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In re Mamtek US, Inc.

United States District Court, W.D. Missouri.

November 2, 2017

In re MAMTEK US, INC., Debtor.
v.
BRUCE COLE and NANETTE COLE, Defendants. BRUCE E. STRAUSS, TRUSTEE, Plaintiff,

          REPORT AND RECOMMENDATION TO THE DISTRICT COURT ON MOTION TO WITHDRAW THE REFERENCE

          Honorable Dennis R. Dow United States Bankruptcy Judge

         This matter comes before the Court on the Motion for Withdrawal of the Reference Pursuant to 28 USC §157(d) (the “Withdrawal Motion”) filed by Bruce Cole and Nanette Cole. The Motion has been fully briefed. For the following reasons, the Court recommends that the Withdrawal Motion be denied. First, the Bankruptcy Court has subject matter jurisdiction over the dispute involving the Coles since the outcome most certainly affects the administration of the bankruptcy estate. Secondly, the Coles have consented to the Bankruptcy Court's exercise of jurisdiction. Third, the Coles have failed to meet their burden of proving that their Withdrawal Motion is timely, and that cause exists to grant it. Additionally, no jury demand is pending because the Coles' request was untimely, and therefore, denied by the Bankruptcy Court. Finally, judicial economy is best served by leaving the matter in the Bankruptcy Court given the Court's familiarity with the complex facts and issues, and the need to interpret its own orders.

         Factual and Procedural Background

         Bruce Cole was the president and CEO of Mamtek U.S., Inc. (the “Debtor”), and Nanette Cole is his wife. On December 15, 2011, several creditors filed an involuntary petition under Chapter 7 against Mamtek. Bruce Strauss was appointed Trustee of the Debtor's bankruptcy estate.

         In May 2012, the Trustee filed an adversary proceeding against the Coles in which he sought, among other things, avoidance of fraudulent and preferential transfers. The Trustee also moved for a temporary restraining order and injunctive relief to prevent the Coles from disposing of the proceeds from the sale of their residence in Beverly Hills, California (the “Proceeds”).

         With the Coles' consent, this Court entered a TRO on June 15, 2012, which provided in part that the Proceeds were to be paid to a California escrow company pending further order of the Court. On June 18, 2012, this Court entered another order, stipulated to by the Trustee and the Coles (the “Stipulated Order”). It provided, in relevant part, that the June 15 order would “remain in force and effect until final judgment is entered in this adversary proceeding” and that the escrow agent would retain the Proceeds “until final judgment is entered in this adversary proceeding, at which time the Court shall enter an order directing the disposition of such proceeds.” In August, 2013, this Court granted the Trustee summary judgment on Counts I and II of his Complaint concerning fraudulent and preferential transfers. The Coles appealed. Treating the Bankruptcy Court's summary judgment order as proposed findings of fact and conclusions of law, the District Court entered judgment against both of the Coles on Count I (an avoidance of a $904, 167 fraudulent transfer), and against Bruce Cole on Count III (an avoidance of a $360, 000 preferential transfer). The Eighth Circuit Court of Appeals affirmed the judgment.

         In February of 2016, the Trustee filed a motion in the Bankruptcy Court to dismiss the remaining counts in the adversary proceeding; the motion was granted. The Coles subsequently filed motions to alter, amend or clarify the process by which they could seek an order directing the disbursement of the Proceeds to pay certain taxes. This Court denied the Coles' motions, and the Coles appealed to the District Court. Applying a de novo standard of review, the District Court affirmed (the “Adversary Proceeding Order”).

         The Trustee, as judgment creditor, served the Coles with written discovery in aid of execution. Thus began a flurry of pleadings, accusations and disputes. The District Court ultimately entered a show cause order directing the parties to address whether it had subject matter jurisdiction to resolve the discovery dispute.

         In January, 2017, the District Court entered an order concluding that the discovery dispute was “related to” the bankruptcy proceeding within the meaning of 28 U.S.C. §157(a) (the “Discovery Order”). The Court reasoned that the outcome of the dispute could conceivably impact the administration of the Debtor's estate. As a result, Judge Laughrey referred the dispute to the Bankruptcy Court.

         Soon afterwards, the Coles filed a motion in this Court seeking a ruling that they were entitled to a homestead exemption of $175, 000 in the proceeds from the sale of their residence, and directing the Trustee to pay them that amount. They filed a jury demand months later which was denied by this Court because it was untimely.

         In their Withdrawal Motion, the Coles seek the withdrawal of the reference for the entire adversary proceeding, or alternatively, for two state law claims: 1) confirmation of the Coles' California homestead exemption and disbursal of the Proceeds to them, and 2) payment of federal and state taxes from the Proceeds pursuant to the Stipulated Order. The Trustee has opposed the Withdrawal Motion.

         In this Report, the Court will not address the Coles' request to withdraw the reference for the entire adversary proceeding because, as noted above, all counts have either been adjudicated or dismissed. The Court will focus its recommendation on the Coles' request to withdraw the reference with respect to the disputes surrounding their homestead exemption and disbursement of the Proceeds.

         Discussion

         United States district courts have original jurisdiction over all “cases under title 11” and related proceedings. 28 U.S.C. §§1334(a), (b). Pursuant to 28 U.S.C. §157(a), each district court may provide that any or all cases under title 11 and any proceedings “arising under” or “arising in” or “related to” a case under title 11 shall be referred to the bankruptcy judges for the district. In the Western District of Missouri, all bankruptcy cases and related proceedings are automatically referred to the bankruptcy court by standing order. Section 157(d) provides that “[t]he District Court may withdraw, in whole or in part, in a case or proceeding referred under ...


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