United States District Court, W.D. Missouri, Central Division
NANETTE K. LAUGHREY, District Judge.
This appeal is taken from an order and memorandum opinion of the Bankruptcy Court granting Partial Summary Judgment on Counts I and III of the Trustee's Amended Complaint. The two counts at issue seek avoidance and recovery of allegedly fraudulent or preferential transfers made to the Defendants. Having considered all arguments of the parties, the Court treats the Bankruptcy Court's order as proposed findings of fact and conclusions of law and grants de novo summary judgment on Counts I and III.
I. Statement of Facts
Mamtek US, Inc. was formed in May 2010 for the purpose of constructing and operating a sucralose manufacturing facility in Moberly, Missouri. Bruce Cole was the president and chief operating officer of Mamtek; Nanette Cole is married to Bruce Cole. The City of Moberly agreed to finance the construction of the facility through the issuance of approximately $39 million in bonds.
As part of the bonding process, Bruce Cole signed a due diligence questionnaire on behalf of Mamtek in June 2010. The content of this document reflects that Mamtek would need to spend about $48 million on the project, including about $23.6 million for acquisition of machinery and equipment. [Appx. 133, pp. 20-22, ¶¶ 73-75.] A month later, on July 19, 2010, Cole signed a management agreement including a budget on behalf of Mamtek, which was submitted to the City of Moberly's bond counsel. [Appx. 133, pp. 22-23, ¶¶ 76-78.] The budget reflected higher costs for the project than the due diligence report Cole signed the previous month: $33 million for the construction of the manufacturing facility alone; $5.7 million to construct the building housing the manufacturing facility; $24.6 million to build the actual sucralose production lines; and $2.6 million to construct roads and provide for utilities [Appx. 133, p. 23, ¶ 79], about $68 million in total.
Mamtek had access to bond proceeds of about $33 million and over time obtained about $3.8 million in loans. [Appx. 133, pp. 10-12, ¶¶ 34, 35, 39, and 41; p. 19, ¶ 70.] Its liabilities, including $39 million in principal, interest and fees to repay the bonds; $3.8 million to repay the loans; and the budgeted $68 million to complete the project, totaled at least $110 million. In fact, Mamtek never had enough money to complete the project and never produced any product. It ran out of funds and ceased business in September 2011 in possession of few assets and with substantial debt.
Prior to its demise, Mamtek was given part of the bond proceeds. To access bond funds, Mamtek was required to submit requests to the City of Moberly. Each request had to be accompanied by a form signed by a representative of Mamtek, stating that the funds were necessary for construction of the facility, along with a spreadsheet identifying recipients and proposed disposition of the funds, and copies of the invoices supporting each item listed on the spreadsheet. Moberly reviewed the requests, determined whether the amounts were payable and, if so, forwarded the requests to United Missouri Bank, N.A., which held the bond proceeds as trustee. The bank then disbursed the funds as specified in the draw requests.
On July 23, 2010, Mamtek submitted a draw request to Moberly in the amount of $4, 062, 500 for services allegedly rendered to Mamtek by Ramwell Industries, Inc. The draw request contained instructions for electronic transfer of funds to the bank account of Mamtek as payee. Mamtek did not owe $4, 062, 500 to Ramwell and never intended to pay $4, 062, 500 to Ramwell. The Ramwell corporation never provided any goods or services to Mamtek, and was never even formed.
Bruce Cole, as Mamtek's president and CEO, participated in discussions about the July 23 request and received email communications about it. He claims that Ramwell was used as an accounting mechanism into which to place Mamtek's operational costs; but Ramwell was never formed, and never had any employees, money or property; and that he knew Ramwell never provided any goods or services to Mamtek. [Appx. 133-77, pp. 275-77, 290.]
The Coles received proceeds from the first draw request, specifically, one transfer in the amount of $204, 167 and another in the amount of $700, 000, which were made on July 30, 2010 by wire transfer from Mamtek's bank account into Nanette Cole's California bank account. The Coles were married and lived in California at the time. California is a community property state and Bruce Cole admits he had an interest in the money transferred to Nanette Cole. [Appx. 133, pp. 54-55, ¶¶ 209-212.] Nanette Cole never provided any services to Mamtek. [Appx. 133, p. 56, ¶ 219.]
