[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
FILED
U.S. COURT OF APPEALS
No. 07-15897 ELEVENTH CIRCUIT
May 15, 2009
THOMAS K. KAHN
CLERK
D. C. Docket No. 06-61410-CV-CMA
BKCY No. 05-22074 BKC-JKO
In Re: DENIS CHIRA,
Debtor.
__________________________________________________________________
ELIZABETH CHIRA,
Plaintiff-Appellant,
versus
JOSÉ SAAL,
SONYA L. SALKIN,
Defendants-Appellees.
No. 08-10400
D.C. Docket No. 07-60049-CV-CMA
BKCY No. 05-22074-BKC-JKO
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,
versus
SONYA L. SALKIN,
Defendant-Appellee.
________________________
Appeals from the United States District Court
for the Southern District of Florida
_________________________
(May 15, 2009)
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
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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
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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
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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
5
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
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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
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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
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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 its original form, in the context of Denis’s bankruptcy.
“Principles governing general contract law apply to interpret settlement
agreements.” Resnick v. Uccello Immobilien GMBH, Inc., 227 F.3d 1347, 1350
(11th Cir. 2000). The “‘interpretation of private contracts is ordinarily a question
of state law.’” Chem. Bank v. First Trust of N.Y. (In re Se. Banking Corp.), 156
F.3d 1114, 1121 (11th Cir. 1998) (quoting Mastrobuono v. Shearson Lehman
Hutton, Inc., 514 U.S. 52, 60 n.4, 115 S. Ct. 1212, 1217 n.4, 131 L. Ed. 2d 76
(1995)); see also Resnick, 227 F.3d at 1350 n.4 (“Because this settlement
agreement is between two private parties, federal common law does not apply.”);
Hayes v. Nat’l Serv. Indus., 196 F.3d 1252, 1253 (11th Cir. 1999) (applying state
law to construction and enforceability of settlement agreement arising under Title
VII). “[T]he substantive law of the forum state governs issues of state law that
arise in bankruptcy proceedings.” Menchise v. Akerman Senterfitt, 532 F.3d 1146,
1150 (11th Cir. 2008 (citing Colwell v. Royal Int'l Trading Corp. (In re Colwell),
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196 F.3d 1225, 1226 (11th Cir.1999)). Therefore, we apply the law of Florida, the
forum state, to determine the meaning of the settlement agreement.1
Under Florida law, “[t]he basic rule of contract interpretation is that the
intention of the parties is to be determined from a consideration of the whole
agreement.” Calderon v. J.B. Nurseries, Inc., 933 So. 2d 553, 556 (Fla. Dist. Ct.
App. 2006); see also Grimsley v. Inverrary Resort Hotel, Ltd., 748 So. 2d 299, 301
(Fla. Dist. Ct. App. 1999); Dorson v. Dorson, 393 So. 2d 632, 633 (Fla. Dist. Ct.
App. 1981). Considering the settlement agreement as a whole, we conclude that
Saal and the Trustee intended for the agreement to settle their dispute over the
validity of the pre-bankruptcy purchase contract between Saal and the divorce
court receiver and to aid in the administration of the bankruptcy estate. We do not
read the settlement agreement to modify the terms of the pre-bankruptcy contract
between Saal and the divorce court receiver for the purchase of the hotel.
Having determined that the settlement agreement does not modify the Saal
purchase contract,2 we next must decide whether the district court correctly
1
The parties have not raised a conflict-of-laws issue and have not disputed that Florida
law governs the interpretation of the settlement agreement.
2
Because we hold that the settlement agreement does not constitute a modified executory
contract, we need not address the district court’s conclusion that modified executory contracts
may be assumed under 11 U.S.C. § 365.
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concluded that the bankruptcy court did not abuse its discretion by approving the
settlement agreement.
