Cecconi v. Cecconi et al

OCR transcription for search; preserved printed pages are authoritative

Entered on Docket

April 17, 2007
GLORIA L. FRANKLIN, CLERK
. . U.S BANKRUPTCY COURT
FILED NORTHERN DISTRICT OF CALIFORNIA
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2 apr it 200t
LERK ourt
3 os ce Bankraptey ©
united en rose, Califo
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UNITED STATES BANKRUPTCY COURT
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NORTHERN DISTRICT OF CALIFORNIA
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In re Case No. 02-50653-ASW
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Guiseppe Enzo Cecconi, Chapter 304
8 Ancillary Proceeding
Debtor.
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Sarah Cecconi,
10 Adversary Proceeding
Plaintiff, No. 03-5024
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Vs.
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Guiseppe Enzo Cecconi,

13 |] A.C. Spicer, Trustee in Bankruptcy
(under U.K. insolvency laws),

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Defendants.
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A.C. Spicer, Trustee in Bankruptcy
16} (under U.K. insolvency laws),

17 Counter-Claimant,

18 || vs.

For The Northern District Of California

19 || Sarah Cecconi,

UNITED STATES BANKRUPTCY COURT

20 Counter-Defendant.

21 /A.C. Spicer, Trustee in Bankruptcy
(under U.K. insolvency laws},

a a ee ek Od OS OOS OY OS OS OS SO OS Os OOO WO OY

22
Cross-Complainant,
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vs.
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Guiseppe Enzo Cecconi,
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Cross—Defendant.
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27 MEMORANDUM DECISION AFTER TRIAL
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MEMORANDUM DECISION
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For The Northern District Of California

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Ca

Before the Court is Plaintiff Sarah Cecconi’s (“Sarah”)!
complaint against Guiseppe Enzo Cecconi (“Enzo”) and A.C. Spicer,
Trustee in Bankruptcy (under U.K. Insolvency Laws) (“Trustee”) and
Trustee’s related counterclaim and cross-claim. Sarah seeks a
determination that the house and property located at 3190 Del
Ciervo Drive, Pebble Beach, California (the “Property”) are her
sole and separate property. Trustee seeks a determination that
Enzo holds a community property interest in the Property.

The matter has been tried and submitted for decision. Sarah is
represented by Paul S. Avila, Esq. and Elaine M. Seid, Esq. of
McPharlin, Sprinkles & Thomas LLP. Enzo is represented by
Patric J. Kelly, Esq. of Adleson, Hess & Kelly. Trustee is
represented by Mary Jo Shartsis, Esq. and Amy L. Hespenheide, Esq.
of Shartsis, Friese & Ginsburg LLP. At trial Sarah called Enzo,
Carla Korb, Gary Vandeweghe, Elizabeth Montagu, Jane Watson Steel,
Elaine Seid and herself as witnesses. Trustee called Enzo and
himself as witnesses.

This Memorandum Decision constitutes the Court’s findings of
fact and conclusions of law, pursuant to Rule 7052 of the Federal

Rules of Bankruptcy Procedure.

I.
FACTS
This case involves an unusual couple with an unusual lifestyle.
Sarah and Enzo are both in their 70s and have been married for over

30 years. In the early years of their marriage, the Cecconis acted

' The Court will refer to Mr. and Mrs. Cecconi by their first names -- as the Cecconis’
counsel did in the joint post-trial briefs -- for the sake of clarity, and means no disrespect in so doing.

