Strauss v. Cole et al

Filing 20

ORDER. Appellant Bruce Cole's motion for leave to adopt Appellant Nanette Cole's brief, Doc. 15, is granted. The Bankruptcy Court's orders are affirmed. Signed on 1/3/17 by District Judge Nanette K. Laughrey. (Order mailed to Bruce Cole and Nanette Cole.) (Matthes Mitra, Renea)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MISSOURI
CENTRAL DIVISION
NANETTE COLE AND BRUCE COLE,
Appellants,
v.
BRUCE E. STRAUSS, TRUSTEE,
Appellee.

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No. 2:16-cv-04143-NKL

ORDER
This appeal arises out of an adversary proceeding under title 11 of the United States
Code. 1 Appellants Bruce Cole and Nanette Cole argue that the Bankruptcy Court should have
advised them of their right to have the proceedings heard by an Article III judge; the Bankruptcy
Court did not have authority to enter orders concerning the proceeds of the sale of their
residence, and requiring them to dismiss a lawsuit they had filed in California; they should not
have been held in contempt; and a third party should have been required to file a separate
adversary proceeding. Bruce Cole also moves to adopt Nanette Cole’s appeal brief. Doc. 15.
The motion is granted. The Court affirms.
I.

Statement of Facts
Bruce Cole was the president and CEO of Mamtek U.S., Inc., and Nanette Cole is his

wife. On December 15, 2011, several creditors filed an involuntary petition for relief under
Chapter 7 of the Bankruptcy Code 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
1

The Honorable Dennis R. Dow, United States Bankruptcy Court for the Western
District of Missouri.

sought, among other things, avoidance of fraudulent and preferential transfers. The Trustee also
moved for a temporary restraining order and preliminary injunctive relief, to prevent the Coles
from disposing of the proceeds of the sale of their residence in Beverly Hills, California.
Based upon Bruce Cole’s representation that the property would not be sold before June 27,
2012, the Bankruptcy Court denied the Trustee’s request for a TRO and set a hearing on the
request for a preliminary injunction for June 22, 2012. 2
On June 12, 2012, the Trustee filed a renewed motion for TRO because he had been
informed by the broker’s counsel that the sale of the real property could close as early as
June 15. 3 With the Coles’ consent, the Bankruptcy Court entered a TRO on June 15. The order
provided, in relevant part:
1.

All proceeds of the sale of the residence of defendants
Bruce and Nanette Cole ... shall be paid to Escrow of the
West [a California escrow company] ....

3.

The Escrow Agent shall disburse the proceeds of the
Residence as follows: ...
(b)
to any governmental entities or other taxing
authorities in an amount sufficient to satisfy any
taxes or fees relating to the Residence or to the sale
of the Residence....

4.

All proceeds of the sale of the Residence in excess of the
amounts set forth in paragraph 3 shall be held by the
Escrow Agent pending further order of the United States
Bankruptcy Court for the Western District of Missouri.

5.

Any attempt by Bruce or Nanette Cole to enter into any
agreement or make any instruction that proceeds received
hereafter from the sale of the Residence be disbursed to any
person or entity other than the Escrow Agent shall be a
direct violation of this Order. ….

2

At the time, the Coles were represented in the adversary proceeding by attorneys
Neil Sader and Bradley McCormack.
3
Bruce Cole filed a declaration in the Bankruptcy Court on June 14, 2012, stating
that it was the buyers who had suggested changing the closing date. Bankr. Doc. 51.
2

Bankr. Doc. 55. 4
On June 18, 2012, the Bankruptcy Court entered another order, stipulated to by the
Trustee and the Coles. It provided, in relevant part, that: (1) the June 15, 2012 order would
“remain in force and effect until final judgment is entered in this adversary proceeding;” and
(2) Escrow of the West would retain the net proceeds of the sale of the real property “until final
judgment is entered in this adversary proceeding, at which time the Court shall enter an order
directing the disposition of such proceeds.” Bankr. Doc. 61. After entry of the June 2012 orders,
Escrow of the West continued to hold the proceeds of the sale.
In December 2012, the Bankruptcy Court granted a motion to withdraw filed by the
Coles’ attorneys, Neal Sader and Bradley McCormack, and the Coles subsequently proceeded
pro se in the adversary proceeding
On August 29, 2013, the Bankruptcy Court granted the Trustee summary judgment on
Counts I and III of the adversary complaint, concerning fraudulent and preferential transfers. 5
The Trustee filed a motion in the Bankruptcy Court on October 16, 2013, asking that the June
2012 orders be modified to direct Escrow of the West to transfer the proceeds to the Trustee so
the proceeds could be credited against the Trustee’s judgment. The Coles filed an objection in
the Bankruptcy Court to the Trustee’s motion to modify, on the bases that the judgment was not
final in view of the counts still pending in the adversary proceeding and that the proceeds should
be used to pay their capital gains taxes relating to the sale of the real property.
4

“Bankr. Doc.” refers to filings in adversary proceeding in the Bankruptcy Court
below, case no. 12-02009-drd.
5
The Coles appealed to the District Court. See case no. 2:13-cv-04200-NKL. This
Court entered judgment against both of the Coles on Count I, avoidance of a $904,167
fraudulent transfer, and against Bruce Cole on Count III, avoidance of a $360,000 preferential
transfer. The Eighth Circuit Court of Appeals affirmed on July 6, 2015. See Strauss v. Cole, 608
F. App'x 438 (8th Cir. 2015).
3

