Now Updating

Summarizing by Shane Ramsey


Case Type:
Case Status:
Affirmed in part and Reversed in part
22-11118 (11th Circuit, Nov 02,2023) Published
The Eleventh Circuit affirmed rulings that debtor's conduct did not amount to concealment of estate property or constitute false oaths necessary to bar discharge under section 727. The Eleventh Circuit adopted “to knowingly withhold information about property or to knowingly prevent its discovery” as the definition for concealment for purposes of section 727(a)." The Court affirmed that the creditor lacked standing to pursue fraudulent transfer claims settled by the trustee. However, creditor alleged viable 523(a)(2)(A) claim, which was not preempted by trustee's avoidance action.
Procedural context:
Creditor filed multi-count complaint seeking to avoid and recover fraudulent transfers and objecting to the discharge of a chapter 7 debtor under section 727 of the Bankruptcy Code and to the discharegability of its debt under section 523(a)(2)(A) of the Bankruptcy Code. The bankruptcy court entered summary judgment in favor of debtor on certain counts of the complaint and other counts were proceeded to trial. The bankruptcy court ultimately entered judgment in favor of the debtor on all counts, and the district court affirmed. The Eleventh Circuit affirmed on all counts except for the 523(a)(2)(A) claim (the “Husky Claim”) and reversed and remanded in part with respect to the Husky Claim. The Eleventh Circuit reversed the rulings of the bankruptcy court and the district court, concluding that the creditor properly stated a claim under section 523(a)(2)(A), by alleging that the debtor obtained property by actual fraud and, that under state law, the debtor took on the transferor’s debt when he fraudulently obtained such property. The creditor’s nondischaregability claim was not preempted by the chapter 7 trustee’s avoidance action or the settlement of that claim.
Bill Cole (“Cole” or the “Debtor”) and Nancy Rossman (“Rossman”) partnered in several real estate development projects. Over more than a decade, Rossman’s company, PRN Real Estate & Investments, Ltd. (“PRN”), lent in excess of $15 million to Cole’s business ventures, and Cole personally guarantied the obligations. In 2015, Cole ultimately filed a voluntary petition seeking relief under chapter 7 of the Bankruptcy Code. PRN filed a complaint seek to avoid alleged fraudulent transfers and objecting to the Debtor’s discharge and the dischargeability of its debt based on three categories of allegedly fraudulent conduct by the Debtor: (1) $4 million in transfers made by Cole of Orlando Limited Partnership (“COLP”) in 2012 to a tenancy by the entireties account held by the Coles, at a time when Cole owed PRN more than $12 million, (2) the capitalization of Coledev LLC, an entity owned 99% by the Debtor and his wife and 1% by their son, and the 2015 transfers of approximately $1.1 million to Coledev to a construction business owned by the Debtor’s wife and the Coles’ joint bank account, and (3) the subdivision of the Debtor’s homestead property to overcome the acreage limitations of Florida’s homestead exemption. The chapter 7 trustee attempted to avoid and recover the COLP transfers under sections 544 and 550 of the Bankruptcy Code. The claims were settled in exchange for a $350,000.00 settlement payment by Cole to the estate. The settlement did not affect PRN’s claims. With respect to the Coledev, the bankruptcy court concluded that the initial contribution to Coledev was a capital contribution, rather than a loan, and that the 2015 transfers were an equity repayment that was not subject to recovery by the estate. The chapter 7 trustee appealed, but waived the appeal as part of the settlement of the COLP claims. As of the petition date, Cole and his spouse lived in a 10,000 square foot lakefront home situated on a 2.95-acre parcel of land located in a municipality in Florida, which property was owned by a self-settled revocable trust. Cole subdivided the property, with the smaller first parcel including the house, boathouse, and dock, and the second parcel including submerged land, and deeds were recorded evidencing the splitting of the property. On his bankruptcy schedules, Cole disclosed both parcels. He listed the smaller parcel as having a value of $2.5 million and the larger parcel at $1,000.00, and claimed the smaller parcel as exempt homestead. Both the chapter 7 trustee and PRN objected to the Debtor’s claim of exemption. The bankruptcy court treated the property as indivisible and held that Cole was entitled to 16.95% of the forced sale value of the whole, which decision was appealed and previously affirmed by the district court and the Eleventh Circuit. Turning to PRN’s objections to discharge, the bankruptcy court ruled that the Debtor did not conceal property of the estate by splitting his homestead or classifying the assets received from Coledev as equity contributions, rather than shareholder loans. The information was disclosed in the Debtor’s schedules. The chapter 7 trustee was aware of the issues early in the case, and the Debtor cooperated with the trustee. With respect to the counts under section 727(a)(4), PRN alleged that the Debtor concealed the value of Coledev and failed to list COLP as an asset in his schedules, even though COLP was disclosed as a co-debtor on Schedule H and was addressed by the Debtor in his testimony at the 341 meeting of creditors. Posttrial, PRN also argued that Cole made false oaths regarding his homestead. The bankruptcy court rejected all of these arguments as well. With respect to the fraudulent transfer claims, the bankruptcy court found that PRN lacked standing. The bankruptcy court also rejected PRN’s Husky Claim, finding that PRN failed to state a claim under section 523(a)(2)(A), but that even if it had, the Trustee’s avoidance action with respect to the COLP transfers preempted PRN’s Husky Claim. On appeal, the district court affirmed. The district court additionally concluded that PRN had abandoned the fraudulent transfer claims because it failed to adequate brief the standing issue. The Eleventh Circuit affirmed with respect to the section 727 claims and the lower courts’ conclusions with respect to PRN’s lack of standing to bring the avoidance actions. However, with respect to the Husky Claim, the Eleventh Circuit found that PRN stated a viable claim under section 523(a)(2)(A), where PRN alleged that Cole obtained the COLP transfers to the tenancy by entireties accounts by actual fraud and that under state law, Cole took on COLP’s debt when he fraudulently obtained the COLP transfers. The Eleventh Circuit also rejected the conclusion that the trustee’s avoidance action preempted PRN’s non-dischargeability claim.
Jill Pryor and Grant, Circuit Judges and Maze, District Judge

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!

About us in numbers

3584 in the system

3468 Summarized

10 Being Processed