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Strauss v. Cole

United States District Court, W.D. Missouri, Central Division

December 29, 2017

BRUCE STRAUSS, TRUSTEE, Plaintiff,
v.
BRUCE COLE, et al., Defendants.

          ORDER

          NANETTE K. LAUGHREY UNITED STATES DISTRICT JUDGE.

         This case is before the Court on Defendants Bruce Cole and Nanette Cole's Motion for Withdrawal of the Reference Pursuant to 28 U.S.C. § 157(d). Doc. 1. The United States Bankruptcy Judge has filed a Report and Recommendation, Doc. 6, which the Coles move to strike, Doc. 9, and to which they have also filed objections, Doc. 10.

         The underlying case at issue is an adversary proceeding filed by the Trustee in May 2012 in the U.S. Bankruptcy Court for the Western District of Missouri, Strauss v. Cole, no. 12-02009-drd, against the Coles. In that case, the Trustee sought among other things to avoid fraudulent and preferential transfers, and now seeks to apply the proceeds of the sale of the Coles' California residence to the judgment that the Trustee obtained.

         The Coles ask for withdrawal of the reference of their claim to a homestead exemption in the proceeds of the sale of their residence, and for which they have demanded a jury trial, and withdrawal of their claim that they are entitled to have their Federal and State tax liabilities paid from the proceeds of the sale. They ask in the alternative for withdrawal of the reference of the entire proceeding. The United States Bankruptcy Judge, the Hon. Dennis Dow, has recommended denying the motion for withdrawal, and the Trustee objects to withdrawal.

         For the reasons discussed below, the Motion for Withdrawal of the Reference, Doc. 1, is denied. The Motion to Strike, Doc. 10, the Report and Recommendation is denied. The Court has reviewed the Report and Recommendation de novo and adopts it, consistent with the discussion herein.

         I. Background

         In June 2012, with the Coles' and the Trustee's consent, the Bankruptcy Court entered two orders in the adversary proceeding. Specifically, on June 15, 2012 the Bankruptcy Court entered a temporary restraining order which provided that the proceeds of the sale of the Coles' California residence were to be paid to a California escrow company pending further order of the Bankruptcy Court. On June 18, 2012 the Bankruptcy Court entered an order providing that the June 15 order would remain in effect until final judgment was entered in the adversary proceeding, and that the escrow agent would retain the proceeds until entry of final judgment, at which time the Bankruptcy Court would enter an order directing the disposition of the proceeds. See Doc. 3-1 (Stipulated Order of 6/18/2012).

         The Trustee was subsequently granted summary judgment on his claims for fraudulent and preferential transfer. See Strauss v. Cole, 608 F. App'x 438 (8th Cir. 2015) (affirming summary judgment in favor of the Trustee). In February 2016, the Bankruptcy Court granted the Trustee's motion to voluntarily dismiss the remaining counts in the adversary proceeding.

         The Coles then filed motions to alter or amend the order of dismissal, or clarify the process by which they could seek an order directing the disbursement of the proceeds of the sale of their California residence to pay state and federal taxes, which the Bankruptcy Court denied. The Bankruptcy Court ordered the Coles to file a motion containing all supporting factual and legal bases for their argument that the taxes should be paid from the proceeds. See Strauss v. Cole, W.D. Mo. Bankr., case no. 12-2009-DRD (Doc. 239). The Coles did not file such a motion. They instead appealed the dismissal order and other orders to this Court, which this Court affirmed. See Strauss v. Cole, U.S. District Court, W.D. Mo., case no. 2:16-cv-04143-NKL. The Coles appealed to the Eighth Circuit and that appeal is pending. See Strauss v. Cole, Eighth Circuit Court of Appeals, case no. 17-3126.

         On January 31, 2017, Bruce Cole filed a motion in the Bankruptcy Court requesting a ruling that he was entitled to a homestead exemption of $175, 000 in the proceeds from the sale of the residence, and directing the Trustee to pay that amount. Doc. 3-2. He asked the Bankruptcy Court to grant the motion based upon the argument and law cited, and he requested a hearing. Nanette Cole joined the motion on February 17, 2017. Doc. 3-3. The Coles filed reply suggestions in support of their motion in March 2017. The Bankruptcy Court entered an order setting a telephonic hearing for May 8, 2017 and directing the parties to be prepared to discuss evidentiary, legal, and procedural issues. On April 24, 2017, the Coles filed a motion for a continuance. The Bankruptcy Court subsequently held the telephonic hearing on May 15, 2017. After the hearing, the Bankruptcy Court ordered the parties to file stipulations of fact no later than June 14, 2017. On June 14, 2017, Bruce Cole moved for an extension of the deadline for filing stipulations. On July 13, 2017, the Bankruptcy Court set an October 5, 2017 bench trial on the claim for a homestead exemption. On August 16, 2017, Bruce Cole filed a motion requesting the issuance of blank subpoenas duces tecum. At no time from January through August 2017 did the Coles demand a jury trial on their claim for a homestead exemption in the proceeds, whether in any of their filings in the Bankruptcy Court, or during the telephonic May 2017 hearing.

         On September 13, 2017, Bruce Cole filed a demand for a jury trial on the homestead exemption claim. Doc. 7-1. The Bankruptcy Court denied the demand on September 28, 2017, holding that it was untimely and a jury trial had been waived. See Strauss v. Cole, W.D. Mo. Bankr., case no. 12-2009-DRD (Doc. 394) (citing Fed.R.Civ.P. 38, Fed.R.Bankr.P. 9015, and W.D. Local Rule of Bankr. P. 9015-1.C). Cole also filed a motion requesting a continuance of the October 5, 2017 bench trial, Doc. 7, pp. 12-16, which the Bankruptcy Court granted.

         The Bankruptcy Court's Report and Recommendation focused on the Coles' request to withdraw the reference with respect to the disputes surrounding their claim to a homestead exemption and disbursement of the proceeds to pay their taxes. Doc. 6, p. 4. The Bankruptcy Court stated that issues concerning the disposition of the proceeds of the sale of the residence are non-core issues, related to the bankruptcy proceedings, in that disposition of the proceeds will affect the distribution made to the Debtor's estate, and that the Coles had consented to its jurisdiction over the disposition of the proceeds. Id., pp. 5-6. It further stated that the Coles had waived their request for a jury trial by failing to timely demand one; it would be inefficient to withdraw the reference; the motion constituted forum shopping; and the motion was generally untimely. Id., pp. 6-9.

         The Coles argue that their claim to a homestead exemption is a non-core, state law matter and that the reference should be withdrawn because they have timely demanded a jury trial on the exemption and do not consent to a jury trial in the Bankruptcy Court. They further argue that the issue of payment of the taxes is a non-core matter and the issue should be decided together with the homestead exemption. Doc. 7. With respect to the Report and Recommendation, the Coles move to strike it on the basis that it “advocate[s] for the Trustee” and that 28 U.S.C. § 157(d) does not explicitly refer to reports and recommendations. Doc. 9. The Coles also filed written objections to the Report and Recommendation on the same bases stated in their motion to withdraw the reference. Doc. 10.

         II. ...


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