At some point, the Coles hired Gary Mobley, a California attorney, to assist them in
having capital gains taxes paid to the IRS and the California Franchise Tax Board out of the
proceeds of the sale of the real property. Mobley did not enter an appearance on behalf of the
Coles in the adversary proceeding. But he sent a letter on November 13, 2013 to Escrow of the
West, stating that he “represent[ed]” the Coles with respect to the sale proceeds and demanding
that payment be made from the proceeds to the IRS and the California Franchise Tax Board,
based on the Bankruptcy Court’s June 2012 orders. Bankr. Doc. 267, Exhibit A. Through
December 17, 2013, Mobley and Escrow of the West’s attorney, Daniel Krishel, exchanged
numerous letters and emails regarding the Coles’ demand for the payment and Escrow of the
West’s position that such a transfer was unauthorized. Bankr. Doc. 267, Exhibits B-E. The
Coles also filed a supplemental brief in the Bankruptcy Court in opposition to the Trustee’s
motion to modify, but did not disclose the exchanges Mobley was having with Escrow of the
West’s attorney. Bankr. Doc. 231.
On December 20, 2013, the Bankruptcy Court denied the Trustee’s motion to transfer the
proceeds, holding that transfer was premature in view of the other pending claims in the
adversary proceeding. Bankr. Doc. 239. The Bankruptcy Court added that if circumstances
changed, it would consider a motion to modify its orders regarding the proceeds. The Bankruptcy
Court also expressly acknowledged the argument the Coles had made in response to the
Trustee’s motion, i.e., “that taxes related to the sale of the Property are due and owing, and are to
be disbursed by the Escrow Agent from the Funds,” and ordered:
[The Coles’] assertion in response to the Trustee’s motion does not
substitute for a motion requesting release of a portion of the Funds.
The Court agrees with the Trustee’s position that, if the Defendants
claim that the Funds should be used to pay their capital gain tax
liability, they must submit a formal request to the Court for
consideration, asserting all the factual and legal bases for that
4

claim, to which the Trustee will have the opportunity to respond.
The Court will then decide the matter, holding a hearing, if
necessary.
Bankr. Doc. 239, p. 4 (emphasis added).
Krishel sent an email to Mobley on January 6, 2014 about the Bankruptcy Court’s order,
and stating that the Coles would “need to make a motion to have specific funds released and to
whom they are to be released.” Bankr. Doc. 267, Ex. F. Mobley responded on January 7, 2014:
The bankruptcy court decision does nothing to change my clients’
position, which I believe I have clearly articulated to you.
Specifically, your client is holding approximately $900,000 of my
clients’ money in an escrow account, the bankruptcy court has
ordered Escrow of the West to use these funds to pay to the IRS
and Franchise Tax Board (“FTB”) to pay the capital gains taxes
incurred in the sale of the residence, and my clients have
specifically requested that your client do so. Under these
circumstances, your client has no right to refuse this request or, at a
minimum, interplead these funds into a California court.
Id., Ex. G.

Mobley also said Escrow of the West had “been stalling” him pending the

Bankruptcy Court’s decision regarding the disbursement motion and that the Bankruptcy Court
had ordered Escrow of the West to pay the capital gains taxes. Id. Mobley threatened to sue
Escrow of the West if it did not pay the taxes.
On February 10, 2014, Mobley filed a lawsuit on behalf of the Coles in the Superior
Court of California, Orange County, against the Trustee, Escrow of the West, the State of
California, and the United States of America concerning the proceeds of the sale of the real
property.

The first count sought a declaration that Escrow of the West should disburse

$175,000 of the funds to the Coles as a homestead exemption, and remaining funds to the
United States and the State of California to satisfy the taxes. The second count alleged Escrow
of the West had breached a fiduciary duty when it did not comply with the Coles’ demands to
pay over the funds as the Coles had requested. Bankr. Doc. 267, Exhibit H.
5

The Trustee filed an emergency motion on February 25, 2014 in the adversary
proceeding before the Bankruptcy Court, to halt the California litigation and asking for
modification of the Bankruptcy Court’s prior orders and an expedited hearing. The Coles filed
a response in the Bankruptcy Court the following day, representing that there was “no
emergency or imminent threat of funds being disbursed.” Bankr. Doc. 248, p. 2. The Coles
filed another response in the Bankruptcy Court on March 4, 2014, arguing that the Bankruptcy
Court did not have jurisdiction over the funds held by Escrow of the West, and that they had
merely brought the California lawsuit to force Escrow of the West to comply with the
Bankruptcy Court’s orders. Bankr. Doc. 259, pp. 2 and 10.
The Bankruptcy Court held a hearing by telephone on the emergency motion on
March 5, 2014. 6 The Bankruptcy Court found that the Coles’ filing of the California lawsuit was
“a clear violation of the Barton Doctrine[ 7],” Bankr. Doc. 265, pg. 9, and that the Coles had
“clearly violated this Court’s order and are actively trying to circumvent it in at least several
respects,” id., p. 34.

The Bankruptcy Court also cited both the November 13 letter from

Mobley, as well as the California lawsuit, as evidence of the Coles’ attempts to circumvent and
violate its order. Id., p. 35. The Bankruptcy Court further found that by filing the California
lawsuit, the Coles were seeking in California “an interpretation of my order. The appropriate
place for an interpretation of this Court’s order is this Court. I also note that they’re essentially
asking the California court to interpret my order, incredibly, without even having advised the
California court of the existence of my order.” Id., p. 36. Describing the Coles’ conduct as

6

Both of the Coles participated in the call.
Established in Barton v. Barbour, 104 U.S. 126 (1881), the Barton doctrine
“requires that a party obtain leave from the bankruptcy court before bringing an action in another
forum against the trustee for acts done in the trustee's official capacity.” Alexander v. Hedback,
718 F.3d 762, 767 (8th Cir. 2013).
7