MEMORANDUM DECISION

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as many married couples do -- i.e., they lived together. At that
point they lived in Venice, Italy at or near the Hotel Cipriani
(“Cipriani”) where Enzo worked as a general manager. The couple
lived on Enzo’s income. For the next twenty-two years, however,
Enzo and Sarah maintained a strong marriage while pursuing very
separate and independent lifestyles. Their separate finances were
a key aspect of their relationship. About the same time Enzo
decided to leave Venice and open up a restaurant in London, Sarah
inherited a large portfolio of stock and oil royalties from her
grandmother. Sarah did not want to live in London full-time and
the couple started to live separate lives. Enzo primarily ran a
restaurant in London and Sarah spent her time traveling with her
mother, summering in Venice, Italy and wintering in Pebble Beach,
California. Enzo and Sarah spent time with each other during the
spring and fall, and saw each other on occasion during the summer
and winter months.

The couple had a mutual, clear and strong understanding that
Fnzo’s property from his business ventures were his and Sarah's
inheritance was hers. Enzo and Sarah maintained separate finances
and each provided for their own living expenses. The couple
Clearly understood and agreed that Enzo had his property in Europe
and Sarah had her property in the United States, and they acted
separately with regard to that property -- Enzo ran his restaurants
and renovated property in London without input from Sarah. Sarah
purchased a townhouse in Pebble Beach and purchased and constructed
the Property without input from Enzo. It is due in large part to

the unusual nature of their relationship that Sarah is able to

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support her position so convincingly as the plaintiff in this
lawsuit.
A. Procedural Background

Enzo ran into financial difficulties in the 1990s. Insolvency
proceedings were ordered against him in the United Kingdom on
January 8, 2001. Trustee filed an ancillary proceeding under
11 U.S.C. § 304 in this Court on January 7, 2002. On January 15,
2003, Sarah filed a Complaint to Establish Purchase Money Resulting
Trust against Enzo and Trustee. On February 21, 2003, Trustee
filed his answer, counterclaim and cross-claim. Trustee amended
his counterclaim and cross-claim on March 27, 2003, and June 18,
2003. Trial commenced on this matter on March 21, 2005 and
continued on March 22, 23, 24, 28, 29, 30, and 31, 2005; April 1,
8, 12, 13, 25, and 26, 2005; and May 31, 2005. Post-trial briefing
ended on November 22, 2006.

B. Witnesses

i.) Enzo Cecconi -- Enzo is a citizen and resident of Italy
and a debtor in insolvency proceedings in the United Kingdom.

ii.) Sarah Cecconi -- Sarah is the wife of Enzo.

iii.) Carla Korb -- Ms. Korb was the business and social
secretary to Sarah’s father, George Coleman, from August 1976 to
February 1998.

iv.) Gary Vandeweghe -- Mr. Vandeweghe is an attorney and a
friend of both of Sarah’s parents. Mr. Vandeweghe also represented
Sarah in relation to litigation over the Property filed by the
Royal Bank of Scotland.

v.) Elizabeth Montagu -- Mrs. Montagu is Sarah’s mother and

the Dowager Duchess of Manchester (“Duchess”).

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vi.) Jane Watson Steel -- Ms. Steel is Sarah’s friend.

vii.) Elaine Seid -- Ms. Seid is an attorney and represents
Sarah in this litigation.

vViil.) Trustee A.C. Spicer -- Trustee is a chartered
accountant and the trustee in Enzo’s insolvency proceedings in the
United Kingdom.

C. Pre-Marriage Background

Enzo

Enzo was born and raised in Venice, Italy where he attended
private school and gymnasium. Enzo wanted to work in the hotel and
restaurant business since childhood, and started in that industry
in 1956 when he was 20 years old. Enzo joined the Bauer Hotel, a
deluxe hotel in Venice, in 1957. In order to improve himself, Enzo
worked at the Bauer during the summer, then, during the winter
months, he traveled to Germany, France, and London, among other
places, to work and study seeking to develop his language skills so
he could write a proper letter in English, French or German. Enzo
speaks Italian, English, French, German and Spanish. In 1964, Enzo
joined the Cipriani in Venice as an assistant manager and worked
his way up to general manager of the hotel sometime prior to 1973.
The Cipriani is a high-end hotel and caters to well-to-do guests.
It is currently one of the top ten hotels in the world.

