Former New York Mayor Rudy Giuliani talks to reporters as he leaves the federal courthouse in Washington, Monday, Dec. 11, 2023. (AP Photo/Jose Luis Magana); U.S. Bankruptcy Judge Sean Lane (Southern District of New York court photo)
Roughly a half an hour before a hearing in Rudy Giuliani’s bankruptcy on Wednesday, the debtor suddenly consented to the dismissal of the case, resulting in a bit of chaos and at times raised tensions on a Zoom call. At one point, Giuliani vehemently objected out of turn to commentary from a lawyer for defamed 2020 election workers Ruby Freeman and Shaye Moss, shouting that the attorney herself made “highly defamatory” remarks.
Law&Crime was listening in as lawyers for Giuliani, lawyers for Freeman and Moss, and lawyers for the Official Committee of Unsecured Creditors each expressed their views to U.S. Bankruptcy Judge Sean Lane on how the former NYC mayor’s Chapter 11 case should go from here.
The hearing was originally and mainly supposed to focus on Giuliani’s recent attempt to convert the case from a Chapter 11 bankruptcy reorganization into a Chapter 7 liquidation of his assets, and on unsecured creditors’ insistence that a Chapter 11 trustee be appointed to take control of Giuliani’s assets, but before the hearing even began, the debtor filed a document consenting to the dismissal of his bankruptcy case, were the judge to allow it.
The Freeman plaintiffs, who back in December won a $148 million defamation judgment against Giuliani by default in Washington, D.C. — as a sanction for discovery non-compliance — were clear on Monday that they supported the outright dismissal of the case, and they pushed for dismissal in court again on Wednesday. But attorneys for the Official Committee of Unsecured Creditors, representing Noelle Dunphy, a former Giuliani employee who has filed a sexual assault and a hostile work environment lawsuit, and Dominion Voting Systems, remained adamant that the best course of action was to appoint a Chapter 11 trustee, or else their clients might never be compensated outside of bankruptcy.
Near the start of the Wednesday proceeding, Giuliani attorney Gary Fischoff revealed that “lengthy discussions” with the Freeman plaintiffs continued into the morning, and Giuliani “seized on” that opportunity to support dismissal or, in the alternative, a conversion of the case to Chapter 7, which would result in the appointment of a trustee to liquidate his assets — namely, his multi-million dollar properties in New York and Florida, an IRA, and some jewelry “perhaps.”
“We’re faced with three options today,” Fischoff began: a Chapter 7 conversion, the appointment of a Chapter 11 trustee, or case dismissal.
The attorney said that the proposed order in favor of tossing the case included a “12-month bar” from the effective date of dismissal that would prevent Giuliani from initiating another bankruptcy action.
Giuliani has long argued that he should be allowed to appeal the “grossly excessive” Freeman judgment while in bankruptcy, for the benefit of his creditors. But the judge has shut that down at every turn.
Fischoff explained that Giuliani’s “intention has always been” to get appellate review of the defamation judgment, but because he has not been able to do so, he now views dismissal of the bankruptcy as the best path forward. The lawyer maintained that dismissal is in the best interests of creditors, though there are different categories of creditors.
The Freeman plaintiffs already have a judgment, but Dunphy, for instance, still has a pending lawsuit. Dunphy and Dominion Voting Systems still have “state law remedies they can exercise” in the courts outside of bankruptcy, so they “are not really prejudiced” by dismissal, Fischoff argued.
Fischoff asserted that if a Chapter 7 trustee was appointed, the resulting “administrative expenses” would “consume if not 100%, a substantial portion” of Giuliani’s assets, to the detriment of creditors. He said that creditors simply have a better shot of recovering money outside of bankruptcy than within it, and he suggested that his client, whom he described as an “80-year-old disbarred attorney,” could ultimately decide not to work to pay what is owed.
Rachel Strickland, an attorney for the Freeman plaintiffs, began her remarks by pointing out that Giuliani filed under Chapter 11 right after the defamation judgment and that, “Before Giuliani could even say hello, he was trying to appeal the Freeman judgment” while in bankruptcy.
Strickland said that Giuliani has long indicated that if he was unsuccessful in efforts to appeal, a move to dismiss would follow.
“Today, that came true,” she said, calling the bankruptcy filing a “bad faith litigation tactic” from the start that was “undoubtedly” brought by “non-compliant debtor” Giuliani to frustrate her clients.
Then Strickland started making remarks that would soon prompt Giuliani to shout on the Zoom call. She referred to the sexual assault allegations in Dunphy’s lawsuit, which are graphic.
“The pleadings literally cite his Viagra usage,” Strickland said. “[This is] not what your honor wants to hear.”
“Noelle Dunphy’s case is painful to read,” the attorney added. Giuliani has denied the allegations.
