answering brief (ECF

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No. 11). No reply brief was filed. For the following reasons, the Court affirms the

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Bankruptcy Court.

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1Appellant

filed two opening briefs. (ECF Nos. 7, 8.) The filings seem to be identical,
except the second opening brief attached an appendix. (See ECF No. 8-1.) The Court
considers the second opening brief (ECF No. 8) as the operative opening brief.

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II.

BACKGROUND

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The Court summarizes only the facts relevant to this appeal. The Bankruptcy

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Court’s Order (ECF No. 1-2 at 6-72) details the full factual and procedural history of the

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case.

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Cerna and his spouse purchased real property located at 9273 Tournament

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Canyon Drive, Las Vegas, Nevada 89144 (“Property”) on September 28, 2001. (Id. at 8.)

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Cerna eventually became the sole owner of the Property and gave Mortgage IT, Inc. a

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deed of trust encumbering the Property in exchange for $1 million. (Id. at 8-9.) The deed

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essentially obligated Cerna to notify Mortgage IT if Cerna sold or transferred the Property

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without Mortgage IT’s consent. (Id. at 9.)

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Cerna then entered into a complex transaction apparently designed to transfer the

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Property to a couple—Donna Walker-Zghieb and Anthony Zgheib (collectively, the

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“Zgheibs”)—without triggering Cerna’s obligations under the deed and without incurring

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transfer taxes. (See id. at 9, 13.) The idea was for Cerna to create a legal entity, transfer

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his interest in the Property to that entity, and then transfer his interest in the entity to a

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different entity controlled by the Zgheibs. Accordingly, Cerna initiated a corporation—C.F.

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Tournament Canyon, LLC (“CFTC”)—and identified himself as CFTC’s manager. (Id. at

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12.) Meanwhile, the Zgheibs created a trust called Eliant Trust (“Eliant”). CFTC then

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executed a contract of sale for the Property with Eliant (“CFTC-Eliant Agreement”). (Id.)

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The CFTC-Eliant Agreement obligated Cerna to quitclaim his interest in the Property to

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CFTC and then relinquish all his membership in CFTC to Eliant. (Id. at 13.) Cerna did both

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and then resigned as a manager of CFTC. (Id. at 13-14.)

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Eventually, the Zgheibs stopped making payments to Cerna for the Property and

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other individuals attempted to foreclose on the Property to satisfy judgments against the

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Zgheibs. (See id. at 14-19.) Cerna and the Zgheibs caused CFTC to file for bankruptcy

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(id. at 25), and Cerna initiated an adversary proceeding against the Zgheibs to establish

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control of CFTC and the Property (see id. at 31).

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III.

LEGAL STANDARD

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A bankruptcy court’s conclusions of law are reviewed de novo, “including its

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interpretation of the Bankruptcy Code,” and its factual findings are reviewed for clear error.

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In re Rains, 428 F.3d 893, 900 (9th Cir. 2005); In re Salazar, 430 F.3d 992, 994 (9th Cir.

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2005). The bankruptcy court’s factual findings are clearly erroneous only if the findings

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“leave the definite and firm conviction” that the bankruptcy court made a mistake. In re

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Rains, 428 F.3d at 900. “A bankruptcy court abuses its discretion if it applies the law

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incorrectly or if it rests its decision on a clearly erroneous finding of a material fact.” In re

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Brotby, 303 B.R. 177, 184 (B.A.P. 9th Cir. 2003). In reviewing a bankruptcy court’s

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decision, this Court ignores harmless errors. In re Mbunda, 484 B.R. 344, 355 (B.A.P. 9th

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Cir. 2012). The Court may affirm the bankruptcy court’s decision “on any ground fairly

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supported by the record.” In re Warren, 568 F.3d 1113, 1116 (9th Cir. 2009). In addition,

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the Court need not address arguments not raised in the trial court but “may do so to (1)

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prevent a miscarriage of justice or to preserve the integrity of the judicial process, (2) when

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a change of law during the pendency of the appeal raises a new issue, or (3) when the

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issue is purely one of law.” In re Lakhany, 538 B.R. 555, 560 (B.A.P. 9th Cir. 2015).

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IV.

DISCUSSION

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Cerna challenges the Bankruptcy Court’s findings that Cerna was not a third party

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beneficiary of the CFTC-Eliant Agreement and therefore could not demonstrate breach of

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the CFTC-Eliant Agreement; that Cerna did not hold an equitable mortgage on the

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Property; and that Cerna did not hold a vendor’s lien on the Property. (See ECF No. 8 at

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4.)

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A.

Whether Cerna Was a Party to the CFTC-Eliant Agreement

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The Bankruptcy Court found that Cerna was not a third party beneficiary of the

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CFTC-Eliant Agreement. (ECF No. 1-2 at 38.) Cerna argues that he was a third party

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beneficiary because the parties to the contract understood that Cerna was the true seller

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of the Property. (ECF No. 8 at 23.) In support of this argument, Cerna asserts that all

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monthly payments were made directly to Cerna as check or cash, CFTC never had a bank
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account, the addenda and settlement agreements all reference Cerna as the seller; Cerna

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was bound to transfer the Property and the membership interest in CFTC; and CFTC was

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a passive object of sale rather than a subject actor. (Id.)