Sarah

Sarah was born in Miami, Oklahoma to George and Elizabeth
Coleman. Sarah comes from a very wealthy family -- her father was
on the board of directors for Pennzoil -- and she has lived an
unusual life. During Sarah’s childhood, she spent the summers in

Pebble Beach, California and the winters in Florida. Sarah started

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attending boarding school in Wellesley, Massachusetts around eleven
years of age and spent the first three years of high school in
Middleburg, Virginia. During these years, Sarah spent the summers
in Pebble Beach. Sarah spent her senior year of high school in
Pebble Beach and graduated from a private high school in Monterey.
Sarah developed an affinity for Pebble Beach during her childhood.

Sarah’s parents divorced in 1957 or 1958 and, after that time,
Sarah’s mother, the Duchess, resided in Pebble Beach and Mr.
Coleman resided in Palm Beach, Florida. Around this time, Sarah
moved to Los Angeles and worked at two different jobs for a tctal
of approximately one year -- her only employment in her life. Mr.
Coleman paid the rent on Sarah’s apartments in Los Angeles.

After the Duchess divorced Mr. Coleman, the Duchess married
William Crocker and, after Mr. Crocker died, the Duchess married
the Duke of Manchester. During most of the 1960s, and until Sarah
married Enzo, Sarah traveled with the Duchess and lived in several
places during the year. Sarah spent approximately four months a
year in Pebble Beach, two or three months in New York City, three
months in London, and some time in Kenya where the Duke of
Manchester had property.

At this point in her life, Sarah did not have much income and
received only a small monthly allowance. Sarah did own a townhouse
in Sun Valley, Idaho (“Sun Valley Property”) for approximately five
years in the late 1960s and early 1970s. When Sarah owned the Sun
Valley Property, she spent approximately five months a year in Sun
Valley. To purchase the Sun Valley Property, Sarah borrowed
$60,000 from a trust set up by Mr. Coleman’s mother and father

(“Trust”). The Trust was comprised of a wealthy stock portfolio

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AFTER TRIAL

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and oil royalties. Mr. Coleman was trustee for and managed the
Trust for his mother. The funds Sarah borrowed were repaid to the
Trust when the Sun Valley Property was sold.

Enzo and Sarah

Enzo first met Sarah at the Cipriani in 1973 when Sarah stayed
at the hotel with the Duke and Duchess of Manchester. Enzo and
Sarah married in May 1974. At the time he married, Enzo owned a
car, was the general manager of the Cipriani, and had a small house
in the country for his parents. When Sarah married Enzo, Mr.
Coleman cut off Sarah’s monthly allowance. The Cecconis lived at
the Cipriani during their first year of marriage since part of
Enzo’s salary included an apartment inside the hotel. For the next
three years, the Cecconis leased the apartment next door to the
hotel, with the Cipriani paying the rent and all expenses of that
apartment.

For most of the time Enzo was employed at the Cipriani, the
Guinness family owned the hotel. At some point, the Cipriani was
sold by the Guinness family and the new owner asked Enzo to remain
as a director of the new company. But Enzo was ready to move on in
his life and, in 1978, Enzo resigned from the Cipirani to open a

restaurant in London.

D. Enzo’s Businesses

Enzo opened Cecconi’s restaurant in 1978. Cecconi’s was an
upper-end restaurant in the Mayfair district of London -- the
district where the best shops and art dealers are located. Enzo

testified that he chose to open his restaurant in London because he
knew thousands of people there, mostly through his employment at

the Cipriani. Enzo decided to open a restaurant rather than a

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hotel because he needed only a small investment for a restaurant
and would have needed much more money to open a hotel. The Duchess
guaranteed a $200,000 loan taken out by Enzo from the Bessemer
Trust -- a firm that handled the Duchess’ financial affairs -- to
start the restaurant. Of the $200,000, $187,250 was distributed to
Enzo Holdings B.V. and $12,750 to Enzo.