As both the bankruptcy court and the district court noted, when making the
decision to assume or reject the Saal purchase contract, the Trustee faced the
prospect of a potentially massive claim against the estate for rejection damages.3
A good deal of uncertainty surrounded Saal’s potential claim because the claim
hinged on the legal effect of the discharge of the divorce court receiver on the
enforceability of the Saal purchase contract, an issue on which neither the
bankruptcy court nor the parties could locate a single Florida case. Rather than
litigate their dispute over this arcane4 and uncertain legal issue, Saal and the
Trustee decided to execute a settlement agreement.
Bankruptcy Rule 9019(a) provides that “[o]n motion by the trustee and after
notice and a hearing, the court may approve a compromise or settlement.” In this
circuit, a bankruptcy court evaluating a proposed settlement must consider:
3
Both the bankruptcy court and the district court concluded that Saal’s claim for damages
would be at least as large as the difference between the price received in a market sale and the
purchase price under the original Saal contract. In addition, both the bankruptcy court and the
district court opined that Saal may have been able to establish substantial consequential damages.
4
To decide this issue, the bankruptcy court consulted Wigton v. Climax Coal Co., 270 Pa.
420, 113 A. 425 (Pa. 1921), and Madorsky v. Suburban Homes Co., 45 Ohio App. 83, 186 N.E.
371 (Ohio Ct. App. 1933).
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(a) The probability of success in the litigation; (b) the difficulties, if any, to
be encountered in the matter of collection; (c) the complexity of the
litigation involved, and the expense, inconvenience and delay necessarily
attending it; (d) the paramount interest of the creditors and a proper
deference to their reasonable views in the premises.
In re Justice Oaks II, Ltd., 898 F.2d 1544, 1549 (11th Cir. 1990) (quoting Martin
v. Kane (In re A & C Prop.), 784 F.2d 1377, 1381 (9th Cir. 1986)).5 Courts
consider these factors to determine “the fairness, reasonableness and adequacy of a
proposed settlement agreement.” In re A & C Prop., 784 F.2d at 1381.
Although the bankruptcy court did not explicitly consider all four of the
Justice Oaks factors in its order approving the settlement agreement, we conclude
5
Bankruptcy courts in other jurisdictions have suggested that “[w]hen the assumption or
rejection of an executory contract or lease is one of the terms of a settlement or compromise . . .
the proper test to be applied to the entire transaction is that for approval of a proposed
settlement.” In re Mirant Corp., 348 B.R. 725, 743 (Bankr. N.D. Tex. 2006) (citing In re
Pinnacle Brands, Inc., 259 B.R. 46, 54 (Bankr. D. Del. 2001)). The settlement agreement
between Saal and the Trustee, which contains the assumption of an unmodified executory
contract as one of its terms, must meet the test for the approval of a proposed settlement
agreement. We need not independently determine whether the assumption of the pre-bankruptcy
Saal purchase contract meets the narrow business judgment standard applicable to the
assumption of an executory contract. See In re Gardinier, Inc., 831 F.2d 974, 976 n.2 (11th Cir.
1987) (“[S]ince courts review a trustee’s decision to assume or reject a contract under a
traditional ‘business judgment’ standard, the scope of review in this area is narrow.”). However,
when a settlement agreement contains the assumption of a pre-bankruptcy contract as one of its
terms, the contract at issue must be executory in nature and meet the other basic requirements set
forth in § 365. The district court correctly concluded that these basic requirements have been
met in the instant case.
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that the bankruptcy court did not abuse its discretion by approving the settlement
agreement.
The bankruptcy court implicitly considered the first Justice Oaks
factor—the probability of success in the potential litigation over Saal’s claim for
rejection damages—when it determined that the Saal purchase contract survived
the divorce court’s discharge of the receiver. Furthermore, the bankruptcy court
concluded that Saal had a credible claim for both rejection and consequential
damages that could significantly diminish the recovery of the unsecured creditors
of Denis’s estate. The bankruptcy court implicitly concluded that Saal had a
strong probability of success in the potential litigation over his claim for rejection
damages. We agree with the bankruptcy court’s evaluation of Saal’s probability of
success, and we conclude that the first Justice Oaks factor supports the bankruptcy
court’s decision to approve the settlement agreement.