6

“disingenuous at least and deceitful at most,” the Bankruptcy Court noted that while litigating
the Trustee’s motion to transfer the proceeds, the Coles never advised the Bankruptcy Court that
they were actively seeking to have the proceeds paid to the taxing authorities. Id. The
Bankruptcy Court granted the Trustee’s emergency motion and ordered Escrow of the West to
transfer the funds to the Tennessee bank account of the Estate of Mamtek U.S. by 5 p.m. the
same day, which Escrow of the West did. The Bankruptcy Court further ordered the Trustee
“not [to] dispose of or transfer any of the Funds until all claims in the above-captioned
adversary proceeding are finally determined and unappealable.” Bankr. Doc. 262.
On March 11, 2014, Escrow of the West filed a motion to dismiss in the California lawsuit,
attaching copies of the Bankruptcy Court’s March 5, 2014 hearing transcript and order on the
emergency motion. Bankr. Doc. 267, Exhibit I. The Coles filed suggestions in opposition in the
California lawsuit, arguing that the Bankruptcy Court had ordered Escrow of the West to pay their
taxes. Bankr. Doc. 267, Exhibit J. The Hon. Derek W. Hunt held a hearing on the motion on
April 22, 2014. Judge Hunt denied Escrow of the West’s motion to dismiss, but stayed the case.
Although Mobley argued that the Bankruptcy Court’s June 2012 orders’ reference to the “taxes”
should be read expansively and the Coles were therefore entitled to immediate payment of the
capital gains taxes from the sale proceeds, Judge Hunt disagreed. He opined that the order was
merely referring to property taxes, but that in any event, it was up to the Bankruptcy Court to
interpret and enforce its own order. Judge Hunt found the Coles had “misinform[ed] [him] about
the background [of the bankruptcy proceedings].” Bankr. Doc. 267, Exhibit M, p. 9. He
concluded that the “money [was] within the bankruptcy court’s jurisdiction” and it was not
“sensible [of the Coles] to think [they] could go forward and adjudicate against Escrow of the
West, which has transferred, or in some fashion put that money—by virtue of a bankruptcy court

7

order—in the hands of” the Trustee. Id., pp. 11-12. Judge Hunt also noted that the Bankruptcy
Court had invited the Coles to file a motion in the Bankruptcy Court if they felt the funds should
be used to pay the capital gains taxes, but the Coles had not taken the Bankruptcy Court up on the
invitation. Judge Hunt stated that he was “not going to step on Judge Dow’s feet.” Id., p. 13-15.
The Coles did not file a motion in the Bankruptcy Court concerning payment of taxes.
They continued to litigate the California case and it was reassigned from Judge Hunt to the Hon.
Randall Sherman on August 9, 2014. On December 5, 2014, Judge Sherman held a hearing,
vacated the stay previously entered by Judge Hunt, and set a case management conference for
January 23, 2015 with a trial to follow.
On January 20, 2015, Escrow of the West filed a motion in the Bankruptcy Court asking
for findings that Escrow of the West had complied with the Bankruptcy Court’s orders and that
the Coles were in contempt. Bankr. Doc. 267. Mobley and the Coles filed separate suggestions
in opposition. Docs. 274 and 274. The Bankruptcy Court held a hearing on Escrow of the
West’s motion on March 11, 2015. Mobley was present in person and Nanette Cole participated
by telephone. After hearing argument, Judge Dow made oral findings of fact and conclusions of
law under Bankruptcy Rules 7052 and 9014(c). Judge Dow found that Escrow of the West had
complied in all material respects with the Bankruptcy Court’s orders and that “as of February 6,
2014, the Coles and their counsel [Mobley] were in contempt of this Court’s order of 12/20 by
filing the proceeding in the State of California requesting precisely the determination that this
Court told the Coles in my order of 12/20 they could only get here.” Bankr. Doc. 283, p. 35.
Judge Dow ordered the Coles to dismiss the California case and stated that they would be fined
$100 per day until they had done so. Id., pp. 35-36. Judge Dow also ordered Escrow of the
West’s attorney to prepare a written order incorporating his oral ruling. Id., p. 46. Although

8

Judge Dow had not in his oral ruling indicated whether the California lawsuit should be
dismissed with or without prejudice, the written order he subsequently entered provided that it
should be dismissed with prejudice. Bankr. Doc. 281.
The Coles filed a motion to dismiss with prejudice in the California case on March 13,
2015 and the case was dismissed with prejudice the same day. 8 Nothing in the record reflects
that the Coles were directed to pay or paid the $100 daily fine after they dismissed the case. 9
On February 17, 2016, the Trustee filed a motion in the Bankruptcy Court adversary
proceeding to dismiss the remaining counts. The Coles filed a “Response,” stating they did not
object to dismissal of the counts “as the only relief specified in the motion,” but that they did
object if the Trustee wanted relief beyond what was specified, stating that the Trustee should
be required to file a separate motion. Bankr. Doc. 303. The Bankruptcy Court granted the
Trustee’s motion to dismiss on March 11, 2014, ordering:
Trustee's Motion to Dismiss Adversary Proceeding Counts II, IV,
V, VI, VII, VIII And IX Only Of The First Amended Complaint
filed by Bruce E. Strauss, Trustee is Granted. The Court has
reviewed the responses filed by both defendants. Neither states any
basis for refusal of the requested relief which benefits the
defendants and which they essentially say they do not oppose.
While concerns are expressed about so-called “other relief” no
relief other than dismissal of the remaining counts of the amended
complaint is sought. None of the litany of other complaints (many
of which have been previously raised and rejected) is even
remotely relevant to the relief requested by plaintiff in the motion.
8

The Court takes judicial notice of the dismissal. See Hood v. United States, 152
F.2d 431, 535 (8th Cir. 1946) (district courts may take judicial notice of proceedings in other
courts).
9
Mobley and the Coles separately appealed the Bankruptcy Court’s contempt order
to the U.S. District Court, Western District of Missouri, the Hon. Stephen R. Bough, and the
appeals were consolidated. See U.S. District Court, W.D. Mo. case no. 2:15-cv-04057-SRB.
Judge Bough held that the contempt order was interlocutory and not ripe for appeal with respect
to the Coles, in view of the fact that the adversary proceeding was still pending, and declined to
grant the Coles leave to appeal. In re Mamtek U.S., Inc., 2015 WL 5604418, at *3-4 (W.D.
Mo. 9/23/2015). Judge Bough affirmed with respect to Mobley. Id. at *4-6.
9

