In re Chira

• Decision Date: 15 May 2009
• Docket Number: No. 07-15897.,No. 08-10400.,07-15897.,08-10400.
• Citation: 567 F.3d 1307
• Parties: In Re: Denis CHIRA, Debtor. Elizabeth Chira, Plaintiff-Appellant, v. José Saal, Sonya L. Salkin, Defendants-Appellees. In Re: Denis Chira, f.d.b.a. Credit Counseling Corp., f.d.b.a. Eagle Nest of Hollywood, Inc., etc., Debtor. Elizabeth Chira, Plaintiff-Appellant, v. Sonya L. Salkin, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

567 F.3d 1307

In Re: Denis CHIRA, Debtor.

Elizabeth Chira, Plaintiff-Appellant, v. José Saal, Sonya L. Salkin, Defendants-Appellees.

In Re: Denis Chira, f.d.b.a. Credit Counseling Corp., f.d.b.a. Eagle Nest of Hollywood, Inc., etc., Debtor.

Elizabeth Chira, Plaintiff-Appellant, v. Sonya L. Salkin, Defendant-Appellee.

No. 07-15897.

No. 08-10400.

United States Court of Appeals, Eleventh Circuit.

May 15, 2009.

Charles W. Throckmorton, Kozyak, Tropin & Throckmorton, P.A., Coral Gables, FL, for the Chiras.

Ivan J. Reich, Patrick S. Scott, GrayRobinson, P.A., Kevin Markow, Daniel Lawrence Wallach, Becker & Poliakoff, P.A., Julie E. Hough, Patrick S. Scott & Associates, Ft. Lauderdale, FL, for Defendants-Appellees.

Appeals from the United States District Court for the Southern District of Florida.

Before DUBINA, BLACK and FAY, Circuit Judges.

DUBINA, Circuit Judge:

Denis and Elizabeth Chira acquired the Sheldon Beach Hotel in 1978 and operated the hotel together for over 20 years. In 1999, the couple decided to part ways, and for the past 10 years, Denis and Elizabeth have been locked in bitterly contested litigation over control of the hotel in both state and federal court. The Chiras' state court divorce proceeding resulted in the formation of a contract for purchase of the hotel between a divorce court-appointed receiver and José Saal. Before this purchase contract was executed, the Chiras found themselves in federal court by way of Denis's Chapter 7 bankruptcy case. The bankruptcy court approved a settlement agreement between José Saal and the Trustee of Denis's bankruptcy estate, which calls for the performance of the Saal purchase contract, and the district court affirmed the bankruptcy court's order. For the reasons that follow, we affirm the district court's judgment affirming the bankruptcy court's approval of the sale of the hotel to José Saal.

I. BACKGROUND

A. Divorce Court Proceedings

In 1999, Elizabeth filed for divorce from Denis in the circuit court of Broward County, Florida, and the divorce proceedings continued for several years. As a result of ongoing disputes between Denis and Elizabeth over the operation of the hotel, Elizabeth requested the appointment of a receiver to run the hotel. The divorce court granted this request. Concluding that the Chiras were incapable of running the hotel together, the divorce court entered an order establishing procedures for the sale of the hotel, and Elizabeth immediately appealed. While the appeal was pending, pursuant to the divorce court's order, the receiver entered into a contract for the sale of the hotel with José Saal. The divorce court approved the receiver's purchase contract with Saal, but stayed the effectiveness of the sale pending the disposition of Elizabeth's appeal of the divorce court's earlier sale procedures order. Elizabeth did not appeal the order approving the sale of the hotel to Saal. Florida's Fourth District Court of Appeal subsequently affirmed the sale procedures order, triggering the effectiveness of the divorce court's order approving the sale of the hotel. The divorce court then granted the joint request of Denis and Elizabeth to discharge the receiver. Despite discharging the receiver, the divorce court denied Elizabeth's subsequent motion to set aside the purchase contract between Saal and the receiver.

B. Bankruptcy Court Proceedings

Before the Saal purchase contract was performed, Denis's creditors filed an involuntary petition for bankruptcy seeking relief under Chapter 7 of the Bankruptcy Code. The bankruptcy court entered an order for relief and appointed Sonya L. Salkin as Trustee of Denis's estate. The Trustee and Saal entered into a settlement agreement entitled "Agreement for Assumption of José Saal Contract With Modifications and for Settlement of Disputes." Under the terms of the settlement agreement, Saal agreed to pay $2,000,000 to the Trustee as consideration for the Trustee's agreement to assume the Saal purchase contract and to commence and diligently prosecute an adversary proceeding to clear title to the hotel. Pursuant to her obligations under the settlement agreement, the Trustee made a motion to assume the Saal purchase contract under 11 U.S.C. § 365. In its order approving the assumption of the purchase contract, the bankruptcy court focused on three issues: whether assumption of the purchase contract was in the best interests of the estate, whether the divorce court intended the purchase contract to bind the Chiras despite the dismissal of the receiver, and whether the Trustee properly moved for a retroactive extension of the deadline to assume executory contracts. See In re Chira, 343 B.R. 361, 371 (Bankr.S.D.Fla. 2006). The bankruptcy court did not independently evaluate the settlement agreement between Saal and the Trustee under the test for the approval of a settlement agreement in bankruptcy announced by this court in In re Justice Oaks II, Ltd., 898 F.2d 1544 (11th Cir.1990) ("Justice Oaks").

