In re Chira

Decision Date20 November 2006
Docket NumberBankruptcy No. 05-22074-BKC-JKO.,Adversary No. 06-1264-BKC-JKO-A.
PartiesIn re Denis CHIRA, Debtor. Sonya L. Salkin, Trustee, Plaintiff, v. Elizabeth Chira, et al., Defendants.
CourtUnited States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Florida

Denis Chira, Hollywood, FL, pro se.

Patrick S. Scott, Julie Elizabeth Hough, Fort Lauderdale, FL, for Plaintiff.

Charles W. Throckmorton, Miami, FL, for Defendant.


JOHN K. OLSON, Bankruptcy Judge.

This case presents the tragic and unedifying spectacle of an ex-husband and ex-wife wasting huge portions of the equity in their only significant marital asset, a beachfront hotel, in a decade-long litigation grudge match which has enriched a few lawyers but brought no joy or satisfaction to any one. The ex-husband, an involuntary debtor, was characterized by the trustee's counsel as abusive; the ex-wife, as vindictive. Both characterizations hit the mark.

On August 22, 23, and 24, 2006, I held trial on the issues pending between the plaintiff, Sonya L. Salkin (the "Trustee"), as trustee for the ex-husband, Denis Chira ("Denis" or the "Debtor"), and three of original eight defendants, the ex-wife Elizabeth Chira1 ("Elizabeth"), Eliezer Botton, and Sheldon Hotel Lounge Corp. Having considered the written and oral testimony of the witnesses, the exhibits admitted into evidence, the stipulations contained in the court's pretrial order (CP 104), and the legal arguments made by counsel for the parties, the court makes the following findings of fact and conclusions of law:

Procedural posture

The Debtor's case began with the filing of an involuntary petition in April 2005.2 The order for relief under chapter 7 was entered without objection on June 20, 2005. The plaintiff Trustee began serving as interim trustee during the involuntary case on May 31, 2005.3

The Trustee commenced this adversary proceeding in March 2006 to determine the validity, priority, and amount of those deeds made and obligations incurred by the Debtor. The Trustee also sought to obtain determinations of many collateral issues involving mortgagees, lienholders, co-owners, and an insider lessee, that affect the Trustee's ability to liquidate the estate. The eight defendants in this adversary proceeding are those who claim an interest in real property in Hollywood, Florida.

In a series of partial judgments entered in this case, the interests of five defendants have been resolved,4 leaving just Elizabeth Chira, Eliezer Botton, and Sheldon Hotel Lounge Corp. in litigation with the plaintiff.5

The remaining issues may be stated, somewhat simplistically, as: (1) What are Elizabeth's interests in the Property and her claims against Denis, and should any of those claims be subordinated because of inequitable conduct? (2) What are first mortgage holder Eliezer Botton's secured' claims against the estate, and should any of those claims be subordinated? (3) Should the lease held by Sheldon Hotel Lounge Corp. ("Lounge Corp."), be disregarded as a sham?

Findings of fact

Most of the facts, many of them developed through years of litigation in state court prior to the commencement of this case, are stipulated by the parties. Others are the subject of unrebutted testimony of either Denis Chira or Elizabeth Chira. Where the court has adopted one or another's party's version of disputed events, it does so based on observation of the demeanor of the witnesses and consideration of all conflicting evidence.6

The Debtor, Denis Chira, was married to the defendant Elizabeth Chira from October 29, 1970 to 1999.7 They had two daughters. Denis was sometimes an abusive husband.8

At one time, Denis and Elizabeth were joint owners of real property located in Hollywood, Florida and more particularly described as:

Lots 1, 2, 3, 4, 7, 8, 9 and the east 30 feet of Lot 10, Lots 23 and 24, Block 1, Hollywood Beach subdivision as recorded in Plat Book 1, page 27, of the Public Records of Broward County, Florida

The property consists of a 40-room hotel with first-floor retail space ("the Sheldon Beach Hotel") on four oceanfront lots, and several parking lots which are contiguous to each other but not to the oceanfront lots (collectively, "the hotel" or "the Property").9

Denis and Elizabeth acquired the Property by a warranty deed dated September 28, 1978 (recorded at Official Records Book 7794, page 998, Public Records of Broward County),10 an undated quitclaim deed recorded on October 2, 1978 (recorded at OR 7794/998),11 and a corrective warranty deed dated November 20, 1978 (recorded at OR 7909/368).12

For many years, Denis and Elizabeth operated the Sheldon Beach Hotel, and at various times they operated a nightclub and other stores in the retail space facing the ocean on the first floor of the hotel.13