Enzo’s relationship with the Royal Bank of Scotland (“Bank”)
also started in 1978. Enzo was introduced to the Bank by Lord Boyd
of Merton of the Guinness family. The Bank had a branch office
across the street from the London restaurant and Enzo would stop by
that branch office on a daily basis. Enzo had a close relationship
with the Bank’s branch manager during the 1980s. Periodically the
branch manager invited Enzo to lunch or they shared some whiskey.
The daily relationship continued until the branch was closed in the
early 1990s.

Enzo had three different accounts with the Bank -- two business
accounts and a personal account. Enzo maintained an overdraft or
credit facility on each of these accounts. The credit facility
permitted Enzo to draw on a line of credit as needed. Although
Sarah was a signatory on the checking portion of the personal
account with the Bank, both Enzo and Sarah testified that Sarah did
not use that account. There is no evidence that Sarah agreed to be
liable for the credit facility on the personal account. The London
restaurant used its credit facility for only two or three months
because it made enough money early on to cover the expenses. Enzo
did not recall telling anyone at the Bank in 1978 that he had
borrowed $200,000, guaranteed by the Duchess, to start the London

restaurant.

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Cecconi Restauranteurs Limited (“CRL”) owned the London
restaurant. Enzo originally owned an 80 percent interest in CRL.
The other 20 percent was owned by another Venetian, John Carlos
Fabris, with whom Enzo worked at the Cipriani. Enzo bought out Mr.
Fabris’ interest in 1985 and had sole ownership of CRL thereafter.
Sarah never neld any interest in CRL. Enzo did not consult Sarah
regarding any business decisions for the London restaurant.

One year after opening the London restaurant Enzo opened a
“Cecconi’s” restaurant in Paris. The Paris restaurant was financed
by Pierre Gruet -- the owner of the Venice apartment that Enzo
leased when Enzo worked at the Cipriani -- and a good customer of
the Cipriani. Mr. Gruet agreed to finance the Paris restaurart
until Enzo could pay Mr. Gruet back. Enzo did not consult Sarah
regarding any business decisions for the Paris restaurant. Sarah
testified that she first learned about the Paris restaurant from
her next-door neighbor in Venice.

In addition to operating the London and Paris restaurants, Enzo
had other income-producing pursuits. Enzo granted the right to
open franchise restaurants in Istanbul, Turkey and Ocho Rios,
Jamaica. Enzo also was a consultant for the Italian line of food
at the department store Marks & Spencer and a consultant for
British Airways to improve the food on the first class
internationa. routes. Enzo and Sarah both testified that they
considered Enzo’s interests in his businesses to be only Enzo’s
property.

E. Post-1978 Marriage
Sarah initially came to London with Enzo in the autumn of 1978

when Enzo started his restaurant, but Sarah did not want to live in

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London on a full-time basis. Sarah returned to a version of her
pre-marriage lifestyle and the Cecconis entered into a type of
“commuting marriage” from 1978 through 2000. In the winter, Sarah
would travel to Pebble Beach, California with her mother and, in
the spring, Sarah would travel through London on her way to Venice
where Sarah would spend the summer.* Sarah would spend one to two
months living with Enzo in London each fall and spring. When Enzo
had the Paris restaurant, Sarah would spend the month of May with
him in Paris.

When Sarah spent the summer in Venice, Enzo would take long
weekends and travel to Venice by car or plane to spend time with
her. Enzo was able to take such long weekends in July and August
because his sestaurants were slow on those days since his customers
would spend time at their country homes from Thursday to Sunday.
When Sarah was at Pebble Beach, Enzo spent about ten days during
Christmas and New Year’s and about two weeks at Easter with her.
Periodically, if Enzo had to travel to Los Angeles for his
consulting engagement with British Airways, he would make an
excursion to Pebble Beach to spend a few days with Sarah.