Bankr. Doc. 304.
The Coles filed motions in the Bankruptcy Court under Bankruptcy Rule 9023 to alter or
amend, and to clarify. Bankr. Docs. 306 and 307. 10 They asked the Bankruptcy Court to clarify
the process by which they could seek an order directing the Trustee to use certain funds in his
possession to pay their taxes, and to order that before the Trustee disbursed the funds, the Trustee
must file a motion seeking authorization to do so. Id. The Trustee responded that the issue of
clarity of the process for obtaining an order on payment of taxes had already been litigated, the
process was so clear that the Coles and their attorney had in fact been sanctioned for violating it,
and the Western District had upheld the sanction in the attorney’s appeal. The Trustee added
that no order was necessary with respect to his obligations to file any motion regarding
disbursement, inasmuch as the Bankruptcy Code and Rules already governed such activities.
Bankr. Doc. 309.
On May 4, 2016, the Bankruptcy Court denied the Coles’ motions. Bankr. Doc. 312.
The Bankruptcy Court held that the grounds for the Coles’ motion were unclear. It noted that
although the Coles asked for clarification about the process for determining the appropriate
disposition of the proceeds held by the Trustee of the sale of their residence, and complained that
the Bankruptcy Court had overlooked a similar request for clarification in their response to the
motion to dismiss, the issue was irrelevant to the Trustee’s motion to dismiss the remaining
counts. The Bankruptcy Court further noted it had already made “abundantly clear” what the
Coles must do if they wanted a determination regarding payment of taxes from the sale of the
10

The Coles filed their Rule 9023 motions in paper format. Nanette Cole’s Rule
9023 motion was delivered to the Bankruptcy Court on March 28, 2016, or seventeen days after
entry of the dismissal order. Bruce Cole, who is incarcerated, deposited his Rule 9023 motion in
the prison mail on March 25, 2016, or fourteen days after entry of the dismissal order, and it was
delivered to the Bankruptcy Court on March 28, 2016.
10

proceeds. Id., p. 2. Finally, the Bankruptcy Court noted that Rule 9023 is addressed to mistakes
of law or fact, but the Coles had not suggested that anything in the order on the motion to dismiss
reflected a mistake of law or fact. The Bankruptcy Court concluded:
[The Coles] have been told repeatedly that they must file a motion
setting forth the arguments and authorities that support their
request and serve it on the Trustee. There is no need for any
“clarification”. Despite that repeated advice, the [Coles] have
failed to do so. This Court has no intention of raising the issue on
its own motion.
Id., p. 3.
The Coles appealed to the District Court. 11
I.

Jurisdiction
The Trustee and Escrow of the West argue that this Court lacks jurisdiction because the

Coles filed their Rule 9023 motions to alter, amend, and clarify too late, and their notices of
appeal were therefore filed too late. As discussed below, the Court agrees with respect to
Nanette Cole’s motion and notice of appeal, but concludes Bruce Cole’s motion and notice of
appeal were timely filed.
A Rule 9023 motion must be filed within 14 days of entry of the judgment or order being
challenged, and that time limit cannot be extended. See Fed. R. Bankr. P. 9006(b)(2); In re
Ellis,, 72 F.3d 628, 631 (8th Cir. 1995). A notice of appeal under Bankruptcy Rule 8002 must be
filed within 14 days of entry of the judgment or order being appealed, except that the 14-day
limit is tolled when a party “timely files” a motion under Rule 9023. Fed. R. Bankr. P. 8002(a)
and (b). As relevant here, a “paper is filed by delivering it … to the clerk” of court. Fed. R.
Bankr. P. 7005 (incorporating Fed. R. Civ. P. 5). Accordingly, if a Bankruptcy Rule 9023

11

The Coles’ notices of appeal were delivered, in paper format, to the Bankruptcy
Court on May 18, 2016, or fourteen days after denial of the Coles’ Rule 9023 motions.
11

motion, in paper format, is delivered to the clerk of court more than 14 days after the entry of the
judgment or order, the motion has not been timely filed, and Rule 8002’s 14-day limit in which
to appeal that judgment or order therefore is not tolled.
Here, the Bankruptcy Court granted the motion to dismiss on March 11, 2016. Nanette
Cole delivered her Rule 9023 motion to the Bankruptcy Court clerk on March 28, 2016, or 17
days later, beyond the 14-day window for filing it. Accordingly, the late filing of her Rule 9023
motion did not toll the time to file a notice of appeal under Bankruptcy Rule 8002, and her notice
of appeal—filed two months after the dismissal order—was filed too late to challenge the
Bankruptcy Court’s dismissal order and underlying rulings.
However, the analysis is different with respect to Bruce Cole because he is incarcerated.
The Bankruptcy Rules expressly incorporate the prison mailbox rule, an exception to filing by
delivery to the clerk, with respect to notices of appeal. Under Bankruptcy Rule 8002(c), when an
“inmate confined in an institution files a notice of appeal from judgment, order, or decree of a
bankruptcy court, the notice is timely if it is deposited in the institution’s internal mail system on
or before the last day for filing.” Bankruptcy Rule 8002 does not expressly state whether the
prison mailbox rule also applies to the filing of motions that can toll the running of the time to
file a notice of appeal, such as motions to alter or amend under Bankruptcy 9023, and the Eighth
Circuit has not decided whether the prison mailbox rule applies to the filing of bankruptcy
motions. In re. Bourgeois, 488 B.R. 622, 626 (8th Cir. Bankr. App. Panel 2013) (recognizing the
open question).
But the Bankruptcy Rules are generally interpreted the same way as other, similar Federal
Rules. See In re Lindley, 216 B.R. 811, 815 n.7 (Bankr. N.D. Ill. 1998), and In re Watson, 1977
WL 1327, at *2 (S.D. Ga. Dec. 8, 1977). Bankruptcy Rule 8002 is modeled after Fed. R. App.

12

P. 4, which similarly includes the prison mailbox rule for notices of appeal, and a provision for
motions tolling the time to file a notice of appeal such as motions to alter or amend under Fed. R.
Civ. P. 59. 12 In United States v. Duke, 50 F.3d 571, 575 (8th Cir. 1995), the Eighth Circuit held
that the prison mailbox rule applies “with equal force” to the filing of notices of appeal under
Appellate Rule 4 and to motions “which, under [the rule], toll[] the time for filing of a notice of
appeal.” The Eighth Circuit relied on the rationale of Houston v. Lack, 487 U.S. 266, 271-72
(1988), in which the Supreme Court established the prison mailbox rule, recognizing that a
prisoner’s “control over the processing” of his filings “necessarily ceases as soon as he hands it
over to the only public officials to whom he has access—the prison authorities[.]” This Court
sees no reason to interpret Bankruptcy Rule 8002 differently than Appellate Rule 4 with respect
to application of the prison mailbox rule.
Accordingly, the Court will apply the prison mailbox rule to the filing of Bruce Cole’s
Bankruptcy Rule 9023 motion.