At the time of his divorce from Elizabeth, Denis owned an undivided one-half interest in the Property14 and Elizabeth owned the other half.15 Denis worked as a used car salesman after the divorce, and failed to pay most of his child support obligations under the 1999 divorce agreement.16

The defendant Eliezer Botton ("Eliezer") is Elizabeth's brother.17

The defendant Sheldon Hotel Lounge Corp. ("Lounge Corp.") is a Florida corporation.18 Denis and Elizabeth incorporated Sheldon Hotel Lounge Corp. ("Lounge Corp.") in 1978.19 At least through January 2005, they each owned 50% of the issued and outstanding common stock.20

Through the years, Denis and Elizabeth (i) deposited the hotel rents and receipts, the Sheldon Beach Hotel's retail rents, and receipts from their nightclub, into Lounge Corp., (ii) paid the operating expenses of the Sheldon Beach Hotel and the nightclub from Lounge Corp., and (iii) drew from Lounge Corp. such compensation, advances, or capital distributions as Lounge Corp. could afford to pay them.21 After the nightclub closed, they rented out the nightclub space to a series of tenants, and deposited those rents into Lounge Corp. as well.22

Around 1989, Denis and Elizabeth separated and Elizabeth received a ghet under Jewish law, but they were not divorced in civil court.23 They later reconciled and Were remarried under Jewish law.24 As a result of the problems in their marriage, they entered into a Post-Nuptial Property Settlement Agreement ("the 1993 Post-Nuptial Agreement") on November 16, 1993.25 One of the provisions in this agreement was that neither party could alienate his or her interest in the Property without the prior written consent of the other party.26 At the time, the Property was unencumbered by any liens.27

On September 23, 1993, the Chiras gave their promissory note in the amount of $550,000, and a first mortgage on the Property securing the note, to Family Bank.28 The mortgage was recorded at OR 21190/188.29 Family Bank later was merged into Republic Security Bank, which assigned the instruments to Transcapital Bank.30 The assignment was recorded on June 16, 2000 at OR 30616, page 664.31 As discussed below, this mortgage is now owned by Eliezer.32

On December 9, 1996, Denis and Elizabeth conveyed the Property from a tenancy by the entireties into a tenancy-in-common, each party owning an undivided fifty percent interest.33 The deed is recorded at OR 25802/0024.34 At all times since, Elizabeth has owned an undivided 50% interest in the Property, as tenant in common, and her interest is encumbered only by the 1993 Family Bank mortgage which is now owned by Eliezer.35

The Chiras separated in October 1998, and Elizabeth commenced a divorce proceeding in the circuit court in Broward County on February 2, 1999 (Case No. 99-1592(41/91)).36 They entered into a Mediation Agreement on May 14, 1999, which ratified the 1993 post-nuptial agreement except as provided in the 1999 mediation agreement.37 The 1999 agreement was attached to and incorporated into an October 13, 2000 Agreed Order Ratifying, Confirming and Approving Mediation Settlement Agreement, recorded at OR 30967, page 1704 on October 27, 2000.38

Both the 1993 Post — Nuptial Agreement and the May 14, 1999 Mediation Agreement were referred to and incorporated in the final judgment of divorce entered on June 17, 1999.39 The final judgment is recorded at OR 29635/1645.40 The judgment provided, among other things, that Denis and Elizabeth would continue to own the Property as joint owners.41

In June, 1999, Denis and Elizabeth entered into a Business Lease of the Property with Lounge Corp., the term of which runs until May 31, 2014.

Denis was married to Tiffany Chira from 1999 to 2003,42 but Denis and Tiffany were separated on several occasions for months at a time. Denis was arrested twice for spousal abuse. They had no children.

On June 2, 2000, Denis executed and delivered to City First Mortgage Corp. a promissory note in the amount of $425,300 and a Mortgage and Security Agreement on his 50% interest in the Property.43 This encumbrance clearly violated the 1993 Post-Nuptial Agreement and the final judgment in Denis and Elizabeth's divorce, both of which were matters of public record. The mortgage was recorded on July 10, 2000 at OR 30655/1553.44 On November 14, 2000, Denis drew an additional $150,000 loan from City First, although City First retained some of that amount for fees and expenses.45 On that date, Denis executed and delivered to City First Mortgage Corp. an Advance Note in the amount of $150,000,46 a Consolidated Modified Note in the amount of $573,473.26,47 and a Mortgage Modification Agreement.48

City First Mortgage Corp. assigned the instruments described in the preceding two paragraphs to First Trust and other assignees on or about December 12, 2000 (OR 31155/1708),49 and these "other assignees" further assigned their interests to First Trust (OR 31098/1325-1629 and OR 31249/710).50 Denis spent the proceeds of...

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