Strauss v. Cole (In re Mamtek US, Inc.)
| Decision Date | 29 August 2013 |
| Docket Number | Case No. 11-22092,Adv. No. 12-2009 |
| Parties | In Re: MAMTEK US, INC. Debtor. BRUCE E. STRAUSS, TRUSTEE, Plaintiff, v. BRUCE COLE, NANETTE COLE, ET. Al., Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Before the Court in this adversary proceeding is the Plaintiff's motion for partial summary judgment. In it he requests judgment on two counts of the nine count amended complaint which seek avoidance and recovery of transfers made to Defendants Bruce and/or Nanette Cole alleged to be either fraudulent or preferential. The Court has jurisdiction over the claims asserted pursuant to 28 U.S.C. §§ 1334(b) and 157(a) and (b)(1). This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F) and (H) which this Court may hear and determine and in which it may issue a final order.1 For the reasons that follow, the Court grants the motion.
On December 15, 2011, several creditors filed an involuntary petition for relief under Chapter 7 of the Bankruptcy Code against Debtor Mamtek US, Inc. ("Debtor" or "Mamtek"). This Court issued an Order appointing Plaintiff Bruce E. Strauss as an interim trustee on December 30, 2011. Subsequently, on January 9, 2012, the Court entered its Order for relief.
On May 3, 2012, Plaintiff filed this adversary proceeding against Defendants Bruce and Nanette Cole. The First Amended Complaint was filed on May 24, 2013. It asserts nine claims for relief against the Defendants, including requests to avoid and recover fraudulent and preferential transfers and for damages for breach of fiduciary duty and unjust enrichment and arequest for a temporary restraining order. The pending motion for summary judgment relates solely to Count I of the Complaint, containing a claim against both Defendants for recovery of two allegedly fraudulent transfers in the aggregate amount of $904,167.00 and Count III which requests relief solely against Defendant Bruce Cole for recovery of an allegedly preferential transfer in the amount of $360,000.00.
After numerous extensions, Defendants finally filed a response to the motion for summary judgment. Their response contains no legal argument and cites no authorities. It is, for the most part, an ineffective attempt to controvert some of the allegedly undisputed assertions of fact contained in the motion for summary judgment. Almost without exception, however, with respect to each of the separately numbered assertions of undisputed fact contained in the brief in support of the Plaintiff's motion for summary judgment, one of the following is true: no response is made;3 Defendants allege the fact to be controverted, but offer no explanation or supporting information for the alleged controversy; Defendants allege the fact to be controverted, but offer no evidence in support of the controversy; Defendants allege the fact to be controverted, but the evidence cited does not support the position taken by Defendants or create any such controversy; or Defendants allege the fact to be controverted, but the evidence cited in support of the controversy is not admissible and may not be considered in opposition to Plaintiff's motion for summary judgment. Each of the key facts central to Plaintiff's claims and Defendants' defenses with regard to Counts I and III will be discussed separately below. Many of the facts cited are simply not relevant to either claim.
Bankruptcy Rule 7056, applying Federal Rule of Civil Procedure 56(c), provides that summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." See Celotex v. Catrett, 477 U.S. 317, 322 (1986). The moving party bears the initial burden of proof. Adickes v. S.H. Kress & Co., 398 U.S. 144, 161 (1970). Once the moving party has met this burden, the non-moving party must set forth specific facts sufficient to raise a genuine issue for trial, and may not rest on its pleadings or mere assertions of disputed facts to defeat the motion. Matsushita Elec. Indus. Co., Ltd. V. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). When reviewing the record for summary judgment, the court is required to draw all reasonable inferences in favor of the non-movant. Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir. 1991).