He deposited his Rule 9023 motion in the prison mail on

March 25, 2016—the 14th day after entry of the order of dismissal. By operation of the prison
mailbox rule, it was therefore timely filed and operated to toll the time for him to file his notice
of appeal. The notice of appeal, which was deposited in the prison mailbox and reached the
clerk within 14 days of the denial of the Rule 9023 motion, was timely filed as well.
Accordingly, the Court has jurisdiction of Bruce Cole’s appeal.
II.

Issues on Appeal
Cole raises nine issues on appeal:
1.

12

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?

Bankruptcy Rule 9023 expressly incorporates Fed. R. Civ. P. 59.
13

2.

Does the Bankruptcy Court have jurisdiction over the
proceeds from the sale of [the Coles’] residence in
California?

3.

Did the Bankruptcy Court err in refusing to consider issues
of tax payments and homestead raised by [the Coles]
pursuant to prior orders and ordering transfer of proceeds
from the sale of [the Coles’] California residence?

4.

Should issues arising in the Adversary Proceeding and still
pending clarification or subject to Motions or Orders by
the Bankruptcy Court in this Adversary Proceeding,
including but not limited to orders directing the payment of
any taxes relating to the sale of Defendants’ personal
residence and homestead provisions, be ruled on by the
bankruptcy court before proceeding with this appeal?

5.

Was it error for the bankruptcy court to order dismissal of
an entire California Action which included a cause of
action and issues of California law other than the
Bankruptcy Court orders?

6.

Did the Bankruptcy Court have authority to issue a final
adjudication of all issues pending before a California court
or order a dismissal with prejudice of an entire California
action when necessary parties to the adjudication were not
before it and pleadings were still subject to amendment
under state law?

7.

Did a third-party Escrow Company have standing to seek
the relief granted by way of motion in this adversary
proceeding?

8.

Was it error for the bankruptcy court to add “with
prejudice” to its Order dismissing the entire California
action only upon request of the Movant a day after the
Order was announced at the hearing, dismissal with
prejudice was never requested or noticed by the Movant,
never mentioned at the hearing, and thereafter added to the
Order without notice to these Defendants?

14

9.

Did the filing of a California action against the Escrow
Company retained by Defendants for the sale of the personal
residence in California prior to this Adversary Proceeding
constitute contempt by these Defendants of the Bankruptcy
Court’s Order of December 20, 2013?

Doc. 14. 13
III.

Standard of Review
Issues 1 through 8 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).
Issue 9, the contempt finding, is reviewed for abuse of discretion. See Indep. Fed’n of
Flight Attendants v. Cooper, 134 F.3d 917, 920 (8th Cir.1998) (the grant or denial of a contempt
order is reviewed for abuse of discretion, but an order finding contempt is reviewed “more
searchingly”).
IV.

Discussion
A.

Issue 1, whether reversal is required where the Bankruptcy Court did not
advise Cole of the “right or opportunity to have the proceedings heard before
an Article III judge[.]”

Cole claims that the Bankruptcy Court erred in not advising him of his “right or
opportunity to have the proceedings heard before an Article III judge[.]” Doc. 14, pp. 2-7 (citing
Stern v. Marshall, 131 S.Ct. 2594 (2011), Executive Benefits Ins. Agency v. Arkison, 134 S.Ct.
2165 (2014), and Wellness Intern. Network, Ltd. v. Sharif, 135 S.Ct. 1932 (2015)). Emphasizing
the Supreme Court’s May 2015 decision in Wellness, he argues that the Bankruptcy Court did
not have authority to adjudicate the claims against him in the adversary proceeding, absent
notification to Cole of the right to refuse adjudication by the Bankruptcy Court. As discussed
below, the Court concludes the issue lacks merit.
13

“Doc.” refers to filings in the appeal currently before this Court.
15

In Stern, the Supreme Court held that Article III prevents bankruptcy courts from
entering final judgment on claims that seek only to “augment” the bankruptcy estate and would
otherwise “exis[t] without regard to any bankruptcy proceeding.” 131 S.Ct. at 2614, 2618. In
Executive Benefits, the Supreme Court held that when the Constitution does not permit a
bankruptcy court to enter final judgment on a bankruptcy-related claim, the bankruptcy court
may nevertheless issue proposed findings of fact and conclusions of law to be reviewed de novo
by a district court. 135 S.Ct. at 2170. Finally, in Wellness the Supreme Court held that Article
III of the United States Constitution permits bankruptcy judges to adjudicate a claim that would
otherwise fall under the Stern prohibition, with the parties’ knowing and voluntary consent, and
that such consent need not be expressly given. 135 S.Ct. at 1944-48.
In his previous appeal to this Court in case no. 2:13-cv-04200-NKL, Cole similarly
argued that reversal was necessary because the Bankruptcy Court had not notified him of the
right or opportunity to have the proceedings heard before an Article III judge. Noting he had
cited no authority, this Court concluded the argument lacked merit. 2014 WL 4055787, at *4-5.
At the time of this order, Stern and Executive Benefits had been decided, but Wellness had not
been. The Coles appealed to the Eighth Circuit, case no. 14-3302, on September 26, 2014.
Wellness was decided on May 26, 2015 and a supplemental brief addressing Wellness and
consent was filed on June 16, 2015, before the Eighth Circuit took the case under submission.
The Eighth Circuit summarily affirmed on July 7, 2015, stating it had “review[ed] the record and
the parties’ arguments” and “conclude[d] that there [was] no basis for reversal[.]” 608 Fed.
Appx. 438 (8th Cir. 2015) (citing Exec. Benefits Ins. Agency v. Arkison, 134 S.Ct. 2165, 2172-75
(2014)). In short, the issue of knowing and voluntary waiver was before the Eighth Circuit and
the Eighth Circuit affirmed. Issue 1 therefore lacks merit.