Elizabeth appealed the bankruptcy court's order approving the settlement agreement and assumption of the Saal purchase contract to the Southern District of Florida, arguing that the bankruptcy court improperly approved the assumption of the pre-bankruptcy purchase contract under § 365 because the settlement agreement between Saal and the Trustee substantially modified the original purchase contract. According to Elizabeth, this modification triggered her rights as co-owner of the hotel under 11 U.S.C. § 363. Elizabeth did not appeal the bankruptcy court's conclusion that the divorce court intended the Saal purchase contract to bind the Chiras or the bankruptcy court's conclusion that the Trustee properly moved for a retroactive extension of the deadline for assumption.

Although the district court affirmed the bankruptcy court's order approving the settlement agreement, the district court did not conduct an analysis of the settlement agreement under Justice Oaks. Instead, the district court focused almost exclusively on the bankruptcy court's approval of the assumption of the Saal purchase contract under § 365. After reviewing the text of § 365 and case law from other circuits, the district court concluded that § 365 may be used to assume executory contracts that have been modified after the filing of a petition for relief in bankruptcy. On the basis of this conclusion, the district court determined that "[t]he Bankruptcy Court was not required to apply section 363 in the sale of the Hotel and did not err when it permitted the sale under section 365." Chira v. Saal (In re Chira), 367 B.R. 888, 900 (S.D.Fla.2007). Elizabeth appeals the district court's decision.

While the proceedings concerning the approval of the settlement agreement and assumption of the purchase contract were pending, the Trustee brought an adversary proceeding in the bankruptcy court against Elizabeth and other creditors of Denis's estate to "determine the validity, priority, and amount of those deeds made and obligations incurred by [Denis]" and "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." Salkin v. Chira (In re Chira), 353 B.R. 693, 699 (Bankr.S.D.Fla.2006).

After holding a lengthy trial resulting in extensive findings of fact, the bankruptcy court concluded that Elizabeth had engaged in a pervasive pattern of underhanded and manipulative conduct, including the violation of various divorce court orders and voluntary settlement agreements, in an effort to harm Denis financially and to delay the sale of the hotel. On the basis of these findings, the bankruptcy court entered a final judgment equitably subordinating Elizabeth's claims to those of all the other creditors of the estate. The bankruptcy court also concluded that Elizabeth is not entitled to any portion of the $2,000,000 payment offered by Saal to the Trustee under the settlement agreement. The district court affirmed the bankruptcy court's final judgment in the adversary proceeding. See Chira v. Salkin (In re Chira), 378 B.R. 698, 717 (S.D.Fla.2007). Elizabeth appeals the district court's judgment affirming the bankruptcy court's finding that Elizabeth is not entitled to any portion of the $2,000,000 payment under the settlement agreement.

II. STANDARDS OF REVIEW

We review a bankruptcy court's findings of fact for clear error. IBT Int'l, Inc. v. Northern (In re Int'l Admin. Servs., Inc.), 408 F.3d 689, 698 (11th Cir. 2005). We review de novo conclusions of law, whether made by the bankruptcy court or the district court. Id. We review the bankruptcy court's approval of a settlement agreement under an abuse of discretion standard. Christo v. Padgett, 223 F.3d 1324, 1335 (11th Cir.2000).

III. ANALYSIS

A. Approval of the Settlement Agreement and Assumption of the Saal Purchase Contract

Elizabeth first contends that the district court erred in affirming the bankruptcy court's conclusion that the Saal purchase contract may be assumed under 11 U.S.C. § 365. Elizabeth argues that the settlement agreement between Saal and the Trustee substantially modifies the pre-bankruptcy purchase contract, triggering her rights under 11 U.S.C. § 363 as a non-debtor co-owner of the hotel. Thus, as an initial matter, we must determine whether the settlement agreement constitutes a modification of the pre-bankruptcy purchase contract between Saal and the state divorce court receiver.

Elizabeth argues that the settlement agreement's references to "modifications" compel the conclusion that the settlement agreement modifies the Saal purchase contract. Saal and the Trustee contest this characterization, arguing that they did not intend for the settlement agreement to modify the pre-bankruptcy purchase contract and that the term "modifications" merely refers to new obligations undertaken by Saal and the Trustee to effectuate the purchase contract, in...