Debtor was formed on May 17, 2010, for the purpose of constructing and operating a sucralose manufacturing facility in Moberly, Missouri. It is an affiliate of a Hong Kong corporation, Mamtek International Ltd., formed in 2006 by Defendant Bruce Cole and several other investors. At some point in 2010, after unsuccessful efforts to construct and operate a plant in China, Mr. Cole began approaching state and local governments in the United States seeking financing for the construction of a plant. The city of Moberly ultimately made an offer to finance the construction of the facility through the issuance of bonds in the approximate amount of $39 million. Pursuant to the terms of that transaction, Debtor was obligated to construct themanufacturing facility and would own it after repayment of the bonds. Defendant Bruce Cole was President and Chief Operating Officer of the Debtor. The Debtor obtained a license from its affiliate Mamtek International for the technology necessary to manufacture the product for a period of 15 years. Defendant Bruce Cole had originally estimated the construction costs of the facility to be $33 million. It soon became apparent, however, that the design which formed the basis of that estimate was not usable in the United States for the construction and operation of a facility of the scale envisioned. Ultimately, it was determined that the actual cost of production would be approximately $70 million.
The transfers in question in Count I, one in the amount of $204,167 and the other in the amount of $700,000 were made on July 30, 2010, to a bank account in the name of Nanette Cole in California.4 As a result of their marital relationship and California law, while the account was in her name, the property became community property in which both Defendants had an interest.5 Defendant Bruce Cole has offered conflicting explanations as to the purpose of the larger transfer.6
The funds came from the first request made by the Debtor for a draw on the bond financing. At the time the transfers were made, Bruce Cole had been without income for a period of severalmonths,7 as had his wife, Nanette, and they were in default on the mortgage on their Beverly Hills home which was scheduled for a foreclosure sale in August.8 In order to obtain funds, the Debtor was required to submit requests to the city of Moberly. Each request had to be accompanied by a form signed by a representative of the Debtor asserting that the funds were necessary for construction of the manufacturing facility along with a spreadsheet identifying the recipients and the proposed disposition of the funds and copies of the invoices supporting each item contained on the spreadsheet. The city reviewed the requests and determined whether the amounts were properly payable and forwarded the requests to United Missouri Bank, N.A., which held the bond proceeds as trustee. The bank then disbursed the funds specified on the draw requests. The first draw request contained an invoice from Ramwell Industrial, Inc. in the amount of $4,062,500 for services allegedly rendered to the Debtor. Defendant Bruce Cole was aware of the request having participated in discussions with regard to the process of its submission and receiving mail communications with regard to it. As it turns out, Ramwell never existed. It was always a to-be-formed company playing an unspecified role in the construction of the manufacturing facility. Ramwell never provided any goods or services to Mamtek and was merely a pass-through entity for submission of Mamtek overhead.
In Count III, Plaintiff seeks recovery of a transfer in the amount of $360,000 made on March 25, 2011, sent to Bridgeway Capital for the benefit of Defendant Bruce Cole. Defendant Bruce Cole contends that the payment was made for services he rendered to Mamtek in connectionwith seeking or arranging the financing for the construction and operation of the sucralose manufacturing facility.
Mamtek never finished construction of the facility and thus never operated it or produced any product. It ran out of funds and ceased business in September 2011, in possession of very few assets and leaving substantial debt.9
Plaintiff seeks to recover the transfers made on July 30, 2010, in the amount of $904,367.00 under § 548 of the Bankruptcy Code as both actually and constructively fraudulent transfers. Under § 548 of the Bankruptcy Code, a trustee may avoid a transfer of an interest of the debtor if it was made within two years of the date of the filing of the petition and either made with actual intent to hinder, delay or defraud creditors or was made in exchange for less than reasonably equivalent value and at a time when debtor was insolvent, had unreasonably small capital, or intended to incur debts beyond its ability to pay. In this case, Plaintiff contends the transfers to Bruce and Nanette Cole are avoidable for both reasons.
The relevant intent is that of the transferor, in other words, the debtor. § 548(a)(1)(A). Since the debtor is a corporation which acts only through officers, the court may examine the intent of those involved in authorizing a transfer. Plaintiff asserts that the intent of Defendant Bruce Cole, as the Chief Executive Officer of the corporation, would be imputed to the corporation for this purpose and cites authority for that proposition. In re Personal and Business...
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