It was Strickland’s position that “victims of this man” have a better chance to have their claims heard in state court, rather than going down a Chapter 7 rabbit hole.
The attorney instead suggested that if the bankruptcy case were converted, Giuliani’s lack of transparency in the case would remain unchanged and lead to possible “bankruptcy crimes” by, in Strickland’s words, “knowingly and fraudulently” concealing financial details from a trustee.
Earlier in the case, attorneys for the committee alleged that Giuliani possibly engaged in “bankruptcy crimes” by operating through the “alter ego LLC” Giuliani Communications, claiming he may be “funneling funds that belong to his creditors to his business and using his business as a personal piggy bank, which is fraudulent.” Giuliani and his lawyers categorically denied that as a “stretch of facts and not supported by the common sense observation of the facts,” adding that there is “nothing new or unusual about the manner in which the Debtor operates.”
“Unless your honor wants to entertain putting America’s Mayor in prison,” Strickland said Wednesday, dismissal is the appropriate case outcome.
That’s when Giuliani introduced himself out of turn.
“Your honor, this is Rudolph Giuliani,” the debtor chimed in.
“I have an order of presentation,” Lane reminded Giuliani.
“Will you get them on the phone?! It’s highly defamatory, your honor!” Giuliani yelled. “I’d like a break.”
The judge responded by threatening to mute Giuliani, chiding the debtor: “Now is not the time. Another party is presenting.”
“I really do not want to be forced to have to cut your line off,” the judge said.
Giuliani did not speak again during the hearing.
Later on in the proceeding, Fischoff made a statement on the heated exchange for the record, specifically that Strickland’s comments in court about “bankruptcy crimes” are not evidence of anything whatsoever.
The judge agreed with Fischoff, but he interpreted Strickland’s words as gaming out how the case might play out in absence of dismissal given Giuliani’s handling of the case to date.
Philip Dublin, arguing on behalf of the creditors committee, started his presentation by saying everyone can agree on one thing: “Something important is going to happen today.”
Dublin insisted that appointing a Chapter 11 trustee is the “most equitable outcome for creditors as a whole.” While he expressed “respect and sympathy” for the Freeman plaintiffs, Dublin was concerned that his clients, whom the firm Akin Gump Strauss Hauer & Feld LLP is representing pro bono, will not see any compensation if the case is dismissed.
Why? Dublin said the Freeman plaintiffs have a judgment and they are the ones would likely be paid first, and Giuliani’s estate is estimated in the neighborhood of $8 to $10 million (based largely on the anticipated values of his properties upon sale).
Dublin said that keeping the bankruptcy case alive would allow creditors without judgments against Giuliani to potentially reach settlements and “share in the value of the estate.”
When it was Strickland’s turn to speak again, she suggested that, outside of bankruptcy, money is “fair game for everyone” and Giuliani would keep working to support himself.
“Chapter anything,” Strickland said, is not going to do anything for any creditors. “It’s time for Rudy Giuliani to go back to the real world.”
“Outside of bankruptcy, he can do whatever he wants,” she added.
Perhaps reading the tea leaves already, Dublin said that if Lane did decide to dismiss the case, the judge would first have to make sure ahead of time that there would be “an appropriate reserve of funds” to pay the forensic financial investigator Global Data Risk.
After Strickland agreed that is an “important step,” Fischoff emphasized that Giuliani’s “cash assets are limited.”
Fischoff was, in his words, “aghast” at the $400,000 that Dublin estimated would go to the forensic investigator.
“The debtor doesn’t have $400,000 to put in escrow,” he said. “I’m a little aghast at the number.”
After Lane said the financials could be figured out “fairly quickly” and in due course after some clarity on “professional fees,” but for the purposes of the present day, it was clear to him that Chapter 7 conversion was not on the table.
“I don’t see conversion to Chapter 7 as an option here,” the judge said. “I don’t think it’s in the best interest of the creditors.”
When considering whether to appoint a Chapter 11 trustee, as the creditors committee sought, or dismissal, as the Freeman plaintiffs asked for and Giuliani consented to, Lane was straightforward on where he’s leaning.
“I’m leaning towards dismissal, frankly,” the judge said, noting that he is “concerned” a lack of transparency on Giuliani’s part would continue in bankruptcy.
He suggested that there could be a ruling by the end of the week, maybe Friday.
Noelle Dunphy’s attorney Justin Kelton told Law&Crime that their lawsuit against Giuliani will live on if the bankruptcy case is thrown out.
“Our client Noelle Dunphy remains as strong and steadfast as ever in her commitment to pursuing justice,” Kelton said. “If Mr. Giuliani’s bankruptcy is dismissed, she will continue pursuing her claims in court, and we look forward to the day when we can present this case to a jury.”
Law&Crime reached out to a Giuliani advisor for comment on today’s events.
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