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Whether an individual is an intended third party beneficiary, however, depends on

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the parties’ intent, “gleaned from reading the contract as a whole in light of the

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circumstances under which it was entered.” Canfora v. Coast Hotels & Casinos, Inc., 121

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P.3d 599, 605 (Nev. 2005) (citing Jones v. Aetna Cas. and Sur. Co., 33 Cal. Rptr. 2d 291,

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296 (Cal. Ct. App. 1994)). “To be a third party beneficiary, a promissory intent to benefit

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the third party must be clearly present, and the third party beneficiary's reliance thereon

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must be foreseeable.” Williams v. Univ. Med. Ctr. of S. Nev., 688 F. Supp. 2d 1134, 1144

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(D. Nev. 2010) (citing Lipshie v. Tracy Inv. Co., 566 P.2d 819, 824-25 (Nev. 1977)).

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The circumstances under which the CFTC-Eliant agreement were entered do not

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show that Cerna was an intended third party beneficiary. The record shows that Cerna

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affirmatively chose to avoid becoming a party to the CFTC-Eliant Agreement in order to

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avoid transfer taxes as well as his obligation to disclose the transfer of the Property to

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Mortgage IT, Inc. (See ECF No. 1-2 at 9, 13.) But Cerna now seeks protections that

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contracting parties receive, such as the ability to bring claims of breach. Cerna cannot

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have it both ways, and he made his choice when he carried out the transfer mechanism

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prescribed by the CFTC-Eliant Agreement.

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Accordingly, the Court affirms the Bankruptcy Court’s finding that Cerna was not a
third party beneficiary to the CFTC-Eliant Agreement and cannot demonstrate breach.

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B.

Whether Cerna Held an Equitable Mortgage

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The Bankruptcy Court found that Cerna did not hold an equitable mortgage in the

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Property for two reasons. First, the CFTC-Eliant Agreement did not demonstrate intent to

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create a security interest. (ECF No. 1-2 at 32.) Second, the CFTC-Eliant Agreement did

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not clearly identify a res. (Id.)

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Cerna disputes only the first ground for the Bankruptcy Court’s decision. Cerna

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argues that Paragraph 18 of the CFTC-Eliant Agreement demonstrates intent to create a
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security because Paragraph 18 permitted CFTC to terminate the CFTC-Eliant Agreement

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if Eliant committed any defaults as defined in Paragraph 17. (See ECF No. 8 at 21 (citing

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Cerna v. Zgheib, Adv. Proc. No. 15-01017-abl [“Adv. Proc.”], ECF No. 1-3 at 5).) However,

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even if Paragraph 18 created a security interest, that interest belonged to CFTC—not

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Cerna—because the parties to the agreement were CFTC and Eliant. (Adv. Proc., ECF

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No. 1-3 at 1.)

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Accordingly, the Court affirms the Bankruptcy Court’s finding that Cerna did not
hold an equitable mortgage in the Property.
C.

Whether Cerna Held a Vendor’s Lien

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The Bankruptcy Court found that Cerna did not have a vendor’s lien on the Property

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in part because CFTC took a separate and distinct security—the right to terminate the

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contract if Eliant committed any default defined in Paragraph 17. (ECF No. 1-2 at 33.)

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Cerna argues that the right to terminate the contract does not constitute a security

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for two reasons. First, Cerna argues that the right to terminate the contract is not a security

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because it does not fall within the definition of security under the Securities Act of 1933 or

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NRS § 90.295. (ECF No. 8 at 15-17.) Second, Cerna argues that even if the right to

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terminate the contract amounts to a security, it did not serve that purpose here because

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Cerna could not exercise the termination right after he resigned from CFTC. (Id. at 17-18.)

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“The right of a vendor to hold and maintain a lien against an estate conveyed is one

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that must be determined from the nature of the transaction, the circumstances surrounding

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the conveyance, and the intention of the parties at the time of entering into the transaction.”

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Jensen v. Wilslef, 132 P. 16, 18 (Nev. 1913); see also Buhecker v. R.B. Petersen & Sons

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Constr. Co., 929 P.2d 937, 940 (Nev. 1996) (citing Jensen, 132 P. at 18). “Whenever it

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appears from all the facts surrounding the transaction that a separate and distinct security

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was offered by the vendee and accepted by the vendor, the presumption is that the lien

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was waived.” Id.

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The Court finds Cerna’s first argument unpersuasive. A vendor’s lien is an equitable

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doctrine. See Jensen, 132 P. at 18. The definition of security for the purposes of
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determining whether an individual has waived a vendor’s lien is not limited to the

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definitions of security offered in the federal and state statutes Cerna cites. The Court also

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finds Cerna’s second argument unpersuasive. First, the termination right was never

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Cerna’s to exercise—the right belonged to CFTC as a party to the CFTC-Eliant

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Agreement. Second, Cerna voluntarily relinquished his ability as CFTC’s manager to

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compel CFTC to exercise the termination right when he resigned. The Court cannot now

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insulate Cerna from the negative repercussions of that choice.

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V.

CONCLUSION

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The Court notes that the parties made several arguments and cited to several cases

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not discussed above. The Court has reviewed these arguments and cases and determines

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that they do not warrant discussion as they do not affect the outcome of this appeal.

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It is therefore ordered that the Bankruptcy Court’s Order is affirmed.

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DATED THIS 14th day of November 2018.

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MIRANDA M. DU
UNITED STATES DISTRICT JUDGE

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