PRN Real Estate & Invs., Ltd. v. Cole

85 F.4th 1324

PRN REAL ESTATE & INVESTMENTS, LTD., Plaintiff-Appellant, v. William W. COLE, Jr., Defendant-Appellee.

No. 22-11118

United States Court of Appeals, Eleventh Circuit

Filed: November 2, 2023

Appeal from the United States District Court for the Middle District of Florida D.C. Docket No. 6:21-cv-711-WWB.

Peter H. Levitt, Jack C. McElroy, Shutts & Bowen, LLP, Orlando, FL, Jeffrey S. Elkins, Shutts & Bowen, LLP, Miami, FL, Daniel Nordby, Shutts & Bowen, LLP, Tallahassee, FL, James Timko, Dean Mead Egerton Bloodworth Capouano & Bozarth, PA, Orlando, FL, for Plaintiff-Appellant.

Christopher Thompson, Howard S. Marks, Burr & Forman, LLP, Orlando, FL, Kenneth D. Herron, Jr., Herron Hill Law Group, PLLC, Orlando, FL, for Defendant-Appellee.

Before Jill Pryor and Grant, Circuit Judges, and Maze,^* District Judge.

Maze, District Judge.

William W. ("Bill") Cole, Jr., petitioned for Chapter 7 bankruptcy and listed PRN Real Estate & Investments, Ltd. ("PRN") as his primary creditor. PRN sought to exempt debts that Cole owes PRN from being discharged. The bankruptcy court granted judgment for Cole on all of PRN's claims and fully discharged Cole's debt. The district court affirmed.

For the reasons explained below, we agree with each of the bankruptcy court's rulings except one: we find that PRN pleaded a viable discharge exception in Count 3. We therefore AFFIRM IN PART and REVERSE IN PART the bankruptcy court's rulings and REMAND for further proceedings.

I. BACKGROUND

Bill Cole and Nancy Rossman partnered to develop residential real estate for more than a decade. But their relationship has since devolved into what the bankruptcy court described as "open warfare." In short, Rossman claims that Cole sought bankruptcy to avoid paying the $15-plus million debt he owed Rossman's company, PRN. She also claims that Cole committed multiple acts of fraud to place his assets out of PRN's reach. The resulting fight has spilled across multiple state and federal courts, returning now to us for a second time.

A. Cole's Debt to PRN

Bill Cole has worn many hats: accountant, CFO, and real estate developer. As a developer, Cole would identify lucrative projects, then find investors and builders. Cole managed the projects on both ends, funding and construction. Some projects he managed through entities that he created for the project; others he managed with his partner, Allan Goldberg, through their joint business, C&G Real Estate Group, LLC ("C&G").

Nancy Rossman and her sisters owned PRN. PRN pumped millions of dollars into C&G projects starting in 2000. For the next eight years, Rossman's relationship with Cole was amicable and financially successful. Then the recession hit.

In 2008, Cole's projects were struggling. So PRN agreed to lend extra capital to Cole. In return, Cole agreed to personally guarantee the loans. But Cole could not repay the loans when they came due in November 2011.

So Cole and Rossman amended their 2008 agreement in 2012. Among the amended terms, Cole agreed to cut his partner Allan Goldberg out of the projects. Cole agreed to continue old projects that included PRN and to allow PRN to invest in Cole's new projects. And Cole agreed that he would pay a percentage of his project income to PRN and provide detailed financial reports to PRN to ensure Cole was upholding his end of the bargain.

Cole eventually breached his duties under the 2012 Agreement. Rossman and PRN filed their first lawsuit against Cole in Florida state court in July 2014. One year later, Cole filed for Chapter 7 bankruptcy. That petition is now before this Court. But before we can discuss Cole's petition, we must detail some of Cole's actions leading up to its filing.

B. Alleged Fraud

PRN claims that Cole committed several fraudulent acts to shield his money from PRN before and after Cole filed his Chapter 7 petition. Three are relevant here.

1. The COLP Transfers

In 2002, Bill Cole and his wife Terre formed Cole of Orlando Limited Partnership ("COLP"), a Nevada entity, to hold their investments. Each spouse owned a 49.5% interest in COLP through his or her respective revocable trusts. The remaining 1% was held by W&T Cole, LLP, another Nevada entity that the Coles owned as tenants by the entireties.

Over the years, COLP held stocks, bonds, and brokerage accounts. Relevant here, COLP also incurred debts related to projects involving Cole and PRN.

In 2003, SunTrust Bank loaned $7.5 million to Douglasville Development, LLC and Sweetwater Investment Properties, LLC. Thirteen individuals and entities jointly and severally guaranteed the loan, including Bill Cole, Terre Cole, Rossman, Goldberg, PRN, and COLP.