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B.

Issue 2: The Bankruptcy Court’s jurisdiction over the proceeds of the sale of
the real property.

Cole argues that the Bankruptcy Court lacked jurisdiction over the sale proceeds. He
raised the identical issue in his prior appeal before this Court, which concluded he had waived
the issue by failing to brief it. 2014 WL 4055787, at *13. A party is not generally permitted to
raise, on second appeal, an issue that the party could have raised in a first appeal. See Macheca
Transp. Co. v. Philadelphia Indem. Ins. Co., 737 F.3d 1188, 1194 (8th Cir. 2013) (“For over one
hundred years, our court has repeatedly barred parties from litigating issues in a second appeal
following remand that could have been presented in the first appeal.”); and Lupo v. R. Rowland
& Co., 857 F.2d 482, 484 (8th Cir. 1988) (concluding that two attorneys challenging a district
court's jurisdiction to impose Rule 11 sanctions against them “waived any objection they may
have had regarding” the proper entry of judgment under Fed. R. Civ. P. 58’s separate document
requirement in a second appeal, because “an [initial] appeal was heard by this court on the merits
of the case ... and this issue was apparently not raised by the parties”). The Court sees no reason
to permit Cole to raise the issue in this appeal having waived it in the prior one.
Cole argues that this Court must consider the issue because it goes to the Bankruptcy
Court’s jurisdiction. The issue still lacks merit. This Court will assume for the sake of argument
that the Bankruptcy Court’s exercise of jurisdiction over the sale proceeds falls under the Stern
prohibition, i.e., that it is a matter statutorily designated for final adjudication by a bankruptcy
court but which the bankruptcy court is constitutionally prohibited from proceeding to finally
adjudicate. But Cole knowingly and voluntarily consented to the Bankruptcy Court’s exercise of
jurisdiction, within the meaning of Wellness. 135 S.Ct. at 1944-48. The Supreme Court in
Wellness explained that “the key inquiry” with respect to consent “is whether ‘the litigant or
counsel was made aware of the need for consent and the right to refuse it and still voluntarily
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appeared to try the case’ before the non-Article III adjudicator.” 135 S.Ct. at 1948 (quoting
Roell v. Withrow, 538 U.S. 580, 588 at n.5 (2003)). Consent may be express or implied. Id. The
Supreme Court did not decide whether the defendant in Wellness consented to the bankruptcy
court’s exercise of jurisdiction in an adversary proceeding, because the determination would
have been deeply fact bound and of little guidance to litigants or lower courts, given the unique
procedural history of the case. Id. at 1948-49. But other courts post-Wellness have held that
parties have impliedly consented when they appeared before a bankruptcy court without
objection. See Mandel v. Jones, 2016 WL 4943366, at *5 (E.D. Tex. Sept. 16, 2016) (parties
may impliedly consent when a bankruptcy judge hears evidence and testimony related to a claim
without objection by the parties) (citing In re McCollom Interests, LLC, 551 B.R. 292, 300
(Bankr. S.D. Tex. 2016) (“[T]his Court held two hearings during which two of the Firm's
attorneys appeared and gave testimony; and the Firm never objected to this Court's constitutional
authority to enter a final order.... If these circumstances do not constitute implied consent,
nothing does.”)). See also In re Campbell, 553 B.R. 448, 452 (Bankr. M.D. Ala. 2016)
(concluding that a defendant’s failure to appear and defend against claims in an adversary
proceeding, despite service of the summons, constituted knowing and voluntary consent to a
non-Article III adjudicator within the meaning of Wellness) (and cases cited therein).
Here, the Coles consented in June 2012 to the Bankruptcy Court’s entry of a temporary
restraining order and preliminary injunction regarding transfer of the sale proceeds.
Furthermore, notwithstanding their late 2013 appeal to this Court, case no. 2:13-cv-04200-NKL,
in which the Coles themselves identified the issue of the Bankruptcy Court’s jurisdiction over the
sale proceeds, they continued to appear before the Bankruptcy Court to litigate how the sale
proceeds would be handled. For example, after the Trustee filed a motion in the Bankruptcy

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Court in October 2013 asking that the sale proceeds be transferred to him and credited against his
judgment, the Coles did not object to the Bankruptcy Court’s exercise of jurisdiction. Rather,
they argued that the proceeds should be used to pay their capital gains taxes. Similarly, in
March 2016 when the Trustee moved to dismiss the remaining counts of the adversary
complaint, the Coles again failed to object to the Bankruptcy Court’s jurisdiction. They instead
asked the Bankruptcy Court to require the Trustee to file a motion for authorization to disburse
the sale proceeds. The circumstances of this case easily demonstrate implied consent to the
Bankruptcy Court’s exercise of jurisdiction.
Issue 2 therefore lacks merit.
C.

Issue 3: Requiring the Coles to file a motion for payment of the taxes from
the proceeds, and ordering the proceeds transferred to a bank account
outside of California.

