In re Chira

• Decision Date: 02 June 2006
• Docket Number: No. 05-22074.,05-22074.
• Citation: 343 B.R. 361
• Parties: In re Dennis CHIRA, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

343 B.R. 361

In re Dennis CHIRA, Debtor.

No. 05-22074.

United States Bankruptcy Court, S.D. Florida, Fort Lauderdale Division.

June 2, 2006.

COPYRIGHT MATERIAL OMITTED

Ivan J. Reich, Becker & Poliakoff, P.A., Fort Lauderdale, Florida, Kevin Markau, for Purchaser.

Joel Saal, for trustee.

ORDER ON TRUSTEE'S MOTION TO ASSUME EXECUTORY CONTRACT FOR SALE OF REAL PROPERTY

JOHN K. OLSON, Bankruptcy Judge.

This matter came before the Court on Trustee Sonya Salkin's February 28, 2006 Motion to Assume Executory Contract for Sale of Real Property, and to Settle Dispute with Jose Saal ("365 Assumption Motion") (CP 113), supplemented by a Memorandum of Law filed March 30, 2006 (CP 133), and on the Trustee's Verified Motion for Retroactive Extension of Deadline to Assume or Reject Executory Contract (CP 124) filed March 17, 2006. On March 30, 2006, Jose Saal filed Purchaser, Jose Saal, as Trustee's Memorandum of Law in Support of Chapter 7 Trustee, Sonya Salkin's Motion to Assume Executory Contract for Sale of Real Property, and to Settle Dispute with Jose Saal, Dated February 28, 2006 ("Saal's Motion") (CP 130). On March 31, 2006, Sheldon Hotel Lounge Corp. and Elizabeth Chira filed Elizabeth Chira's and Sheldon's Opposition to Trustee's Motions (1) to Assume Saal Purchase Contract and for (2) Retroactive Extension of Time to Move to Assume Saal Purchase Contract ("Elizabeth's Motion") (CP 139). On March 31, 2006, Tiffany Walker filed Tiffany Lane Walker's Response to Trustee's Motion to Assume Purported Executory Contract and Settle Dispute ("Tiffany's Motion") (CP 132). All parties have fully briefed the issues and the Court is satisfied that it is appropriate to rule.

Factual Background

Dennis Chira (the "Debtor") and his first former wife, Elizabeth Chira ("Elizabeth") (collectively the "Chiras"), are co-owners of real property located in Hollywood, Florida known as the Sheldon Beach Hotel (the "Hotel"). The Chiras purchased the Hotel in 1978.

The Chiras were divorced pursuant to a Final Judgment entered on June 17, 1999 (the "Divorce Judgment"). The Divorce Judgment provided that the Debtor and Elizabeth would continue to own the Hotel as joint owners. The Divorce Judgment incorporated a Post-Nuptial Agreement executed by the Debtor and Elizabeth on November 16, 1993 (the "Post-Nuptial Agreement"), and prohibited either party's unauthorized transfer or sale of any interest in the Hotel without the other party's or the Divorce Court's express consent.

Post-Divorce Judgment operation of the Hotel proved to be untenable. The Debtor and Elizabeth were unable to come to an agreement regarding the ownership, management and disposition of the Hotel resulting in extensive post-judgment litigation regarding those and related issues. As a result of the impasse between the Debtor and Elizabeth, on October 25, 2001, the Divorce Court entered an Order on a Renewed Motion for Appointment of Receiver (the "Receiver Order"), which appointed Dean Liotta as Receiver ("Receiver") over the Hotel and the corporation running the Hotel, the Sheldon Hotel Lounge Corp. ("Sheldon").

Notwithstanding the terms of the Divorce Judgment which prohibited transfers of interests in the Hotel by either the Debtor or Elizabeth, and notwithstanding the prior appointment of the Receiver, the Debtor transferred an interest in the Hotel to Nick Kahook or an entity controlled by him, Sheldon Beach Resorts, Inc. (collectively with Kahook, the "Kahook Entities"). On June 4, 2002, the Divorce Court entered an Order voiding the interest received by the Kahook Entities from the Debtor. This was appealed to the Fourth District Court of Appeal, which affirmed per curiam on July 2, 2003.

Notwithstanding the results of the transfer of part of his interest in the Hotel to the Kahook Entities, and in further apparent derogation of the provisions of the Divorce Judgment, the Debtor purported to convey half of his interest in the Hotel to his second wife (and soon-to-be second ex-wife) Tiffany Walker, by Quit Claim Deed¹ dated July 22, 2003 (the "Quit Claim Deed").