F. The Inheritance

In 1979, Sarah’s paternal grandmother passed away and Sarah
inherited one-third of the Trust in 1980. Sarah was able to live
comfortably on the income from the stock portfolio and oil
royalties. Both Enzo and Sarah testified that Sarah’s inheritance

was her money and her money alone and Enzo had no interest in it.

* Enzo paid the rent on the Venice property -- where the Cecconis had lived while Enzo
worked at the Cipriani -- for a few years after Enzo moved to London. The Duchess took over that
lease in 1980 or 1981.

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Ca

Enzo testified that his belief is based in part on Italian law
where the wife retains all of her property as her own.

Mr. Coleman offered to manage the Trust inheritance for Sarah
and Sarah agreed. From the time Sarah received her inheritance
share of the Trust until his death in 1997, Mr. Coleman managed and
directed Sarah’s finances for her with the assistance of
professional lawyers, accountants and financial advisors. Mr.
Coleman managed Sarah’s finances from his business office in
Florida. Ms. Korb was Mr. Coleman’s business and social secretary
from August 1976 until Mr. Coleman’s death in July 1997. Ms. Korb
remained at Mr. Coleman’s Florida office until February 1998 to
close up the office. In her capacity as Mr. Coleman’s business and
social secretary, Ms. Korb handled Mr. Coleman’s books and
contacted the various professional advisors with whom Mr. Coleman
did business. Ms. Korb also maintained Sarah’s financial records
from 1980 through February 1998. Mr. Coleman had a power of
attorney on behalf of Sarah. Mr. Coleman and/or Ms. Korb routinely
completed whatever paperwork was needed to manage Sarah’s financial
affairs.

Since Mr. Coleman and Ms. Korb managed the details of Sarah’s
finances, Sarah did not have to and did not in fact pay particular
attention to the details of her finances. Rather, Sarah spent most
of her time traveling overseas. When Sarah needed spending money,
Mr. Coleman and/or Ms. Korb would make the necessary arrangements
with the appropriate bank or brokerage house on behalf of Sarah
such as liquidating stocks or obtaining loans secured by Sarah’s
stocks. Mr. Coleman and/or Ms. Korb would arrange for documents to

be delivered to Sarah wherever she was so that Sarah could sign

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whatever documents required her signature. Sarah unconditionally
trusted Mr. Coleman and Ms. Korb with her finances.

Mr. Coleman tried to advance Sarah’s interest in managing her
finances and had Sarah’s best interests at heart. For example, if
Sarah needed additional monies beyond her monthly dividends and
royalties, Mz. Coleman preferred to have Sarah borrow funds from
the First National Bank in Palm Beach, Florida (“Florida Bank”)
rather than liquidate her stock portfolio. This was because Sarah
had a low basis in her stocks and liquidating the stocks caused
Sarah to incur large capital gains taxes. The loans from the
Florida Bank were secured by Sarah’s shares of stock. In 1983, Mr.
Coleman also recommended that Sarah establish a trust for estate
planning purooses and to protect Sarah’s assets. The Sarah C.
Cecconi Trust was established in March 1984.

During the period when Mr. Coleman managed Sarah’s financial
affairs, Sarah did not reconcile her own checking account. Rather,
Ms. Korb prepared monthly reports that showed the account balance
for Sarah’s checking account with the Florida Bank (“Florida Bank
Account”) as of the end of each month, and a list of the deposits
and checks drawn for the monthly period covered by the statement.
Starting in 1987, the monthly statements also included the current
value of Sarah’s portfolio and the cost basis. The monthly reports
were prepared in the first few days of the following month and were
sent to Sarah shortly after preparation. Sarah did not share these
statements with Enzo and did not ask Enzo for financial advice.

Enzo and Sarah did not own any property together. Enzo and
Sarah were both named on accounts each had at Wells Fargo Bank in

Pebble Beach, but Sarah did not use Enzo’s account and Enzo did not

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