Cole argues that according to the June 2012 orders, the capital gains taxes were supposed
to be paid from the sale proceeds, and that he and Nanette Cole “attempted to raise and schedule
these issues with the bankruptcy court prior to its dismissal of the remaining counts of the
Amended Complaint,” but the Bankruptcy Court simply would not resolve them. Doc. 14, p. 14.
In a December 2013 order, the Bankruptcy Court explicitly acknowledged the Coles’
argument, raised in their response to a motion filed by the Trustee, “that taxes related to the sale
of the Property are due and owing, and are to be disbursed by the Escrow Agent from the
Funds[,]” an argument the Trustee disputed. Bankr. Doc. 239, p. 4. The Bankruptcy Court
ordered:
[The Coles’] assertion in response to the Trustee’s motion does not
substitute for a motion requesting release of a portion of the Funds.
The Court agrees with the Trustee’s position that, if the Defendants
claim that the Funds should be used to pay their capital gain tax
liability, they must submit a formal request to the Court for
consideration, asserting all the factual and legal bases for that
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claim, to which the Trustee will have the opportunity to respond.
The Court will then decide the matter, holding a hearing, if
necessary.
Bankr. Doc. 239, p. 4. The first California judge assigned to the Coles’ case also urged the
Coles to do what the Bankruptcy Court had ordered, i.e., file a motion. But they never did.
The Bankruptcy Court was authorized to require the Coles to file a motion. By rule, a
request for an order from bankruptcy court must be made by motion. Fed. R. Bankr. P. 7(b).
More fundamentally, the statutory grant Congress has provided the bankruptcy courts extends to
exercising such authority as is necessary or appropriate to accomplish the purposes of the
Bankruptcy Code:
(a) The court may issue any order, process, or judgment that is
necessary or appropriate to carry out the provisions of this title. No
provision of this title providing for the raising of an issue by a
party in interest shall be construed to preclude the court from, sua
sponte, taking any action or making any determination necessary
or appropriate to enforce or implement court orders or rules, or to
prevent an abuse of process.
11 U.S.C. § 105(a). See also Hale v. U.S. Tr., 509 F.3d 1139, 1148 (9th Cir. 2007) (control is
necessarily vested in the bankruptcy courts to manage their own affairs so as to achieve the
orderly and expeditious disposition of cases). The Coles wanted a particular action taken, for
their personal benefit, prior to disbursement of the proceeds. Instructing them to file a motion,
stating factual and legal bases for the relief they wanted, was an orderly means of addressing the
issue. The Bankruptcy Court was vested with ample authority to require them to do so.
Cole argues that the Bankruptcy Court’s June 2012 orders were already clear about
payment of the capital gains taxes and therefore there was no reason for the Bankruptcy Court to
have ordered the Coles to file a motion seeking to have the capital gains taxes paid. But a
bankruptcy court has jurisdiction to interpret and enforce its own orders, Travelers Indemnity v.

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Bailey, 537 U.S. 137, 151 (2009), and the Bankruptcy Court here was in the best position to do
so, especially given the procedural history it faced in the adversary proceeding, including
motions for temporary restraining orders and the consent orders that led to entry of the June 2012
orders, and the litigation filed in the California case concerning its orders.
Cole also suggests that the Bankruptcy Court somehow erred in March 2014 when it
granted the Trustee’s emergency motion to transfer the funds out of California, to be held in the
Tennessee bank account for the Mamtek Estate. Cole’s argument is hard to follow. But a
bankruptcy court has the power to “issue any order, process, or judgment that is necessary or
appropriate to carry out the provisions of” the Bankruptcy Code. 11 U.S.C. § 105(a). The
Bankruptcy Court’s order here, transferring the funds, ensured they were preserved for purposes
of satisfying a judgment rendered in the adversary proceeding and was consistent with the
provisions of the Bankruptcy Code.
Issue 3 therefore lacks merit.
D.

Issues 5, 6, and 8: The Bankruptcy Court’s order directing the Coles to
dismiss the California lawsuit.

Cole argues the Bankruptcy Court had no authority to order him to dismiss the California
lawsuit. The argument fails.
First, the Coles in fact followed the Bankruptcy Court’s order and dismissed the
California lawsuit with prejudice in March 2015. Although Cole asks for reversal of the order
requiring him to dismiss the lawsuit, he does not identify any effect a reversal could have now.
The appeal of the order requiring dismissal therefore appears moot. Minnesota Humane Society
v. Clark, 184 F.3d 795, 797 (8th Cir. 1999) (holding that federal courts cannot issue decisions on
moot questions).
Even if it is not moot, however, it fails on the merits. The Bankruptcy Court ordered the
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dismissal of the California lawsuit in the course of finding the Coles were in contempt of its prior
orders by filing and continuing to litigate the lawsuit. The first count of the California lawsuit
sought payment of the taxes from the proceeds of the sale, even though the Bankruptcy Court
had explicitly instructed the Coles to file a motion, citing facts and authority, if they wanted that
type of relief. The second count, which was integrally related to and predicated upon the first,
claimed breach of fiduciary duty against Escrow of the West for failing to pay over the proceeds
as the Coles demanded.
“[B]ankruptcy courts have the inherent power to sanction vexatious conduct presented
before the court.” Hale v. U.S. Tr., 509 F.3d 1139, 1148 (9th Cir. 2007) (citation omitted).
“These powers are ‘governed not by rule or statute but by the control necessarily vested in courts
to manage their own affairs so as to achieve the orderly and expeditious disposition of cases.’”
Id. (quoting Chambers v. NASCO, Inc., 501 U.S. 32, 43 (1991)). See also In re Unioil, 942 F.2d
678, 682 (10th Cir. 1991) (bankruptcy courts unquestionably have power to enforce their own
orders). These inherent powers, including the “power to punish for contempt,” “reach[] both
conduct before the court and that beyond the court's confines.” Chambers, 501 U.S. at 44. The
Bankruptcy Court had inherent power to enter a contempt order.
Separate from its inherent power to punish for contempt, the Bankruptcy Court also has
the power to “issue any order, process, or judgment that is necessary or appropriate to carry out
the provisions of” the Bankruptcy Code. 11 U.S.C. § 105(a). This power includes “the authority
to enjoin litigants from pursuing actions in other courts that threaten the integrity of the Debtor's
estate.” In re Emergency Room Mobile Services, LLC, 529 B.R. 676, 691 (N.D. Tex. 2015)
(citing In re Apollo Molded Products, Inc., 83 B.R. 189, 191 (Bankr. D. Mass. 1988) (collecting
cases)). Preserving the funds that could be used to satisfy a judgment rendered against the Coles

22

in the adversary proceeding, by ordering that the California case be dismissed, is consistent with
the provisions of the Bankruptcy Code and helps preserve the estate.
Cole adds that he was surprised by the inclusion of the “with prejudice” language in the
Bankruptcy Court’s written order, i.e., that the Coles must dismiss their California lawsuit “with
prejudice,” because the issue of prejudice was never discussed during the oral argument on the
contempt motion. However, at the end of the oral argument, the Bankruptcy Court ordered
Escrow of the West’s attorney to draft a written order for the Bankruptcy Court’s entry, and that
Mobley, the Coles’ California counsel, should be allowed to look at it before it was provided to
the Bankruptcy Court. Bankr. Doc. 283, p. 46 of 48. There were no objections to this process
and the Coles in fact proceeded to dismiss the California lawsuit with prejudice. Finally, Cole
did not complain about the “with prejudice” language after receiving the Bankruptcy Court’s
order. The “with prejudice” issue is therefore moot.
E.