By no means asleep at the switch, the Receiver promptly filed an action on October 24, 2003, in the Divorce Court against Tiffany to set aside and invalidate any interest claimed by her in the Hotel. Tiffany was served with the Complaint on October 31, 2003 and because she failed to respond, on December 5, 2003, a Default Judgment (the "Default Judgment") was entered against her, invalidating her interest in the Hotel. Subsequent to the entry of the Default Judgment, Tiffany moved to vacate the Default Judgment. The Receiver and Tiffany's counsel then negotiated the terms of an Agreed Order, which was entered on January 12, 2004, setting aside the Default Judgment, in exchange for Tiffany's consent to, and cooperation with, any and all efforts of the Receiver to sell the Hotel (the "Agreed Order Vacating Default").²

On August 28, 2003, the Divorce Court ordered the Receiver to sell the Hotel for the benefit of the Debtor and Elizabeth (whom the Divorce Court apparently considered to be the owners of the Hotel, notwithstanding the Quit Claim Deed). The Receiver proceeded to market the Hotel, and on January 12, 2004, the Divorce Court entered an Order Granting Receiver's Motion for Authorization to Accept Purchase Offer and Sell Assets of Receivership Estate (the "Sales Acceptance Order", and together with the Sales Procedure Order, the "Sales Orders").

After the entry of the Sales Acceptance Order, the Receiver executed a Purchase and Sales Agreement agreeing to convey the Hotel to Jose Saal (the "Purchaser"). Meanwhile, Elizabeth had appealed the Sales Procedure Order to the Fourth District Court of Appeal (the "Sales Procedures Order Appeal"). Elizabeth did not appeal the Sales Acceptance Order. The closing of the Purchase Agreement between Purchaser and the Receiver was stayed in Divorce Court pending the Appellate Court's ruling on the Sale Procedures Order Appeal. On November 24, 2004, the 4th DCA issued a per curiam affirmance of the Sales Procedure Order (the "Sales Affirmance").

On or about January 28, 2005, after the Sale Affirmance and after issuance of the mandate by the Appellate Court, the Debtor, Elizabeth and the Kahook Entities³ entered into a joint Stipulation for Global Settlement Agreement (the "Global Settlement Agreement").⁴ In a moment of rare consensus, on February 1, 2005, the Debtor and the Elizabeth moved in the Divorce Court for approval of the Global Settlement Agreement (the "Settlement Approval Motion"). At the same time, Elizabeth filed a Motion to Nullify, Vacate and Quash Order Granting Receiver's Motion for Authorization to Accept Purchase Offer and Sell Assets of Receivership Estate, to Nullify Contract for Sale and Purchase and for Other Relief directed to the Purchase Agreement (the "Motion to Vacate Sale").

On February 15, 2005, the Divorce Court held a hearing on the Settlement Approval Motion and approved it. Because there was now a deal on the table to which both the Debtor and Elizabeth had agreed, the Divorce Curt ordered the Receiver discharged effective March 1, 2005 (the "Receivership Discharge Order").

Given the prior history of the litigation involving the Hotel, the Purchaser was justifiably concerned that the discharge of the Receiver could adversely affect timely completion of the sale. Accordingly, on March 2, 2005, the Purchaser filed a Motion to Reinstate the Receiver for purpose of closing the sale of the Hotel. The Purchaser also sought to an order from the Divorce Court rejecting the lease between the Hotel and Sheldon.

On April 8, 2005, the Divorce Court held a hearing on the three pending motions concerning the sale of the Hotel to Purchaser: Elizabeth's Motion to Vacate Sale; the Purchaser's Motion to Reinstate the Receiver; and the Purchaser's Lease Rejection Motion. The Divorce Court denied all three motions at the hearing. It is clear from the transcripts of that hearing, and of the hearing held by the Divorce Court on February 15, 2005, that the Divorce Court intended that the Hotel be sold to the Purchaser. The Divorce Court discharged the Receiver because the Court believed that the contract between the Receiver and the Purchaser was valid and enforceable, and that it was not necessary for the Receiver to stay in office for the sale to be consummated. See Exh. K and 0 to Saal's Motion.

The Debtor's bankruptcy case was commenced less than a week later by creditors of the Debtor, who filed an involuntary Chapter 7 petition under 11 U.S.C. § 303 on April 14, 2005. Sonya Salkin (the "Trustee") was appointed interim Chapter 7 trustee on June 13, 2005, and was appointed Chapter 7 trustee after an order for relief was entered in this case on June 20, 2005.

Conclusions of law

A. Legal standard for approval of assumption of executory contract

As a preliminary matter, it is necessary to determine whether the contract between the Receiver and the Purchaser was "executory" — that is, whether obligations remained on both sides as of the date of the Order for Relief. Although this issue is difficult in some cases, it is perfectly clear here that the Purchase Agreement between the Receiver and the Purchaser was an executory contract because there were material obligations yet to be performed on both sides before the closing. In re Wells, 227 B.R. 553 (Bankr. M.D.Fla.1998). The Purchaser had to pay and the Receiver as seller had to deliver title.

A second preliminary question posed by a motion to assume an executory contract under § 365 is whether the trustee has provided adequate assurances that she will (a) promptly cure any default, (b) compensate the nondebtor party to the contract for any actual or pecuniary loss resulting from such default, and (c) perform the contract in the future. See 11 U.S.C. § 365(b)(1)(A)-(C). The Trustee has made a sufficient showing of her ability to perform and has satisfied this criterion.

Even if ...