The bankruptcy court did not consider the second and third Justice Oaks
factors—collection difficulties for the Trustee and the complexity, expense,
inconvenience, and delay of the potential litigation over Saal’s claim for rejection
damages—in any meaningful way. The second factor is irrelevant in the instant
case because collection difficulties for the Trustee are not an issue. With regard to
the third factor, we conclude that Saal and the Trustee faced the possibility of
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costly and protracted litigation over Saal’s claim for rejection damages, which
supports the bankruptcy court’s decision to approve the settlement agreement.
The bankruptcy court explicitly evaluated the fourth Justice Oaks
factor—the paramount interests of the creditors. Because the settlement
agreement provides for payment in full of all the claims of all the creditors, we
conclude that the bankruptcy court correctly found that approval of the settlement
agreement is in the best interests of the creditors.
Because all three relevant Justice Oaks factors support the bankruptcy
court’s decision to approve the settlement agreement, we agree with the district
court’s finding that the bankruptcy court did not abuse its discretion in approving
the settlement agreement between Saal and the Trustee.
B. The $2,000,000 Payment Under the Settlement Agreement
Elizabeth next contends that the district court erred in affirming the
bankruptcy court’s conclusion that she is not entitled to any portion of the
$2,000,000 offered by Saal to the Trustee as consideration for the settlement
agreement. Elizabeth argues that the bankruptcy court abused its discretion by
exercising its equitable authority under 11 U.S.C. § 105 in contravention of the
express provisions of 11 U.S.C. § 363. This argument is without merit.
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The bankruptcy court based its conclusion that Elizabeth is not entitled to
any portion of the $2,000,000 payment on both legal and equitable grounds,
saying:
I conclude, and equity dictates, that Elizabeth not receive half of the
$2,000,000 premium offered by Saal to the estate in exchange for the
court’s approval of the assumption of the Saal contract. By its own terms,
the addendum to the contract between the Trustee and Saal specifically
provides that all of the extra funds would be paid to the estate. . . . Since I
have previously ruled that the Saal contract to which Elizabeth agreed in
the prior divorce court litigation remains a valid and enforceable executory
contract, Elizabeth would have been bound by the $5.85 million sale price
but for the filing of the involuntary bankruptcy petition against Denis,
which gave rise to the possibility that the contract could be rejected under
11 U.S.C. § 365. The filing of the bankruptcy petition created a whole host
of additional legal issues so that it was well worth Saal’s while to offer an
additional inducement to the Trustee, an inducement which Saal never
would have had to offer if this bankruptcy case were not pending. Simply
stated, Elizabeth would have received no more than one-half of $5,850,000
for her ownership interest if the Saal sale had gone forward as mandated by
15
the divorce court. That is precisely what she will get for her half interest in
the [hotel] if the Saal sale closes. . . . Moreover, Elizabeth has done nothing
to justify an enhancement of her position. To the contrary, her conduct . . .
reflects a consistent and relentless effort to deprive Denis of his remaining
equity in the [hotel] by any and all means possible, including many which
no court of equity could countenance.
In re Chira, 353 B.R. at 728–29 (footnote omitted).
Elizabeth’s argument ignores the fact that the district court ruled that she
has no legal entitlement to payment under the settlement agreement. Elizabeth
was legally bound by the Saal purchase contract prior to the filing of the
bankruptcy petition, and she will not receive anything less upon the sale of the
hotel under the terms of the settlement agreement than she would have received
outside of bankruptcy. The bankruptcy court’s discussion of Elizabeth’s
inequitable conduct does not detract from the force of its legal conclusions. We
agree with the district court’s finding that the bankruptcy court did not abuse its
discretion by ruling that Elizabeth is not entitled to any portion of the $2,000,000
payment under the settlement agreement.
IV. CONCLUSION
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For the foregoing reasons, we affirm the district court’s judgment affirming
the bankruptcy court’s order approving the sale of the hotel to Saal and its finding
that Elizabeth is not entitled to any portion of the $2,000,000 offered by Saal to
the Trustee under the settlement agreement.
AFFIRMED.
17