Issue 7: Whether Escrow of the West had standing to seek relief by way of a
motion for a finding of substantial compliance in the adversary proceeding.

Cole argues that Escrow of the West was essentially seeking declaratory relief by way of
its motion for substantial compliance, so it should have been required to file its own adversary
proceeding under Fed. R. Bankr. P. 7001(9). He argues that the rules associated with adversary
proceedings, such as the requirement of a pleading including indispensable parties, were not
followed. This argument was not raised until oral argument on Escrow of the West’s motion.
The Bankruptcy Court held it was waived, and that the Bankruptcy Rules probably did not
require a new adversary proceeding in any event. Doc. 265, pp. 45-46. The issue lacks merit.
Rule 7001 lists types of proceedings that are considered adversary proceedings, such as
proceedings to recover money or property, or obtain an injunction or other equitable relief, see
subsections (1)-(8), as well as “a proceeding to determine a claim for declaratory judgment
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relating to any of” the adversary proceedings listed, subsection (9). Cole does not cite any
authority supporting his argument that Escrow of the West’s motion for determination that it had
complied with the Bankruptcy Court’s orders constitutes a declaratory judgment for purposes of
Rule 7001.
Even if it was, Rule 7001 is not jurisdictional. Parties may waive their right to an
adversary proceeding with respect to a request for declaratory judgment that otherwise fell under
Rule 7001. Cogliano v. Anderson (In re Cogliano), 355 B.R. 792, 806 (9th Cir. BAP 2006). The
rule simply “requires an adversary proceeding, absent waiver or harmless error.” See also In re
Porrett, 547 B.R. 362, 365 (Bankr. D. Idaho 2016), aff'd sub nom. In re: Porrett, 2016 WL
4582043 (D. Idaho Sept. 1, 2016) (same). As the Bankruptcy Court noted here, this issue was
never raised until oral argument, and it was therefore waived. In any event, Cole identifies no
harmful error, let alone any error, that would have been avoided had Escrow of the West filed an
adversary proceeding instead of its motion.
Issue 7 therefore lacks merit.
F.

Issue 9: The Bankruptcy Court’s contempt finding.

Cole challenges the Bankruptcy Court’s finding that he was in contempt for filing the
California lawsuit.
A finding of contempt requires a showing of a specific and definite order, of which the
party was aware, and that the party disobeyed the order. Koehler v. Grant, 213 B.R. 567, 570
(B.A.P. 8th Cir. 1997) (citations omitted). Here, the Bankruptcy Court concluded all three
requirements were met:
[A]fter I issue an order on December the 20th which says that if
defendants claim that the funds should be used to pay their capital
gain tax liability, they must submit a formal request to the Court
for consideration asserting all the factual and legal bases for that
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claim to which the Trustee will have the opportunity to respond. 14
After that date, I find that by filing the action in California on
February 6, 2014, requesting in Count One precisely the
determination this Court said could only be made here, the Coles
and their counsel were in contempt of this Court’s order, an order
of which they were aware, an order which clearly required them
to ask for this relief only in this Court and which they disobeyed
by asking for that relief from the California court.
Bankr. Doc. 265, pp. 43-44.
Cole argues that the verbiage the Bankruptcy Court used at the time of entry of the TRO
and the preliminary injunction order later changed.

As noted, the December 2013 order

expressly stated what the Coles must do, but they proceeded to file the California lawsuit two
months later. An order that a party must follow a particular course of action necessarily
precludes all other courses of action; the Bankruptcy Court did not need to detail every
course of action Cole was precluded from taking in order for the December 2013 order to be
clear. Whether the TRO and preliminary injunction verbiage changed in any substantive way,
Cole knowingly violated the specific and definite language of the December 2013 order.
Having performed a searching review, Indep. Fed'n of Flight Attendants, 134 F.3d at 920,
this Court discerns no abuse of discretion in the Bankruptcy Court’s entry of the contempt order.
Indeed, the Bankruptcy Court was measured under the circumstances.
Cole concludes by stating he was denied due process “and the Bankruptcy Court failed to

14

Specifically, the Bankruptcy Court stated in its December 20, 2013 Order:
[I]f the Defendants claim that the Funds should be used to pay
their capital gain tax liability, they must submit a formal request to
the Court for consideration, asserting all the factual and legal
bases for that claim, to which the Trustee will have the opportunity
to respond. The Court will then decide the matter, holding a
hearing, if necessary….

Bankr. Doc. 239, p. 4 (emphasis added).
25

resolve the evidence in [his] favor.” Doc. 14, p. 22 of 23. Cole had notice and the opportunity to
be heard, which is all that due process requires. Due process does not require that he succeed on
his argument.
Issue 9 therefore lacks merit.
G.

Issue 4: Suggestion regarding a stay of appeal.

Cole suggests a stay of this appeal may be appropriate, pending further proceedings in the
Bankruptcy Court. But the only issue he identifies as subject to further proceedings relates to the
Coles’ request for an order directing the payment of his taxes from the sale proceeds. The
Bankruptcy Court ordered the Coles to file a motion if they wanted the taxes paid from the sale
proceeds, and they appealed that order to this Court.

Cole has not identified any pending

proceedings that would merit a stay.
III.

Conclusion
Appellant Bruce Cole’s motion for leave to adopt Appellant Nanette Cole’s brief,

Doc. 15, is granted. The Bankruptcy Court’s orders are affirmed.

s/ Nanette K. Laughrey
NANETTE K. LAUGHREY
United States District Judge
Dated: January 3, 2017
Jefferson City, Missouri

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