Left: U.S. Bankruptcy Judge Sean Lane (Southern District of New York court photo). Right: Former Rudy Giuliani tosses back a cap as he signs autographs at a Trump campaign event in January (AP Photo/Matt Rourke).
Eight days after Rudy Giuliani’s Chapter 11 bankruptcy judge angrily demanded answers about the former NYC mayor’s cash assets so he can officially throw out the case, the seemingly perplexed jurist said Thursday that he still doesn’t have the answers he needs and might have no choice but to renege on a vow not to “unring” the dismissal “bell.”
U.S. Bankruptcy Judge Sean Lane, having read the irritated back-and-forth letters between Giuliani’s lawyers and an attorney for defamed Georgia election worker Ruby Freeman over recent reporting about “first-class airfare” to the Republican National Convention and a significant draining of the debtor’s checking account, said in an order that Giuliani has “simply refused to pay” the substantial professional fees of Global Data Risk, a forensic financial investigator hired by the Official Committee of Unsecured Creditors, and has “failed to provide transparency into his financial affairs,” such that “it is unclear what funds he has available to pay these administrative costs.”
The committee’s lawyers at Akin Gump Strauss Hauer & Feld LLP, which represent Dominion Voting Systems, Noelle Dunphy, and Freeman’s daughter Shaye Moss pro bono, has estimated that Global Data Risk is owed $350,000 in professional fees racked up over the course of the bankruptcy to probe Giuliani’s finances. Giuliani voluntarily filed for bankruptcy after Freeman and Moss were awarded a $148 million defamation judgment, a case they won by default back in December as a sanction for Giuliani’s discovery non-compliance.
While creditors proposed that the bill be paid by draining checking and savings accounts that are part of Giuliani’s estate, putting that money into escrow, and then having the remainder paid from the sale of Giuliani’s multi-million dollar NYC apartment while overseen by a “limited purpose trustee,” Giuliani’s lawyers Gary Fischoff and Heath Berger called that an “onerous” and “punitive” path, instead suggesting that Global Data Risk place a lien on the apartment and be paid at closing.
In court on July 17, however, Lane was not happy that not even Giuliani’s own lawyers could say how much cash was in the debtor’s checking and savings accounts, so the hearing didn’t actually reach a resolution, which the judge called a “frankly unbelievable and uniquely unhelpful” development.
The judge noted that the issue matters because the administrative fees need to be paid if the case is actually going to be dismissed. Up to now, Lane has only determined that the case should be dismissed for cause “based on the Debtor’s repeated failure to honor his obligations of financial disclosure and transparency under the Bankruptcy Code[.]”
This stalemate on the fees has, thus, left the case in something of a zombified state.
In court, the judge described himself as a “patient man” who had grown tired of hearing the “same song” all over again, and he raised the possibility that Giuliani will have to sit in the witness box to provide transparency about his finances.
“There are a lot of things that can happen that your client does not want to happen,” Lane threatened.
On Thursday, the judge’s order said that “with no resolution on the horizon here, the Court must take an active role,” part of which may involve putting Giuliani “under oath” at an evidentiary hearing. But unlike his prior remarks in court, the judge now views dismissal of the case as an “if” not a when.
The judge lamented that “[w]hat little we know about the Debtor’s financial situation makes his stance here [on the fees] more troubling.”
“Even assuming that the Debtor does not have the funds on hand to immediately pay these bankruptcy expenses, he certainly has considerable assets upon which he can draw to pay such expenses,” namely his NYC and Florida properties. But a footnote explains there are key problems afoot:
If the case is dismissed, there are no guarantees as to if or when a sale of the New York apartment would take place. Even if the property is sold, it is impossible to know where the lien suggested by the Debtor would stand when compared with the rights of other creditors at the time of such sale. While the Committee and the Freeman Plaintiffs seek to address that problem by appointing a liquidating trustee to supervise a sale as part of this bankruptcy case, that step is opposed by the Debtor and by the Office of the United States Trustee, which has raised questions about the Court’s authority to supervise such activities after dismissal of the case.
Lane said he has some ideas of his own about how the case could unfold from here, but he wants to hear from Giuliani, Ruby Freeman, and the Official Committee of Unsecured Creditors, by noon on July 31 about “their views on the most appropriate path forward.”
The judge said one possibility is setting an evidentiary hearing that would “inevitably include disclosure of documents and might include testimony under oath” from Giuliani, but he acknowledged that might lead to the same “unsuccessful efforts at financial transparency that have plagued the case to date.”
As an alternative, Lane floated that “the Court may be forced to reevaluate” whether dismissal really is “the most appropriate course of action in this case” and if, instead, appointing the Chapter 11 trustee creditors demanded and Giuliani resisted is needed to “supervise the administration of the Debtor’s financial affairs and to promptly liquidate assets such as the New York apartment as appropriate.”
Read the order here.
Have a tip we should know? [email protected]