In August 2004, SunTrust Bank loaned $1.21 million to RANC Development, Inc. Ten individuals and entities jointly and severally guaranteed the loan, including Bill Cole, Terre Cole, Rossman, Goldberg, PRN, and COLP.

Both Douglasville and RANC defaulted on their loans, making the co-guarantors jointly and severally liable to SunTrust. In September 2011, PRN agreed to pay SunTrust $5 million to settle these and other debts. None of the co-guarantors paid PRN contribution.

Two months later (November 2011), Cole's debt to PRN under their 2008 agreement matured. PRN notified Cole of his default on December 15, 2011. At the time, Cole owed PRN more than $12 million.

Over the next four weeks, Cole transferred about $4 million from COLP's coffers into a Florida-based account held by Bill and Terre Cole as tenants by the entireties, thereby shielding the money from Cole's creditors under Florida law. The COLP transfers are relevant in two proceedings besides this one.

First, PRN sued its co-guarantors under the Douglasville and RANC notes for contribution in Florida state court. See PRN Real Est. & Invs., Ltd. v. Cole, Fla. Orange County Ct., Case No. 2014-CA-011835-O. PRN named COLP and Bill Cole (among others) as defendants. PRN sought the following contribution from COLP: $213,113.71 as co-guarantor of the Douglasville Note and $187,121.46 as co-guarantor of the RANC Note.

Second, the Bankruptcy Trustee sought to avoid the COLP transfer as a fraudulent conversion of non-exempt assets into exempt assets and to retrieve Cole's personal interest for the estate. See 11 U.S.C. § 544(b)(1) (allowing the Trustee to avoid transfers under applicable state law); 11 U.S.C. § 550(a) (allowing the Trustee to recover fraudulent transfers for the estate). The bankruptcy court granted summary judgment for the Trustee by finding that Cole controlled the transfers, and that Cole transferred the money "actually intending to hinder, delay, and defraud his creditors, primarily PRN."

The bankruptcy court did not quantify Cole's personal interest in the COLP transfers, leaving that issue for trial. But Cole and the Trustee settled the claim before trial. Under the settlement agreement, Cole paid $350,000 to the estate and agreed that his settlement with the Trustee did not affect PRN's claims in this case and the previously mentioned state case.

2. Coledev

In October 2012, Cole formed Coledev LLC to serve as his primary operating business. Coledev was a closely held S corporation. Bill and Terre Cole owned 99% of Coledev as tenants by the entireties, with their son owning the remaining 1%.

Shortly after forming Coledev, Bill and Terre Cole transferred about $1.18 million to Coledev to fund operations. Money flowed freely between the Coles and Coledev for the next three years. Then, shortly after Bill Cole filed his bankruptcy petition in July 2015, Coledev transferred $750,000 to a construction business primarily owned (95%) by Terre Cole, and about $250,000 to the Coles' joint bank account.

Cole's Trustee argued that Coledev's postpetition transfer was a repayment of a shareholder loan that Cole must turn over to the estate under 11 U.S.C. § 542. Cole countered that the Coles' initial $1.18 million transfer to Coledev was an equitable contribution and thus Coledev was repaying a capital contribution; a payment that needn't be turned over to the estate.

The bankruptcy court sided with Cole, finding that the initial 2012 transfer of money to Coledev was a capital contribution (not a loan), so the 2015 transfer of money out of Coledev was an equity repayment. The court thus issued judgment that the $1 million transfer need not be turned over to the estate.

The Trustee appealed but later waived the appeal as part of the previously mentioned settlement that saw Cole pay $350,000 to the estate.

3. Homestead Fraud

When Cole filed his petition in July 2015, Bill and Terre Cole lived in a 10,000 square foot lakefront home. Cole held title to the property under a self-settled revocable trust. Cole's original title listed the property as a single 2.95-acre parcel of land, with most of the land (2.185 acres) under water.

The Florida Constitution exempts a debtor's homestead from forced sale after bankruptcy but limits the exemption to 0.5 acres if the homestead is within a municipality. See Fla. Const. art. X, § 4. Because Cole's 2.95-acre property was in a municipality, it was too big for the exemption. So Cole split the property.

Two days after a failed mediation with Rossman, Cole asked a surveyor to divide his property into two parcels. The first contained the house, boathouse, and dock. The second parcel contained everything else, including all of the submerged land. Just before filing his bankruptcy petition, Cole executed and recorded special warranty deeds that conveyed the newly split parcels from the trust to the trust.

Cole filed his petition, and soon after, his schedules. In them, Cole listed the two parcels separately. Cole gave the street address for the smaller, dry-land parcel and valued it at $2.5 million. Cole generically labeled the larger, mostly submerged parcel and valued it at $1,000. Cole did not state the size of either parcel in his schedules, nor did he list them as contiguous.

Both PRN and the Trustee objected, claiming that Cole fraudulently...