Bruce Cole testified that the $204, 167 and $700, 000 transfers represented compensation to him for his services in exploring the building of the Mamtek facility in the U.S., and payment for raising money for Mamtek, respectively. [Appx. 133, pp. 54-56, ¶¶ 213-214, 217.] He also testified that the $700, 000 portion of the transfer was paid to him on account of the termination of a contract between Mamtek and Ramwell. At the time of the $904, 167 transfer, the Coles had been without income for a period of several months and were in default on the mortgage on their Beverly Hills home, which was scheduled for a foreclosure sale in August. The Coles used at least part of the transfer to pay their mortgage.
On March 25, 2011, nine months before the involuntary Chapter 7 was filed, Mamtek paid $360, 000 to Bridgeway Capital for the benefit of Bruce Cole. A few days prior to the payment, Cole had directed Bridgeway Capital to transfer, upon receipt, the majority of the anticipated payment to counsel for one of Cole's judgment creditors. Cole later testified that the funds were payment for services he rendered to Mamtek in connection with obtaining funding for the Mamtek project. [Appx. 133, p. 57-59, ¶¶ 230-239.] At the time the Chapter 7 petition was filed, Mamtek's debts exceeded $47 million and its assets were less than $2, 000. [Appx. 133, p. 12, ¶ 44.]
The Bankruptcy Trustee alleges that the transfers on June 30, 2010 to Nanette Cole were fraudulent [Count I]. He alleges the March 25, 2011 transfer of funds to Bridgeway Capital was a preferential transfer [Count III]. He seeks to set both transfers aside.
This Court has jurisdiction under 28 U.S.C. § 158(a)(1) and 28 U.S.C. § 1334(a) and (b).
III. Issues on Appeal
The Coles raise ten issues:
1. Did the Bankruptcy Court err in denying [the Coles'] Motion to Stay Proceedings?
2. Did the Bankruptcy Court err in granting partial summary
judgment to the [Trustee] on Count 1 of the First Amended Complaint?
3. Did the Bankruptcy Court err in granting partial summary
judgment to the [Trustee] on Count 3 of the First Amended Complaint?
4. Did the Bankruptcy Court err in excluding the Pellegrino
Report from the record on summary judgment?
5. Did the Bankruptcy Court err in denying extensions of sufficient length to enable necessary discovery or preparation under the circumstances?
6. Did the Bankruptcy Court err in denying [the Coles'] Motion to Amend or Make Additional Findings of Fact; to Alter or Amend the Judgment; and for New Hearing?
7. Did the Bankruptcy Court err in not advising [the Coles] of their right or opportunity to have the proceedings heard before an Article III judge?
8. Does the Bankruptcy Court have the authority to hear this
matter as a non-Article III judge?
9. Does the Bankruptcy Court have the authority to enter judgment or to issue findings of fact and conclusions of law in this matter?
10. Does the Bankruptcy Court have jurisdiction over the proceeds located in California which are the proceeds of the sale of the [Coles'] residence?
[Doc. 15, pp. 22-23.]
IV. Standard of Review
The abuse of discretion standard of review applies to Issues 1, 4 and 5. See Lunde v. Helms, 898 F.2d 1343, 1345 (8th Cir. 1990) (abuse of discretion standard applies to denial of stay of civil proceedings); Brunsting v. Lutsen Mts. Corp., 601 F.3d 813, 818 (8th Cir. 2010) (exclusion of evidence from summary judgment record reviewed for abuse of discretion); and Rakes v. Life Investors Ins. Co. of Am., 582 F.3d 886, 893 (8th Cir. 2009) (applying abuse of discretion standard to denial of a motion for extension of time to respond to summary judgment).
Issues 2, 3, and 6-10 are reviewed under a de novo standard. See In re Martin, 140 F.3d 806, 807 (8th Cir. 1998) (a bankruptcy court's legal conclusions are reviewed de novo ); and In re Maness, 497 B.R. 326 (8th Cir. BAP 2013) (summary judgment entered by ...